UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the fiscal year ended December 31, 2017
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO                     	
Commission File Number 001-38052
 
TOCAGEN INC.
(Exact name of registrant as specified in its Charter)

Delaware	26-1243872	
( State or other jurisdiction of
incorporation or organization)	(I.R.S. Employer
Identification No.)	
3030 Bunker Hill Street, Suite 230
San Diego, CA	92109	
(Address of principal executive offices)	(Zip Code)	
 	 	
Registrant’s telephone number, including area code: (858) 412-8400
 
 Securities registered pursuant to Section 12(b) of the Act:
  
 Title of each class	 	Name of each exchange on which registered	
Common Stock, par value $0.001 per share	 	The Nasdaq Global Select Market	
Securities registered pursuant to 12(g) of the Act: None
  
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  ☐ NO  ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES  ☐  NO  ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  ☒  NO  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  ☒  NO  ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer	 	☐	 	Accelerated filer	 	☐	
 	 	 	 	 	 	 	
Non-accelerated filer	 	☒   (Do not check if a smaller reporting company)	 	Smaller reporting company	 	☐	
 	 	 	 	 	 	 	
Emerging growth company	 	☒	 	 	 	 	
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  ☐  NO  ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $217 million based on the closing price of the registrant’s common stock on June 30, 2017 of $12.03 per share, as reported by the NASDAQ Global Select Market.
As of February 28, 2018, there were 19,911,616 shares of the registrant’s common stock outstanding.
 DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission, or SEC, subsequent to the date hereof pursuant to Regulation 14A in connection with the registrant’s 2018 Annual Meeting of Stockholders, are incorporated by reference into Part III of this Annual Report on Form 10-K. Such proxy statement will be filed with the SEC not later than 120 days after the conclusion of the registrant’s fiscal year ended December 31, 2017.

 

Table of Contents
 
 	 	Page	
PART I	 	 	
Item 1.	Business	2	
Item 1A.	Risk Factors	33	
Item 1B.	Unresolved Staff Comments	63	
Item 2.	Properties	63	
Item 3.	Legal Proceedings	64	
Item 4.	Mine Safety Disclosures	64

PART II	 	 	
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	65	
Item 6.	Selected Financial Data	67	
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	69	
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	78	
Item 8.	Financial Statements and Supplementary Data	78	
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	78	
Item 9A.	Controls and Procedures	78	
Item 9B.	Other Information	79	
 	 	 	
PART III	 	 	
Item 10.	Directors, Executive Officers and Corporate Governance	80	
Item 11.	Executive Compensation	80	
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	80	
Item 13.	Certain Relationships and Related Transactions, and Director Independence	80	
Item 14.	Principal Accounting Fees and Services	80	
 	 	 	
PART IV	 	 	
Item 15.	Exhibits, Financial Statement Schedules	81	
Item 16.	Form 10-K Summary	83	
 
SIGNATURES	 	84	

 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
 	•	the success, cost, timing and potential indications of our product development activities and clinical trials, including our ongoing clinical trials of Toca 511 & Toca FC;	
 	•	our ability to obtain and maintain regulatory approval of our product candidates, including Toca 511 & Toca FC, in any of the indications for which we plan to develop them, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate;	
 	•	our ability to obtain funding for our operations, including funding necessary to complete the clinical trials of any of our product candidates, including Toca 511 & Toca FC;	
 	•	our plans to research, develop and commercialize our product candidates, including Toca 511 & Toca FC;	
 	•	our ability to attract and retain collaborators with development, regulatory and commercialization expertise;	
 	•	the size of the markets for our product candidates, and our ability to serve those markets;	
 	•	our ability to successfully commercialize our product candidates, including Toca 511 & Toca FC;	
 	•	the rate and degree of market acceptance of our product candidates, including Toca 511 & Toca FC;	
 	•	our ability to develop and maintain sales and marketing capabilities, whether alone or with potential future collaborators;	
 	•	regulatory developments in the United States and foreign countries;	
 	•	the performance of our third-party suppliers and manufacturers;	
 	•	the success of competing therapies that are or become available;	
 	•	our ability to attract and retain key scientific or management personnel;	
 	•	our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act, or JOBS Act;	
 	•	the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; and	
 	•	our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and our ability to operate our business without infringing on the intellectual property rights of others.	
In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs, opinions and views with respect to future events and are based on estimates, assumptions and information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and are subject to risks and uncertainties. We discuss many of these risks in greater detail under the heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
You should carefully read this Annual Report on Form 10-K and the documents that we reference herein and have filed as exhibits to the Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Annual Report on Form 10-K by these cautionary statements.
Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.  
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PAR T I
 Item 1. Business.
Overview
We are a clinical-stage, cancer-selective gene therapy company focused on developing first-in-class, broadly-applicable product candidates designed to activate a patient’s immune system against their own cancer from within. Our cancer-selective gene therapy platform is built on retroviral replicating vectors, or RRVs, which are designed to selectively deliver therapeutic genes into the DNA of cancer cells. Our gene therapy approach is designed to fight cancer through immunotherapeutic mechanisms of action without the autoimmune toxicities commonly experienced with other immunotherapies. Our founding vision is “No One Should Die Of Cancer” because we believe the immune system can be safely activated to fight the patient’s cancer.
We are developing our lead product candidate, Toca 511 (vocimagene amiretrorepvec) & Toca FC (flucytosine), initially for the treatment of recurrent high grade glioma, or HGG, a brain cancer with limited treatment options, low survival rates and, therefore, a significant unmet medical need. We are conducting a randomized, controlled Phase 3 clinical trial of Toca 511 & Toca FC in patients with recurrent HGG, which is designed to serve as a registrational trial. In February 2017, the U.S. Food and Drug Administration, or FDA, granted Toca 511 & Toca FC Breakthrough Therapy Designation for the treatment of patients with recurrent HGG and in June 2017 the European Medicines Agency, or EMA, granted Toca 511 Priority Medicines, or PRIME, Designation for the treatment of patients with glioma. Breakthrough Therapy Designation indicates that preliminary clinical evidence demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy. PRIME Designation indicates that there is a potential to benefit patients with unmet medical needs based on early clinical data. We also have Fast Track Designation (which may lead to expedited regulatory review of new products that treat serious diseases or conditions and demonstrate the potential to address an unmet medical need) from the FDA for Toca 511 & Toca FC for the treatment of recurrent HGG and Orphan-Drug Designation (a designation for a product that treats a rare disease or condition and which, if the product receives the first FDA approval for that disease or condition, may result in a period of regulatory exclusivity, subject to some exceptions) for the treatment of HGG.  The Committee for Orphan Medicinal Products of the EMA has designated both flucytosine and vocimagene amiretrorepvec as orphan medicinal products indicated for the treatment of glioma. The EMA provides several benefits to drug developers for developing drugs for orphan diseases.
We have conducted three ascending dose Phase 1 clinical trials involving 127 recurrent HGG patients. In these trials, we investigated three modes of Toca 511 delivery: injection into the cavity wall after surgical resection of the recurred tumor (n=56), direct intratumoral injection without resection (n=54), and intravenous administration followed, approximately one to two weeks later, by resection with further local vector delivery at the time of resection (n=17). Administration of Toca 511 was followed with cycles of Toca FC. In these trials, we observed potential benefits, including durable objective responses, extended overall survival compared to historical controls and a favorable safety profile. We did not reach a dose-limiting toxicity in any of these trials. Based on these Phase 1 clinical trial results, we are conducting a Phase 3 clinical trial which is designed to serve as a potential registrational trial in patients with first or second recurrent HGG undergoing resection.
As of the data cutoff of August 2017, of the 56 patients enrolled in the ascending-dose resection injection Phase 1 trial, 53 were efficacy evaluable and of those, six patients had a complete response and remain in response. Five of these patients with a complete response were within a subset of 23 patients that mirrors the entry criteria, clinical setting and dosing for patients in our Phase 3 clinical trial. Responses were assessed by independent radiology review of magnetic resonance imaging, or MRI, brain scans. Median duration of response had not been reached after a median follow-up of 35.1 months (range: 9.2 to 44.9 months) which compares favorably to a range of durable responses of 2.79 to 9.62 months in a clinical trial of a drug used as standard of care for recurrent HGG. An association between durable response and overall survival is suggested as all responders remain alive following study entry (range: 21.4 to 52.2 months). As of the data cutoff of August 2017, the subset of 23 patients in our Phase 1 resection injection trial that mirrors the Toca 5 Phase 3 patient population (similar entry criteria, clinical setting and dosing) had a median survival of 14.4 months, with an approximately six-month improvement in median overall survival relative to results from clinical trials of drugs used as standard of care for recurrent HGG. In addition:
 	•	Five of 23 patients had a durable complete response, bringing the durable response rate (objective responses lasting at least 24 weeks) to 21.7%.	
 	•	Median duration of response had not been reached after a median follow up of 35.7 months (range: 14.1 to 44.9 months).	
 	•	Stable disease (lasting at least eight weeks) was observed in five additional patients, bringing the clinical benefit rate to 43.5% (10/23 patients).	
 	•	Landmark overall survival, or OS, rates at two and three years (OS24, OS36) was 34.8% and 26.1%, respectively.	
Increases in immunologic activity were observed with Toca 511 & Toca FC treatment, including elevations of replicating CD4 (often referred to as “helper” T cells) and CD8 (often referred to as “killer” T cells) T cells in the blood, for patients in some cohorts in the resection injection Phase 1 trial.
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Based on preclinical data, we believe Toca 5 11 & Toca FC may have therapeutic benefit in multiple other solid tumor cancers, and we initiated a Phase 1b clinical trial in July 2016 of intravenous treatment of metastatic cancers that include colorectal, pancreatic, breast, lung and melanoma cancers, all of which can spread to the brain and other organs. In the Phase 1b trial, Toc a 511 will be administered by intravenous injection followed by (1) intratumoral injection following biopsy or (2) injection into the resection cavity wall following planned r esection in the case of recurrent HGG or brain metastases. In our completed intravenous clinical trial of Toca 511 for the treatment of recurrent HGG, Toca 511 crossed the blood brain barrier and was detected in brain tumors. In our metastatic cancer trial we plan to evaluate safety, presence of Toca 511 genes in tumors, immunologic activity in the blood and tumor such as changes in CD4 and CD8 T cells and c linical activity such as objective tumor response and clinical benefit. We also plan, in this clinical trial, to evaluate Toca 511 & Toca FC in combination with one or more checkpoint inhibitors.
Based on our findings in preclinical studies and clinical trials to date, we believe Toca 511 & Toca FC is a promising candidate for use in newly diagnosed HGG patients in combination with surgery, radiation and chemotherapy. Therefore, we plan to advance clinical development to evaluate safety and efficacy in this setting with Toca 511 & Toca FC being delivered in conjunction with surgery, radiation and temozolomide.
Our RRV platform is versatile and we believe it has the potential to deliver a wide variety of genes selectively to cancer cells. Our first RRV-based immunotherapy product candidate, Toca 511 & Toca FC, is designed to replicate without cell lysis then directly kill tumor and immune suppressive myeloid cells activating the immune system against cancer through a combination of mechanisms. In addition, we are developing other RRVs to selectively deliver genes to cancer cells against validated immunotherapy targets, such as the checkpoint protein PD-L1. We generated preclinical data supporting the potential anti-cancer benefits of an RRV delivering a gene against PD-L1. In 2018, we plan to conduct IND-enabling studies of our anti-PD-L1 RRV product candidate.
Cancer is the second leading cause of mortality in the United States and accounts for nearly one in four deaths. Early cancer treatments relied on relatively non-specific and highly toxic small molecule chemotherapies. Over the last 20 years, a new paradigm of cancer research and treatment has emerged that is focused on more targeted therapies. Most recently this has included the emergence of immunotherapies that can stimulate a patient’s immune system to slow the growth and the spread of, and ideally, eliminate, cancer cells. These therapies have shown the potential to provide dramatic efficacy and to extend survival for cancer patients even in cases in which conventional therapies, such as surgery, chemotherapy and radiotherapy, have already been used. In 2013, Science magazine named cancer immunotherapy as the biggest breakthrough of the year. With this breakthrough, global pharmaceutical companies as well as a large number of emerging companies are researching and developing new cancer immunotherapy treatments.
Despite these advancements, many current immunotherapies, such as checkpoint inhibitors, chimeric antigen receptor, or CAR, and T cell receptor, or TCR, T cells, are limited by their autoimmune and other side effects. Combination treatments are common in cancer, but combinations of immune mediated treatments with systemic cytotoxic chemotherapy may be challenging as chemotherapy is often damaging to the immune system. Thus, immunotherapies effective enough to be able to displace systemic chemotherapy are needed. The utility of oncolytic viruses alone as immunotherapy has been challenged by lack of specificity to tumor cells, injury to healthy tissues, lack of targeting to specific brakes on the immune system, and short-term effect due to effective clearance of the virus. Consequently, there remains a significant need for immunotherapies that are effective as well as safe and tolerable.
In contrast to current immunotherapies, we believe our RRV platform and lead product candidate have the potential to selectively infect cancer cells to stimulate robust and durable anti-cancer immune responses with minimal toxicity. Our RRVs are designed to selectively integrate into the DNA of cancer cells which then serve as factories to produce more of these RRVs by budding. The progeny RRV infect neighboring cancer cells, providing long-term presence of the therapeutic gene or genes. Our novel therapies are designed to break immune tolerance selectively in the tumor microenvironment.
Toca 511 & Toca FC is designed to break immune tolerance through a combination of mechanisms triggered by the conversion of Toca FC into high levels of 5-FU (5-fluorouracil), an anti-cancer agent, by the therapeutic gene delivered by Toca 511 into the cancer cell. Toca 511 & Toca FC treatment is designed for cycles of sustained production of high levels of 5-FU directly in tumors, which we believe is important for robust and durable anti-cancer immune activation. Cancer cell death releases damage-associated molecular patterns, or DAMPs, pathogen-associated molecular patterns, or PAMPs, and tumor-associated antigens, resulting in antigen presentation and activation of T cells. 5-FU is known to kill cancer cells and immune cells when used systemically. When 5-FU is present locally, it kills immune-suppressive myeloid cells in the tumor micro-environment while leaving systemic immune activity clinically intact. The local immune-suppressive myeloid cells include myeloid-derived suppressor cells, or MDSCs, as well as tumor associated macrophages, or TAMs, which are white blood cells recruited and retained by the tumor that contribute to the suppression of normal immune activity against cancer cells. TAMs and MDSCs suppress the number and activity of CD4 and CD8 T cells and work with the lymphocyte-derived suppressor T cells called regulatory T cells, or Tregs. MDSC and TAM destruction by 5-FU is designed to contribute to immune activation against the tumor-associated antigens. We believe the persistence of the therapeutic gene in the cancer cells has allowed for multiple cycles of Toca FC treatment in our trials, which may result in additional killing of cancer cells and immunosuppressive myeloid cells, leading to enhancement of the strength and durability of the immune response with each successive cycle of Toca FC treatment. Also, in a trial with multiple Toca 511 intravenous infusions followed by resection, we observed increased Toca 511 in the tumor compared to single day infusion.
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We have retained worldwide rights to the development and commercialization of therapeutic product candidates derived from our RRV platform in all indications. We have licensed rights to, and collaborate with, Siemens He althcare Diagnostics Inc., or Siemens, to develop diagnostics related to the clinical development and future commercialization of Toca 511 & Toca FC. We have intellectual property protection in major markets worldwide, including 76 issued and granted paten ts and 72 patent applications (foreign and domestic) on our technology platform and novel product candidates, which we believe will maintain coverage from issued patents until approximately 2030. Since inception in 2007, we have funded our operations prima rily through the sales of our equity securities from which we received $230.2 million in net proceeds.
Our Proprietary Technology Platform: Harnessing Cancer Immunotherapy and Gene Therapy Together to Fight Cancer
Cancer immunotherapy, also termed immuno-oncology, has recently emerged as an exciting field of cancer therapy with the approval of drugs that aim to enhance anti-cancer immune responses by, for example, overcoming the suppressive mechanisms that cancer cells have developed to evade the immune system. Despite recent advances, current cancer immunotherapies have limitations. They often lead to unwanted and unanticipated autoimmune toxicities. Also, treatment effectiveness may be limited by previous or co-treatment with systemic cytotoxic chemotherapies, which damage the immune system. In addition, knocking out a particular brake on the immune system may not be relevant to a particular clinical setting or the tumor may simply not be immunogenic enough to become a target for immune clearance.
Early promising cancer gene therapies designed to provoke antitumor immune responses predominantly focused on enhancing the activation of the immune system by delivering genes for cytokines. Most of the first generation non-replicating cancer gene therapy viral vectors, however, were limited in their ability to enter and persist in a sufficient number of cancer cells to generate robust and durable anti-cancer immune responses consistently. Second generation cancer gene therapy vectors are replicating and, in the case of immunotherapies, have primarily consisted of oncolytic viruses, which lyse infected cells and activate the immune system against the virus, leading to its rapid clearance.
We believe our investigational gene therapy platform and therapeutic genes represent innovative and differentiated approaches in cancer-selective immunotherapy which have the potential to drive a safe, powerful and durable immune response against cancer, without triggering autoimmunity. We chose to utilize RRVs as the basis of our gene therapy platform for cancer-selective immunotherapy because they exhibit several characteristics that we believe allow us to optimize the safety, delivery and persistence of our therapeutic genes in cancer cells. These characteristics include that they:
 	•	replicate readily and persist in the immune-defective environment of cancer;	
 	•	are controlled in healthy tissue by normal immune mechanisms;	
 	•	only infect dividing cells such as cancer cells;	
 	•	bud from, rather than lyse, infected cancer cells, reducing anti-RRV immune activation;	
 	•	infect most cancer types; and	
 	•	can cross the blood tumor barrier.	
Our lead product candidate is a cancer-selective immunotherapy comprised of an investigational biologic, Toca 511, and an investigational small molecule, Toca FC, that are designed to be used together. Toca 511 is an injectable RRV that encodes a prodrug activator enzyme, cytosine deaminase, or CD. Its selective delivery to cancer cells means that the infected cancer cells selectively carry the CD gene and produce CD. Toca FC is an investigational orally administered prodrug, 5-FC, that is inactive as an anti-cancer drug. We believe Toca 511 & Toca FC is a promising choice for the following reasons:
 	•	CD is able to convert the anti-fungal drug, 5-FC, into the broadly applicable anti-cancer drug, 5-FU, in the cancer microenvironment;	
 	•	CD provides additional anti-cancer selectivity, as humans do not have this gene;	
 	•	the short half-life of 5-FU limits its direct killing to the localized area of the tumor micro-environment;	
 	•	local 5-FU has powerful effects on increasing survival in immune competent animals after only a few cycles of 5-FC; and	
 	•	MDSCs and TAMs are very sensitive to 5-FU-mediated killing, which may reduce immune tolerance to the cancer.	
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Our Pipeline

Our Strategy
Our focus is to develop and commercialize first-in-class cancer-selective immunotherapies using our proprietary gene therapy platform. Key elements of our strategy include:
 	•	Advancing Toca 511 & Toca FC rapidly through clinical development and regulatory approval in recurrent HGG .    We are conducting a Phase 3 clinical trial of Toca 511 & Toca FC in patients with recurrent HGG. If we achieve our primary endpoint, overall survival, and/or secondary endpoints, such as durable response rate, we plan to discuss submission of a biologics license application, or BLA, based on this data with the FDA. We believe such data could serve as the basis for regulatory approval. In February 2017, the FDA granted Toca 511 & Toca FC Breakthrough Therapy Designation for the treatment of patients with recurrent HGG and in June 2017 the EMA granted Toca 511 PRIME Designation for the treatment of patients with glioma. In October 2017, following discussions with the FDA, we redesigned our Phase 2/3 clinical trial to be a single Phase 3 clinical trial, thereby including the 187 patients that were previously enrolled in the Phase 2/3 clinical trial in the total of 380 patients expected to enroll in the redesigned trial.  The primary endpoint of the redesigned trial is OS. The primary endpoint assumes a median OS of 9.8 months for the control arm versus 14.3 months for the Toca 511 & Toca FC arm. A total of 257 events will provide the redesigned trial with 85% power to detect a hazard ratio of 0.685. The redesigned trial includes planned interim analyses at 50% and 75% of events, estimated to occur in the second half of 2018 and first half of 2019, respectively.  As a result of this transition to a seamless Phase 3 clinical trial design, a previously planned data analysis of the Phase 2 portion of the original Phase 2/3 trial will no longer occur. We also have completed three ascending dose Phase 1 clinical trials in recurrent HGG with varying modes of delivery of the Toca 511 vector and a Phase 1b clinical trial for the treatment of metastatic colorectal, pancreatic, breast, lung and melanoma cancers. In addition, based on our findings in preclinical studies and clinical trials to date, we believe Toca 511 & Toca FC is a promising candidate for use in newly diagnosed HGG patients in combination with surgery, radiation and chemotherapy. Therefore, we plan to advance clinical development in the first half of 2018 to evaluate safety and preliminary efficacy in this setting. We are also developing other RRVs to selectively deliver genes to cancer cells against validated immunotherapy targets, such as the checkpoint protein PD-L1.	
 	•	Expanding the therapeutic use of Toca 511 & Toca FC into newly diagnosed HGG and other solid cancer indications .    In July 2016, we initiated a Phase 1b clinical trial in metastatic cancers including colorectal, pancreatic, breast, lung and melanoma. In 2018, we plan to advance our clinical development plan evaluating Toca 511 & Toca FC in newly diagnosed HGG patients. We believe Toca 511 & Toca FC has potential broad applicability in the treatment of solid cancers and, because of its safety and efficacy profile in clinical trials to date, it could serve as the foundational therapy in a variety of combination treatments, if successfully developed and approved.	
 	•	Commercializing Toca 511 & Toca FC in key markets .    If approved, we plan to build the capabilities to commercialize Toca 511 & Toca FC through medical science liaisons and a specialty sales force in key markets.	
 	•	Pursuing strategic partnerships to expand the commercial opportunity for, and accelerate the development of, our product candidates .    We may choose to selectively partner our lead product candidate or our future product candidates in territories or therapeutic areas where a partner could bring additional resources and expertise; however, we plan to retain development and commercialization rights in key markets to maximize strategic flexibility.	
 	•	Leveraging our RRV platform and core competencies to continue discovering and developing a broad pipeline of novel cancer-selective immunotherapies .    We believe there is a significant opportunity to develop additional	
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 		immunotherapy product candidates utilizing our RRV platform. Our scientists have broad exper tise in the field of gene therapy, especially cancer-selective gene therapy and immunotherapy. We intend to leverage our platform and expertise to discover and develop a broad pipeline of cancer-selective immunotherapies to help patients fight their cancer s without the severe side effect profile typical of cancer treatments.	
Immunotherapy and the Emergence of Cancer-Selective Immunotherapy
Background on Cancer and Immunotherapy
Cancer results from damage to the genes of the cell, sometimes exacerbated by underlying genetic defects such as those in oncogene regulation, DNA repair and immune competence. When cancerous cells acquire novel proteins, called tumor-associated antigens, the immune system is believed to act as a surveillance system that can seek and destroy these mutated cells. However, over time, the cancer cell mutation process results in the activation of certain genes and/or the inactivation of others, leading to the ability of the cancer cells to hide from the immune system and grow, eventually becoming malignant and having the ability to invade and destroy healthy tissue. The process of cancer becoming able to hide from the immune system is referred to as developing immune tolerance to the cancer antigens.
To achieve immune tolerance, cancer tissue modifies the immune system by dampening or inactivating key immune mechanisms to thereby allow the cancer to hide from or diminish the immune system. An important example of the mechanism of local immune suppression is the attraction, retention and expansion of immune-suppressive myeloid cells such as MDSCs and TAMs, which are suppressors of immune cell killing of cancer cells both directly and through their support of Tregs. Also, in HGG and other tumors, the cancer cells and infiltrating immune cells often deploy proteins on their cell surface such as PD-L1 to activate the programmed death-1, or PD-1, proteins on the surface of lymphocytes creating a brake on the immune system. The tumor can also produce increased amounts of IDO-1 proteins, which both metabolize and drastically reduce tryptophan, an amino acid important in immune activation, and produce catabolites that are immune-suppressive. The cancer cells may also release cytokines such as TGF-beta which lead to local immune suppression.
In order for a patient to conquer his or her cancer, the patient typically needs treatment that can overcome most or all of these immune tolerance mechanisms. Once tolerance is broken and the patient’s immune system can attack and destroy the cancer, it precipitates a prolonged process of immune activation and the development of a robust and durable immune response.
Immunotherapy is an emerging field of cancer treatment that aims to activate the immune system, as well as to overcome the immuno-suppressive mechanisms that cancer cells and their resulting tumors have developed. Approaches in immunotherapy generally have one of two desired effects on the immune system: “putting the foot on the gas,” which stimulates the immune system by therapies including vaccine-, cytokine-, antibody-, cellular- and adjuvant-based approaches; and “removing the brakes,” which removes the inhibition of the immune system, and currently mainly consists of monoclonal antibodies targeted against ligands and receptors that tumor cells use to suppress the immune system, such as PD-1, PD-L1 and CTLA-4. To date, these approaches have been demonstrated to activate the immune system to varying degrees, leading to anti-cancer benefits, but have often caused moderate to severe autoimmunity against healthy tissue, in many cases leading to discontinuation of treatment, persistent toxicity or even death.
Our Approach to Immunotherapy
Due to the novel mechanisms of action and favorable safety profile in clinical studies to date, we believe our RRVs represent an important advancement in the field of immunotherapy. Our approach is designed to enhance immune responses against cancer cells and, in the case of our lead product candidate, Toca 511 & Toca FC, reduce immune-suppressive myeloid cell inhibition of the immune system. Also, we believe our RRV platform has the potential to be safely combined with conventional therapies and complement emerging checkpoint inhibitors and other approaches to cancer immunotherapy.
Our RRV Platform
We have developed a first-in-class gene therapy platform, based on a genus of retroviruses called gamma retroviruses, designed to selectively deliver therapeutic genes to cancer cells. Native gamma-retroviruses, which were originally isolated from cancer cells, possess three useful properties as a gene therapy vector for human cancers: they have been demonstrated to be reasonably benign in primates; they only infect dividing cells and selectively infect cancer cells in vivo ; and they have a small, simple genome structure that allows straightforward vector construction.
 Our RRVs are not known human pathogens as they only exhibit minimal virulence gene activity. Virulence genes ordinarily result in widespread infection of healthy cells. Gamma retroviruses have evolved in a way that makes infection, replication and spread in immune deficient cancer cells more permissive than infection of healthy cells and tissues. Specifically, RRVs and their progeny do not directly kill the cells they infect during spread. Instead they bud from infected cells, which is less likely to stimulate an immune
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response to the virus. In contrast, oncolytic viral infection and cell lysis typically cause marked inflammation, leading to rapid viral clearance.
Although RRVs can spread in tumors, they usually cannot replicate and spread in healthy tissues in the body due to antiviral immune system activity. In healthy cells, gamma retroviruses are typically controlled by powerful cellular resistance factors whose production can be driven by Type 1 interferons, a subgroup of interferon proteins that help regulate the activity of the immune system to kill cancer cells and virally-infected cells. In contrast, cancer cells usually have defective Type 1 interferon signaling pathways, possibly from selective pressure from Type 1 interferons in the cancer microenvironment, potentially leading to lower levels of antiretroviral resistance factors. Our RRVs predominantly rely on immune deficiencies of cancer cells and tumors, combined with its non-inflammatory nature, to replicate and spread throughout the tumor and we believe have a good balance between attenuation and replication efficiency. In another mechanism of specificity, RRVs do not encode nuclear localization signals which, in certain viruses such as lentiviruses, facilitate virus entry into the nucleus of non-dividing cells to allow productive infection. Without nuclear localization signals, RRVs only enter the nuclei of dividing cells, such as cancer cells, during the time the nuclear membrane opens to create two daughter cells. Hence, RRVs have inherent selectivity to cancer and we have demonstrated this selectivity in vivo as shown below in a glioma growing in a mouse brain.
Further, in humans, as shown in the images below, in patients with HGG treated with Toca 511 and then Toca FC, in subsequently re-resected tumors, we confirmed the presence of CD protein (stained brown in left image) in tumor cells but not in nearby normal brain cells (stained blue in right image).

Our novel RRV platform is designed to be versatile. In preclinical testing, we have stably delivered several different therapeutic genes, and we can create new vectors using a well-defined process to insert one or more therapeutic genes into our RRVs. We have also engineered RRVs to enhance their suitability for therapeutic purposes. For example, we converted therapeutic genes of viral or fungal origin to use mammalian codons resulting in enhanced genomic stability as the RRV replicates and increased protein production in infected cells. We also modified the native vector by replacing the highly restrictive native envelope gene with a more permissive envelope gene which allows for entry of our RRV into most cancer cells through a widely available phosphate transport channel.  
In addition to developing our lead product candidate, Toca 511 & Toca FC, we are employing strategies to deliver genes which can reduce the production of specific proteins. For example, we built RRVs designed to inhibit the “brakes” on the immune system, from PD-1 and PD-L1 interaction, by inhibiting PD-L1 protein function in the cancer cells. Specifically, we have built RRVs with genes for anti-PD-L1 single chain antibodies and are evaluating them in our anti-PD-L1 preclinical program.
Our safety data with gamma retroviruses, preclinically and in humans, suggest that our RRV technology is worth exploring in combination with many conventional and newly developed cancer treatments.
Our Lead Product Candidate: Toca 511 & Toca FC
 Our lead product candidate is a combination of an investigational biologic, Toca 511, and an investigational small molecule drug, Toca FC, designed to be used together. Toca 511 is a proprietary injectable RRV that encodes a prodrug activator enzyme, CD. CD is derived from yeast, and humans do not naturally have this gene. Its selective delivery to cancer cells means that the infected cancer cells selectively carry the CD gene and produce CD protein. Toca FC is an orally administered, proprietary extended-release version of 5-FC, a prodrug that is inactive as an anti-cancer drug. In humans, the orally administered Toca FC is absorbed and carried
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through the bloodstream, crosses the blood brain barrier and diffuses into the cancer cells. In animal models, we have shown that 5-FC is converted into the active anti-cancer drug, 5-FU, at high concentrations in Toca 511-infected cancer cells that are producing CD protein. 5-FU is a well-established anti-cancer agent that interferes with RNA and DNA metabolism and is used in many conventional chemotherapy settings.

Toca 511 contains an optimized yeast-derived CD gene downstream of structural RRV genes which code viral proteins (gag, pol, env). Regulatory genes flank the coding genes on either side.
In addition to the direct killing of Toca 511-infected cancer cells, 5-FU can kill neighboring uninfected cancer cells and immune-suppressive myeloid cells in the tumor. In our preclinical studies, following direct killing of these cells, our therapy activated the immune system against tumors. Toca 511 & Toca FC treatment is designed for cycles of sustained production of high levels of 5-FU directly in tumors, which we believe is important for robust and durable anti-cancer immune activation.
Toca 511 & Toca FC has a dual mechanism of action. Our treatment regimen is designed to transform tumors into chemotherapy factories of 5-FU, which kills infected cancer cells and neighboring dividing tumor cells, triggering activation of the immune system against tumor-associated antigens with systemic benefits. In humans, Toca 511 is administered by one of several routes and is allowed to selectively spread through the cancer cells for up to two months. After Toca 511 spreads, Toca FC is administered cyclically, for approximately one week of every four to eight weeks. In re-resected tumors from some patients in our trials, we observed CD protein in the tumor (by immunohistochemistry) but not in contiguous normal brain tissue. We also documented Toca 511 RNA and DNA, including the CD gene, selectively in the tumors. The CD protein produced in the tumor is designed to convert the 5-FC into 5-FU and achieve high intratumoral concentrations. As 5-FU is rapidly inactivated after diffusing from the tumor it has a short half- life and therefore low systemic activity and limited side effects.
Some patients, whose tumors appeared larger during serial MRI brain scans, had resections. In some of these cases, the re-resected tumor had large areas of necrosis, or tumor death, and dense lymphocytic infiltrates in some remaining areas of cancer, under higher magnification. Enlargement of a tumor during an inflammatory response as part of the killing process, is called pseudo-progression.
Through a combination of mechanisms and multiple cycles of tumor antigen presentation during Toca FC treatment cycles, tolerance to current and evolving cancer tumor-associated antigens is designed to be broken, leading to lymphocyte infiltration, immune activation, gradual killing and gradual shrinkage of the tumor, sometimes completely, over many months or years.
In summary, the CD gene we are delivering in our lead product candidate is designed to produce a unique protein which, in combination with oral Toca FC, generates high concentrations of an anti-cancer drug selectively in the tumor, leading to killing of cancer and immune suppressor cells and thereby activating the immune system against the cancer cells.
Clinical Development of Toca 511 & Toca FC
Toca 511 & Toca FC in Recurrent High Grade Glioma
 Our initial proposed indication, recurrent HGG, also referred to as malignant glioma, is the most common and aggressive primary brain cancer and often strikes in the prime of life. The two most common forms of HGG are glioblastoma multiforme, or GBM, and anaplastic astrocytoma or AA, which are grade 4 and grade 3 tumors, respectively. The total number of new diagnoses of HGG expected in 2017 is about 180,000 worldwide and about 16,000 in the United States, with new diagnoses of GBM estimated to
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be approximately 12,500 in 2017 in the United States. Recurrent HGG represents a major unmet medical need. HGG recurs in most patients, even after maximal treatment.
Historical survival data for HGG trials is limited, though there are many published studies for GBM. Patients with newly diagnosed GBM who receive maximal therapy had a median survival of 14.6, 16.1 or 16.8 months according to three Phase 3 clinical trials published in the New England Journal of Medicine . Current standard of care therapy for patients with newly diagnosed GBM includes surgery, radiation therapy and chemotherapy, and is similar in all major markets. The Central Brain Tumor Registry of the United States reports the one-, five-, and 10-year survival rates for patients with GBM as 39.7%, 5.5%, and 2.9% from diagnosis respectively, making it one of the most lethal among all cancers.
Recurrent HGG is typically treated with oral chemotherapy drugs, such as lomustine or temozolomide, bevacizumab, radiation or further surgery with or without carmustine wafer (marketed as Gliadel wafer by Arbor Pharmaceuticals, LLC). Survival in our initial proposed indication, recurrent HGG, is shorter than newly diagnosed GBM with reported median overall survival approximately half of that in newly diagnosed patients. There are relatively few trials which report on recurrent HGG (inclusive of both grade 4 and 3). One trial published by Brem in The Lancet reported median overall survival of a carmustine wafer cohort to be 7.2 months. Reported median survival for patients in multicenter clinical trials with recurrent GBM ranges from 7.6 months, from a summary analysis of Phase 2 clinical trials conducted by the North American Brain Tumor Consortium, to 8.4 months, based on a weighted-average from recent lomustine trials. Clinical trials evaluating the anti-angiogenesis agent bevacizumab have shown median overall survival of 8.0 to 10.0 months in what we believe are particularly favorable patient groups because of the number of first recurrent patients and restrictions on tumor size. Neither surgery nor bevacizumab have been found to prolong survival of patients with recurrent GBM. Historically, partial response, or PR, (tumor shrinkage by 50%) rates for chemotherapy for recurrent HGG are low, typically ranging from 0% to 8.9%. Complete responses, or CR, (disappearance of the tumor) to chemotherapy are extremely rare, typically occurring in less than 1% of patients treated. We chose recurrent HGG as our initial proposed indication because of the significant unmet medical need, together with our goal to minimize time to regulatory approval.
Our ascending Phase 1 clinical trials and ongoing Phase 3 clinical trial are being conducted pursuant to an IND we submitted to the FDA in September 2009. This IND currently covers the indications of recurrent HGG, newly-diagnosed HGG and metastatic solid tumors. In the future, we may also focus on hematological malignancies.
Ascending Dose Phase 1 Clinical Trials
We have three ascending dose Phase 1 clinical trials in recurrent HGG with varying modes of delivery of the Toca 511 vector: injection into the cavity wall after surgical resection of the recurred tumor, direct transcranial intratumoral injection without resection, and intravenous administration followed, approximately one to two weeks later, by resection with further local vector delivery at the time of resection. These clinical trials of Toca 511 & Toca FC are in patients whose tumors have recurred following surgery, radiation therapy and chemotherapy. We have treated 127 recurrent HGG patients in these clinical trials in which we observed potential benefits, including extended overall survival and a favorable safety profile. The median overall survival of patients in the resection injection study exceeds historical controls across a variety of previously reported clinical trials and shows a trend towards a dose response. Furthermore, an independent radiology review, or IRR, identified tumor shrinkage in some patients, including several complete and partial responses.
The primary goal of these three Phase 1 clinical trials was to evaluate the safety and tolerability of Toca 511 & Toca FC. Although all trials were designed to identify the highest safe and well-tolerated dose of Toca 511 & Toca FC, called the maximum tolerated dose, criteria for dose-limiting toxicities were never reached. The most common adverse events associated with Toca 511 are fatigue, headache, and convulsion. For Toca FC, the most common treatment related adverse events are fatigue, diarrhea and nausea. The majority of toxicities are Grades 1-2. The maximum feasible dose of Toca 511 & Toca FC was determined, allowing us to move forward to our Phase 3 clinical trial. The maximum feasible dose of Toca 511 was chosen to be 4 mL delivered by forty 0.1 mL injections with a blunt tip, narrow bore needle and a side port for infusion, which is the highest practical number of injections which can be administered at the time of resection. The secondary goal of each of these three Phase 1 clinical trials is to evaluate the efficacy of Toca 511 & Toca FC, including tumor response observed by MRI and patient survival. These clinical trials also allow us to evaluate the presence of Toca 511 in tumors and tumor pathology at subsequent resection and to measure CD4 and CD8 T cell levels before and following treatment. In addition, we are conducting a continuation trial to follow long term safety and survival in patients from all three of these clinical trials.
Resection Injection Trial
In February 2012, we initiated a Phase 1 multicenter ascending dose clinical trial of Toca 511 & Toca FC in patients with recurrent HGG who are suitable for resection. As of the data cutoff of August 2017, of the 56 patients enrolled in the ascending-dose resection injection Phase 1 trial, 53 were efficacy evaluable and of those a subset of 23 patients mirrors the entry criteria, clinical setting and dosing for patients in our Phase 3 clinical trial.
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In this trial, following tumor resecti on, Toca 511 was administered by multiple small injections directly into the mixture of brain and cancer tissue surrounding the resection cavity. These injections target the tumor which has been left behind after surgery since the infiltration of the cance r into functional brain regions precludes complete resection. Pursuant to the protocol, the patient begins a seven- to 14-day course of oral Toca FC five to eight weeks following the administration of Toca 511 and repeats this Toca FC cycle every four to e ight weeks thereafter. When the recommended Phase 2 dose was determined, cohorts evaluating lomustine or bevacizumab combined with Toca 511 & Toca FC were enrolled to provide safety data for the use of Toca 511 & Toca FC treatment in combination with stand ard HGG treatment in patients who appeared to be progressing in the ongoing trials. To date, no safety issues have been observed in these expansion cohorts. This clinical trial has completed enrollment, with 56 patients. There were 53 efficacy evaluable pa tients who received both Toca 511 and Toca FC. Based upon a data cutoff of September 18, 2015, a manuscript was published in Science Translational Medicine (Cloughesy et al. 2016).
Of the 56 patients enrolled, 43 were evaluable for response with both IRR and clinical assessment performed. There were 23 patients of the 56 who would have met the entry criteria for the ongoing Phase 3 study. As shown in the table below, in these 23 patients with HGG first or second recurrence treated in the Higher Dose Cohort (as defined below), when compared with baseline MRIs taken just prior to the start of Toca FC dosing (four to eight weeks after surgery), five CRs were identified by an IRR, providing further support for Toca 511 & Toca FC efficacy. All of these patients were continuing to respond as of their last MRI review as of a data cutoff in August 2017 and only received Toca 511 and Toca FC cancer treatment after resection. The CRs were determined based on the Macdonald criteria, including, for CR, complete disappearance of all enhancing measurable and non-measurable tumor. Total clinical benefit includes CRs, PRs and stable disease, or SD. As shown in the table below, five of six responses occurred in patients treated in the Higher Dose Cohort, suggesting a potential dose-response effect. Specifically, in this Phase 1 dose escalation resection trial, across all cohorts, including combination cohorts, no responses were seen in the lowest three Toca 511 doses (1.4 x 10 7 , 3.8 x 10 8 and 1.5 x 10 8 Therapeutic Units, or TU). The next four dose increments, referred to as the Higher Dose Cohort, all had durable (defined as greater than 6 months) objective responses (4.8 x 10 8 TU with two CRs; 1.2 or 1.5 x 10 9 TU with three CRs; and 4.8 x 10 9 TU with one CR). We selected to use the Toca 511 dose of ~1 x 10 9 TU for the registration-directed Toca 5 clinical trial.
Resection Study: All Responses are in the Higher Dose Cohort
 
Response Category 1	 	All Patients
N=53
n (%)	 	Higher Doses & Phase 3
Entry Criteria Subset
N=23
n (%) 2	
Overall response	 	6CR (11.3)	 	5CR (21.7)	
Stable disease (SD)	 	10 (18.9)	 	5 (21.7)	
Progressive disease	 	37 (69.8)	 	13 (56.5)	
Clinical Benefit Rate (CR, PR, and SD at 6 wks)	 	16 (30.2)	 	10 (43.5)	

1	Includes MRI by independent radiology review and clinical data; patients categorized by best response achieved during MRI screenings.	
2	Higher doses (cohorts 4-7a) and meet Phase 3 entry criteria of 1 st and 2 nd recurrence, no prior Avastin in rHGG, tumor not > 5cm	
  	Data cutoff date August 2017.	
Seven medical centers participated in the resection study, six of which had a patient with an objective response identified by an IRR. Sites included large regional hospitals and academic centers.
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In the table below, clinical data for each of the 23 patien ts is represented by a blue bar, with the x-axis measuring months of survival. Change in patient tumor status (i.e., PD, SD, PR, or CR) are represented along the bar, with the status at the end representing “best response” during the treatment. The green s tars indicate the six patients who remain alive at the latest data cutoff. The responses, which occur approximately six to 19 months after Toca 511 administration, are consistent with immunologic response and all responders who remain alive have received n o therapy other than Toca 511 & Toca FC since enrolling in the trial. Median duration of response had not been reached after a median follow up of 35.7 months (range 14.1 to 44.9 months).
Resection Study: Long-Term Survival in Higher Dose Cohort

 
 
The median overall survival of patients in this resection injection study (in which an ascending range of doses of Toca 511 were injected into the wall of the resection cavity after resection of the tumor) exceeds historical controls across a variety of previously reported clinical trials. Forty-three patients had a median overall survival of 12.4 months that was approximately five months longer relative to a weighted-average of results from clinical trials of drugs used as standard of care for recurrent HGG, including 7.2 months in the active arm of a randomized surgical recurrent HGG trial for the carmustine wafer. In a subset of 30 patients in our resection injection trial who received higher doses of Toca 511, median overall survival was higher, 14.4 months. Furthermore, in the subset of 23 patients in this trial that mirror the entry criteria, clinical setting and dosing for patients in our Phase 3 clinical trial, median overall survival was 13.2 months, an approximate six-month improvement in median overall survival relative to a weighted average of clinical trials of drugs used as standard of care (lomustine or bevacizumab) for recurrent HGG. Finally, in our patients with recurrent GBM at first or second recurrence in our resection injection trial (27 patients), median overall survival was 13.6 months, comparing favorably to the median survival of 7.1 months in the external control study of recurrent GBM patients treated with lomustine. We saw a plateau of survival in the Higher Dose Cohort, with a 40% survival probability at two years (data cutoff of September 18, 2015). Data from our resection injection study was reported in Science Translational Medicine (Cloughesy et al. 2016).
 
Population	 	Toca 511 and Toca FC
Resection Study
Median Overall
Survival Months 1	 	Other Trials in
Recurrent Disease	
Recurrent High Grade Glioma	 	12.4 (n=43)	 	7.2 (n=110) 2	
Recurrent High Grade Glioma and higher doses	 	13.2 (n=30)	 	7.2 (n=110) 2	
Higher doses and Phase 3 entry criteria 3	 	14.4 (n=23)	 	8.5 (n=437) 4	
Glioblastoma at 1 st or 2 nd recurrence	 	13.6 (n=27)	 	7.1 (n=84) 5	

1  	Data cutoff August 15, 2017.	
2  	Carmustine wafer. Brem et. al., Lancet 345: 1008-1012, 1995.	
3  	Higher doses (cohorts 4-7a) and 1 st and 2 nd recurrence, no prior bevacizumab in rHGG, tumor not > 5cm.	
4  	Estimate based on weighted average of lomustine (Batchelor 2013, Taal 2014, Wick 2010, EORTC 26101: n=352) and bevacizumab historical controls (n=85) and assumed percentage of enrollment.	
5  	Wick 2010.	
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Adapted from Cloughesy TF et al. with data cutoff September 1, 2016.
Furthermore, an independent radiology review of MRI brain scans from our Phase 1 clinical trials identified tumor shrinkage in some patients, including several CRs. All patients in the resection injection trial with objective responses remain with durable response as of August 2017, for a median of 35.7 months, which represents approximately four times longer duration of response relative to responses from a clinical trial of lomustine which showed an estimated median duration of response of approximately six months (range of response duration was 2.79 to 9.62 months).
 
 	 	Lomustine 1	 	 	Toca 511 & Toca FC 2	 	
Overall response rate CRs & PRs	 	4.3%	 	 	21.7%	 	
Duration of response (months)	 	~6.2	 	 	>35.7  (median not reached)	 	
Median Survival (months)	 	 	7.1	 	 	 	14.4	 	

1  	Adapted from Wick, JCO 2010.	
2  	Higher doses (cohorts 4-7a) and 1 st and 2 nd recurrence, no prior Avastin in rHGG, tumor not > 5cm.	
This survival data, evidence of tumor response, as well as a reported safety profile of mild and moderate toxicity, encouraged us to plan our registration-directed Toca 5 clinical trial of Toca 511 & Toca FC in this same setting, enrolling patients with recurrent HGG who were planning for further resection of their tumor. Also, we chose the resection setting for the Toca 5 clinical trial because we believe that resection of the bulk of the tumor and then injection into the residual tumor left behind in the cavity wall provides a longer opportunity for the treatment to activate the immune system against the growing tumor.
We also tested for changes in CD4 and CD8 T cells in blood during the study, allowing us to evaluate both the safety and activity of our treatment on the immune system. Average increases of 34.0% in total CD4 (p=0.019) and 12.4% in total CD8 (p=0.277) were observed between the visit prior to Toca FC administration and the end of study, suggesting immune activation after Toca 511 & Toca FC treatment (n=43). The p value is the probability that the difference between two data sets was due to chance. The smaller the p value, the more likely the differences are not due to chance alone. In general, if the p value is less than or equal to 0.05, the outcome is statistically significant. The FDA’s evidentiary standard of efficacy generally relies on a p value of less than or equal to 0.05. Supporting data was obtained from a subsequent cohort in this trial, and in this case, there were significant increases in activated CD8+ T cells (p=0.015) within the CD8 population from patients (n=6 patients, 39 samples) showing clinical benefit (SD, CR) between pre- and post-treatment measurements, but not from patients with progressive disease (n=7 patients, 48 samples). A sustained increase in activated CD4+ T cells (p=0.16) was also observed within the CD4 population from patients showing clinical benefit. In these examples, immune cell testing occurred at baseline and at time points after one or more cycles of Toca FC.
Resection Injection Trial Compared to Lomustine External Control
Patients with GBM at first and second recurrence in our resection injection trial (n=27) were compared to an external control of lomustine-treated patients from a previously-conducted non-surgical Phase 3 clinical trial (database for control arm obtained from the trial sponsor). Surgery is not known to prolong survival in recurrent GBM. Both our resection injection trial and the external control lomustine trial were reasonably contemporaneous (our trial: 2012-2015; lomustine trial: 2006-2010). The characteristics of the patients in these trials were comparable: the external control had a slightly younger population, more patients in first recurrence and a lower percentage of patients requiring corticosteroids at baseline; and our resection injection trial had a higher percentage of patients with a Karnofsky performance status score of 90-100. The Karnofsky score is a 0-100 scale generally used by physicians to quantify a cancer patient’s general well-being and activities of daily life; 100 is “perfect” health and 0 is death. The median overall survival for patients with first or second recurrent GBM in our resection injection trial was 13.6 months (95% CI 11.1, 20) compared to 7.1 months (95% CI 6.01, 8.80) for patients in the external control lomustine trial. The hazard ratio for overall survival was 0.45 (95% CI 0.27, 0.77; p=0.0028), meaning that with Toca 511 & Toca FC the risk of death was reduced by 55% compared to lomustine. Although the data is not generated from a single randomized trial, use of statistical analysis of the external comparison is only for the purpose of providing context to some of the data collected in our Phase 1 resection injection trial. In the overall survival setting, the hazard ratio is the ratio of the hazard rate (probability of dying during a certain unit time) between two groups. The separation of the survival curves was early and continued through 30 months with overall survival at six months of 96.0% vs. 61.8% (p<0.001). Lomustine is one of the active control treatments for our ongoing Phase 3 clinical trial.
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A circle denotes a censored survival event, meaning that the survival is counted up to this timepoint.
Patients treated with Toca 511 & Toca FC had far fewer grade ≥ 3 adverse events and a virtual absence of hematologic toxicity for patients relative to the lomustine external control, where grade ≥ 3 thrombocytopenia occurred in 23.8% and neutropenia occurred in 13.1% of lomustine patients.
 
 	 	Toca 511 & Toca FC
N = 27
n(%)	 	Lomustine
N = 84
n(%)	
 	 	Grade 2	 	Grade 3 to 4	 	Grade 2	 	Grade 3 to 4	
Nonhematologic toxicity	 	 	 	 	 	 	 	 	
Fatigue	 	2 (7.4%)	 	—	 	4 (4.8%)	 	—	
Nausea	 	1 (3.7%)	 	—	 	2 (2.4%)	 	—	
Edema peripheral	 	—	 	—	 	2 (2.4%)	 	—	
Alanine aminotransferase increased	 	—	 	—	 	1 (1.2%)	 	1 (1.2%)	
Hematologic toxicity	 	 	 	 	 	 	 	 	
Thrombocytopenia	 	—	 	—	 	9 (10.7%)	 	20 (23.8%)	
Platelet count decreased	 	—	 	—	 	—	 	1 (1.2%)	
Neutropenia	 	—	 	—	 	4 (4.8%)	 	11 (13.1%)	
Neutrophil count decreased	 	—	 	—	 	—	 	6 (7.1%)	
Leukopenia	 	—	 	—	 	3 (3.6%)	 	4 (4.8%)	
White blood cell count decreased	 	—	 	—	 	1 (1.2%)	 	2 (2.4%)	
Anemia	 	—	 	—	 	1 (1.2%)	 	2 (2.4%)	
Hemoglobin decreased	 	—	 	—	 	2 (2.4%)	 	—	
Lymphopenia	 	—	 	—	 	2 (2.4%)	 	—	
 
Intratumoral Injection Trial
In August 2010, we initiated a Phase 1 multicenter ascending dose clinical trial of Toca 511 & Toca FC to be administered via intratumoral injection in patients with recurrent HGG. A total of 54 patients were enrolled and treated in this study.
Patients were treated in ascending dose cohorts using two different intratumoral delivery methods. The first method utilized a biopsy needle under stereotactic guidance to concentrate Toca 511 delivery to one location at the advancing edge of the tumor. The second method utilized intraoperative MRI, delivering Toca 511 spread mostly throughout the center of the tumor using convection enhanced delivery over several hours, referred to as non-biopsy needle. Pursuant to the protocol, the patient began a seven-day course of oral Toca FC four weeks following Toca 511 injection and repeats the cycle of Toca FC every five to seven weeks thereafter.
Delivery of Toca 511 with a biopsy needle in this trial showed a median overall survival of 13.8 months, while delivery via non-biopsy needle showed 9.2 months. Delivery with biopsy needle exceeded the range of 7.1 to 8.5 months, the survival data for currently-approved therapies discussed above. The benefit of biopsy needle delivery compared to non-biopsy needle delivery is statistically significant (p value = 0.0249; indicating that there is a 97.5% probability that the observations are not due to chance alone). In a multivariate analysis controlling for other prognostic factors such as number of recurrences and tumor grade, the delivery method remains statistically significant.
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The IRR results as of our data transfer in August 2017 revealed a clinical benefit rate of 32.1%, with 16 of 53 patients (30.2%) showing stable disease. Two patients with stable disease were shown to have an unconfirmed PR (50% tumor shrinkage without subsequent confirmation b y MRI). One patient had a confirmed PR, with duration of 7.8 months.
Intravenous Administration Followed by Resection Injection Trial in 17 Patients
In February 2014, we initiated a Phase 1 multicenter ascending dose clinical trial in patients with recurrent HGG who are scheduled for resection. Toca 511 was administered initially intravenously on one, three or five consecutive days followed by resection of the tumor with further Toca 511 administration using multiple small injections directly into the mixture of brain and cancer tissue surrounding the resection cavity. Samples of the resected tumor were evaluated for evidence of the presence of Toca 511. Pursuant to the protocol, the patient began a seven day course of oral Toca FC five to seven weeks following the administration of Toca 511 at resection and repeats the cycle of Toca FC every three to five weeks thereafter.
Following the intravenous delivery of Toca 511, CD protein is detectable and quantifiable in resected HGG tumor tissue. Furthermore, the study shows that Toca 511 can infect and spread in “hot” and “cold” tumors with activity independent of high levels of immunosuppressive T cells in the tumor microenvironment. Median overall survival in the intravenous study was 13.6 months as of April 2017 data cut, consistent with other ascending dose studies (e.g. 14.4 months median overall survival in the resection study). Toca 511 & Toca FC appeared to be well-tolerated with few Grade ≥ 3 treatment-related adverse events. An independent radiology review showed one patient with complete radiologic disappearance of all lesions. The results of the intravenous study support evaluation of the regimen in other solid tumors.
Biomarkers
As part of our exploration of mutation profiles that may serve as a biomarker for patients with a higher likelihood of long-term benefit, we observed that objective responses occurred in patients with IDH1 mutant (mt) and IDH1 wild type (wt) tumors. Approximately 15% of the population with HGG is believed to have the IDH1 mutation. Across the Phase 1 clinical trial program, and as of August 2017, the three patients with known IDH1 mutations at first recurrence had CRs (two in the resection study and one patient in the intravenous study with a radiologic CR) and all these IDH1 mutation patients are alive (range of survival 12.2 to 35.3 months), suggesting a potential association of IDH1 mutation to survival.
Pooled Safety Data
Toca 511 & Toca FC has been well tolerated in clinical trials to date. There has been little difference in adverse events among the three Phase 1 clinical trials in recurrent HGG other than a few adverse events unrelated to Toca 511 in the post-operative period of the resection clinical trial. For this reason we chose to pool safety data across the three ascending Phase 1 clinical trials. As shown in the table below, in 127 patients who received Toca 511, treatment-related adverse events were reported in 32.3% of patients and these events were predominantly low grade (25.2%). The most common treatment-related adverse events were fatigue (11.8%), headache (5.5%) and convulsion (4.7%). Also shown below, in 122 patients who received Toca FC, treatment-related adverse events were reported in 44.3% of patients and these events were predominantly low grade (41.0%). The most common treatment-related adverse events were fatigue (22.1%), diarrhea (13.9%), and nausea (9.8%). Treatment-related serious adverse events were reported in 6.3% of patients treated with Toca 511 and 2.4% of patients treated with Toca FC (which included pulmonary embolism, diarrhea and intracranial hemorrhage). Hematologic toxicity was infrequent and also low grade. We monitored blood samples for viral RNA and DNA and found that quantitative levels were cleared within two weeks to four months of administration. Also, we analyzed tumor and blood samples for viral insertion sites and demonstrated an absence of clonality, supporting viral safety. We also monitor Toca FC blood levels for the first treatment cycle and whenever the dose is increased. This helps us to adjust dosing upwards in patients with Toca FC blood levels below the target range. The favorable toxicity profile of Toca 511 & Toca FC suggests that combination with other modalities such as chemotherapy or radiation should yield little incremental toxicity.
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Adverse Events Related to Toca 511 and Toca FC – Pooled Across Studies
 
 	 	Toca 511 (1)
 
N = 127	 	 	 	Toca FC (1)
 
N = 122	
 	 	Grade 1, 2
n (%)	 	Grade   ≥   3 (2)
n (%)	 	 	 	Grade 1, 2
n (%)	 	Grade   ≥   3 (3)
n (%)	
Any treatment-related AE	 	32 (25.2)	 	9 (7.1)	 	Any treatment-related AE	 	50 (41.0)	 	4 (3.3)	
Treatment-related AE in   ≥   3 patients	 	 	 	 	 	Treatment-related AE in   ≥   3 subjects	 	 	 	 	
Fatigue	 	14 (11.0)	 	1 (0.8)	 	Fatigue	 	27 (22.1)	 	—	
Headache	 	6 (4.7)	 	1 (0.8)	 	Diarrhea	 	16 (13.1)	 	1 (0.8)	
Convulsion	 	6 (4.7)	 	—	 	Nausea	 	12 (9.8)	 	—	
Confusional state	 	5 (3.9)	 	—	 	Decreased appetite	 	6 (4.9)	 	—	
Nausea	 	4 (3.1)	 	—	 	Rash	 	3 (2.5)	 	—	
Pyrexia	 	5 (3.9)	 	—	 	Vomiting	 	4 (3.3)	 	—	
Hemiparesis	 	3 (2.4)	 	—	 	 	 	 	 	 	
Vasogenic cerebral edema	 	1 (0.8)	 	2 (1.6)	 	 	 	 	 	 	
Any treatment-related SAE (4)	 	1 (0.8)	 	7 (5.5)	 	Any treatment-related SAE   (5)	 	—	 	2 (1.6)	
 	 	 	 	 	 	AEs leading to discontinuation (6)	 	1 (0.8)	 	2 (1.6)	

(1)	Preliminary data – cutoff April 2017.	
(2)	No deaths considered related to Toca 511.	
(3)	No deaths considered related to Toca FC.	
(4)	Toca 511 SAEs in six patients included asthenia (one), pyrexia (one), subdural hygroma (one), cerebral cyst (one), vasogenic edema (one), convulsions (two) and pulmonary embolism (one).	
(5)	Toca FC SAEs in three patients included pulmonary embolism (one), diarrhea (one) and intracranial hemorrhage (one).	
(6)	Events leading to study discontinuation or withdrawal of study drug, regardless of attribution. AEs of highest severity counted in patients with multiple events. In the continuation study, 1 patient was discontinued after > 1 year of treatment due to Grade 1 skin rash and Grade 2 oral ulcers that recurred with each cycle of Toca FC.	
Ongoing Phase 3 Clinical Trial
In November 2015, we initiated the Phase 2 portion of a randomized, controlled Phase 2/3 clinical trial of Toca 511 & Toca FC against the current standard of care in recurrent HGG. In this clinical trial we are using doses of Toca 511 and Toca FC of 4 mL and 220 mg/kg/day, respectively, equivalent to the doses used in the Higher Dose Cohort of our Phase 1 resection injection trial. Enrollment criteria for patients in this clinical trial includes first or second recurrence of HGG, no prior treatment with bevacizumab for recurrent HGG, and a tumor size of less than or equal to five centimeters. We completed enrollment with 187 patients in the Phase 2 portion of this trial as of February 2017. Investigators may choose chemotherapy (lomustine or temozolomide) or antiangiogenic therapy (bevacizumab) for the control arm. We expect that the arms of the trial will be comparable through stratification at the time of 1:1 randomization based on performance status, geographic region and IDH1 mutation status. The primary endpoint for the trial is overall survival. The expected median overall survival for the control arm is 8.5 months based on the assumption that approximately 25% of patients will receive bevacizumab and the remainder will receive chemotherapy in the control arm. In this trial we are evaluating evidence for immunologic mechanisms of disease control and we will perform a detailed molecular analysis of RNA expression, IDH phenotypes and MGMT methylation status in resected tumors. We will continue to monitor blood for viral RNA, DNA and for Toca FC levels. This clinical trial is being conducted in the United States, Canada, Israel and South Korea. The principal investigator in the United States is Timothy Cloughesy, M.D., director of the neuro-oncology program at the University of California, Los Angeles.
Because overall survival is the primary endpoint, we did not request a Special Protocol Assessment from the FDA. At our Type B meeting with the FDA in March 2015, we and the FDA discussed the design of the trial and we subsequently finalized the protocol based upon the FDA’s feedback. We also discussed the possibility of providing the data from the Phase 2 portion of this clinical trial to the FDA prior to initiation of the Phase 3 portion of the trial. The FDA indicated that they would be willing to meet with us in an end of Phase 2 meeting to review the data if the results appear compelling.
In February 2017, the FDA granted Toca 511 & Toca FC Breakthrough Therapy Designation for the treatment of recurrent HGG. In June 2017, the EMA granted Toca 511 PRIME Designation for the treatment of patients with glioma.
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Our PRIME and Breakthrough Therapy Designation application was based on data from three Phase 1 ascending-dose clinical trials involving 127 patients with recurrent brain cancer. The clinical data included results published in Science Translational Medicine, including safety data, patient survival data and data regarding durable, c omplete or partial tumor shrinkage as determined by independent radiology review. In addition, preclinical information was provided to the FDA supporting a novel immunological mechanism of action involving the depletion of immune-suppressive myeloid cells in the tumor microenvironment.
Breakthrough Therapy Designation indicates that preliminary clinical evidence demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy. Breakthrough Therapy Designation intensifies FDA involvement to ensure an efficient drug development program and is an organizational commitment from the FDA to involve its senior managers.
In October 2017, based on our communications with the FDA under Breakthrough Therapy Designation, we modified the original two-step trial design (Phase 2 followed by Phase 3) into a seamless, Phase 3 pivotal trial, also known as the Toca 5 trial.
Intravenous Clinical Trial
In July 2016, we initiated a Phase 1b clinical trial in various types of metastatic solid cancer, including colorectal, pancreatic, breast, lung and melanoma to confirm the selective tumor transduction with the CD gene and CD protein expression following Toca 511 delivery already documented in HGG with intravenous delivery. New diagnoses of these cancers are estimated to exceed 700,000 per year in the United States and 5.4 million per year worldwide. In our metastatic cancer trial we plan to evaluate safety, presence of Toca 511 genes in tumors of patients with widely-disseminated disease, immunologic activity in blood and tumor such as changes in CD4, CD8 and immune-suppressive myeloid cells, and clinical activity such as tumor response and clinical benefit. We also plan, in this clinical trial, to evaluate Toca 511 & Toca FC in combination with one or more checkpoint inhibitors. Toca 511 will be administered by intravenous injection followed by (1) intratumoral injection following biopsy or (2) injection into the resection cavity wall following planned resection in the case of recurrent HGG or brain metastases.
Planned Clinical Trials
In 2018, we plan to advance our clinical development plan evaluating Toca 511 & Toca FC in patients with newly diagnosed HGG. The primary goals of this study will be to evaluate the safety and preliminary efficacy of Toca 511 delivered at the time of resection and Toca FC subsequently delivered in conjunction with radiation and temozolomide.
Preclinical Studies of Toca 511 and 5-FC
We believe our preclinical studies support the clinical development of Toca 511 & Toca FC in brain cancers both as a stand-alone regimen and in combination with current treatments. During preclinical testing of Toca 511 we observed that treatment with Toca 511 and 5-FC had two powerful mechanisms of action: direct killing of cancer cells and activation of the immune system against the cancer cells. 5-FC, which we use in our preclinical studies, is the active component of the Toca FC tablets we use in humans. 
Preclinical Studies in Other Cancer Types
Our pipeline of proprietary programs has the potential to be applicable to a wide variety of cancers. For example, we have demonstrated biodistribution, tumor shrinkage, and long-term survival in colorectal, breast and bladder cancers in preclinical studies, in addition to our brain cancer models with an RRV containing CD and 5-FC.
Based on preclinical data, we believe Toca 511 & Toca FC has the potential to be effective in treating most cancer types. First, most human cancer cell lines that have been tested are permissive for Toca 511 and sensitive to Toca 511 and 5-FC at clinically relevant concentrations of 5-FC. Also, we have conducted in vivo studies in numerous cancer types, and the studies show that Toca 511 spreads through tumors, including after intravenous infusions into animals with highly-metastatic cancers. For example, in a metastatic colorectal cancer model with numerous lesions in the liver (below left), an RRV containing the GFP gene shows that intravenous administration of RRV is selectively present in the tumor tissue and leaves normal liver uninfected. Tumor metastases are identified by luciferase-based bioluminescence which closely overlays with the location of RRV expressing GFP (below right).
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Images of same liver in colorectal cancer metastases model after intravenous RRV delivery
In this animal model, as in animals with the same colorectal cancer metastases (above) in the brain, Toca 511 and 5-FC caused tumor shrinkage, long-term survival and the generation of anti-tumor immunity sufficient to prevent re-challenge. The treated mice had an apparent 56% cure rate and such animals showed a dramatic decrease in the number of MDSCs in the tumor microenvironment and, overall, generated an anti-tumor immune response based on their ability to reject reimplanted tumors. Our treatment mechanism of action of immune activation against cancer is further supported by the ability to provide long-term survival to animals with cancer that receive lymphocytes from animals previously treated with Toca 511 and 5-FC.
We believe these cell culture and additional animal studies support the view that Toca 511 & Toca FC is generally active against cancer and drives our decision to evaluate this treatment against various types of cancers in clinical trials.
Manufacturing
Our lead product candidate, Toca 511 & Toca FC, consists of a biological component and a drug component, which are separately manufactured and are both covered by our proprietary intellectual property. The process for Toca 511 manufacturing and testing has been developed internally and we believe that the process itself and the expertise to design and implement this process as well as the testing are significant assets. The process and the vector composition are covered by patents, patent applications and trade secrets. The process for Toca FC (extended release 5-FC) was also designed internally. We rely on third-party contract manufacturing organizations, or CMOs, for both of these manufacturing processes to produce our final product for clinical use, as currently we do not own or operate manufacturing facilities. In addition we utilize contract testing organizations, or CTOs, for the establishment and performance of validated product release assays for Toca 511 & Toca FC material. For Toca FC and Toca 511, we require that our CMOs produce bulk drug substances and finished drug products compliant with current Good Manufacturing Practices, or cGMP, requirements and all other applicable laws and regulations. We plan to release material with appropriately qualified assays by our CTOs, who we require to operate under cGMP. We will retain final responsibility for product release and maintain an appropriate quality assurance capability to meet this need. We will continue to rely on CMOs and CTOs to manufacture and perform release testing, respectively, of our products for commercial sale. We maintain agreements with manufacturers and testing laboratories that include confidentiality and intellectual property provisions to protect our proprietary rights related to our product candidates and testing methods.
We use a viral producer cell line to create Toca 511 and currently rely on a sole-source CMO to manufacture Toca 511. We believe that our current manufacturing capacity for Toca 511 will be sufficient to support our ongoing and planned clinical trials. We plan to use this CMO for commercial manufacturing and plan to establish a second CMO to support our commercial supply needs.
Manufacturing for Toca FC generally encompasses both the chemical synthesis of the active pharmaceutical ingredient, or API, and its formulation and fill/finish of the final product. We currently utilize a single CMO in the United States for the production of the API and a single CMO for the manufacture of the final drug product tablets. We expect these preparations to supply sufficient Toca FC drug substance to complete the planned clinical trials. We believe we have the manufacturing capacity to supply the drug product tablets for our ongoing and planned clinical trials. We plan to use the current API and formulation CMOs for commercial supply.
We currently have no plans to build our own manufacturing capacity to manufacture Toca 511 or Toca FC.
License and Collaboration Agreements
Laboratory Services and License Agreement with Siemens
 In November 2011, we entered into a laboratory services and license agreement with Siemens, which we amended in June 2015, pursuant to which we agreed to engage Siemens (i) to develop and perform certain in vitro diagnostic assays in connection with the
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cancer therapy tri als of Toca 511 & Toca FC, (ii) concurrently and/or thereafter, to further develop, obtain FDA approval for, and perform one or more of such in vitro diagnostic assays as drug monitoring diagnostics for Toca 511 & Toca FC as Toca 511 & Toca FC receives mar keting approval from the FDA, and (iii) following FDA approval of such in vitro diagnostic assay as a monitoring diagnostic, to perform such in vitro diagnostic monitoring assays as necessary in connection with post-marketing clinical trials of Toca 511 & Toca FC and, if appropriate, as commercial diagnostic tests. We granted Siemens the licensed intellectual property covered by the agreement on an exclusive and non-exclusive basis, depending on Siemens’ use of such intellectual property.
Under the terms of the agreement, Siemens paid us an initial upfront payment of $0.5 million. Additionally, beginning with the first commercial sale of a product that has received approval for clinical use under the agreement, Siemens will pay us a royalty in the 10-20 percent range of net assay revenue with respect to approved designated assay products and net sales revenue with respect to approved in vitro diagnostic products, until the fifth anniversary of such commercial sale, subject to certain reductions. Beginning with the first commercial sale of Toca 511 or Toca FC, we will pay a royalty to Siemens in the low single-digit percentage range on net product sales of Toca 511 & Toca FC for sales up to the mid-nine-digit dollar range per year, until the fifth anniversary of such commercial sale.
The term of this agreement will continue until the expiration of all payment obligations. The agreement provides that it may be terminated by either party upon written notice to the other party in the event of the other party’s material breach of the agreement if such breach remains uncured for 45 days, or in the event the other party files a voluntary petition in bankruptcy, is adjudicated as bankrupt or insolvent after all appeals are exhausted, makes a general assignment for the benefit of creditors or fails to discharge or have dismissed within 60 days an involuntary petition in bankruptcy filed against it. If market approval is rejected by the FDA, Siemens must provide us with prompt written notice. Should the parties be unable to reach mutual agreement regarding regulatory strategy within 20 business days of such notice, then either party may terminate the agreement upon written notice to the other party. Siemens may terminate the agreement for any reason upon 90 days prior written notice to us, provided that, notwithstanding such termination, Siemens must continue to provide the laboratory services for any of our trials the protocol for which has been submitted to FDA until the conclusion of such pre-approval trial. Siemens may also terminate the agreement if, after using commercially reasonable efforts, certain assay specifications are not achieved. If Siemens terminates the agreement for breach of contract by us, the licenses granted to Siemens will survive such termination and will become non-exclusive, perpetual and irrevocable, provided that Siemens will have the right to terminate any such license at any time upon written notice to us. If the agreement expires, or if the agreement is terminated by us for breach of contract by Siemens or for failure to reach an agreement on regulatory strategy, the restriction in the license granted to activities outside of the territory will terminate, and we will have the right to pursue development and commercialization of companion diagnostics for products with one or more other partners in the territory, and to grant to such other partners sublicenses of our rights under the agreement. If the agreement is terminated by either party for failure to reach an agreement on regulatory strategy, or by Siemens by 90 days written notice, for a minimum of 45 days after the later of (i) the termination date or (ii) completion of any required post-termination laboratory services and delivery to us of all results thereof, Siemens must retain any stocks of qualified reagents for the assays that remain as of Siemens’ completion of such laboratory services, and, upon our request made at any time during such 45-day period, Siemens must deliver such remaining stocks to us, provided that we shall have executed documentation reasonably satisfactory to Siemens acknowledging that the use of such reagents is restricted to investigational use pursuant to our IND, and any other use permitted by, and in compliance with, applicable laws, regulatory guidelines and regulatory approvals.
License Agreement with USC
In October 2007, we entered into a license agreement with the University of Southern California, or USC, pursuant to which we received a worldwide, exclusive license to, among other things, manufacture and market products utilizing inventions related to our RRV platform and other key technology.
Under the terms of the agreement, we paid an initial license fee to USC in the low six-digit dollar range and issued to USC shares of our common stock in an amount equal to the low single-digit percent range of all the number of shares of common stock issued at the time shares were issued to our six founders prior to the date of the agreement. Pursuant to the agreement, we owe USC a royalty in the low single-digit percent range of our and our sub-licensee’s net sales of products covered by the agreement. In addition, we owe USC an additional royalty in the low single-digit percent range of revenue from our sub-licensees. Once our and our sub-licensees net sales reach an amount in the mid-seven digit dollar range, the minimum annual royalty payment due to USC will be in the low six-digit dollar range. Our royalty obligations continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the last valid claim in the licensed patent covering a licensed product in such country.
 The term of this agreement will continue until all of our royalty payment obligations have expired unless terminated earlier. The agreement provides that it may be terminated by either party upon written notice to the other party in the event of the other party’s material breach of the agreement if such breach remains uncured for 45 days. We may terminate the agreement without cause upon 45 days’ advance written notice to USC. USC may also terminate the agreement upon notice to us upon (i) the declaration by a court of competent jurisdiction that we are bankrupt and our assets are to be liquidated pursuant to the U.S. Bankruptcy Code; (ii) upon the filing or institution by us of bankruptcy, liquidation or receivership proceedings under Chapter 7 of the U.S. Bankruptcy Code;
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(iii) upon an assignment of a substantial portion of our assets for the benefit of creditors; or (iv) in the event a receiver or custodian is appo inted in bankruptcy for all or substantially all of our business; provided, however, that in the case of any involuntary proceeding, such right to terminate shall only become effective if the proceeding is not dismissed within 120 days after the filing the reof. Upon termination of the agreement, all rights granted to or provided by each party to the other shall automatically and irrevocably revert to the granting party.
Grants
In August 2017, we were awarded a $2.0 million grant by the U.S. Food and Drug Administration Office of Orphan Products Development to support our Phase 3 clinical trial, or OOPD Grant. Under the grant agreement, we will be reimbursed for qualifying expenses over a four-year period subject to the availability of funds and satisfactory progress of the trial. At December 31, 2017, we had received $0.5 million relating to the OOPD Grant.
We have also received grants from the following entities: National Institutes of Health, Voices Against Brain Cancer, Musella Foundation, Accelerate Brain Cancer Cure, Inc., National Brain Tumor Society, American Brain Tumor Association, Adenoid Cystic Carcinoma Research Foundation, and Internal Revenue Service — Qualifying Therapeutic Discovery Project Program.
Sales and Marketing
We currently own exclusive worldwide development and commercial rights to our therapeutic product candidates and underlying viral technology platforms. We plan to build at the appropriate time a commercial infrastructure targeting oncologists, neuro-oncologists and neurosurgeons and related clinicians and health care workers in leading and regional cancer centers in the United States.
We anticipate that our commercial infrastructure will be built around a “high-touch” model to maximize patient access to our products. In addition to an internal team of dedicated medical sales, marketing, medical affairs, reimbursement, and commercial operations personnel we anticipate leveraging external capabilities such as contract pharmacy services. It is possible that a Risk Evaluation Mitigation Strategy program, or REMS, will be required for our products.
For our lead product candidate, Toca 511 & Toca FC for HGG, we have established a base of scientific familiarity with leading physicians in the United States, EU, Canada, South Korea, Israel and Japan. If we obtain regulatory approval, we expect that the base of familiarity we have built with leading international brain cancer centers during the conduct of our clinical trials, including the Toca 5 trial, will help drive market acceptance of our product. We believe that the majority of patients undergoing treatment for HGG in the United States are treated at approximately 60 brain cancer centers in the United States, many of which have participated in our clinical trials. Therefore, we believe a highly specialized, relatively small, medically-focused sales force, in addition to medical science liasons, will be sufficient to support the commercialization of our product.
Outside the United States, we may build our own commercial infrastructure or consider opportunities to enter into out-licensing or co-promotion agreements with other pharmaceutical or biotechnology companies to develop and/or commercialize our product candidates outside the United States.
We currently have very limited sales and marketing or distribution capabilities or in-house personnel specializing in these functions.
Intellectual Property
Intellectual property is of vital importance in our field and in biotechnology generally. We seek to protect and enhance proprietary technology, inventions, and improvements that are commercially important to the development of our business by seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties.
We will also seek to rely on regulatory protection afforded through Orphan-Drug Designations, data exclusivity, market exclusivity and patent term extensions where available.
We have obtained Orphan-Drug Designation for Toca 511 & Toca FC for the treatment of GBM, which makes the product eligible for a period of orphan drug exclusivity, if approved in this indication, under certain conditions. We believe that approval under a biologics license application, or BLA, will be eligible for 12 years of market exclusivity in the United States, 10 years of market exclusivity in Europe and significant durations in other markets, which would be complementary to any relevant patent exclusivity.
 Through licensing and developing our own portfolio, and as of February 2018, we have rights to thirteen issued patents in the United States, seven of which are assigned to us and six of which are exclusively licensed to us, and 63 issued and granted patents in
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foreign countries, 45 of which are assigned to us and 18 of which are exclusively licensed to us, 11 patent appli cations in the United States, all of which are assigned to us and 61 patent applications in foreign countries, all of which are assigned to us. We believe that the issued patents will provide coverage on our technology platform and product candidates until approximately 2030. We file intellectual property we believe to be key to our business at a minimum in jurisdictions including the United States, Europe and Japan. Our original core technology was licensed from USC and The Regents of the University of Cal ifornia. Families within the portfolio are directed to our RRV technology platform, the modified CD gene that we use in Toca 511, various other therapeutic modalities and genes for use with RRV, manufacturing methods for RRV, the extended release Toca FC f ormulation, various combination therapies with Toca 511 & Toca FC and other agents, intravenous administration of RRV and diagnostic assays for detection of RRV.
We possess significant knowledge relating to the construction, manufacture, development and protection of gene therapy products. Certain intellectual property we aim to protect through a trade secret strategy.
Competition
The biotechnology and pharmaceutical industries, and the immunotherapy subsector, are characterized by rapid evolution of technologies, fierce competition and strong defense of intellectual property. A wide variety of institutions, including large pharmaceutical companies, specialty biotechnology companies, academic research departments and public and private research institutions are actively developing potentially competitive products and technologies. We face substantial competition from biotechnology and pharmaceutical companies developing products in immunotherapy and in our lead indication.
Companies developing other immunotherapy products generally fall within the following categories:
 	•	diversified pharmaceutical companies developing immunotherapies, including checkpoint inhibitors: AstraZeneca plc, Bristol-Myers Squibb Co., Celgene Corporation, F. Hoffman-La Roche AG, GlaxoSmithKline plc, Merck & Co., Inc., Novartis AG, Pfizer Inc. and Sanofi SA;	
 	•	companies aimed at stimulating immune responses: Argos Therapeutics, Inc., Aduro Biotech, Inc., Advaxis, Inc., Idera Pharmaceuticals, Inc., Immune Design Corp., Incyte Corporation, NantKwest, Inc, New Link Genetic Corporation, Northwest Biotherapeutics, Inc., Stemline Therapeutics Inc., and Trillium Therapeutics Inc.;	
 	•	companies developing CAR and TCR T cells include: Adaptimmune Therapeutics plc, Bellicum Pharmaceuticals, Inc., Cellectis S.A., Juno Therapeutics, Inc. (acquired by Celgene, Inc.), Kite Pharma, Inc. (acquired by Gilead Sciences, Inc.) and Novartis AG; and	
 	•	companies developing virus-based technology: Amgen, Inc. (Imlygic (talimogene laherparepvec) approved by the FDA in 2015), Vascular Biogenics Ltd, DNAtrix, Inc., Ziopharm Oncology, Inc., Viralytics Ltd and Istari Oncology, Inc.	
Approved treatments for HGG or GBM, a subset of HGG, include surgery, radiation and chemotherapy, the most widely used being temozolomide. Other approved treatments include the carmustine implant (marketed as Gliadel wafer by Arbor Pharmaceuticals, LLC), bevacizumab (marketed as Avastin by Genentech, Inc.), and NovoCure Limited’s personal electric field device, marketed as Optune (approved for the treatment of GBM). In addition to approved therapies, we expect that Toca 511 & Toca FC will compete with product candidates that we are aware of in clinical development by third parties, including nivolumab and ipilimumab (being developed as monocolonal antibodies targeting immune checkpoints, PD-1 and CTLA-4, for the treatment of GBM by Bristol-Myers Squibb Co.; currently in Phase 3 clinical trials), pembrolizumab (being developed as a monocolonal antibody targeting PD-1 for the treatment of GBM by Merck & Co., Inc.; currently in Phase 2 clinical trials), ABT414 (being developed as a monocolonal antibody targeting EGFR for the treatment of GBM by AbbVie Biotherapeutics Corporation; currently in Phase 2 clinical trials), VB-111 (being developed as an antiangiogenic agent delivered with adenovirus for recurrent GBM by Vascular Biogenics Ltd.; currently in Phase 3 clinical trials under a special protocol assessment), VAL-083 (a bi-functional alkylating agent in development for recurrent GBM by DelMar Pharmaceuticals Inc.; currently in Phase 1/2 clinical trials), TPI-207 (a 3 rd generation taxane in combination with bevacizumab in development for recurrent GBM by Cortice Biosciences; currently in Phase 1/2 clinical trials), martizomib (an alkylating proteasome inhibitor in development for GBM by Celgene Corporation in collaboration with Triphase Accelerator Corporation; currently in Phase 1 clinical trials), Ad-RTS-HIL-12 with veledimex in development for recurrent GBM by Ziopharm Oncology Inc.; currently in Phase 1 clinical trials, SL-701 (a GBM vaccine in development by Stemline Therapeutics Inc.; currently in Phase 2 clinical trials), PVSRIPO (a modified oncolytic polio virus being developed by Istari Oncology, Inc.), and a CAR T cells (being studied in Phase 1 clinical trials by University of Pennsylvania and City of Hope against EGFRvIII and interleukin-13 receptor alpha 2, respectively).
Any product candidates that we successfully develop and commercialize may compete with existing and new therapies that may become available in the future. The availability of reimbursement from government and other third-party payers will also significantly affect the pricing and competitiveness of our products.
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Many of our competitors, either alone or with strategic p artners, have substantially greater financial, technical and human resources than we do. Accordingly, our competitors may be more successful than we are in obtaining approval for treatments and achieving widespread market acceptance, rendering our treatmen ts obsolete or non-competitive. Accelerated mergers and acquisitions activity in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. These companies also compete wi th us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials and acquiring technologies complementary to, or necessary for, our programs. Smaller or early-st age companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
Our commercial opportunity could be substantially limited in the event that our competitors develop and commercialize products that are more effective, safer, less toxic, more convenient or cheaper than our comparable products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of our product’s entry. We believe the competitive factors that will determine the success of our programs will be the efficacy, safety, pricing and reimbursement, and convenience of our product candidates.
Government Regulation
Our most advanced product candidate, Toca 511 & Toca FC, is subject to regulation as a combination product in the U.S., which means that it is comprised of both a drug product and a biologic product. If marketed individually, each component would be subject to different regulatory pathways and reviewed by different Centers within the FDA. A combination product, however, is assigned to a Center that will have primary   jurisdiction over its regulation based on a determination of the combination product’s primary mode of action, which is the single mode of action that provides the most important therapeutic action. In the case of our Toca 511 & Toca FC product candidate, we believe that the primary mode of action is attributable to the biologic component of the product, which means that the Food and Drug Administration’s Center for Biologics Evaluation and Research, or CBER, has primary jurisdiction over premarket development. We have had formal communication with the Center for Drug Evaluation and Research, or CDER, acknowledging that CBER will be the lead review agency while CDER will be a consulting agency for the Toca FC product component. Accordingly, we are investigating Toca 511 & Toca FC pursuant to a single IND and we plan to seek approval of the combination product through a single BLA. Based on our discussions with the FDA to date, we do not anticipate that the FDA will require a separate marketing authorization for Toca FC, the small molecule drug component of the combination.
Combination products comprised of biological products, such as gene therapy products, and small molecule drugs, are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local, and foreign statutes and regulations. Both the FD&C Act and the PHS Act and their corresponding regulations govern, among other things, the testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising, and other promotional practices involving combination products. In the United States, before clinical testing of such combination products, we must submit an IND to the FDA, which reviews the clinical protocol, and the IND must become effective before clinical studies may begin. In some instances, we must also submit our protocols to the U.S. National Institutes of Health, or NIH, through its Recombinant DNA Advisory Committee, or RAC, before initiating clinical testing of gene therapy products. FDA approval also must be obtained before marketing of combination products. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.
Within the FDA, CBER regulates gene therapy products. CBER works closely with the NIH and its RAC, which makes recommendations to the NIH on gene therapy issues and engages in a public discussion of scientific, safety, ethical and societal issues related to proposed and ongoing gene therapy protocols. The FDA and the NIH have published guidance documents with respect to the development and submission of gene therapy protocols, including informed consent documents. The FDA also has published guidance documents related to, among other things, gene therapy products in general, their preclinical assessment, observing patients involved in gene therapy studies for delayed adverse events, potency testing, and chemistry, manufacturing and control information in gene therapy INDs.
Ethical, social, and legal concerns about gene therapy, genetic testing, and genetic research could result in additional regulations restricting or prohibiting the processes we may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing any products. New government requirements may be established that could delay or prevent regulatory approval of our product candidates under development. It is impossible to predict whether legislative changes will be enacted, regulations, policies, or guidance changed, or interpretations by agencies or courts changed, or what the impact of such changes, if any, may be.
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U.S. Combination Products Development Process
The process required by the FDA before a biological product, including our Toca 511 & Toca FC combination product candidate, may be marketed in the United States generally involves the following:
 	•	completion of nonclinical laboratory tests and animal studies according to good laboratory practices, or GLPs, and applicable requirements for the humane use of laboratory animals or other applicable regulations;	
 	•	submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin;	
 	•	performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as good clinical practices, or GCPs, and any additional requirements for the protection of human research patients and their health information, to establish the safety, purity, and potency of the proposed biological product for its intended use;	
 	•	submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from results of nonclinical testing and clinical trials;	
 	•	satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the components of the combination product are produced and tested to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;	
 	•	potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the BLA; and	
 	•	FDA review and approval, or licensure, of the BLA.	
Before testing any product candidate, including a gene therapy product, in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of certain preclinical tests must comply with federal regulations and requirements including GLPs.
Where a gene therapy study is conducted at, or sponsored by, institutions receiving NIH funding for recombinant DNA research, a protocol and related documentation has to be submitted to and the clinical trial registered with the NIH Office of Biotechnology Activities, or OBA, pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules, or NIH Guidelines. Compliance with the NIH Guidelines is mandatory for investigators at institutions receiving NIH funds for research involving recombinant DNA, however many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. The NIH is responsible for convening the RAC, a federal advisory committee, which discusses protocols that raise novel or particularly important scientific, safety or ethical considerations at one of its quarterly public meetings. Current NIH guidelines specify that RAC review of human gene transfer protocols should be limited to cases in which an oversight body, such as an Institutional Biosafety Committee or an Institutional Review Board, or IRB, determines that a protocol would significantly benefit from RAC review, and has been determined to meet certain additional criteria. The OBA will notify the FDA and the sponsor of the RAC’s decision regarding the necessity for full public review of a gene therapy protocol. RAC proceedings and reports are posted to the OBA web site and may be accessed by the public.
The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. With gene therapy protocols, if the FDA allows the IND to proceed, but the RAC decides that full public review of the protocol is warranted, the FDA will request at the completion of its IND review that sponsors delay initiation of the protocol until after completion of the RAC review process. The FDA may also impose clinical holds on a product candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such trials.
 Clinical trials involve the administration of the product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the clinical trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, patient selection and exclusion criteria, and the parameters to be used to monitor patient safety, including stopping rules that assure a clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to the protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s regulations comprising the GCP requirements, including the requirement that all patients provide informed consent. Further, each clinical trial must be reviewed and approved by an independent IRB at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of clinical trial participants and considers such items as whether the risks to individuals participating in the clinical
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trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and c ontent of the informed consent, which must be signed by each clinical trial patient or his or her legal representative, and must monitor the clinical trial until completed. Clinical trials involving biological product candidates also must be reviewed by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees basic and clinical research conducted at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
 	•	Phase 1 .    The investigational product candidate is initially introduced into healthy human patients and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product candidate may be inherently too toxic to be ethically administered to healthy volunteers, the initial human testing is often conducted in patients; gene therapy is usually administered to patients in Phase 1 trials. This is also true in situations where toxicity can only be judged in patients with disease. An evaluation for preliminary evidence of efficacy can be performed at this time.	
 	•	Phase 2 .    The investigational product candidate is evaluated in a limited patient population to identify possible adverse effects and safety risks, to evaluate preliminarily the efficacy of the product candidate for specific targeted diseases, and to generate hypotheses for the dosage tolerance, optimal dosage, and dosing schedule.	
 	•	Phase 3 .    Clinical trials are undertaken to evaluate further dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product candidate and provide an adequate basis for product labeling.	
Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up. The FDA recommends that sponsors observe patients for potential gene therapy-related delayed adverse events with agents such as those we are developing for a period of up to 15 years, including a minimum of five years of annual examinations followed by ten years of annual queries, either in person or by questionnaire, of clinical trial patients.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, the NIH and the investigators for serious and unexpected adverse events, any findings from other trials, tests in laboratory animals or in vitro testing that suggest a significant risk for human patients, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for expedited reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2, and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA, the sponsor, or its data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the investigational product candidate has been associated with unexpected serious harm to patients.
There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. The NIH and the FDA have a publicly accessible database, the Genetic Modification Clinical Research Information System, which includes information on gene therapy trials and serves as an electronic tool to facilitate the reporting and analysis of adverse events on these trials.
Concurrent with clinical trials, companies usually complete additional animal studies and also develop additional information about the physical characteristics of the components of a combination product as well as finalize processes for manufacturing the components in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHS Act emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the components of a combination product candidate do not undergo unacceptable deterioration over their shelf life.
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U.S. Review and Approval Processes
After the completion of clinical trials of an investigational biologic product, FDA approval of a BLA must be obtained before commercial marketing of the product. The BLA must include results of product development, laboratory, and animal studies, human trials, information on the manufacture and composition of the product, proposed labeling and other relevant information. In addition, under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA must contain data to assess the safety and effectiveness of the combination product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any product for an indication for which orphan Designation has been granted. Currently we have Orphan-Drug Designation for Toca 511 & Toca FC for the treatment of GBM. The testing and approval processes require substantial time and effort and there can be no assurance that the FDA will accept the BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at all.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes annual program fees on prescription drugs or biologics. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on BLAs for products designated as orphan drugs, unless the application also includes a non-orphan indication.
Within 60 days following submission of the application, the FDA reviews a BLA to determine if it is substantially complete before the agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to an initial filing review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe and potent, or effective, for its intended use, and has an acceptable purity profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During the product approval process, the FDA also will determine whether a REMS is necessary to assure the safe use of the product. If the FDA concludes that a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a REMS, if required.
Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in substantial compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites, to assure that the clinical trials were conducted in compliance with GCP requirements. To assure cGMP, GLP and GCP compliance, an applicant must incur significant expenditure of time, money, and effort in the areas of training, record keeping, production, and quality control.
Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently from how we interpret the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.
If a product candidate receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings, or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to assess further a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.
 One of the performance goals agreed to by the FDA under the PDUFA is to review 90% of original standard BLAs within 10 months of the 60 day filing date and 90% of original priority BLAs within six months of the 60 day filing date, whereupon a review decision is to be made. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs and its review goals are
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subject to change from time to time. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information o r clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.
Orphan-Drug Designation
Under the Orphan-Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting a BLA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. We have been granted Orphan-Drug Designation by the FDA for Toca 511 & Toca FC for the treatment of GBM, which is a subset of HGG, the indication that we are initially pursuing. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. There can be no assurance that we will receive Orphan-Drug Designation for additional indications or for any additional product candidates.
If a product candidate that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same biological product as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. The Committee of Orphan Medicinal Products of the EMA has designated both flucytosine and vocimagene amiretrorepvec as orphan medicinal products indicated for the treatment of glioma. Orphan designation provides for a full waiver of Scientific Advice/Protocol Assistance fees in conjunction with small-medium enterprise.  Also included is a waiver of the fee for a marketing authorization application, and a 10-year market exclusivity upon approval which protects from market competition for similar medicines with similar indications.
Expedited Development and Review Programs
The FDA has four programs in place intended to facilitate and expedite development and review of new drugs and biologics intended to address unmet medical needs in the treatment of serious or life-threatening conditions: Fast Track Designation, Breakthrough Therapy Designation, accelerated approval, and priority review designation.
The Fast Track program is intended to expedite or facilitate the process for reviewing a new product if it is intended for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. Fast Track Designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product at any time during the clinical development of the product. Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application. We have received Fast Track Designation of Toca 511 & Toca FC for the treatment of patients with recurrent HGG, to improve their overall survival.
A new product can receive Breakthrough Therapy Designation if it is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that it may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A Breakthrough Therapy Designation conveys all of the features of Fast Track Designation in addition to more intensive FDA guidance on an efficient development program, organizational commitment involving senior managers, and eligibility for priority review. Specifically, FDA intends to expedite the development and review of a Breakthrough Therapy by, where appropriate, intensively involving senior managers and experienced review staff in a proactive collaborative, cross-disciplinary review. Where appropriate, FDA also intends to assign a cross-disciplinary project lead for the review team to facilitate an efficient review of the development program. The FDA notes that a compressed drug development program still must generate adequate data to demonstrate that the drug or biologic meets the statutory standard for approval. Omitting components of the development program that are necessary for such a determination can significantly delay, or even preclude, marketing approval.
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The FDA has granted Toca 511 & Toca FC Breakthrough Therapy Designation for the treatment of recurrent HGG. Our Breakthrough Therapy Designation application was based on data from three Phase 1 ascending-dose clinical trials involving 126 patients with recurrent brai n cancer. The clinical data included results published in Science Translational Medicine, including safety data, patient survival data and data regarding durable, complete or partial tumor shrinkage as determined by independent radiology review. In additio n, preclinical information was provided to the FDA supporting a novel immunological mechanism of action involving the depletion of immune-suppressive myeloid cells in the tumor microenvironment.
Breakthrough Therapy Designation indicates that preliminary clinical evidence demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy. Breakthrough Therapy Designation intensifies FDA involvement to ensure an efficient drug development program and is an organizational commitment from the FDA to involve its senior managers. We have up to six months after receiving the Breakthrough Therapy Designation to request an Initial Comprehensive Multidisciplinary meeting to discuss the drug development program. This initial meeting is a Type B meeting, used to discuss the overarching, high-level plan for drug development. The discussion will include topics such as planned clinical trials and endpoints, any resizing or adaptations to the trials, plans for expediting the manufacturing development strategy and studies that potentially could be completed after approval. When Breakthrough Therapy Designation has been granted, the FDA is encouraged to meet regularly with the sponsor and subsequent meetings are considered Type B meetings and are established based on the needs of the program.
The FDA may grant Accelerated Approval to a product candidate for a serious or life-threatening condition upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or an effect on a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Accelerated approval is usually contingent on a sponsor’s agreement to conduct adequate and well-controlled additional post-approval trials to verify and describe the product’s clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.
Fast Track Designation, Breakthrough Therapy Designation, PRIME Designation and accelerated approval do not change the standards for approval but may expedite the development process.
An application for a product candidate may be eligible to obtain Priority Review Designation if it is intended to treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA will attempt to direct additional resources to the evaluation of an application for a new product designated for priority review in an effort to facilitate the review.  Priority Review Designation does not change the standards for approval but may expedite the review process.
Post-Approval Requirements
Maintaining post-approval compliance with applicable federal, state, and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of combination products continues after approval, particularly with respect to cGMP. We rely, and expect to continue to rely, on third parties for the production and distribution of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to combination products include reporting of cGMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse effects, reporting updated safety and efficacy information, and complying with electronic record and signature requirements. After a BLA is approved, the product also may be subject to official lot release. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA also may perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of combination products.
 We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical hold, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of
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government contracts, mandated corrective advertising or communications with doctors, d ebarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
Manufacturers and other entities involved in the manufacture and distribution of approved products are required to register the establishments where the approved products are made with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including withdrawal of the product from the market. In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
U.S. Patent Term Restoration
Depending upon the timing, duration, and specifics of the FDA approval of the use of our product candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved biological product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may intend to apply for restoration of patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA.
Biosimilars and Exclusivity
The Biologics Price Competition and Innovation Act, or BPCIA, created an abbreviated approval pathway for biological products shown to be highly similar to, or interchangeable with, an FDA-licensed reference biological product. As of December 2017 there have been nine biosimilar products approved by the FDA. Two biosimilars have been approved to treat cancer.
Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
The BPCIA includes, among other provisions:
 	•	A 12-year exclusivity period from the date of first licensure of the reference product, during which approval of a 351(k) application referencing that product may not be made effective;	
 	•	A four-year exclusivity period from the date of first licensure of the reference product, during which a 351(k) application referencing that product may not be submitted; and	
 	•	An exclusivity period for certain biological products that have been approved through the 351(k) pathway as interchangeable biosimilars;	
The BPCIA also establishes procedures for identifying and resolving patent disputes involving applications submitted under section 351(k) of the PHS Act.
A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric clinical trial in accordance with an FDA-issued “Written Request” for such a clinical trial.
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Additional U.S. Regulation
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services, for instance the Office of Inspector General, the U.S. Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, among other things, our sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the physician payment transparency laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and similar state laws, each as amended.
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, may affect our business. These and other laws govern our use, handling and disposal of various biological, chemical, and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith is unlikely to have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.
Federal and State Fraud and Abuse Laws
In the United States, our current and future operations are subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, CMS, other divisions of the U.S. Department of Health and Human Services, for instance, the Office of Inspector General, DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. These federal and state laws, which may not be applicable to us or our product candidates unless and until we obtain FDA marketing approval for any of our product candidates, include, among others, anti-kickback statutes, false claims statutes, transparency laws, privacy laws and regulation regarding providing drug samples, sales and marketing activities and our relationships with customers and payors as follows.
The federal Anti-Kickback Statute prohibits, among other things, individuals and entities from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, recommending, ordering, or arranging for the purchase, lease, recommendation or order of any health care item or service reimbursable, in whole or in part, under Medicare, Medicaid, or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Additionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, to a stricter standard such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Further, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
HIPAA created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payers, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, or knowingly making, using, or causing to be made or used, a false statement to get a false claim paid. Several pharmaceutical and other health care companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the company’s marketing of the product for unapproved, and thus non-reimbursable, uses.
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The majority of states also have statutes or regulations similar to the federa l Anti-Kickback Statute and false claims laws, which apply to items and services, reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer.
We may also be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as amended by HITECH, and their respective implementing regulations, including the final Omnibus Rule published on January 25, 2013, imposes requirements on certain types of entities, including certain healthcare providers, health plans, and healthcare clearinghouses, such as mandatory contractual terms, relating to the privacy, security, and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards and certain privacy standards directly applicable to business associates, which are independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other and from HIPAA in significant ways and may not have the same requirements, thus complicating compliance efforts.
Additionally, the federal Physician Payments Sunshine Act under the Affordable Care Act, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with certain exceptions, annually report to CMS information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.
Because of the breadth of these laws and the narrowness of the exceptions and safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition, and results of operations. If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to, without limitation, significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional integrity oversight and reporting obligations and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
In addition, as part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved products to physicians. This practice is regulated by the FDA and other governmental authorities, including, in particular, requirements concerning record keeping and control procedures. Any failure to comply with the regulations may result in significant criminal and civil penalties as well as damage to our credibility in the marketplace.
Coverage and Reimbursement
In many of the markets where we may do business in the future, the prices of pharmaceutical products are subject to direct price controls (by law) and to reimbursement programs with varying price control mechanisms. In the United States, significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain product approval. A number of gene therapy products have been approved over the past year by the FDA. Although CMS subsequently approved its first method of coverage and reimbursement for one such product, the methodology has been subject to challenge by members of Congress. Often private payers follow the coverage and reimbursement decisions of the Medicare program, and it is difficult to predict how CMS may decide to cover and reimburse our product candidates, once approved, and those determinations are subject to change.
Moreover, the process for determining whether a third-party payer will provide coverage for a drug product may be separate from the process for setting the price of a drug product or for establishing the reimbursement rate that such a payer will pay for the drug product. Third-party payers may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payer not to cover our product candidates could reduce physician utilization of our products once approved. A payer’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payer’s determination to provide coverage for a drug product does not assure that other payers will also provide coverage for the drug product. Coverage and reimbursement for new products can differ significantly from payer to payer. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payer separately and will be a time-consuming process. Additionally, third-party reimbursement may not be available or may not be adequate to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
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We intend to seek approval to market our product candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the European Union, the pricing of biologics is subjec t to governmental control and other market regulations which could put pressure on the pricing and usage of our product candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate.
The marketability of any product candidates for which we or our collaborators receive regulatory approval for commercial sale may suffer if the government and third-party payers fail to provide adequate coverage and reimbursement. In addition, an emphasis on cost containment measures in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Third-party payers are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of drugs, medical devices and medical services, in addition to questioning safety and efficacy. If these third-party payers do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we or our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Healthcare Reform
In March 2010, President Obama enacted the Affordable Care Act, which has the potential to substantially change healthcare financing and delivery by both governmental and private insurers, and significantly impact the pharmaceutical and biotechnology industry. The Affordable Care Act will impact existing government healthcare programs and may result in the development of new programs.
Among the Affordable Care Act’s provisions of importance to the pharmaceutical and biotechnology industries, in addition to those otherwise described above, are the following:
 	•	an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs;	
 	•	an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP;	
 	•	a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics, including our product candidates, that are inhaled, infused, instilled, implanted or injected;	
 	•	extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;	
 	•	expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;	
 	•	a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (and 70% starting January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;	
 	•	expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;	
 	•	a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;	
 	•	establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending that began on January 1, 2011; and	
 	•	a licensure framework for follow on biologic products.	
 Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of
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the Affordable Care Act or otherwise circumvent some of the requir ements for health insurance mandated by the Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeal legislatio n, two bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imp osed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22, 2018, President Trump signed a continuin g resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on cert ain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare Part D drug plans, commonly referred to as the “donut hole”. We expect there will be additional challenges and amendments to the Affordable Care Act in the future as the Trump administration and the U.S. Congress wi ll likely continue to seek to modify, repeal or otherwise invalidate all, or certain provisions of, the Affordable Care Act. It is uncertain the extent to which any such changes may impact our business or financial condition.
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, in August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the fiscal year 2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislation, including the BBA, will remain in effect through 2027 unless additional Congressional action is taken. Further, in January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
In addition, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further product price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain products under Medicare Part B, to allow some states to negotiate product prices under Medicaid, and to eliminate cost sharing for generic products for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We anticipate that the Affordable Care Act and other legislative reforms will result in additional downward pressure on the price that we receive for any approved product, if covered, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. In addition, it is possible that there will be further legislation or regulation that could harm our business, financial condition, and results of operations.
Environmental Regulation
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, may affect our business. These and other laws govern our use, handling and disposal of various biological, chemical, and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith is unlikely to have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.
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U.S. Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to influence otherwise a person working in an official capacity.
Government Regulation Outside of the United States
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be subjected to different types of restrictions in different countries.
Whether or not we obtain FDA approval for a product, we must obtain the required approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application equivalent to an IND prior to the commencement of human clinical trials. In the European Union, for example, a clinical trial authorization, or CTA, must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and the IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trials may start.
The requirements and process governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary from country to country. In all cases, the clinical trials are to be conducted in accordance with GCP, applicable regulatory requirements, and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension, or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution in those countries.
Research and Development
Our research and development expenses were $29.1 million, $27.2 million and $19.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Please see “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in this Annual Report on Form 10-K for additional information related to research and development expenditures.
Employees
As of December 31, 2017, we had 67 full-time employees, 20 of whom have Ph.D. or M.D. degrees. Of these full-time employees, 54 employees are engaged in research and development activities and 13 employees are engaged in finance and general management activities including accounting, contracts, human resources, information technology, investor relations, marketing and business development. We have no collective bargaining agreements with our employees and we have not experienced any work stoppages. We consider our relations with our employees to be good.  
Geographic Information
During 2017, 2016 and 2015, all of our long-lived assets were located within the United States.
Corporate Information
We were incorporated in Delaware in August 2007. Our principal executive offices are located at 3030 Bunker Hill Street, Suite 230, San Diego, California 92109. Our telephone number is (858) 412-8400. Our website address is www.tocagen.com .
This Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available (free of charge) on our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC.
Information contained on, or that can be accessed through, our website or social medial sites does not constitute part of this Annual Report on Form 10-K or any other report or document we file with the SEC, and any references to our website and social media sites are intended to be inactive textual references only.
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Tocagen, the Tocagen logo and other trademarks or service marks of Tocagen are the property of Tocagen. Other service marks, trademarks, and tradenames referred to in this Annual Report on Form 10-K are the property of their respective owners. Except as set forth above and solely for convenience, the trademarks and traden ames in this Annual Report on Form 10-K are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto .
We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenues of $1 billion or more, (ii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700 million of outstanding equity securities held by non-affiliates, (iii) the date on which we issued more than $1 billion in non-convertible debt during the previous three years, or (iv) December 31, 2022. References herein to “emerging growth company” are intended to have the meaning associated with it in the JOBS Act.
 Item 1A. Risk Factors.
You should carefully consider the following risk factors, as well as the other information in this report, before deciding whether to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the factors described in this section as well as those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes when evaluating our business. If any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock would likely decline and you may lose all or part of your investments.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Risks related to our business and industry
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
We are a clinical-stage company with a limited operating history. We are not profitable and have incurred net losses in each year since our inception in 2007, including net losses of $38.9 million, $33.5 million and $23.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, we had an accumulated deficit of $166.9 million.
We have devoted substantially all of our financial resources to research and development, including our clinical, preclinical and platform development activities. To date, we have financed our operations primarily through the private placement of our convertible preferred stock, our initial public offering of our common stock, the issuance of our notes payable and the issuance of convertible promissory notes. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to generate revenue. We have not completed late-stage clinical trials for any product candidate and it will be several years, if ever, before we have a product candidate ready for regulatory approval and commercialization. Even if we succeed in obtaining regulatory approval and commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
We will require substantial additional financing to achieve our goals, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
We are currently advancing our lead product candidate, Toca 511 & Toca FC, through clinical development and other product candidates through preclinical development. Developing gene therapy products is expensive, and we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates in clinical trials.
 As of December 31, 2017, our cash, cash equivalents and marketable securities were $88.7 million. We expect that our existing cash, cash equivalents and marketable securities as of December 31, 2017 will be sufficient to fund our current operations through at least the next 12 months. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through equity and/or debt financings. We do not have any committed external
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source of funds. We may also consider new collaborations or selectively partner our technology or programs. In any event, we will require additional capital to obtain regulatory approval for, and to commercialize, our product candidates. Raising funds in the current economic environment may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Subject to limited exceptions, our loan and security agreement also prohibits us from incurring indebtedness without the prior written consent of the lenders. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Immunotherapy, gene therapy and biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. We have never generated any revenue from product sales and may never be profitable.
Since our inception in August 2007, we have devoted substantially all of our efforts to developing our gene therapy platform and our lead product candidate, Toca 511 & Toca FC. We are still developing our product candidates, and we have not completed development of any products. Our ability to generate revenue and achieve profitability depends in large part on our ability, alone or with partners, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize product candidates. We do not anticipate generating revenues from sales of products for the foreseeable future. Our ability to generate future revenues from product sales depends heavily on our success in:
 	•	completing clinical trials through all phases of clinical development of our current and future product candidates;	
 	•	seeking and obtaining marketing approvals for product candidates that successfully complete clinical trials;	
 	•	launching and commercializing product candidates for which we obtain marketing approval with a partner or, if launched independently, successfully establishing a sales force, marketing and distribution infrastructure;	
 	•	identifying and developing new product candidates;	
 	•	progressing our preclinical programs into human clinical trials;	
 	•	establishing and maintaining supply and manufacturing relationships with third parties;	
 	•	maintaining, protecting, expanding and enforcing our intellectual property; and	
 	•	attracting, hiring and retaining qualified personnel.	
Because of the numerous risks and uncertainties associated with gene therapy product development, we are unable to predict the timing or amount of increased expenses or when we will be able to achieve or maintain profitability, if ever. In addition, our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, or foreign regulatory agencies, to perform studies and clinical trials in addition to those that we currently anticipate or if there are any delays in the development of any of our product candidates. If one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing such product candidates. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations, which may not be available to us on favorable terms, if at all. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.
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Our gene therapy product candidates are based on novel technology, which ma kes it difficult to predict the time and cost of product candidate development.
We have concentrated our product research and development efforts on our gene therapy platform, and our future success depends on the successful development of this therapeutic approach. There can be no assurance that any development problems we experience in the future related to our gene therapy platform will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, or developing or validating product release assays in a timely manner, which may prevent us from completing our clinical trials or commercializing our products on a timely or profitable basis, if at all.
In addition, the clinical trial requirements of the FDA, the European Medicines Agency, or EMA, and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates. In October 2015, the FDA approved Amgen Inc.’s oncolytic virus therapy, Imlygic (talimogene laherparapvec), for the local treatment of unresectable lesions in patients with melanoma recurrent after initial surgery and in December 2015, Imlygic was approved by the European Commission for early stage, unresectable melanoma that is regionally or distantly metastatic following a recommendation for marketing authorization as a gene therapy in Europe by the Committee for Advanced Therapies. In 2017, the FDA approved the first two CAR T cell therapy products: Novartis’ Kymriah (tisagenlecleucel), for the treatment of a type of leukemia and Kite Pharma’s Yescarta (axicabtagene ciloleucel), for the treatment of a type of lymphoma.  On December 19, 2017, the FDA approved Spark Therapeutics, Inc.’s Luxturna (voretigene neparvovec-rzyl), a new gene therapy, to treat children and adult patients with an inherited form of vision loss that may result in blindness. Two other gene therapy products have been approved in Europe, uniQure NV’s Glybera (alipogene tiparvovec), which received marketing authorization from the European Commission in 2012 and GlaxoSmithKline, Fondazione Telethon and Ospedale San Raffaele’s Strimvelis (GSK2696273), which was approved by the European Commission in 2016. The limited precedent for gene therapy approvals makes it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in either the United States or Europe.  
Regulatory requirements governing gene therapy products have changed frequently and may continue to change in the future. For example, in January 2017, the FDA Oncology Center of Excellence, or the Center of Excellence, was created to leverage the combined skills of regulatory scientists and reviewers with expertise in drugs, biologics, and devices (including diagnostics). While the Center of Excellence is designed to help expedite the development of oncology and malignant hematology-related medical products and support an integrated approach in the clinical evaluation of drugs, biologics and devices for the treatment of cancer, the new Center of Excellence may initially create confusion within the FDA and especially in the Center of Biologics and Research that is the primary review division for our initial product candidate. Gene therapy clinical trials conducted at institutions that receive funding for recombinant DNA research from the U.S. National Institutes of Health, or the NIH, are also subject to review by the NIH Office of Biotechnology Activities’ Recombinant DNA Advisory Committee, or the RAC. We have received from time to time questions from the FDA regarding investigational new drug application, or IND, submissions and clinical protocols for Toca 511 & Toca FC. We believe that we have adequately addressed these questions, some of which have caused, in the past, some delays in our clinical trials. Although the FDA decides whether individual gene therapy protocols may proceed, the RAC review process can impede the initiation of a clinical trial, even if the FDA has reviewed the study and approved its initiation. Conversely, the FDA can put an IND on a partial or complete clinical hold even if the RAC has provided a favorable review. Our trials have, in the past, been put on hold for reasons including suspected serious adverse events, which resulted in delays of our trials. Also, before a clinical trial can begin at an NIH-funded institution, that institution’s institutional review board, or IRB, and its Institutional Biosafety Committee will have to review the proposed clinical trial to assess the safety of the study. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other regulatory bodies to change the requirements for performing studies or for obtaining approval of any of our product candidates.
These regulatory review committees and advisory groups, and the new guidelines they promulgate, may lengthen the regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient revenue to maintain our business.
Failure to successfully develop and obtain approval of our lead product candidate, Toca 511 & Toca FC, or our other future product candidates could adversely affect our future success.
 Our business and future success is substantially dependent on our ability to obtain regulatory approval of and then successfully commercialize our lead product candidate, Toca 511 & Toca FC which is in clinical development. All of our product candidates, including Toca 511 & Toca FC, will require additional clinical and nonclinical development, regulatory review and approval in one or
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more jurisdictions, substantial investment, access to sufficient pre-commercial and commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales . In addition, because Toca 511 & Toca FC is our most advanced product candidate, and because all of our other future product candidates will likely be based on similar technology, if Toca 511 & Toca FC encounters safety or efficacy problems, developmental delays, regulatory issues or other problems, our development plans and business for our other product candidates would be significantly harmed.
We may have difficulty enrolling patients in our clinical trials, which could delay or prevent development of our product candidates.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing our product candidates. We have experienced delays in some of our clinical trials in the past due to difficulties with enrollment and we may experience similar delays in the future. If patients are unwilling to participate in our clinical trials because of negative publicity from adverse events in the industry or in the trials for other third party product candidates, or for other reasons, including competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical trials altogether.
We or our clinical trial sites may not be able to identify, recruit and enroll a sufficient number of patients, or those with the required or desired characteristics in a clinical trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by factors including:
 	•	severity of the disease under investigation;	
 	•	design of the clinical trial protocol, including the fact that certain of our clinical trials are randomized to current treatments;	
 	•	size of the patient population;	
 	•	eligibility criteria for the clinical trial in question;	
 	•	perceived risks and benefits of the product candidate under study;	
 	•	general level of excitement for the treatment approach;	
 	•	comments on social media;	
 	•	proximity and availability of clinical trial sites for prospective patients;	
 	•	availability of competing therapies and clinical trials;	
 	•	efforts to facilitate timely enrollment in clinical trials;	
 	•	patient referral practices of physicians; and	
 	•	ability to monitor patients adequately during and after treatment.	
In particular, recurrent high grade glioma, or HGG, the condition for which we are initially evaluating our lead product candidate, has a limited number of patients for clinical trials. The eligibility criteria of our clinical trials will further limit the pool of available trial participants. For example, some clinical trials will be limited to patients with recurrent HGG who are scheduled for a repeat resection, for which there are fewer patients. Additionally, the process of finding and diagnosing patients may prove costly. Finally, our treatment necessitates that the patient be near one of our clinical trial sites, since periodic follow-up visits at the clinical trial site are contemplated in the protocols.
We currently plan to seek initial marketing approval in the United States and subsequently other pharmaceutical markets. We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by the FDA, the EMA or other regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:
 	•	difficulty in establishing or managing relationships with contract research organizations, or CROs, and physicians;	
 	•	different standards for the conduct of clinical trials;	
 	•	our inability to locate qualified local consultants, physicians and partners; and	
 	•	the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatments.	
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If we have difficulty enrolling a suffic ient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business.
The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our product candidates. If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
We have not previously submitted a biologics license application, or BLA, to the FDA, or similar approval filings to comparable foreign authorities. A BLA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety, purity and potency for each desired indication. The BLA must also include significant information regarding the chemistry, manufacturing and controls for the product. Clinical testing is expensive, time-consuming and uncertain as to outcome. We have experienced in the past delays in the commencement and completion of our clinical trials. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. In addition to challenges related to patient enrollment, other events that may prevent successful or timely completion of clinical development include:
 	•	the availability of financial resources to commence and complete our planned clinical trials;	
 	•	delays in reaching a consensus with clinical investigators on study design;	
 	•	delays in reaching a consensus with regulatory agencies on study design or approval from regulatory authorities to commence a trial;	
 	•	reaching agreement on acceptable terms with prospective clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different clinical trial sites;	
 	•	delays in obtaining required IRB and/or biologic safety committee approval at each clinical trial site;	
 	•	imposition of a clinical hold by regulatory agencies, after an inspection of our clinical trial operations or study sites, or otherwise;	
 	•	failure by our CROs, other third parties or us to adhere to clinical trial requirements;	
 	•	failure to perform in accordance with the FDA’s good clinical practices, or GCP, or applicable regulatory guidelines in other countries;	
 	•	failure to adequately acquire, preserve and quality assure clinical trial data;	
 	•	delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites;	
 	•	inadequate shipping or storage of our products, resulting in loss of activity;	
 	•	delays in having patients complete participation in a study or return for post-treatment follow-up;	
 	•	clinical trial sites dropping out of a study;	
 	•	changes in legislation or regulatory requirements and guidance that require amending or submitting new clinical protocols; and	
 	•	technical equipment and/or operating room supply limitations at a clinical trial site.	
 We could also encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by us, the IRBs for the institutions in which such clinical trials are being conducted, the Data Safety Monitoring Committee for such clinical trial, by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays in completing our
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clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical trial delays could also shorten any periods during which we may have patent protection rights to commercialize our product candidates or allow our competitors to bring products into clinical trials or to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Our clinical trials may fail to demonstrate safety and efficacy and any of our product candidates could be associated with undesirable side effects or other properties, which would prevent or delay regulatory approval and commercialization.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Failure can occur at any time during a clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical testing and initial clinical trials. Most product candidates that commence clinical trials are never approved as products.
In addition, from time to time, we may publish interim, “top-line,” initial, or preliminary data from our clinical studies. Interim data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data becomes available. Preliminary, initial, or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim, initial, and preliminary data should be viewed with caution until the final data are available. Adverse changes between preliminary, initial, “top-line” or interim data and final data could significantly harm our business prospects. In the 127 patients who received Toca 511 in our Phase 1 clinical trials, treatment-related adverse events were reported in 32.3% of patients and these events were predominantly low grade (25.2%). The most common treatment-related adverse events were fatigue (11.8%), headache (5.5%), and convulsion (4.7%). In the 122 patients who received Toca FC in our ascending Phase 1 clinical trials, treatment-related adverse events were reported in 44.3% of patients and these events were predominantly low grade (41.0%). The most common treatment-related adverse events were fatigue (22.1%), diarrhea (13.9%), and nausea (9.8%). Treatment-related serious adverse events were reported in 6.3% of patients treated with Toca 511 and 1.6% of patients treated with Toca FC. In patients that received both Toca 511 and Toca FC, hematologic toxicity was infrequent and also low grade. Patients treated with our product candidates may also be undergoing surgical, radiation and chemotherapy treatments, which can cause side effects or adverse events that are unrelated to our product candidate, but may still impact the success of our clinical trials. Additionally, our product candidates could potentially cause other adverse events that have not yet been predicted. The inclusion of critically ill patients in our clinical trials may result in deaths or other adverse medical events due to other therapies or medications that such patients may be using or due to the gravity of such patients’ illnesses. Patients who will be administered Toca 511 & Toca FC in the HGG clinical trials are seriously or terminally ill and some of them may have immune impairment related to their treatment with temozolomide and dexamethasone. It is expected that some of the patients will die or experience major clinical events such as strokes, hydrocephalus, infections, brain swelling and pulmonary emboli either during the course of our clinical trials or after such trials, which has occurred in the past.  In some patients with evidence of drug activity from Toca 511 & Toca FC, new lesions have been observed, some of which continue to grow even with continued Toca FC treatment.
Further, the design of our ongoing Phase 3 clinical trial of Toca 511 & Toca FC was based in part on survival data from similar patients in published trials. The prognosis, unrelated to our treatment, for our patients could be better than for patients in these prior trials, due to improvements in clinical practice, other experimental trials or underappreciated differences in entry criteria. In addition, the clinical or regulatory opinion on what constitutes the standard of care that we have used as the basis for the control arm in this clinical trial may change before we submit the BLA for Toca 511 & Toca FC, if the clinical trial is successful.
 It is possible that our retroviral replicating vector, or RRV, product candidates will spread to healthy tissues and result in unknown side effects, and that any anticipated or unanticipated side effects may occur at doses required to achieve clinically relevant efficacy, which could prohibit or delay commercialization of our product candidates. Alternatively, our RRV product candidates might not spread rapidly enough through the tumor or transfer sufficient genetic material to the tumor to demonstrate efficacy sufficient for regulatory approval. In preclinical studies in rodent models, we observed that our vectors do not initially infect tumors in some locations as well as they infect tumors in other locations, which may limit treatment with our future product candidates to a limited number of cancer locations. Further, it is possible that the RRV might not spread fast enough through the brain cancer to have a beneficial effect or that the virus might not be able to reach certain parts of the tumor due to prior surgical removal of contiguous cancer tissue or from scarring resulting from surgery, chemotherapy, radiation or spontaneous tumor necrosis (cell death) or due to
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mech anical limitations such as the inability to insert the needle accurately into the tumor; the inability to push enough RRV volume into a tumor with a high pressure; the rapid diffusion of RRV from the injection site due to high intratumor pressure or due to the communication with the ventricular space, external cerebral spinal fluid or the entry into veins; or the inability to insert the needle into the tumor without damaging vital brain structures. It is possible that the cancers which we seek to treat with our product candidates will become resistant to infection with the virus or become resistant to the 5-FU (5-fluorouracil) produced from Toca FC, due to mutation within the cancer cells genes or due to mutation of Toca 511, including loss of the therapeuti c gene, cytosine deaminase.
If the results of our clinical trials are inconclusive or if there are safety concerns or adverse events associated with our product candidates, we may:
 	•	be delayed in obtaining marketing approval for our product candidates, if at all;	
 	•	obtain approval for indications or patient populations that are not as broad as intended or desired;	
 	•	obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;	
 	•	be subject to changes with the way the product is administered;	
 	•	be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;	
 	•	have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution in the form of a modified Risk Evaluation and Mitigation Strategy, or REMS;	
 	•	be subject to product liability or other litigation claims; or	
 	•	experience damage to our reputation.	
In third-party clinical trials involving other viral vectors for gene therapy, some patients experienced serious adverse events, including the development of leukemia due to vector-related insertional oncogenesis and death. If our vectors demonstrate a similar effect, we may be required to halt or delay clinical development of our product candidates.
Existing data on the safety and efficacy of gene therapy is very limited and sometimes include historically poor clinical efficacy of previous non-replicating gene therapy products. In addition, there have been publicized safety issues associated with previous gene therapy products in third-party clinical trials, including patient deaths. The results of preclinical and clinical trials performed for our product candidates do not definitively predict safety or efficacy in humans. Possible serious side effects of other viral vector-based gene therapy therapies in general include uncontrolled viral infections and the development of cancer, particularly lymphoma or leukemia.
A significant risk in any gene therapy product based on viral vectors that integrate into the host genome at measurable frequencies is that the vector will insert near cancer-causing oncogenes leading to uncontrolled clonal proliferation of mature cancer cells in the patient. For example, in 2003, 20 patients treated for X-linked severe combined immunodeficiency in two gene therapy studies conducted by third parties using a murine gamma-retroviral vector showed correction of the disease, but the studies were terminated after five patients developed leukemia. The cause of these adverse events was believed to be related to insertional oncogenesis, which is the process whereby the corrected gene inserts near a gene that is important in a critical cellular process like growth or division, and this insertion results in the development of a cancer (often leukemia). A potential clinical concern for gene therapy using retroviral vectors has been the possibility of insertional mutagenesis by the vectors, leading to malignant transformation of transduced cells (i.e., cancer). Because our replicating retroviruses produce viral antigens, these foreign proteins could serve as a target for immune activation against virally-infected cells and inflammation, which is not a feature of non-replicating retroviral vectors. In addition, we have not, and do not plan to, treat patients with severe immunodeficiency with our product candidates. Further, with our lead product candidate, Toca FC kills the virally-infected cells and presents the antigens. We believe that we have not observed oncogenesis in the patients treated in our clinical trials to date for these reasons. Our future product candidates are also designed to activate the immune system against virally-infected cells.
It is possible Toca 511 may spread to non-tumor tissue. We have detected transient and low levels of viral sequences in the saliva of several patients. The risk of insertional mutagenesis or oncogenesis remains a significant concern for gene therapy, and we cannot provide any assurance that it will not occur in any of our current, planned or future clinical trials. There is also the potential risk of delayed adverse events following exposure to gene therapy products due to persistent biological activity of the genetic material or other components of products used to carry the genetic material. If any such adverse events occur, further advancement of our clinical trials could be halted or delayed, which would have a material adverse effect on our business and operations.
We may not be successful in our efforts to identify or discover additional product candidates from our gene therapy platform.
 The success of our business depends primarily upon our ability to identify, develop and commercialize products based on our gene therapy platform. Although our Toca 511 & Toca FC product candidate is currently in clinical development, our research
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programs may fail to identify other potential product candidates for clinical development. Our research methodology may be unsuccessful in identifying potential product cand idates, or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval. If any of these events occur, we may be forced to aba ndon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations.
We rely, and expect to continue to rely, on third parties to conduct, supervise and monitor our clinical trials, and if these third parties perform in an unsatisfactory manner, it may harm our business.
We rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we have agreements governing their activities, we may have limited influence over their actual performance. We control only certain aspects of our CROs’ activities. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our CROs are required to comply with the GCPs for conducting, recording, auditing and reporting the results of clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA enforces these GCPs through periodic inspections of study sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable, and the FDA may require us to perform additional clinical trials before approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our ongoing and future clinical trials will require a sufficient number of test subjects to evaluate the safety and effectiveness of our product candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and we are not able to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
We expect to continue to rely on third parties to distribute, manufacture and perform release testing for our vectors, product candidates and other key materials and if such third parties do not carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approvals for our product candidates.
We intend to continue to rely on third-party contract manufacturing organizations, or CMOs, to produce our vectors, product candidates and other key materials and on third-party contract testing organizations, or CTOs, for the establishment and performance of validated product release assays, but we have not entered into binding agreements with any such CMOs or CTOs to support commercialization. Additionally, any CMO may not have experience or availability to produce adequate product candidates at commercial levels and may not achieve the necessary regulatory approvals or produce our vectors and products at the quality, quantities, locations and timing needed to support commercialization. We may change our manufacturing process from the current defined media process to a different defined media process, or from its current equipment to different equipment, or our cell line or vector and there can be no guarantee that the regulatory authorities will approve this new process in a timely manner or ever. Also, as a consequence of the manufacturing change, there may be a requirement to do more preclinical safety or efficacy studies, develop new manufacturing and release assays and/or repeat all or part of the ascending dose safety study in animals or humans. Regulatory requirements ultimately imposed could adversely affect our ability to test, manufacture or market products.
We have not yet secured manufacturing capabilities for commercial quantities of our viral vector. Although we intend to rely on third-party manufacturers for commercialization, we currently utilize a sole-source manufacturer to support our clinical trials. We may be unable to negotiate binding agreements with this manufacturer or additional manufacturers to support our commercialization activities at commercially reasonable terms.
 No manufacturer we know of currently has the direct experience or the demonstrated ability to produce our vectors and product candidates at reasonable commercial levels or under full commercial requirements. We have developed in-house, a more scalable manufacturing process for Toca 511, which we are transferring to one or more CMOs. We may run into technical or scientific issues related to manufacturing or development that we may be unable to resolve in a timely manner or with available funds. Further, we
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have not completed the characterization and validation activities necessary for c ommercial and regulatory approvals. If our manufacturing and testing partners do not satisfy such regulatory requirements, our commercialization efforts may be harmed.
Similarly, we currently have a single manufacturer of the active pharmaceutical ingredient for Toca-FC and another single manufacturer of the final drug product. We also rely on outside contractors to perform validated release testing for Toca FC. Currently we have not fully validated production of the drug product, Toca FC.
Even if we have developed manufacturing processes for Toca 511 and Toca FC and successfully implement them at third-party manufacturers, if such third-party manufacturers are unable to produce viral vectors and our product candidates in the necessary quantities, or in compliance with current good manufacturing practices, or cGMP, or in compliance with pertinent regulatory requirements, and within our planned time frame and cost parameters, the development and sales of our products, if approved, may be materially harmed. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our BLA to the FDA. We do not directly control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs for the manufacture of our product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. In addition, any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could be revoked, which would adversely affect our business and reputation.
In addition, any significant disruption in our supplier relationships could harm our business. We source key materials, devices and equipment from third parties, either directly through agreements with suppliers or indirectly through our manufacturers who have agreements with suppliers. There are a small number of suppliers for certain key materials, equipment, software and components that are used to manufacture our product candidates. Such suppliers may not sell these key materials to our manufacturers at the times or quantities we need them or on commercially reasonable terms. We may not have any control over the process, quality or timing of the acquisition of these key materials by our manufacturers.
We also expect to rely on other third parties to store and distribute our vectors and products for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, if approved, producing additional losses and depriving us of potential product revenue.
Our reliance on third parties may require us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we rely on third parties to manufacture our vectors and our product candidates, and because we collaborate with various organizations and academic institutions on the advancement of our gene therapy platform, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our manufacturers, collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, are used inappropriately to create new inventions or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. We also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets through breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of our trade secrets may impair our competitive position and have an adverse impact on our business.
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We face intense competition and rapid technological change and the possibility that our competitors may de velop therapies that are more advanced or effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.
We are engaged in developing gene therapies and cancer immunotherapies, which are rapidly evolving and fiercely competitive fields. A wide variety of institutions in the United States and internationally, including major multinational pharmaceutical companies, specialty biotechnology companies, academic research departments and public and private institutions, are actively developing potentially competitive technology and products. We face substantial competition from biotechnology and pharmaceutical companies developing products in immunotherapy and our initial proposed indication. Our competitors generally fall into the following categories: companies developing checkpoint inhibitors; companies developing immunotherapies; companies aimed at stimulating immune responses; companies developing CAR and TCR T cells; companies developing oncolytic virus-based technology; and companies with a focus on HGG.
Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Accordingly, our competitors may be more successful than us in obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments obsolete or non-competitive. These companies also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials and acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
If these competitors develop and commercialize more effective, safer or less toxic products than us or if they obtain regulatory approval before us in key geographies, our commercial opportunities could be substantially limited. In addition, adverse clinical outcomes or similar events at gene therapy companies in the past have adversely affected other companies in this field and could also do so in the future at our company.
Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance among physicians, patients, hospitals, cancer treatment centers, third-party payors and others in the medical community.
Ethical, social and legal concerns about gene therapy and genetic research could result in additional regulations restricting or prohibiting the products and processes we may use. Even with the requisite approvals, the commercial success of our product candidates will depend in part on the medical community, patients, and third-party payors accepting gene therapy products in general, and our product candidates in particular, as medically useful, cost-effective and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of these product candidates, if approved for commercial sale, will depend on a number of factors, including:
 	•	the clinical indications for which our product candidates are approved;	
 	•	physicians, hospitals, cancer treatment centers and patients considering our product candidates as a safe and effective treatment;	
 	•	the potential and perceived advantages of our product candidates over alternative treatments;	
 	•	the prevalence and severity of any side effects;	
 	•	product labeling or product insert requirements of the FDA or other regulatory authorities;	
 	•	limitations or warnings contained in the labeling approved by the FDA;	
 	•	the timing of market introduction of our product candidates as well as competitive products;	
 	•	the cost of treatment in relation to alternative treatments;	
 	•	the availability of favorable coverage, adequate reimbursement and pricing by third-party payors and government authorities;	
 	•	the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors, including government authorities;	
 	•	the willingness, ability and availability of healthcare providers that can comply with the transportation, handling, and temperature-controlled storage requirements associated with our product candidates;	
 	•	relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and	
 	•	the effectiveness of our sales and marketing efforts.	
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Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acce ptance of the product will not be known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional technologies marketed by our competitors and may be restricted by the allowed label.
We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, including our Chief Executive Officer and our Chief Financial Officer. The loss of the services of any of our executive officers, other key employees and other scientific and medical advisors, and our inability to find suitable replacements, could result in delays in product development and harm our business.
To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain them, valuable employees and members of our management, scientific and development teams may terminate their employment with us at any time, with or without notice. We do not maintain “key man” insurance policies on the lives of any of our executive officers or other employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled scientific and medical personnel.
We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.
As of December 31, 2017, we had 67 full-time employees. As our development and commercialization plans and strategies develop, and as we continue operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management. There are a small number of individuals with experience in gene therapy and clinicians who have successfully developed drugs and the competition for such individuals is high. Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. Our business operations may be disrupted and management’s attention may be diverted as we move to our new laboratory and office space in 2018, which could harm our business and prospects. We currently rely, and for the foreseeable future will continue to rely on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of regulatory approval, clinical management and manufacturing. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.
If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.
We may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.
Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs for product candidates may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.
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We currently have a very limited marketing and sales organization. If we are unable to expand our marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate product revenue.
We currently have very limited sales, marketing and distribution capabilities. At the appropriate time, we plan to build a commercial infrastructure targeting oncologists, neuro-oncologists and neurosurgeons and related clinicians and health care workers in leading and regional cancer centers in the United States, which will require significant capital expenditures, management resources and time. Outside the United States, we may build our own commercial infrastructure or consider opportunities to enter into out-licensing or co-promotion agreements with other pharmaceutical or biotechnology companies to develop and/or commercialize our product candidates outside the United States. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties, and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or elsewhere.
A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business.
We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:
 	•	differing regulatory requirements and reimbursement regimes in foreign countries;	
 	•	unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;	
 	•	economic weakness, including inflation, or political instability in particular foreign economies and markets;	
 	•	compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;	
 	•	foreign taxes, including withholding of payroll taxes;	
 	•	foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;	
 	•	difficulties staffing and managing foreign operations;	
 	•	workforce uncertainty in countries where labor unrest is more common than in the United States;	
 	•	potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;	
 	•	challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;	
 	•	production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and	
 	•	business interruptions resulting from geo-political actions, including war and terrorism.	
These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.
The terms of our loan and security agreement place restrictions on our operating and financial flexibility.
In October 2015, we entered into a loan and security agreement with Oxford Finance LLC and Silicon Valley Bank that is secured by substantially all of our assets other than our intellectual property (except rights to payment from the sale, licensing or disposition of such intellectual property). We borrowed $18.0 million upon execution of the loan and security agreement.
 The loan and security agreement includes affirmative and negative covenants applicable to us and any subsidiaries we create in the future. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage, and subject all of our deposit accounts, securities accounts, commodity accounts or any other bank accounts, to a control agreement in favor of Oxford Finance LLC. The negative covenants
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include, among others, restric tions on us transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends in cash or making other distributions, making investments, creating liens, selling assets, and suffering a change in control, in e ach case subject to certain exceptions.
The loan and security agreement also includes events of default, the occurrence and continuation of which provide Oxford Finance LLC, as collateral agent, with the right to exercise remedies against us and the collateral securing the loans under the loan and security agreement, including foreclosure against our properties securing the loan and security agreement, including our cash, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately cease operations. These events of default include, among other things, our failure to pay any amounts due under the loan and security agreement, a breach of covenants under the loan and security agreement, our insolvency, impairment in the perfection or priority of each lender’s security interest in the collateral, the occurrence of any default under certain other indebtedness in an amount greater than $250,000, our failure to obtain or maintain material governmental approvals, and a final judgment against us of at least $250,000. Further, if we are liquidated, the lender’s right to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation. The lenders could declare a default upon the occurrence of any event that they interpret as a material adverse change as defined under the loan and security agreement, thereby requiring us to repay the loan immediately or to attempt to reverse the declaration of default through negotiation or litigation. Any declaration by the lenders of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
 	•	decreased demand for our product candidates;	
 	•	injury to our reputation;	
 	•	withdrawal of clinical trial participants;	
 	•	initiation of investigations by regulators;	
 	•	costs to defend the related litigation;	
 	•	a diversion of management’s time and our resources;	
 	•	substantial monetary awards to clinical trial participants or patients;	
 	•	product recalls, withdrawals or labeling, marketing or promotional restrictions;	
 	•	exhaustion of any available insurance and our capital resources;	
 	•	loss of revenue;	
 	•	the inability to commercialize any product candidate; and	
 	•	a decline in our share price.	
Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of any products we develop, alone or with corporate collaborators. We currently carry $5 million of product liability insurance covering our clinical trials. Although we maintain such insurance, our insurance policies may have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.
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Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public perception of our product candidates or adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.
Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians specializing in the treatment of those diseases that our product candidates target prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments with which they are already familiar with and for which greater clinical data may be available. More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop. Adverse events in our clinical trials, even if not ultimately attributable to our product candidates, and the resulting publicity could lead to increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates. Concern about environmental spread of our product, whether real or anticipated, may hinder the commercialization of our products.
Our internal computer systems, or those used by our CROs, SaaS providers, contractors or consultants, may fail or suffer security breaches.
Despite the implementation of security measures, our internal computer systems and those of our CROs, SaaS providers, contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. While we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, and the further development and commercialization of our product candidates could be delayed.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our CROs, contractors and consultants, could be subject to power shortages, telecommunications failures, wildfires, water shortages, floods, earthquakes, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of our contract manufacturers or cell line storage facilities are affected by a man-made or natural disaster or other business interruption.
Risks related to government regulation
The FDA may disagree with our regulatory plans, and we may fail to obtain regulatory approval of our product candidates.
Following receipt of Breakthrough Therapy Designation from the FDA, we redesigned our Phase 2/3 clinical trial of Toca 511 & Toca FC for the treatment of recurrent HGG to a single Phase 3 trial design and have included the 187 patients that were previously enrolled in the Phase 2/3 trial in the total of 380 patients expected to enroll in the redesigned trial. The interim or final analyses of this trial alone could support approval of a BLA for Toca 511 & Toca FC in the indication of recurrent HGG. However, the general approach for FDA approval of a new biologic or drug is to require dispositive data from two adequate and well-controlled Phase 3 clinical trials of the biologic or drug in the relevant patient population.
In addition, we believe that it is likely that there may be a regulatory requirement for one or more diagnostic assays to monitor treatment, especially for the presence of Toca 511 & Toca FC or their components or derivatives. We plan to meet with the FDA to discuss the development of such assays, and it is possible that the FDA may require a separate regulatory approval for such assays contemporaneously with the approval of Toca 511 & Toca FC.
Our clinical trials results may not support approval. In addition, Toca 511 & Toca FC and our other product candidates could fail to receive regulatory approval for many reasons, including the following:
 	•	the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials, including clinical endpoints;	
 	•	the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;	
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 	•	we may be unable to demonstrate that our product candidate s’ clinical and other benefits outweigh their safety risks or are better than recently produced safety or efficacy data for other products;	
 	•	we may encounter serious and unexpected adverse events during clinical trials that render our products unsafe for use in humans;	
 	•	the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;	
 	•	the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;	
 	•	the FDA or comparable foreign regulatory authorities may fail to approve our manufacturing processes and/or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and	
 	•	the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.	
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. Studies and clinical trials conducted in one jurisdiction or study group may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining approvals in one jurisdiction does not guarantee that we will be able to obtain approval in any other jurisdiction, but the failure to obtain approval in a jurisdiction may have a negative impact on our ability to obtain approval in other jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
Additional time may be required to obtain regulatory approval for Toca 511 & Toca FC because it is a combination product.
We believe our Toca 511 & Toca FC product candidate is regulated as a drug/biologic combination product, which will require coordination within the FDA and similar foreign regulatory agencies for review of their biologic and drug components and potentially one or more diagnostic assays to monitor treatment. Although the FDA and similar foreign regulatory agencies have systems in place for the review and approval of combination products such as ours, we may experience delays in the development and commercialization of our product candidates due to regulatory timing constraints and uncertainties in the product development and approval process.
Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, and we may be subject to penalties and/or withdrawal of product approval if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.
 Any regulatory approvals that we receive for our product candidates will require surveillance to monitor the safety and efficacy of the product candidate. Specifically, we believe that it is likely that there may be a regulatory requirement for one or more diagnostic assays to monitor treatment, especially for the presence of Toca 511 or Toca FC or their components or derivatives. We plan to meet with the FDA to discuss the development of such assays, and it is possible that the FDA may require a separate regulatory approval for such assays. Further, each vector containing a particular gene could be regulated as a separate biologic depending on its intended use and FDA policy. The FDA may also require a REMS, in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and record keeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include, among other things, submissions of safety and other post-marketing information and
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reports, registration, as well as continued compliance with cGMPs for manufacturing and GCPs for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, a mong other things:
 	•	restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from the market, or voluntary or mandatory product recalls;	
 	•	fines, warning letters or holds on clinical trials;	
 	•	refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;	
 	•	suspension or termination of manufacturing at one or more manufacturing facilities;	
 	•	product seizure or detention, or refusal to permit the import or export of our product candidates; and	
 	•	injunctions or the imposition of civil or criminal penalties.	
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad.
We have Orphan-Drug Designation for Toca 511 & Toca FC for the treatment of malignant glioma in addition to glioblastoma multiforme, or GBM, but we may be unable to maintain the benefits associated with Orphan-Drug Designation, including potential eligibility for any future market exclusivity.
Under the Orphan-Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for a disease or condition will be recovered from sales in the United States for that drug or biologic. In the United States, Orphan-Drug Designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has Orphan-Drug Designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity.
Toca 511 & Toca FC has Orphan-Drug Designation in the United States for the treatment of malignant glioma in addition to GBM. However, we are currently developing this product candidate for the treatment of recurrent HGG, of which GBM is a subset. Exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different products with different active moieties can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve the same product with the same active moiety for the same condition if the FDA concludes that the later product is safer, more effective or makes a major contribution to patient care. Orphan-Drug Designation neither shortens the development time or regulatory review time of a drug or biologic nor gives the drug or biologic any advantage in the regulatory review or approval process. In addition, while we may seek orphan designation for other product candidates, we may never receive such designations.
A Fast Track Designation or Breakthrough Therapy Designation by the FDA or PRIME Designation by the EMA, may not actually lead to a faster development or regulatory review or approval process.
If a product candidate is intended for the treatment of a serious or life-threatening condition and demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA Fast Track Designation. Similarly, Breakthrough Therapy Designation may be granted by the FDA, or PRIME Designation may be granted by the EMA, to product candidates for serious conditions that have preliminary clinical evidence indicating the product candidate may offer substantial improvement over available therapy. The FDA and EMA have broad discretion whether or not to grant these designations, and even if we believe a particular product candidate is eligible for these designations, we cannot assure you that the FDA or EMA would decide to grant them. We have been granted Fast Track Designation and Breakthrough Therapy Designation for our Toca 511 & Toca FC product candidate for the treatment of recurrent HGG and PRIME designation for Toca 511 in glioma, but this is no assurance we will receive these designations for any future product candidates.  Further, even though we have received these designations for Toca 511 & Toca FC, we may not experience a faster development process, review or approval compared to conventional FDA or EMA procedures. The FDA or EMA may withdraw these designations if it believes that they are no longer supported by data from our clinical development program.
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Our Toca 511 & Toca FC product may face competition sooner than anticipated, if approved.
The Biologics Price Competition and Innovation Act, or BPCIA, created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product.
We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, privacy laws and other federal and state healthcare laws, and the failure to comply with such laws could result in substantial penalties. Our employees, independent contractors, consultants, principal investigators, CROs, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of fraud, misconduct or other illegal activity by our employees, independent contractors, consultants, principal investigators, CROs, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the laws of the FDA and other similar foreign regulatory bodies; provide true, complete and accurate information to the FDA and other similar foreign regulatory bodies; comply with manufacturing standards we have established; comply with federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to us.
In addition, our current and future operations are subject to regulation under such laws, and if we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws would increase significantly, along with our costs associated with compliance with such laws. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, including off-label promotion of our products, structuring of commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of patient recruitment for clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. The laws that may affect our ability to operate include, but are not limited to:
 	•	the Federal Anti-Kickback Statute, which prohibits, among other things, individuals and entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;	
 	•	federal civil and criminal false claims laws and civil monetary penalty laws, including the civil False Claims Act, which impose criminal and civil penalties, through government, civil whistleblower or qui tam actions, on individuals and entities for, among other things, knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other third-party payors that are false, fictitious or fraudulent, or knowingly making, using or causing to be made or used, a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;	
 	•	 the Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises,	
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 		any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), willfully obstructing a crimi nal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or p ayment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have comm itted a violation;	
 	•	HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that perform services for them that involve the creation, use, maintenance or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization;	
 	•	the federal physician payment transparency requirements, sometimes referred to as the “Physician Payments Sunshine Act,” created under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively the Affordable Care Act, and its implementing regulations, which require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United States Department of Health and Human Services, or HHS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;	
 	•	the U.S. Federal Food, Drug and Cosmetic Act, or FD&C Act, which prohibits, among other things, the adulteration or misbranding of drugs and medical devices; and	
 	•	federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.	
Additionally, we are subject to state and foreign equivalents of each of the healthcare fraud and abuse laws described above, among others, some of which may be broader in scope and may apply regardless of the payor. We may also be subject to state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; and to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. We may also be subject to state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. In the European Union, Directive 95/46/EC (as amended) applies to identified or identifiable personal data processed by automated means and data contained in, or intended to be part of, non-automated filing systems as well as the transfer of such data to a country outside of the European Economic Area.  Effective as of May 25, 2018, Directive 95/46/EC will be replaced by the European Union’s General Data Protection Regulation (2016/679), or GDPR.  Under the GDPR, fines of up to 20 million Euros or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed for significant non-compliance.
It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. We are also subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. Efforts to ensure that our business arrangements will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, individual imprisonment, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
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Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, if approved, which could make it difficult for us to sell our product candidates profitably.
Successful sales of our product candidates, if approved, depend on the availability of coverage and adequate reimbursement from third-party payors. Because our product candidates represent new approaches to the treatment of cancer, we cannot be sure that coverage and reimbursement will be available for, or accurately estimate the potential revenue from, our product candidates.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance.
Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s determination that use of a product is:
 	•	a covered benefit under its health plan;	
 	•	safe, effective and medically necessary;	
 	•	appropriate for the specific patient;	
 	•	cost-effective; and	
 	•	neither experimental nor investigational.	
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors, and coverage and reimbursement for products can differ significantly from payor to payor. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products and to justify the level of coverage and reimbursement relative to other therapies, with no assurance that coverage and adequate reimbursement will be obtained. Third party payors may also have difficulty in determining the appropriate coverage of our product candidates, if approved, due to the fact that they are combination products that include a small molecule drug. To the extent there are any delays in determining such coverage or inadequate coverage and reimbursement for all aspects of our combination therapies, it would adversely affect the market acceptance, demand and use of our product candidates.
A number of gene therapy products have been approved over the past year by the FDA. Although the Center for Medicare and Medicaid Services, or CMS, subsequently approved its first method of coverage and reimbursement for one such product, the methodology has been subject to challenge by members of Congress. Often private payors follow the coverage and reimbursement decisions of the Medicare program, and it is difficult to predict how CMS may decide to cover and reimburse our product candidates, if approved, and those determinations are subject to change. Any denial in coverage or reduction in reimbursement from Medicare or other government programs may result in a similar denial or reduction in payments from private payors, which may adversely affect our future profitability.
We intend to seek approval to market our product candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the European Union, the pricing of biologics is subject to governmental control and other market regulations which could put pressure on the pricing and usage of our product candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly on the availability of coverage and adequate reimbursement from third-party payors for our product candidates and may be affected by existing and future health care reform measures.
Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, in 2010, the Affordable Care Act was enacted in the United States. The Affordable Care Act and its implementing regulations, among other things, subjected biological products to potential competition by lower-cost biosimilars, revised the methodology by which rebates owed by manufacturers to the state and federal government for covered outpatient drugs and certain biologics, including our product candidates, under the Medicaid Drug Rebate Program are calculated, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription drugs, and provided incentives to programs that increase the federal government’s comparative effectiveness research.
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Since its enactment, there have been judicial and Congressional challenges to cert ain aspects of the Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act.  Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of any certain provisions of the Affordable Care Act or otherwise circumvent some of the requirements for health insura nce mandated by the Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, two bills affecting t he implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable C are Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropri ations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance pro viders based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare Part D drug plans, commonly referred to as the “donut hole”. Congress will likely consider other legislation to replace elements of the Affordable Care Act.  We continue to evaluate the effect that the Affordable Care Act and its possible repeal and replacement has on our business. It is uncertain the extent to which any such changes may impact our business or financial condition.
In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislation, including the BBA, will stay in effect through 2027 unless Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Moreover, payment methodologies including payment for any companion diagnostics may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS began bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatient setting and, beginning in 2018, CMS will pay for clinical laboratory services based on a weighted-average of reported prices that private payors, Medicare Advantage plans and Medicaid Managed Care plans pay for laboratory services.
Further recently, there has been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further product price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain products under Medicare Part B, to allow some states to negotiate product prices under Medicaid, and to eliminate cost sharing for generic products for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
 	•	the demand for our product candidates, if we obtain regulatory approval;	
 	•	our ability to set a price that we believe is fair for our products;	
 	•	our ability to generate revenue and achieve or maintain profitability;	
 	•	the level of taxes that we are required to pay; and	
 	•	the availability of capital. 	
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Due to the novel nature of our technology and the small size of our initial target patient populations, we face uncertainty related to pricing and reimbursement for these product candidates.
Our initial target patient populations are relatively small. As a result, the pricing and reimbursement of our product candidates, if approved, must be adequate to support commercial infrastructure. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell our product candidates will be adversely affected. The manner and level at which reimbursement is provided for services related to our product candidates (e.g., for administration of our product to patients) is also important. Inadequate reimbursement for such services may lead to physician resistance and adversely affect our ability to market or sell our products.
We and our contract manufacturers are subject to significant regulation with respect to manufacturing our products. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.
We currently have relationships with a limited number of suppliers for the manufacturing of our viral vectors and product candidates. Each supplier may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain and we may be unable to transfer or sublicense the intellectual property rights we may have or later obtain with respect to such activities.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA’s good laboratory practices and cGMP regulations enforced by the FDA through its facilities inspection program. Some of our contract manufacturers have not produced a commercially-approved product and therefore may have not obtained the requisite FDA approvals to do so. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection, FDA approval of the products may not be granted.
The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be materially harmed.
Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. An alternative manufacturer would need to be qualified through a BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the s uccess of our business.
Our research and development, manufacturing processes, clinical trials and products may involve the controlled use of hazardous materials, chemicals, viruses and various radioactive compounds. Specifically, if our products or product candidates spread from human or companion pet patients to other people or pets, these other individuals or pets (such as the immune suppressed or the very young), might be more sensitive to the product or product candidate than the patient and may experience an adverse reaction. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products, including numerous environmental, health and safety laws and regulations, such as those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Risks related to our intellectual property
If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.
Our commercial success will depend in part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the United States and abroad related to our novel technologies and products that are important to our business.
The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside of the United States. Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patents or those licensed to us and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected. It is also possible that we or our licensors will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them. It is also possible that as research and development progresses, the direction of our intellectual property strategy and patent portfolio will change, resulting in strategic business decisions to allow certain patents or patent applications to be abandoned or lapse.
With respect to patent rights, we do not know whether any of the pending patent applications for any of our compounds or biologic products will result in the issuance of patents that effectively protect our technology or products, or if any of our issued patents or if any of our or our licensors’ issued patents will effectively prevent others from commercializing competitive technologies and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.
 Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third parties may be challenged in the courts or patent
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offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercial izing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our or our licensor’s patented technology, trademarks and other intellectual prop erty rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims , and proving any such infringement may be even more difficult.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the U.S. Patent and Trademark Office, or U.S. PTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.
Third parties have asserted, and in the future may assert, that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire.
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, may involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
We may not be successful in obtaining or maintaining necessary rights to gene therapy product components and processes for our development pipeline through acquisitions and in-licenses.
Presently we believe that we have rights to the intellectual property, through licenses from third parties and under patents that we own, to develop our gene therapy product candidates. Because our programs may involve additional product candidates that may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and these rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.
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If we fail to comply with our obligations in the agreement under which we license intellectual property rights from the University of Southern California, or USC, or otherwise experience disruptions to our business relationships with USC or other future licensors, we could lose license rights that are important to our business.
In October 2007, we entered into a license agreement with USC pursuant to which we received a worldwide, exclusive license to, among other things, manufacture and market products utilizing certain inventions that are critical to our business. We expect to enter into additional license agreements in the future. Our existing license agreement imposes, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license.
We may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current product candidates or future products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.
In certain cases, patent prosecution of our licensed technology may be controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing agreement, including:
 	•	the scope of rights granted under the license agreement and other interpretation-related issues;	
 	•	the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;	
 	•	the sublicensing of patent and other rights under our collaborative development relationships;	
 	•	our diligence obligations under the license agreement and what activities satisfy those diligence obligations;	
 	•	the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and	
 	•	the priority of invention of patented technology.	
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Interference or derivation proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation, interference or derivation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.
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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by discl osure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a mate rial adverse effect on the price of our common stock.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the U.S. PTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The U.S. PTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court.
If we, the University of Southern California, or USC, or one of our future licensing partners initiated legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection would have a material adverse impact on our business.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may have potential ownership disputes arising, for example, from conflicting obligations of consultants, collaborators or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and therefore obtaining and enforcing biotechnology patents is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the U.S. PTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We have not yet registered trademarks for a commercial trade name for Toca 511 & Toca FC, and failure to secure such registrations could adversely affect our business.
We have not yet developed a proprietary name for our products nor registered trademarks for a commercial trade name for Toca 511 & Toca FC. During trademark registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the U.S. PTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Risks related to ownership of our common stock
The market price of our common stock may be highly volatile, and you could lose all or part of your investment.
The market price of our common stock is likely to be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
 	•	adverse results or delays in preclinical or clinical trials;	
 	•	reports of adverse events in other gene therapy products or clinical trials of such products;	
 	•	inability to obtain additional funding;	
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 	•	any delay in filing an IND or BLA for any of our product candidates and any adverse development or perceived adverse development with respect to the FDA’s review of that IND or BLA;	
 	•	failure to develop successfully and commercialize our product candidates;	
 	•	failure to maintain our existing strategic collaboration or enter into new collaborations;	
 	•	failure by us or our licensors and strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights;	
 	•	changes in laws or regulations applicable to future products;	
 	•	inability to obtain adequate product supply for our product candidates or the inability to do so at acceptable prices;	
 	•	adverse regulatory decisions;	
 	•	introduction of new products, services or technologies by our competitors;	
 	•	failure to meet or exceed financial projections we may provide to the public;	
 	•	failure to meet or exceed the financial projections of the investment community;	
 	•	the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;	
 	•	announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our strategic collaboration partners or our competitors;	
 	•	disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;	
 	•	additions or departures of key scientific or management personnel;	
 	•	significant lawsuits, including patent or stockholder litigation;	
 	•	changes in the market valuations of similar companies;	
 	•	sales of our common stock by us or our stockholders in the future; and	
 	•	trading volume of our common stock.	
In addition, companies trading in the stock market in general, and The Nasdaq Global Select Market in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
As widely reported, global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. We cannot assure you that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.
We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future, including due to limitations that are currently imposed by our loan and security agreement. Any return to stockholders will therefore be limited to the appreciation of their stock.
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We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we completed our initial public offering, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering (i.e. December 31, 2022), (b) in which we have total annual gross revenue of at least $1 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.
We will incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The NASDAQ Global Select Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of our initial public offering. We intend to take advantage of this legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
We expect the rules and regulations applicable to public companies to continue to result in substantial legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. These costs could decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, these rules and regulations could make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
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Sales of a su bstantial number of shares of our common stock in the public market could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline. We had 19,911,616 shares of common stock outstanding as of February 28, 2018. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.
Sales of our common stock by current stockholders may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate, and make it more difficult for you to sell shares of our common stock. In addition, as of December 31, 2017, 3,113,341 shares of common stock that are either subject to outstanding options, reserved for future issuance under our equity incentive plans or subject to outstanding warrants will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
Additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.
Pursuant to our 2017 Equity Incentive Plan, or 2017 Plan, our management is authorized to grant stock options to our employees, directors and consultants.  The number of shares of our common stock reserved for issuance under our 2017 Plan will automatically increase on January 1 of each year through and including January 1, 2027, by 4% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors.  Additionally, the number of shares of our common stock reserved for issuance under our 2017 Employee Stock Purchase Plan, or the ESPP, will automatically increase on January 1 of each year through and including January 1, 2027, by the lesser of 1% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, 300,000 shares or a lesser number of shares determined by our board of directors.  Unless our board of directors elects not to increase the number of shares available for future grant each year under the 2017 Plan and the ESPP, our stockholders may experience additional dilution, which could cause our stock price to fall.
We have broad discretion in the use of working capital and may not use it effectively.
Our management will have broad discretion in the application of working capital, and you will not have the opportunity as part of your investment decision to assess whether working capital is being used appropriately. Because of the number and variability of factors that will determine our use of our working capital, its ultimate use may vary substantially from its currently intended use. Our management might not apply our working capital in ways that ultimately increase the value of your investment. We intend to use our working capital to fund our Phase 3 clinical trial of Toca 511 & Toca FC in recurrent HGG, manufacturing scale-up and validation for Toca 511 & Toca FC, the other ongoing and planned clinical development activities for Toca 511 & Toca FC and for working capital and other general corporate purposes. The failure by our management to apply this working capital effectively could harm our business. Pending its use, we may invest our working capital in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply our working capital in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.
 On December 22, 2017, President Trump signed into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended, or IRC.  The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions).  Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected.  In addition, it is unknown if and to what extent various states will conform to the newly enacted federal tax law.  The impact
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of this tax reform on holders of our common stock is likewise uncertain and could be adverse.  We urge our stockholders to consult with their legal and tax advisors with respect to this legislation an d the potential tax consequences of investing in or holding our common stock.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2017, we had federal and state net operating loss carryforwards of $137.8 million and $41.5 million, respectively. Our federal and state net operating loss carryforwards will begin to expire, if not utilized, beginning in 2028.  If these net operating loss carryforwards expire unused, they will be unavailable to offset future income and reduce future income tax liabilities. In addition, under the newly enacted federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited.  It is uncertain if and to what extent various states will conform to the newly enacted federal tax law. Under Sections 382 and 383 of the IRC, if a corporation undergoes an “ownership change,” generally defined as a cumulative change in its equity ownership by “5-percent shareholders” of greater than 50 percentage points (by value) over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and certain other pre-change tax attributes (such as research tax credits) to offset its post-change taxable income and taxes, as applicable, may be limited. We have completed an initial public offering and multiple rounds of financing since our inception which may have resulted in an ownership change or could result in an ownership change in the future. As of December 31, 2017, we have not completed a Section 382 and 383 analysis regarding any limitations on our NOLs and research and development credit carryforwards and such limitations could be significant. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, our ability to use our NOLs and research and development credit carryforwards to offset our U.S. federal taxable income and taxes, as applicable, may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, similar rules may apply and there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws, include provisions that:
 	•	permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control);	
 	•	provide that the authorized number of directors may be changed only by resolution of the board of directors;	
 	•	provide that the board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least 66-2/3% of the voting power of all of our then outstanding common stock;	
 	•	provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;	
 	•	divide our board of directors into three classes;	
 	•	require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;	
 	•	provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice;	
 	•	do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose);	
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 	•	provide that special meetings of o ur stockholders may be called only by the chairman of the board, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and	
 	•	provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine.	
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.
Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or (iv) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation and amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Because we have an even number of members of our board of directors, deadlocks may occur in our board of directors’ decision-making process, which may delay or prevent critical decisions from being made.
Since we have an even number of directors, deadlocks may occur when such directors disagree on a particular decision or course of action. Our amended and restated certificate of incorporation and amended and restated bylaws do not contain any mechanisms for resolving potential deadlocks. While our directors are under a duty to act in the best interest of our company, any deadlocks may impede the further development of our business in that such deadlocks may delay or prevent critical decisions regarding our business.
 Item 1B. Unresolved Staff Comments.
None.
 Item 2. Properties.
As of December 31, 2017, we leased a total of approximately 19,000 square feet of laboratory and office space located at 3030 Bunker Hill Street Suite 230, San Diego, California. The lease was amended in March 2018 to provide for an extension of the lease term until June 30, 2018. Additionally, we will continue to lease approximately 2,000 square feet of our existing laboratory and office space through December 31, 2018.
 On January 10, 2018, we entered into a new lease, or New Lease, totaling approximately 39,000 square feet of laboratory and office space located at 4242 Campus Point Court, San Diego, California, or the New Premises. The commencement date of the New Lease will be the earlier of (a) June 1, 2018, (b) substantial completion of tenant improvements, or (c) the date we begin conducting business operations in all or any portion of the New Premises. We expect to use the New Premises as our new principal executive
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offices and for general office, research and development, lab and pilot manufacturing uses. The term of the New Lease is eight years and we have one option to extend the New Lease for a period of five additional years.
We believe our existing and new facilities are adequate to meet our business requirements for the foreseeable future and are sufficient and suitable for the conduct of our business.
 Item 3. Legal Proceedings.
None.
 Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
 Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock began trading on the NASDAQ Global Select Market under the symbol “TOCA” on April 13, 2017. Prior to that date, there was no public trading market for our common stock. The following table sets forth the high and low sales price per share of common stock as reported on the NASDAQ Global Select Market for the periods indicated:
 
 	 	Price Range	 	
 	 	High	 	 	Low	 	
Year Ended December 31, 2017	 	 	 	 	 	 	 	 	
Second Quarter (beginning April 13, 2017)	 	$	17.95	 	 	$	10.25	 	
Third Quarter	 	$	14.12	 	 	$	9.68	 	
Fourth Quarter	 	$	13.01	 	 	$	8.60	 	
 
Holders of Record
As of February 28, 2018, there were approximately 501 stockholders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust or by other entities.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on, among other factors, our financial condition, operating results, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. In addition, the terms of our loan and security agreement prohibit us from paying cash dividends.
Securities Authorized for Issuance Under Our Equity Compensation Plans
Information regarding securities authorized for issuance under our equity compensation plans is incorporated herein by reference to Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of Part III of this Annual Report on Form 10-K.
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Stock Performance Graph
The following graph compares the cumulative total return to stockholders on our common stock relative to the cumulative total returns of the NASDAQ Composite Index and the NASDAQ Biotechnology Index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on April 13, 2017, the date our common stock began trading on the NASDAQ Global Select Market, and its relative performance is tracked through December 31, 2017. The returns shown are based on historical results and are not intended to suggest future performance.

This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Tocagen Inc. under the Securities Act or the Exchange Act.
 Recent Sales of Unregistered Securities
 During the 12 months ended December 31, 2017, we issued and sold the following unregistered securities (excluding those previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K) :
 (1) In February 2017, we issued convertible promissory notes in an aggregate principal amount of $7.5 million to investors pursuant to a series of note purchase agreements. These notes and the notes that were issued during 2016, which aggregate into $11.1 million of principal plus accrued interest, converted into an aggregate of 1,109,176 shares of common stock in connection with our initial public offering.
 (2) In March 2017, we granted stock options under our 2009 equity incentive plan, as amended, or the 2009 Plan, to purchase  up to an aggregate of  103,934  shares of our common stock  to certain of our employees at a weighted-average exer  cise price of $15.12 per share. From January 1, 2017 through April 12, 2017, 30,805 shares of common stock were issued upon the exercise of options granted to certain employees and consultants and the payment of $45,980 was made to us.
The offers, sales and issuances of the securities described in paragraph (1) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) (or Regulation D promulgated thereunder) in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D. No underwriters were involved in these transactions.
The offers, sales and issuances of the securities described in paragraph (2) were deemed to be exempt from registration under the Securities Act in reliance on either Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701 or Section 4(2) in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of such securities were our employees, directors or bona fide consultants and received the securities under our 2009 Plan.
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Use of Proceeds
 On April 12, 2017,  our Registration Statement on Form S-1  (file No. 333-216574) was declared effective by the SEC for our initial public offering of common stock. We issued  9,775,000 shares of common stock at  an offering price of $10  .00 per share for gross proceeds of $97.8 million.  After deducting underwriting discounts, commissions and offering costs incurred by us of $10.8 million, the net proceeds from the offering were $86.9 million.  The offering was completed on April 19, 2017. The joint bookrunning managers for the offering were Leerink Partners LLC, Evercore Group L.L.C. and Stifel, Nicolaus & Company, Incorporated. No offering costs were paid or are payable, directly or indirectly, to our directors or officers, to persons owning 10% or more of any class of our equity securities, or to any of our affiliates.
 There has been no material change in the  expected use of the net proceeds from our initial public offering as described in our final prospectus filed with the SEC on April   13  , 2017    . Through the date hereof, we have used $9.7 million of the net proceeds from the offering. Pending such uses, we plan to continue investing the unused proceeds from this offering in fixed, non-speculative income instruments.
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 None.
 Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” and our financial statements and the related notes thereto, each included elsewhere in this Annual Report on Form 10-K.
The statements of operations data for the years ended December 31, 2017, 2016 and 2015 and the balance sheet data as of December 31, 2017 and 2016 are derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K. The selected balance sheet data as of December 31, 2015 is derived from audited financial statements that are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in any future period.
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
 	 	(in thousands, except share and per share data)	 	
Statements of Operations Data	 	 	 	 	 	 	 	 	 	 	 	 	
License revenue	 	$	41	 	 	$	49	 	 	$	51	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	
Research and development	 	 	29,113	 	 	 	27,218	 	 	 	19,172	 	
General and administrative	 	 	8,557	 	 	 	4,522	 	 	 	3,833	 	
Total operating expenses	 	 	37,670	 	 	 	31,740	 	 	 	23,005	 	
Loss from operations	 	 	(37,629	)	 	 	(31,691	)	 	 	(22,954	)	
Other income (expense), net:	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	 	595	 	 	 	215	 	 	 	126	 	
Interest expense	 	 	(1,932	)	 	 	(2,052	)	 	 	(339	)	
Change in fair value of preferred stock warrants	 	 	37	 	 	 	50	 	 	 	111	 	
Total other income (expense), net	 	 	(1,300	)	 	 	(1,787	)	 	 	(102	)	
Net loss	 	 	(38,929	)	 	 	(33,478	)	 	 	(23,056	)	
Other comprehensive income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	
Net unrealized gain (loss) on investments	 	 	(34	)	 	 	58	 	 	 	(52	)	
Comprehensive loss	 	$	(38,963	)	 	$	(33,420	)	 	$	(23,108	)	
Net loss per common share, basic and diluted	 	$	(2.66	)	 	$	(15.22	)	 	$	(10.57	)	
Weighted-average number of common shares outstanding,
   basic and diluted	 	 	14,607,609	 	 	 	2,199,964	 	 	 	2,182,032	 	
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 	 	As of December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
 	 	(in thousands)	 	
Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	
Cash, cash equivalents and marketable securities	 	$	88,725	 	 	$	31,245	 	 	$	58,910	 	
Working capital	 	 	73,299	 	 	 	18,079	 	 	 	54,270	 	
Total assets	 	 	92,073	 	 	 	35,351	 	 	 	62,175	 	
Notes payable, current portion	 	 	7,200	 	 	 	7,200	 	 	 	600	 	
Notes payable, net of current portion	 	 	3,625	 	 	 	10,241	 	 	 	16,873	 	
Convertible promissory notes payable	 	 	—	 	 	 	3,398	 	 	 	—	 	
Convertible promissory notes subscription liability	 	 	—	 	 	 	140	 	 	 	—	 	
Preferred stock warrant liabilities	 	 	—	 	 	 	126	 	 	 	176	 	
Convertible preferred stock	 	 	—	 	 	 	131,413	 	 	 	131,413	 	
Accumulated deficit	 	 	(166,929	)	 	 	(128,000	)	 	 	(94,512	)	
Total stockholders’ equity (deficit)	 	 	71,082	 	 	 	(124,417	)	 	 	(92,330	)	
 
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Selected Financial Data” and our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section entitled “Risk Factors” and in other parts of this Annual Report on Form 10-K. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”
Overview
We are a clinical-stage, cancer-selective gene therapy company focused on developing first-in-class, broadly-applicable product candidates designed to activate a patient’s immune system against their own cancer from within. Our cancer-selective gene therapy platform is built on retroviral replicating vectors, or RRVs, which are designed to selectively deliver therapeutic genes into the DNA of cancer cells. Our gene therapy approach is designed to fight cancer through immunotherapeutic mechanisms of action without the autoimmune toxicities commonly experienced with other immunotherapies.
We are developing our lead product candidate, Toca 511 (vocimagene amiretrorepvec) & Toca FC (flucytosine), initially for the treatment of recurrent high grade glioma, or HGG, a brain cancer with limited treatment options, low survival rates and, therefore, a significant unmet medical need. We are conducting a randomized, controlled Phase 3 clinical trial of Toca 511 & Toca FC in patients with recurrent HGG, which is designed to serve as a registrational trial. In February 2017, the U.S. Food and Drug Administration, or FDA, granted Toca 511 & Toca FC Breakthrough Therapy Designation for the treatment of patients with recurrent HGG and in June 2017 the European Medicines Agency, or EMA, granted Toca 511 Priority Medicines, or PRIME, Designation for the treatment of patients with glioma. Breakthrough Therapy Designation indicates that preliminary clinical evidence demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy. PRIME Designation indicates that there is a potential to benefit patients with unmet medical needs based on early clinical data. We also have Fast Track Designation (which may lead to expedited regulatory review of new products that treat serious diseases or conditions and demonstrate the potential to address an unmet medical need) from the FDA for Toca 511 & Toca FC for the treatment of recurrent HGG and Orphan-Drug Designation (a designation for a product that treats a rare disease or condition and which, if the product receives the first FDA approval for that disease or condition, may result in a period of regulatory exclusivity, subject to some exceptions) for the treatment of HGG.  The Committee for Orphan Medicinal Products of the EMA has designated both flucytosine and vocimagene amiretrorepvec as orphan medicinal products indicated for the treatment of glioma. The EMA provides several benefits to drug developers for developing drugs for orphan diseases.
We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through the private placement of our convertible preferred stock, from which we received net proceeds of $131.4 million and our initial public offering in April 2017, from which we received net proceeds of $86.9 million. We have also received $17.7 million in net proceeds from the issuance of our notes payable, $10.9 million from the issuance of our convertible promissory notes payable, $2.1 million from private and federal grants, and a $0.5 million up-front payment from our license and collaboration agreement with Siemens Healthcare Diagnostics Inc., or Siemens.
Since our inception in August 2007, we have devoted substantially all of our efforts to developing our gene therapy platform and our lead product candidate, Toca 511 & Toca FC. We have never been profitable and have incurred significant operating losses in each year since our inception. We had an accumulated deficit of $166.9 million as of December 31, 2017. Substantially all of our net losses resulted from costs incurred in connection with our research, preclinical, clinical, product, regulatory and business development activities, as well as raising capital and building our infrastructure.
We expect to continue to incur significant expenses and increasing net operating losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities as we continue to develop and seek regulatory approval of our product candidates and operate as a public company. To fund further operations, we will need to raise additional capital.
Accordingly, we will seek to fund our operations through equity and/or debt financings. We may also consider new collaborations or selectively partnering our technology or programs. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. In addition, subject to limited exceptions, our Loan Agreement (as defined below) also prohibits us from incurring indebtedness without the prior written consent of the lenders. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.
On April 19, 2017, we completed our initial public offering whereby we sold an aggregate of 9,775,000 shares of common stock, at $10.00 per share, resulting in net proceeds of $86.9 million after underwriting discounts, commissions and offering costs.
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In August 2017, we were awarded a $2.0 million grant payable over four years, by the FDA Office of Orphan Products Development to support our Phase 3 clinical trial of Toca 511 & Toca FC, or OOPD Grant. At December 31, 2017, we had received $0.5 million relating to the OOPD Grant.
Financial Operations Overview
Revenue
We currently have no products approved for sale, and have not generated any revenues from the sale of products. We have not submitted any product candidate for regulatory approval. Our revenue has been derived from our license and collaboration arrangement we entered into with Siemens in 2011, under which we received a nonrefundable, non-creditable, lump-sum, upfront license payment of $0.5 million for our sublicense to Siemens of certain diagnostic assay technology.
In the future, we may generate revenue from a combination of product sales and royalties in connection with our Siemens agreement and any future marketing and distribution arrangements and other collaborations, strategic alliances and license arrangements, or a combination of these approaches. However, we do not expect to receive additional revenues unless and until we receive regulatory approval for product candidates or potentially enter into collaboration agreements. We do not expect any of our current product candidates to be commercially available in major markets for at least the next few years. We expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of license fees, milestone and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Research and Development Expenses
Research and development expenses consist primarily of salaries and related expenses for personnel, including stock-based compensation costs, preclinical costs, clinical trial costs, costs related to acquiring and manufacturing clinical trial materials, contract services, facilities costs, overhead costs and depreciation. These activities also include research and development related to our gene therapy platform development. All research and development costs are expensed as incurred.
We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
 	•	per patient trial costs;	
 	•	the number of patients that participate in the trials;	
 	•	the number of sites included in the trials;	
 	•	the countries in which the trials are conducted;	
 	•	the length of time required to enroll eligible patients;	
 	•	the drop-out or discontinuation rates of patients;	
 	•	the potential for additional safety monitoring or other clinical trials requested by regulatory agencies;	
 	•	significant and changing government regulation; and	
 	•	the timing and receipt of any regulatory approvals.	
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the U.S. Food and Drug Administration, or FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.
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The following table indicates our research and development expense by project for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
Toca 511 & Toca FC	 	$	27,471	 	 	$	26,490	 	 	$	18,211	 	
Vector technology	 	 	1,642	 	 	 	728	 	 	 	961	 	
Total	 	$	29,113	 	 	$	27,218	 	 	$	19,172	 	
 
We expect our research and development expenses to increase for the foreseeable future as we scale up our clinical trial and manufacturing activities and seek regulatory approval of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses for personnel, including stock-based compensation costs and travel expenses for our employees in executive, operational, finance and business development functions. Other general and administrative expenses include facility-related costs, consulting fees for human resources and operations, capital raising and information technology, insurance, professional fees for accounting and legal services, expenses associated with obtaining and maintaining patents, and costs associated with being a public company.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our expanding research and development and potential commercialization of our product candidates. We also anticipate continued increases in expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs associated with being a public company. Additionally, if we believe a regulatory approval of our lead product candidate appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to establishing a sales force and other expenses related to the sale and marketing of our product candidates.
Interest Income
Interest income consists primarily of interest income earned on cash, cash equivalents and marketable securities.
Interest Expense
Interest expense consists of stated interest and the amortization of related debt issuance costs incurred on the outstanding principal amount of our borrowings under our notes payable and convertible promissory notes payable.
Change in Fair Value of Preferred Stock Warrants
Warrants for shares of preferred stock with conversion features are accounted for as liabilities in the accompanying balance sheets at their fair value on the date of issuance. The warrant liabilities are revalued at each balance sheet date until such instruments are exercised or expire, with changes in the fair value between reporting periods recorded as change in fair value of preferred stock warrants in the statement of operations. All preferred stock warrant liabilities were reclassified to equity in connection with our initial public offering.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
While our significant accounting policies are described in more detail in the Note 2 to our financial statements appearing at the end of this Annual Report on Form 10-K, we believe the following accounting policies to be most critical for fully understanding and evaluating our financial condition and results of operations.
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Accrued Research and Development Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to: investigative sites and contract research organizations in connection with clinical trials; service providers in connection with preclinical development activities; and service providers related to product manufacturing.
We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to our contract arrangements. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our service providers will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients, site initiation and the completion of clinical milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense balance accordingly .
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amount actually incurred. However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities.
Stock-Based Compensation
Stock-based compensation expense represents the cost of the grant date fair value of stock awards, including stock options, and stock purchase rights granted to employees. For awards with time-based vesting provisions, we estimate the fair value of stock options on the date of grant using the Black-Scholes option pricing model and recognize the expense over the requisite service period of the awards which is generally the vesting period, on a straight-line basis. The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the risk-free interest rate, the expected volatility, the expected term of the option, the expected dividend yield of our common stock and the estimated fair value of our common stock. For awards with performance-based vesting provisions, we estimate the fair value of stock option grants on the date of grant, or the date when all of the terms of the grant have been agreed to, if later, and recognize the expense based on the probability of the occurrence of the individual milestones at each reporting period. The expense is recognized over the implicit service period that commences once management believes the performance criteria are probable of being met. Prior to January 1, 2016, we estimated forfeitures at the time of grant with stock-based compensation expense based on awards that were ultimately expected to vest. Beginning January 1, 2016, upon adoption of new accounting guidance, we account for forfeitures when they occur, and reverse any compensation cost previously recognized for awards for which the requisite service has not been completed, in the period that the award is forfeited.
We calculate the estimated fair value of each non-employee stock option award at the date of grant using Black-Scholes option pricing model with the assumptions generally consistent with those used for employee stock options, with the exception of expected term, which is over the contractual life. These options are subject to periodic revaluation over their vesting terms.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We record a full valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.
We record uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. We will recognize interest and penalties in income tax expense if and when incurred.
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Emerging Growth Company Status
The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
Recent Accounting Pronouncements
We have reviewed all recently issued standards and have determined that other than as disclosed in Note 2 to our financial statements included in this Annual Report on Form 10-K, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.
Results of Operations
Comparison of the Years Ended December 31, 2017 and 2016
The following table summarizes our results of operations for the years ended December 31, 2017 and 2016 (in thousands):
 
 	 	Years Ended
December 31,	 	 	Increase	 	
 	 	2017	 	 	2016	 	 	(Decrease)	 	
License revenue	 	$	41	 	 	$	49	 	 	$	(8	)	
Research and development expenses	 	 	29,113	 	 	 	27,218	 	 	 	1,895	 	
General and administrative expenses	 	 	8,557	 	 	 	4,522	 	 	 	4,035	 	
Interest income	 	 	595	 	 	 	215	 	 	 	380	 	
Interest expense	 	 	(1,932	)	 	 	(2,052	)	 	 	120	 	
Change in fair value of preferred stock warrants	 	 	37	 	 	 	50	 	 	 	(13	)	
 
License revenue .    License revenue was $41,000 for the year ended December 31, 2017 as compared to $49,000 for the year ended December 31, 2016, a decrease of $8,000.
Research and development expenses .    Research and development expenses were $29.1 million for the year ended December 31, 2017, as compared to $27.2 million for the year ended December 31, 2016. The increase of $1.9 million, or 7%, was primarily due to increased personnel costs to support our ongoing Phase 3 clinical trial. We anticipate our research and development expenses will increase in future years.
General and administrative expenses .    General and administrative expenses were $8.6 million for the year ended December 31, 2017, as compared to $4.5 million for the year ended December 31, 2016. The increase of $4.0 million, or 89%, was primarily due to higher costs to support increased operations activity as we conduct our Phase 3 clinical trial and costs associated with being a public company. Stock-based compensation expense, which represents 47% of the increase, is due primarily to stock options granted to members of our board of directors, our chief executive officer and other employees.
Interest income .    Interest income was $0.6 million for the year ended December 31, 2017, as compared to $0.2 million for the year ended December 31, 2016. The increase of $0.4 was primarily due to our higher average cash balances earning interest at higher rates during 2017 compared to 2016.
Interest Expense .    Interest expense was $1.9 million for the year ended December 31, 2017 and represents $1.1 million in stated interest, $0.6 million in amortization of related debt issuance costs incurred on the outstanding principal amount of our borrowings under our notes payable and $0.2 million in interest on our convertible promissory notes payable. Interest expense was $2.1 million for the year ended December 31, 2016 and represents $1.5 million in stated interest and $0.6 million in amortization of related debt issuance costs incurred on the outstanding principal amount of our borrowings under our notes payable, and $24,000 in interest on our convertible promissory notes payable issued in November and December 2016.
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Comparison o f the Years Ended December 31, 2016 and 2015
The following table summarizes our results of operations for the years ended December 31, 2016 and 2015 (in thousands):
 
 	 	Years Ended
December 31,	 	 	Increase	 	
 	 	2016	 	 	2015	 	 	(Decrease)	 	
License revenue	 	$	49	 	 	$	51	 	 	$	(2	)	
Research and development expenses	 	 	27,218	 	 	 	19,172	 	 	 	8,046	 	
General and administrative expenses	 	 	4,522	 	 	 	3,833	 	 	 	689	 	
Interest income	 	 	215	 	 	 	126	 	 	 	89	 	
Interest expense	 	 	(2,052	)	 	 	(339	)	 	 	(1,713	)	
Change in fair value of preferred stock warrants	 	 	50	 	 	 	111	 	 	 	(61	)	
 
License revenue .    License revenue was $49,000 for the year ended December 31, 2016 as compared to $51,000 for the year ended December 31, 2015, a decrease of $2,000.
Research and development expenses .    Research and development expenses were $27.2 million for the year ended December 31, 2016, as compared to $19.2 million for the year ended December 31, 2015. The increase of $8.0 million, or 42%, was primarily due to continued increases in clinical and manufacturing costs incurred to support our Phase 2/3 clinical trial, as well as pre-initiation costs for our Phase 1b clinical trial in solid tumors during 2016.
General and administrative expenses .    General and administrative expenses were $4.5 million for the year ended December 31, 2016, as compared to $3.8 million for the year ended December 31, 2015. The increase of $0.7 million, or 18%, was primarily due to increased costs for supporting the higher level of company operations as we conducted our Phase 2/3 clinical trial.
Interest income .    Interest income was $0.2 million for the year ended December 31, 2016, as compared to $0.1 million for the year ended December 31, 2015. The increase of $89,000 was primarily due to our average cash balances earning interest at higher rates during 2016 compared to 2015.
Interest Expense .    Interest expense was $2.1 million for the year ended December 31, 2016 and represents $1.5 million in stated interest and $0.6 million in amortization of related debt issuance costs incurred on the outstanding principal amount of our borrowings under our notes payable, and $24,000 in interest on our convertible promissory notes payable issued in November and December 2016. Interest expense was $0.3 million for the year ended December 31, 2015 and represents $0.2 million in stated interest and $0.1 million in amortization of related debt issuance costs incurred on the outstanding principal amount of our borrowings under our notes payable issued in October 2015.
Liquidity and Capital Resources
We have incurred significant losses and cumulative negative cash flows from operations since our inception. As of December 31, 2017, we had an accumulated deficit of $166.9 million and we anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through equity and/or debt financings. We may also consider new collaborations or selectively partnering our technology or programs.
Since inception through December 31, 2017, we have funded our operations primarily through the private placement of our convertible preferred stock from which we received net proceeds of $131.4 million and our initial public offering from which we received net proceeds of $86.9 million. In addition, we have also received $17.7 million in net proceeds from the issuance of our notes payable, $10.9 million from the issuance of our convertible promissory notes payable, $2.1 million from private grant funding and federal grants, and a $0.5 million up-front payment under the Siemens license and collaboration agreement.
The loans under our loan and security agreement, or the Loan Agreement, with two lenders, dated October 30, 2015, are secured by substantially all of our assets other than our intellectual property (except rights to payment from the sale, licensing of disposition of such intellectual property). We borrowed $18.0 million upon execution of the Loan Agreement. Balances under the Loan Agreement accrue interest at the prime rate plus 4.5%, subject to a floor of 7.75%.  The interest rate as of December 31, 2017 was 8.75%. The loans under the Loan Agreement mature in May 2019 and are due in monthly payments of principal and interest. The Loan Agreement contains customary conditions of borrowing, events of default and covenants, including covenants that restrict our ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of our capital stock. Should an event of default occur, including the occurrence of a material adverse change, we could be liable for immediate repayment of all obligations under the Loan Agreement.
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As of December 31, 2017, we had $88.7 million in cash, cash equivalents and marketable securities.  Our available cash and marketable securities are invested in acc ordance with our investment policy, primarily with a view to preserve principal and maintain liquidity. Currently, our funds are held in FDIC insured cash accounts, certificates of deposits, money market funds and investment-grade fixed income securities.
Cash Flows
The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands):
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
Net cash provided by (used in):	 	 	 	 	 	 	 	 	 	 	 	 	
Operating activities	 	$	(31,133	)	 	$	(29,539	)	 	$	(21,042	)	
Investing activities	 	 	(27,707	)	 	 	24,567	 	 	 	(24,928	)	
Financing activities	 	 	89,263	 	 	 	2,332	 	 	 	49,916	 	
Net increase (decrease) in cash and cash equivalents	 	$	30,423	 	 	$	(2,640	)	 	$	3,946	 	
 
Operating Activities.      Net cash used in operating activities was $31.1 million for the year ended December 31, 2017, and consisted primarily of a net loss of $38.9 million adjusted for a net increase in cash from operating assets and liabilities of $2.5 million, noncash stock-based compensation expense of $4.5 million, depreciation expense of $0.3 million and noncash interest expense of $0.6 million. The $2.5 million net increase in cash from operating assets and liabilities is due primarily to a $3.2 million increase in our accounts payable and accrued liabilities resulting mainly from increased accrued payroll and related liabilities and continued increases in clinical costs incurred to support our clinical trials, primarily offset by a $0.7 million increase in prepaid expenses related to our manufacturing costs.
Net cash used in operating activities was $29.5 million for the year ended December 31, 2016, and consisted primarily of a net loss of $33.5 million adjusted for a net increase in cash from operating assets and liabilities of $1.8 million, noncash stock-based compensation expense of $1.3 million, depreciation expense of $0.3 million and noncash interest expense of $0.6 million. The $1.8 million net increase in cash from operating assets and liabilities is due primarily to a $2.1 million increase in our accounts payable and accrued liabilities resulting mainly from continued increases in clinical and manufacturing costs incurred to support our clinical trials and increased accrued payroll and related liabilities, primarily offset by a $0.2 million increase in prepaid expenses related to our clinical trial costs.
Net cash used in operating activities was $21.0 million for the year ended December 31, 2015, and consisted primarily of a net loss of $23.1 million adjusted for a net increase in cash from operating assets and liabilities of $0.7 million, noncash stock-based compensation expense of $1.1 million, depreciation expense of $0.2 million, noncash interest expense of $0.1 million and a noncash reduction in the fair value of our preferred stock warrants of $0.1 million. The $0.7 million net increase in cash from operating assets and liabilities is due primarily to a $1.9 million increase in our accounts payable and accrued liabilities resulting mainly from continued increases in clinical and manufacturing costs incurred to support our clinical trials and increased accrued payroll and related liabilities, primarily offset by a $1.1 million increase in prepaid expenses related to our clinical trial costs.
Investing Activities.      Net cash used in investing activities for the year ended December 31, 2017 was $27.7 million and consisted of purchases of marketable securities of $70.8 million and the purchase of property and equipment of $0.7 million offset primarily by proceeds from the maturity of marketable securities of $43.7 million.
Net cash provided by investing activities for the year ended December 31, 2016 was $24.6 million and consisted of proceeds from the maturity of marketable securities of $48.1 million, primarily offset by purchases of marketable securities of $23.0 million and the purchase of property and equipment of $0.5 million.
Net cash used in investing activities for the year ended December 31, 2015 was $24.9 million and consisted primarily of purchases of marketable securities of $59.9 million and purchases of property and equipment of $0.2 million, primarily offset by proceeds from the maturity of marketable securities of $35.2 million.
Financing activities .     Net cash provided by financing activities for the year ended December 31, 2017 was $89.3 million and consisted primarily of net proceeds from our initial public offering of common stock of $88.6 million and $7.3 million from the issuance of convertible promissory notes payable and convertible promissory note subscriptions which were offset by $7.2 million in principal payments on our notes payable.
Net cash provided by financing activities for the year ended December 31, 2016 was $2.3 million and consisted primarily of net proceeds of $3.5 million from the issuance of convertible promissory notes payable and convertible promissory note subscriptions which was offset by $0.6 million in principal payments on our notes payable and $0.6 million in cash paid for deferred equity issuance costs.
75

Net cash provided by financing activities for the year ended December 31, 2015 was $49.9 million and cons isted primarily of (i) the sale of 6,376,037 shares of our Series H convertible preferred stock for net proceeds of $33.4 million, of which $0.4 million was received in late December 2014 for subscription agreements that did not close until 2015, (ii) $17. 7 million in net proceeds from the issuance of our notes payable in October 2015, and (iii) $0.2 million from the issuance of common stock in connection with the exercise of stock options. These proceeds were primarily offset by $1.0 million in cash paid f or deferred equity issuance costs.
Funding Requirements
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses for personnel, third-party clinical research and development services, laboratory expenses, regulatory expenses, marketing, and general and administrative expenses. Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash, cash equivalents and marketable securities as of December 31, 2017 will enable us to fund our operations for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner that we currently expect. Furthermore, our operating plan may change and we may need additional funds sooner than planned.
The successful development of any product candidate is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of Toca 511 & Toca FC or our other current and future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of product candidates. This is due to the numerous risks and uncertainties associated with developing immunotherapies, including the uncertainty of :
 	•	the progress, timing, costs and results of our ongoing Phase 3 clinical trial of Toca 511 & Toca FC;	
 	•	the progress, timing, costs and results of our Phase 1 dose escalation clinical trials that include our intratumoral study, resection study, and intravenous study;	
 	•	the progress, timing, costs and results of development for Toca 511 & Toca FC for the treatment of metastatic solid tumors;	
 	•	the progress, timing, costs and results of development for our other future product candidates;	
 	•	the outcome, timing and cost of regulatory approvals by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies than those that we currently expect;	
 	•	the ability of our product candidates to progress through clinical development successfully;	
 	•	the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;	
 	•	arrangements with third-party service providers and manufacturers;	
 	•	our need and ability to hire additional personnel;	
 	•	our need to implement additional infrastructure and internal systems;	
 	•	the effect of competing technological and market developments; and	
 	•	the cost of establishing sales, marketing and distribution capabilities for any products for which we may receive regulatory approval.	
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate.
Until we can generate a sufficient amount of revenue from our products, if ever, we expect to finance future cash needs through equity and/or debt financings. We may also consider new collaborations or selectively partnering our technology or programs.  We do not have any committed external source of funds. Additional capital may not be available on reasonable terms, if at all. Subject to limited exceptions, our Loan Agreement also prohibits us from incurring indebtedness without the prior written consent of the lenders. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders and increased fixed payment obligations, and these securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.
76

Off-Balance Sheet Arrangements
 We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2017 that will affect our future liquidity (in thousands):
 
 	 	Total	 	 	Less than 1 Year	 	 	1-3 Years	 	 	3-5 Years	 	 	More than 5 Years	 	
Notes payable	 	$	11,631	 	 	$	7,200	 	 	$	4,431	 	 	$	—	 	 	$	—	 	
Operating lease obligation	 	$	71	 	 	$	71	 	 	$	—	 	 	$	—	 	 	$	—	 	
Total	 	$	11,702	 	 	$	7,271	 	 	$	4,431	 	 	$	—	 	 	$	—	 	
 
On January 10, 2018, we entered into a new lease, or the New Lease, totaling approximately 39,000 square feet of laboratory and office space located at 4242 Campus Point Court, San Diego, California, or the New Premises. The commencement date of the New Lease will be the earlier of (a) June 1, 2018, (b) substantial completion of tenant improvements, or (c) the date we begin conducting business operations in all or any portion of the New Premises. We expect to use the New Premises as our new principal executive offices and for general office, research and development, lab and pilot manufacturing uses. The term of the New Lease is eight years and we have one option to extend the New Lease for a period of five additional years.
Annual base rental lease obligations related to the New Lease are as follows (in thousands):
 
Years ended December 31:	 	 	 	 	
2018	 	$	384	 	
2019	 	 	1,802	 	
2020	 	 	1,945	 	
2021	 	 	2,013	 	
2022	 	 	2,083	 	
Thereafter	 	 	7,674	 	
Total	 	$	15,901	 	
 
The New Lease provides for an abatement of a portion of the lease payments for the first nine months of the lease term as well as a tenant improvement allowance of approximately $1.2 million. We expect to pay for leasehold improvements in excess of the tenant improvement allowance. In the event of a default of certain of our obligations under the New Lease, the landlord would have the right to terminate the New Lease.
Our existing laboratory and office lease at 3030 Bunker Hill Street Suite 230 was amended in March 2018 to provide for an extension of the lease term until June 30, 2018. Additionally, we will continue to lease approximately 2,000 square feet of our existing laboratory and office space through December 31, 2018. Our annual base rental lease obligation in 2018 under our existing building lease is approximately $0.2 million.
We also have obligations under license, collaboration and various grant agreements to make future payments to third parties that become due and payable on the achievement of certain commercial milestones. We have not included these commitments on our balance sheet or in the table above because the achievement and timing of these events is not fixed and determinable. These commitments are listed as follows:
 	•	Pursuant to the technology license agreement with the University of Southern California, or USC, we are obligated to pay an annual royalty to USC starting in the second full calendar year when the net sales of products using the technology covered by the agreement reach a mid-seven-digit dollar range and until such time that the last valid claim of the patents covering our products expires. We are subject to pay interest if and when we become delinquent in our royalty payments.	
 	•	Pursuant to the collaborative agreement with Siemens, we are obligated to pay Siemens a royalty amount up to the mid-nine-digit dollar range per year on our brain cancer product sales in the first five years of such commercial sales.	
 	•	Pursuant to the agreement for a grant we received from Accelerate Brain Cancer Cure, Inc., or ABC2, we are obligated to pay an amount up to a maximum of $0.2 million to ABC2 if and when the net sales of our initial product candidate reach a total of $5.0 million within 10 years of the grant date. In addition, the ABC2 grant includes a conversion option whereby the payment amount may be converted, at our option, to common stock under certain circumstances.	
77

 	•	Pursuant to the agreement for a grant we received from the American Brain Tumor Association, or ABTA, we are obligated to pay an amount up to a maximum of $0.2 million to ABTA if and when the net sales of our initial product candidate reach a total of $5.0 million within 10 years of the ABTA grant date.	
 	•	Pursuant to the agreement for a grant we received from Voices Against Brain Cancer, or VABC, we are obligated to pay an amount up to a maximum of $0.3 million to VABC if and when (1) the net sales of our initial product candidate reach a total of $5.0 million within five years of the VABC grant date, or (2) we enter into a definitive agreement for a favorable transaction resulting in (a) the sale of all or substantially all of our capital stock in a transaction other than an initial public offering, (b) a favorable merger transaction of us with another entity, or (c) the sale of all or substantially all of our assets for cash within a certain time period. In addition, the VABC Grant includes a conversion option whereby VABC can elect to receive the payment in shares of our common stock under certain circumstances.	
We enter into contracts in the ordinary course of business with clinical sites for the conduct of clinical trials, service providers for product manufacture and preclinical research studies, professional consultants for expert advice and other vendors for laboratory and research supplies and services. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments. In addition, these contracts have indemnification clause whereby we indemnify, defend, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred by third party claims arising out of the indemnified party’s performance of service. The term of these indemnification clauses is perpetual any time after execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification clauses is unlimited. We have not incurred costs to defend lawsuits or settle claims related to these indemnification clauses.
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in securities of high credit quality. As of December 31, 2017, we had cash, cash equivalents and marketable securities of $88.7 million consisting of cash and investments in certificates of deposit, money market funds, and investment-grade fixed income securities. A significant portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. However, because our investments are primarily short-term in duration, we believe that our exposure to interest rate risk is not significant and a 1% movement in market interest rates would not have a significant impact on the total value of our portfolio. We actively monitor changes in interest rates.
 Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this item are included after the Signatures page of this Annual Report on Form 10-K beginning on page F-1.
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
 Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2017. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2017, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
78

Management’s Report on Int ernal Control over Financial Reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Internal Control over Financial Reporting
Because of their inherent limitations, our disclosure controls and procedures and our internal control over financial reporting may not prevent material errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to risks, including that the controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate.
 Item 9B. Other Information.
None.
79

PART III
 Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item and not set forth below will be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission in connection with our 2018 Annual Meeting of Stockholders, or the Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017, and is incorporated herein by reference.
 We have adopted a written Code of Business Conduct and Ethics, or Ethics Code, that applies to all officers, directors and employees,  including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions . The Ethics Code is available on our website at www.tocagen.com . If we make any substantive amendments to the Ethics Code or grant any waiver from a provision of the Ethics Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website  or in a current report on Form 8-K .
 Item 11. Executive Compensation.
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
 Item 14. Principal Accounting Fees and Services.
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
80

PART IV
 Item 15. Exhibits, Financial Statement Schedules.
(a)(1)	Financial statements:	
The Financial Statements of Tocagen Inc. and Report of Independent Registered Public Accounting Firm are included after the Signatures page of this Annual Report on Form 10-K beginning on page F-1.
(a)(2)	Financial Statement Schedules:	
These schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not applicable or not required.
(a)(3)	Exhibits	
81

Exhibit Index
 
Exhibit
Number	 	Description	
 	 	 	
3.1	 	Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on April 19, 2017.	
3.2	 	Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed on April 19, 2017.	
4.1	 	Form of Common Stock Certificate of the Registrant, incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017.	
4.2	 	Warrant to Purchase Common Stock, dated June 5, 2013, issued to Voices Against Brain Cancer, incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017.	
4.3†	 	Research and Development Grant Agreement, dated June 5, 2013, by and between the Registrant and Voices Against Brain Cancer, incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017.	
4.4	 	Warrant to Purchase Stock, dated October 30, 2015, issued to Oxford Finance LLC, incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017.	
4.5	 	Warrant to Purchase Stock, dated October 30, 2015, issued to Silicon Valley Bank, incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574) , as amended, originally filed on March 9, 2017.	
10.1+	 	Form of Indemnity Agreement by and between the Registrant and its directors and officers, incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017 .	
10.2+	 	Tocagen Inc. 2009 Equity Incentive Plan and Forms of Option Grant Notice, Option Agreement and Notice of Exercise thereunder, as amended, incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017 .	
10.3+	 	Tocagen Inc. 2017 Equity Incentive Plan and Forms of Stock Option Grant Notice, Option Agreement and Notice of Exercise thereunder, incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017 .	
10.4+	 	Tocagen Inc. 2017 Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017 .	
10.5†	 	Laboratory Services and License Agreement, effective as of November 17, 2011, by and between the Registrant and Siemens Healthcare Diagnostics Inc., incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017 .	
10.6†	 	First Amendment to Laboratory Services and License Agreement, effective as of June 19, 2015, by and between the Registrant and Siemens Healthcare Diagnostics Inc., incorporated by reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017 .	
10.7†	 	License Agreement, effective as of October 22, 2007, by and between the Registrant and University of Southern California, incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017 .	
10.8	 	Lease, dated July 21, 2008, by and between the Registrant and BMR-3030 Bunker Hill Street LLC, as amended through Sixteenth Amendment to Lease, dated July 5, 2016, incorporated by reference to Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017 .	
10.9	 	Loan and Security Agreement, dated October 30, 2015, by and among the Registrant, Oxford Finance LLC and Silicon Valley Bank, incorporated by reference to Exhibit 10.11 of the Registrant’s Registration Statement on Form S-1 (File No. 333-216574), as amended, originally filed on March 9, 2017 .	
10.10+	 	Tocagen Inc. Annual Incentive Plan, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed on August 9, 2017 .	
10.11+*	 	Tocagen Inc. Amended and Restated Non-Employee Director Compensation Policy .	
10.12+*	 	Amended and Restated Executive Employment Agreement, dated February 12, 2018, by and between the Registrant and Martin J. Duvall .	
10.13+*	 	Amended and Restated Executive Employment Agreement, dated February 12, 2018, by and between the Registrant and Mark Foletta .	
10.14+*	 	Executive Employment Agreement, dated February 12, 2018, by and between the Registrant and Asha Das, M.D .	
10.15+*	 	Executive Employment Agreement, dated February 12, 2018, by and between the Registrant and Douglas Jolly, Ph.D .	
10.16*	 	Lease Agreement by and between the Registrant and AP3-SD1 Campus Point LLC, dated December 21, 2017.	
82

10.17*	 	Seventeenth Amendment to Lease, dated July 25, 2017, by and between the Registrant and BMR-3030 Bunker Hill Street LLC and Eighteenth Amendment to Lease, dated March 7, 2018, by and between the Registrant and BMR-3030 Bunker Hill Street LLC.	
23.1*	 	Consent of Independent Registered Public Accounting Firm.	
31.1*	 	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
31.2*	 	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
32.1*	 	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
32.2*	 	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
101.INS*	 	XBRL Instance Document	
101.SCH*	 	XBRL Taxonomy Extension Schema Document	
101.CAL*	 	XBRL Taxonomy Extension Calculation Linkbase Document	
101.DEF*	 	XBRL Taxonomy Extension Definition Linkbase Document	
101.LAB*	 	XBRL Taxonomy Extension Label Linkbase Document	
101.PRE*	 	XBRL Taxonomy Extension Label Linkbase Document	

*	Filed herewith.	
+	Indicates management contract or compensatory plan.	
†	 Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.	
 
 Item 16. Form 10–K Summary.
None.
 
83

SIGNAT URES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized .
 
 	 	TOCAGEN INC.	
 	 	 	 	
Date: March 9, 2018	 	By:	/s/ MARTIN J. DUVALL	
 	 	 	Martin J. Duvall	
 	 	 	Chief Executive Officer
(Principal Executive Officer)	
POWER OF ATTORNEY
 KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints  Martin J. Duvall and Mark Foletta, and each of them, as his or her true and lawful attorneys-in-fact, each with full power of substitution, for him  or her in any and all capacities, to sign any amendments to  this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
 
Signature	 	Title	 	Date	
 	 	 	 	 	
/s/ Martin J. Duvall	 	Chief Executive Officer and
Member of the Board of Directors
(Principal Executive Officer)	 	March 9, 2018	
Martin J. Duvall	 	 	 	 	
 	 	 	 	 	
/s/ Mark Foletta	 	Chief Financial Officer
(Principal Financial and Accounting Officer)	 	March 9, 2018	
Mark Foletta	 	 	 	 	
 	 	 	 	 	
/s/ Faheem Hasnain	 	Chairman of the Board of Directors	 	March 9, 2018	
Faheem Hasnain	 	 	 	 	
 	 	 	 	 	
/s/ Franklin M. Berger	 	Member of the Board of Directors	 	March 9, 2018	
Franklin M. Berger	 	 	 	 	
 	 	 	 	 	
/s/ Thomas E. Darcy	 	Member of the Board of Directors	 	March 9, 2018	
Thomas E. Darcy	 	 	 	 	
 	 	 	 	 	
/s/ Harry E. Gruber, M.D.	 	Member of the Board of Directors	 	March 9, 2018	
Harry E. Gruber, M.D.	 	 	 	 	
 	 	 	 	 	
/s/ Lori Kunkel, M.D.	 	Member of the Board of Directors	 	March 9, 2018	
Lori Kunkel, M.D.	 	 	 	 	
 	 	 	 	 	
/s/ David Parkinson, M.D.	 	Member of the Board of Directors	 	March 9, 2018	
David Parkinson, M.D.	 	 	 	 	
 	 	 	 	 	
/s/ Paul Schimmel, Ph.D.	 	Member of the Board of Directors	 	March 9, 2018	
Paul Schimmel, Ph.D.	 	 	 	 	

84

INDEX TO FINANCIAL STATEMENTS
TOCAGEN INC.
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2	
 	 	
BALANCE SHEETS	F-3	
 	 	
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS	F-4	
 	 	
STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)	F-5	
 	 	
STATEMENTS OF CASH FLOWS	F-6	
 	 	
NOTES TO FINANCIAL STATEMENTS	F-7	

 
REPORT OF  INDEPENDENT R EGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders of Tocagen Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Tocagen Inc. (the Company) as of December 31, 2017 and 2016, and the related statements of operations and comprehensive loss, changes in convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
 
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.  
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
/s/ Ernst & Young LLP
 
We have served as the Company’s auditor since 2008
San Diego, California
March 9, 2018
 
F-2

TOCAGEN INC.
 BALANCE SHEETS
(in thousands, except share and par value data)
 
 	 	December 31,	 	
 	 	2017	 	 	2016	 	
ASSETS	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	35,933	 	 	$	5,510	 	
Marketable securities	 	 	52,792	 	 	 	25,735	 	
Prepaid expenses and other current assets	 	 	1,904	 	 	 	1,216	 	
Total current assets	 	 	90,629	 	 	 	32,461	 	
Property and equipment, net	 	 	1,217	 	 	 	743	 	
Other assets	 	 	227	 	 	 	2,147	 	
Total assets	 	$	92,073	 	 	$	35,351	 	
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY (DEFICIT)	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
Accounts payable	 	$	1,951	 	 	$	1,666	 	
Accrued liabilities	 	 	8,120	 	 	 	5,437	 	
Notes payable, current portion	 	 	7,200	 	 	 	7,200	 	
Deferred license revenue	 	 	36	 	 	 	45	 	
Deferred grant funding	 	 	23	 	 	 	34	 	
Total current liabilities	 	 	17,330	 	 	 	14,382	 	
Notes payable, net of current portion	 	 	3,625	 	 	 	10,241	 	
Convertible promissory notes payable (due to related parties of $0 and $1,025 at
   December 31, 2017 and December 31, 2016, respectively)	 	 	—	 	 	 	3,398	 	
Convertible promissory notes subscription liability	 	 	—	 	 	 	140	 	
Long-term portion of deferred license revenue	 	 	36	 	 	 	68	 	
Preferred stock warrant liabilities	 	 	—	 	 	 	126	 	
Total liabilities	 	 	20,991	 	 	 	28,355	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
Convertible preferred stock, $0.001 par value; 51,000,000 shares authorized at
   December 31, 2016; 46,163,605 shares issued and outstanding at December 31, 2016;
   aggregate liquidation preferences of $131,720 at December 31, 2016	 	 	—	 	 	 	131,413	 	
Stockholders’ equity (deficit):	 	 	 	 	 	 	 	 	
Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2017;
   no shares issued or outstanding at December 31, 2017	 	 	—	 	 	 	—	 	
Common stock, $0.001 par value; 200,000,000 and 77,800,000 shares authorized
   at December 31, 2017 and December 31, 2016, respectively; 19,882,551 and
   2,202,517 shares issued and outstanding at December 31, 2017 and
   December 31, 2016, respectively	 	 	20	 	 	 	2	 	
Additional paid-in capital	 	 	238,025	 	 	 	3,581	 	
Accumulated deficit	 	 	(166,929	)	 	 	(128,000	)	
Accumulated other comprehensive loss	 	 	(34	)	 	 	—	 	
Total stockholders’ equity (deficit)	 	 	71,082	 	 	 	(124,417	)	
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	 	$	92,073	 	 	$	35,351	 	
 
The accompanying notes are an integral part of these financial statements.
F-3

TOCAGEN INC.
 STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
License revenue	 	$	41	 	 	$	49	 	 	$	51	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	
Research and development	 	 	29,113	 	 	 	27,218	 	 	 	19,172	 	
General and administrative	 	 	8,557	 	 	 	4,522	 	 	 	3,833	 	
Total operating expenses	 	 	37,670	 	 	 	31,740	 	 	 	23,005	 	
Loss from operations	 	 	(37,629	)	 	 	(31,691	)	 	 	(22,954	)	
Other income (expense), net:	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	 	595	 	 	 	215	 	 	 	126	 	
Interest expense	 	 	(1,932	)	 	 	(2,052	)	 	 	(339	)	
Change in fair value of preferred stock warrants	 	 	37	 	 	 	50	 	 	 	111	 	
Total other income (expense), net	 	 	(1,300	)	 	 	(1,787	)	 	 	(102	)	
Net loss	 	 	(38,929	)	 	 	(33,478	)	 	 	(23,056	)	
Other comprehensive income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	
Net unrealized gain (loss) on investments	 	 	(34	)	 	 	58	 	 	 	(52	)	
Comprehensive loss	 	$	(38,963	)	 	$	(33,420	)	 	$	(23,108	)	
Net loss per common share, basic and diluted	 	$	(2.66	)	 	$	(15.22	)	 	$	(10.57	)	
Weighted-average number of common shares outstanding, basic and
   diluted	 	 	14,607,609	 	 	 	2,199,964	 	 	 	2,182,032	 	
 
The accompanying notes are an integral part of these financial statements.

 
 
F-4

TOCAGEN INC.
 STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share and per share data)
 
 	 	Convertible
Preferred Stock	 	 	Common Stock	 	 	Additional Paid-In Capital	 	 	Accumulated Deficit	 	 	Accumulated Other Comprehensive Income (Loss)	 	 	Total Stockholders' Equity (Deficit)	 	
 	 	Shares	 	 	Amount	 	 	Shares	 	 	Amount	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2014	 	 	39,787,568	 	 	$	97,973	 	 	 	2,175,687	 	 	$	2	 	 	$	1,019	 	 	$	(71,456	)	 	$	(6	)	 	$	(70,441	)	
Issuance of Series H convertible preferred
   stock, net of issuance costs	 	 	6,376,037	 	 	 	33,440	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Exercise of stock options	 	 	—	 	 	 	—	 	 	 	22,165	 	 	 	—	 	 	 	157	 	 	 	—	 	 	 	—	 	 	 	157	 	
Stock-based compensation	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,062	 	 	 	—	 	 	 	—	 	 	 	1,062	 	
Other comprehensive loss	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(52	)	 	 	(52	)	
Net Loss	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(23,056	)	 	 	—	 	 	 	(23,056	)	
Balance at December 31, 2015	 	 	46,163,605	 	 	 	131,413	 	 	 	2,197,852	 	 	 	2	 	 	 	2,238	 	 	 	(94,512	)	 	 	(58	)	 	 	(92,330	)	
Cumulative effect of accounting change	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	10	 	 	 	(10	)	 	 	—	 	 	 	—	 	
Balance at January 1, 2016	 	 	46,163,605	 	 	 	131,413	 	 	 	2,197,852	 	 	 	2	 	 	 	2,248	 	 	 	(94,522	)	 	 	(58	)	 	 	(92,330	)	
Exercise of stock options	 	 	—	 	 	 	—	 	 	 	4,665	 	 	 	—	 	 	 	10	 	 	 	—	 	 	 	—	 	 	 	10	 	
Stock-based compensation	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,323	 	 	 	—	 	 	 	—	 	 	 	1,323	 	
Other comprehensive income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	58	 	 	 	58	 	
Net Loss	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(33,478	)	 	 	—	 	 	 	(33,478	)	
Balance at December 31, 2016	 	 	46,163,605	 	 	 	131,413	 	 	 	2,202,517	 	 	 	2	 	 	 	3,581	 	 	 	(128,000	)	 	 	—	 	 	 	(124,417	)	
Exercise of stock options	 	 	—	 	 	 	—	 	 	 	55,669	 	 	 	—	 	 	 	81	 	 	 	—	 	 	 	—	 	 	 	81	 	
Issuance of common stock pursuant to
   employee stock purchase plan	 	 	—	 	 	 	—	 	 	 	50,121	 	 	 	—	 	 	 	426	 	 	 	—	 	 	 	—	 	 	 	426	 	
Stock-based compensation	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,451	 	 	 	—	 	 	 	—	 	 	 	4,451	 	
Fractional shares adjustment upon reverse
   stock split	 	 	—	 	 	 	—	 	 	 	2	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Preferred stock converted into shares of
   common stock	 	 	(46,163,605	)	 	 	(131,413	)	 	 	6,690,066	 	 	 	7	 	 	 	131,403	 	 	 	—	 	 	 	—	 	 	 	131,410	 	
Initial public offering of common shares,
   net of issuance costs	 	 	—	 	 	 	—	 	 	 	9,775,000	 	 	 	10	 	 	 	86,938	 	 	 	—	 	 	 	—	 	 	 	86,948	 	
Convertible promissory notes converted into
   shares of common stock, net of costs to issue	 	 	—	 	 	 	—	 	 	 	1,109,176	 	 	 	1	 	 	 	11,056	 	 	 	—	 	 	 	—	 	 	 	11,057	 	
Preferred stock warrant liabilities converted into
   warrants to purchase shares of common stock	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	89	 	 	 	—	 	 	 	—	 	 	 	89	 	
Other comprehensive loss	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(34	)	 	 	(34	)	
Net Loss	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(38,929	)	 	 	—	 	 	 	(38,929	)	
Balance at December 31, 2017	 	 	—	 	 	$	—	 	 	 	19,882,551	 	 	$	20	 	 	$	238,025	 	 	$	(166,929	)	 	$	(34	)	 	$	71,082	 	
 
The accompanying notes are an integral part of these financial statements.

 
 
F-5

 
 
TOCAGEN INC.
 STATEMENTS OF CASH FLOWS
(in thousands)
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
OPERATING ACTIVITIES	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(38,929	)	 	$	(33,478	)	 	$	(23,056	)	
Adjustments to reconcile net loss to net cash used in operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Stock-based compensation	 	 	4,451	 	 	 	1,323	 	 	 	1,062	 	
Depreciation	 	 	292	 	 	 	255	 	 	 	232	 	
Noncash interest expense	 	 	590	 	 	 	570	 	 	 	94	 	
Change in fair value of preferred stock warrants	 	 	(37	)	 	 	(50	)	 	 	(111	)	
Amortization of premium (discount) on investments, net	 	 	(19	)	 	 	(9	)	 	 	5	 	
Gain on disposal of property and equipment	 	 	—	 	 	 	(20	)	 	 	(15	)	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Prepaid expenses and other current assets	 	 	(679	)	 	 	(157	)	 	 	(1,072	)	
Accounts payable	 	 	304	 	 	 	586	 	 	 	571	 	
Accrued liabilities	 	 	2,946	 	 	 	1,547	 	 	 	1,301	 	
Deferred license revenue	 	 	(41	)	 	 	(49	)	 	 	(51	)	
Deferred grant funding	 	 	(11	)	 	 	(57	)	 	 	(2	)	
Net cash used in operating activities	 	 	(31,133	)	 	 	(29,539	)	 	 	(21,042	)	
INVESTING ACTIVITIES	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from the sale/maturity of marketable securities	 	 	43,725	 	 	 	48,095	 	 	 	35,158	 	
Purchases of marketable securities	 	 	(70,797	)	 	 	(23,003	)	 	 	(59,870	)	
Purchases of property and equipment	 	 	(655	)	 	 	(525	)	 	 	(231	)	
Proceeds from sale of property and equipment	 	 	20	 	 	 	—	 	 	 	15	 	
Net cash (used in) provided by investing activities	 	 	(27,707	)	 	 	24,567	 	 	 	(24,928	)	
FINANCING ACTIVITIES	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from offering of common stock, net of issuance costs	 	 	88,618	 	 	 	—	 	 	 	—	 	
Proceeds from issuance of convertible promissory notes, net of issuance costs	 	 	7,338	 	 	 	3,374	 	 	 	—	 	
Proceeds from convertible promissory note subscriptions	 	 	—	 	 	 	140	 	 	 	—	 	
Proceeds from issuance of notes payable, net of issuance costs	 	 	—	 	 	 	—	 	 	 	17,666	 	
Proceeds from issuance of convertible preferred stock, net of issuance costs	 	 	—	 	 	 	—	 	 	 	33,075	 	
Principal payments on notes payable	 	 	(7,200	)	 	 	(600	)	 	 	—	 	
Proceeds from issuance of common stock	 	 	507	 	 	 	10	 	 	 	157	 	
Cash paid for deferred equity issuance costs	 	 	—	 	 	 	(592	)	 	 	(982	)	
Net cash provided by financing activities	 	 	89,263	 	 	 	2,332	 	 	 	49,916	 	
Net increase (decrease) in cash and cash equivalents	 	 	30,423	 	 	 	(2,640	)	 	 	3,946	 	
Cash and cash equivalents, beginning of period	 	 	5,510	 	 	 	8,150	 	 	 	4,204	 	
Cash and cash equivalents, end of period	 	$	35,933	 	 	$	5,510	 	 	$	8,150	 	
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION	 	 	 	 	 	 	 	 	 	 	 	 	
Cash paid for interest	 	$	1,210	 	 	$	1,460	 	 	$	124	 	
Noncash investing and financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Convertible preferred stock converted into shares of common stock	 	$	131,410	 	 	$	—	 	 	$	—	 	
Convertible promissory notes principal and accrued interest converted into
   shares of common stock	 	$	11,057	 	 	$	—	 	 	$	—	 	
Preferred stock warrant liabilities converted into warrants to purchase
   shares of common stock	 	$	89	 	 	$	—	 	 	$	—	 	
Fair value of preferred stock warrants issued in connection with notes
   payable	 	$	—	 	 	$	—	 	 	$	287	 	
Deferred equity issuance costs paid in previous periods reclassified to equity
   on effective date of initial public offering	 	$	1,574	 	 	$	—	 	 	$	—	 	
Deferred equity issuance costs in accounts payable and
   accrued liabilities	 	$	96	 	 	$	226	 	 	$	543	 	
Property and equipment purchases included in accounts payable and
   accrued liabilities	 	$	111	 	 	$	28	 	 	$	—	 	
 
T he accompanying notes are an integral part of these financial statements.
F-6

TOCAGEN INC.
 NOTES TO FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Tocagen Inc. (Tocagen or the Company) is a clinical-stage, cancer-selective gene therapy company focused on developing first-in-class, broadly-applicable product candidates designed to activate a patient’s immune system against their own cancer from within. The Company’s cancer-selective gene therapy platform is built on retroviral replicating vectors which are designed to selectively deliver therapeutic genes into the DNA of cancer cells. Tocagen’s gene therapy approach is designed to fight cancer through immunotherapeutic mechanisms of action without the autoimmune toxicities commonly experienced with other immunotherapies.
From inception through December 31, 2017, the Company has devoted substantially all of its efforts to developing its gene therapy platform and its lead product candidate, Toca 511 & Toca FC, as well as raising capital and building its infrastructure. The Company has not generated revenues from its principal operations.
Initial Public Offering
On April 19, 2017, the Company completed its initial public offering (IPO), whereby the Company sold an aggregate of 9,775,000 shares of its common stock, at $10.00 per share, resulting in net proceeds of $86.9 million after underwriting discounts, commissions and offering costs of $10.8 million, of which $9.1 million of the costs were paid during the twelve months ended December 31, 2017.
In addition, in connection with the IPO, all of the Company’s outstanding shares of convertible preferred stock were converted into an aggregate of 6,690,066 shares of the Company’s common stock, warrants to purchase up to 68,572 shares of the Company’s Series H convertible preferred stock were converted into warrants to purchase up to 9,936 shares of the Company’s common stock, each at an exercise price of $36.23 per share, and $11.1 million of aggregate principal and accrued interest underlying convertible promissory notes were automatically converted into an aggregate of 1,109,176 shares of the Company’s common stock at the IPO price of $10.00 per share.
Liquidity
The Company has a limited operating history and the sales and income potential of the Company’s business and patient markets are unproven. The Company has experienced net losses and negative cash flows from operating activities since its inception. As of December 31, 2017, the Company had an accumulated deficit of $166.9 million and working capital of $73.3 million available to fund future operations. As the Company continues to incur net losses, its transition to profitability is dependent upon the successful development, approval, and commercialization of its product candidates and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. The Company plans to continue to fund its losses from operations and capital funding needs through debt and equity financing, or through collaborations or partnerships with other entities. Debt or equity financing, or collaborations and partnerships with other entities may not be available on a timely basis on terms acceptable to the Company, or at all.  
In performing the first step of the assessment under Accounting Standards Codification Topic 205-40, Presentation of Financial Statements - Going Concern, the Company concluded that, based on its cash resources available as of December 31, 2017, which include the $86.9 million in net proceeds obtained from its IPO, it will have sufficient resources to fund its business for at least the next 12 months from the date of this filing.
Use of Estimates
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and expenses and related disclosures during the reporting period. Significant estimates in the Company’s financial statements relate to clinical trial accruals, the valuation of equity awards, and the development period used for license revenue recognition. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results may differ from these estimates under different assumptions or conditions.
Segment Reporting
 Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate
F-7

resources and assess performance. The Company views its operations and manages its business in one operating segment. No product revenue has been generated since inception and all assets are held in the United States.
2. Summary of Significant Accounting Policies
Cash, Cash Equivalents and Marketable Securities
Cash consists of the balance in a readily available checking account. Cash equivalents consist of money market funds, repurchase agreements, corporate debt securities and certificates of deposit with remaining maturities of three months or less at the time of purchase, and are considered highly liquid investments.
Marketable securities consist of corporate debt securities, certificates of deposit, commercial paper, asset-backed securities and U.S. Treasury securities that have original maturities greater than three months at the time of purchase. The Company classifies its investments as available-for-sale and records such assets at fair value in the balance sheet, with unrealized gains and losses, if any, reported in stockholders’ equity (deficit). Realized gains and losses are calculated on the specific identification method and recorded to interest income.
A decline in the market value of any marketable security below cost that is determined to be other-than-temporary results in a revaluation of its carrying amount to fair value and a new cost basis for the security. Impairment losses are recognized in other expense in the statement of operations.
Concentration of Credit Risk and Off-Balance Sheet Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash equivalents and marketable securities. The Company’s investment policy includes guidelines for the quality of the related institutions and financial instruments, and defines allowable investments that the Company may invest in, which the Company believes minimizes the exposure to concentration of credit risk.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets primarily represent amounts related to insurance, clinical trial and manufacturing agreements, and investment interest receivable.
Property and Equipment
Property and equipment consists of furniture, fixtures, computers and software, laboratory and office equipment, and leasehold improvements. Property and equipment is stated at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method. Leasehold improvements are depreciated using the straight-line method over the lesser of the remaining lease term or an estimated useful life of five years.
Costs of major additions and betterments are capitalized and depreciated on a straight-line basis over their useful lives. Repairs and maintenance costs are expensed as incurred. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to expense.
Deferred Equity Issuance Costs
Specific incremental costs directly attributable to a proposed or actual offering of securities are deferred and charged against the gross proceeds of the offering through additional paid-in capital.
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. 
Fair Value of Financial Instruments
The Company’s financial instruments consist principally of cash, cash equivalents, marketable securities, accounts payable, notes payable, convertible promissory notes payable and preferred stock warrant liabilities.
 The authoritative accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair
F-8

value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that sho uld be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the authoritative accounting guidance establishes a three-tier fair value hierarchy that prioritizes th e inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices f or similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inp uts that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Clinical Trial Accruals
Expenses related to clinical studies are based on estimates of the services received and efforts expended pursuant to the Company’s contract arrangements. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to the Company’s service providers will temporarily exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients, site initiation and the completion of clinical milestones. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from its estimate, the Company adjusts the accrual or prepaid expense balance accordingly.
Revenue Recognition
Revenue is comprised of license revenue from the up-front payment that the Company received under its license and collaboration arrangement with Siemens Healthcare Diagnostics Inc. (Siemens).
Revenue is recognized for each unit of accounting when all of the following criteria are met:
• Persuasive evidence of an arrangement exists
• Delivery of the Company’s obligations under the arrangement has occurred
• The seller’s price to the buyer is fixed or determinable
• Collec tability is reasonably assured
Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as long-term deferred revenue.
The Company analyzes multiple-element arrangements based on the relevant authoritative guidance. Pursuant to the guidance, the Company evaluates multiple-element arrangements to determine (1) the deliverables included in the arrangement and (2) whether the individual deliverables represent separate units of accounting, or whether they must be accounted for as a combined unit of accounting. This evaluation involves subjective determinations and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (i) the delivered item(s) has value to the customer (a collaboration partner to date) on a standalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in its control. In assessing whether an item has standalone value, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration partner can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s) and whether there are other vendors that can provide the undelivered element(s).
 Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method. The Company determines the estimated selling price for units of accounting within each arrangement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or best estimate of selling price (BESP) if neither VSOE nor TPE is available. The Company uses BESP to estimate the selling price, since it generally does not have VSOE or TPE of selling price for its units of accounting. Determining the BESP for a
F-9

unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company consi ders applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the collaboration partner and estimated costs. The Company validates the BESP for units of accounting by eval uating whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple units of accounting.
The Company then applies the applicable revenue recognition criteria to each of the separate units of accounting in determining the appropriate period and pattern of recognition. If there is no discernible pattern of performance and/or objectively measurable performance measures do not exist, then the Company recognizes revenue under the arrangement on a straight-line basis over the period it expects to complete its performance obligations.
Research and Development Costs
Research and development expenses consist primarily of salaries and other personnel related expenses including stock-based compensation costs, preclinical costs, clinical trial costs, costs related to acquiring and manufacturing clinical trial materials, contract services, facilities costs, overhead costs, and depreciation. All research and development costs are expensed as incurred.
Patent Costs
Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred because recoverability of such expenditures is uncertain.
Grant Funding
The Company receives certain research and development funding through grants from nonprofit organizations that serve the brain cancer community. The Company evaluates the terms of each grant to assess the Company’s obligations, and such funding is recognized in the statement of operations as a reduction to research and development expense as the related costs are incurred to meet those obligations over the grant period. Certain grants contain repayment provisions contingent on future events, such as future revenue milestones related to the Company’s lead product candidate under development. For each repayment provision, the Company assesses if it is obligated to repay the funds provided by the other parties regardless of the outcome of the funded research and development. For each arrangement, the Company also reviews the repayment provisions to determine the likelihood of repayment at the execution of each grant and on an ongoing basis. If the likelihood of repayment of a grant is determined to be remote and the Company is not obligated to repay the funds regardless of the outcome of the funded research and development, the grant is recognized as a reduction to research and development expense as related costs are incurred over the grant period. The Company subsequently reviews the repayment provisions of each grant at each reporting date and will record a related grant repayment liability if and when such repayment obligation is determined to be probable. If, at the execution of a grant with repayment provisions, the probability of repayment is probable, the Company will record the grant as a liability until such time as the grant requirements have been satisfied and the repayment provisions have lapsed.
Debt Issuance Costs
Debt issuance costs incurred to obtain debt financing are deferred and are amortized over the term of the debt using the effective interest method. The costs are recorded as a reduction to the carrying value of the debt and the amortization expense is included in interest expense in the statement of operations.
Warrants for Shares of Preferred Stock
The Company accounts for warrants for shares of preferred stock with conversion features as liabilities in the accompanying balance sheets at their fair value on the date of issuance. The warrant liabilities are revalued at each balance sheet date until such instruments are exercised or expire, with changes in the fair value between reporting periods recorded as other income or expense in the statement of operations.  All preferred stock warrant liabilities were reclassified to equity in connection with the IPO.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.
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The Company records uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company will recognize interest and penalties in income tax expense if and when incurred.
Comprehensive Income (Loss)
All components of comprehensive income (loss) are reported in the financial statements in the period in which they are recognized. Other comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on investments. The Company’s only component of other comprehensive loss is unrealized gains (losses) on investments. Comprehensive gains (losses) have been reflected in the statements of operations and comprehensive loss for all periods presented.
Stock-Based Compensation
Stock-based compensation expense represents the cost of the grant date fair value of stock awards, including stock options, and stock purchase rights granted to employees. For awards with time-based vesting provisions, the Company estimates the fair value of stock options on the date of grant using the Black-Scholes option pricing model and recognizes the expense over the requisite service period of the awards, which is generally the vesting period, on a straight-line basis. For awards with performance-based vesting provisions, the Company estimates the fair value of stock option grants on the date of grant, or the date when all of the terms of the grant have been agreed to, if later, and recognizes the expense based on the probability of the occurrence of the individual milestones at each reporting period. The expense is recognized over the implicit service period that commences once management believes the performance criteria are probable of being met.  For purchase rights, the Company estimates the fair value of the purchase as of the plan enrollment date and recognizes expense on a straight-line basis over the applicable offering period.  The Company accounts for forfeitures when they occur, and reverses any compensation cost previously recognized for awards for which the requisite service has not been completed, in the period that the award is forfeited.
The Company accounts for stock options and stock warrants granted to non-employees using the fair value approach. These option and warrant grants are subject to periodic revaluation over their vesting terms.
Net Loss Per Share
Basic and diluted net loss per common share for the periods presented is computed by dividing net loss by the weighted-average number of common shares outstanding during the respective periods, without consideration of common stock equivalents as they are anti-dilutive. Common stock equivalents that could potentially dilute earnings in the future are comprised of shares issuable upon the conversion of all outstanding principal and accrued interest related to convertible promissory notes payable, shares issuable upon the conversion of convertible preferred stock, options to purchase shares of common stock outstanding under the Company’s equity incentive plan and warrants for the purchase of shares of common and preferred stock. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.
Common stock equivalents from potentially dilutive securities, excluding shares issuable upon the conversion of all outstanding principal and accrued interest related to convertible promissory notes, that are not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive, are as follows:
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
Common stock options	 	 	2,589,348	 	 	 	1,385,855	 	 	 	738,809	 	
Common stock warrants	 	 	10,660	 	 	 	724	 	 	 	724	 	
Convertible preferred stock (as-converted)	 	 	—	 	 	 	6,690,066	 	 	 	6,690,066	 	
Convertible preferred stock warrants (as-converted)	 	 	—	 	 	 	9,936	 	 	 	9,936	 	
Total	 	 	2,600,008	 	 	 	8,086,581	 	 	 	7,439,535	 	
 
Recent Accounting Pronouncements
 In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance which outlines a single comprehensive revenue model for entities to use in accounting for revenue arising from contracts with customers. The guidance supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance will be effective on January 1, 2018. The guidance allows for either a full retrospective adoption, in which the standard is applied to all of the periods presented, or a modified
F-11

retrospective adoption, in which the standard is applied to the most current period presented in the financial statements. As of December 31, 2017, revenue has been generated exclusiv ely from the Company’s license and collaboration arrangement with Siemens. The Company has completed its evaluation of the impact that this guidance has on its financial position and results of operations as it relates to this single arrangement, and has e lected the modified retrospective adoption method. Overall, the Company does not expect the timing of revenue recognition under the new standards to be materially different from the Company’s current revenue recognition policy. Based on the Company’s analy sis of the open contract as of December 31, 2017, the cumulative effect of applying the new standards is not material.  The Company is finalizing the new required disclosures.
In January 2016, the FASB issued guidance that amends certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The amendments include the elimination of the available-for-sale classification of equity investments and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income (loss). The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and requires a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. Early adoption is not permitted. The Company’s marketable securities are currently accounted for as available-for-sale financial instruments with changes in fair value recognized in other comprehensive income (loss). At the time of adoption, any amounts in accumulated other comprehensive income (loss) related to such financial instruments would be reclassified to non-operating income (expense) in the statement of operations. As of December 31, 2017, a net unrealized loss of $34,000 related to these investments was recorded in accumulated other comprehensive loss in the accompanying balance sheet.
In February 2016, the FASB issued accounting guidance that amends the existing accounting standards for leases. Under the guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is still in the process of evaluating the effect of adoption on its financial statements and expects to adopt the standard on January 1, 2019. The adoption will lead to an increase in the assets and liabilities recorded on the balance sheets primarily due to the lease agreement attributable to leased lab and office space.    
3. Fair Value of Financial Instruments
Fair Values of Assets and Liabilities Measured on a Recurring Basis
The following tables summarize the Company’s assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):
 
 	 	 	 	 	 	Fair Value Measurements at End of Period Using:	 	
 	 	Total	 	 	Quoted Market
Prices for
Identical Assets
(Level 1)	 	 	Significant
Other
Observable
Inputs
(Level 2)	 	 	Significant
Unobservable
Inputs
(Level 3)	 	
December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate debt securities	 	$	8,274	 	 	$	—	 	 	$	8,274	 	 	$	—	 	
Repurchase agreements	 	 	5,000	 	 	 	—	 	 	 	5,000	 	 	 	—	 	
 	 	$	13,274	 	 	$	—	 	 	$	13,274	 	 	$	—	 	
Marketable securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate debt securities	 	$	24,713	 	 	$	—	 	 	$	24,713	 	 	$	—	 	
Certificates of deposit	 	 	13,651	 	 	 	—	 	 	 	13,651	 	 	 	—	 	
Commercial paper	 	 	12,329	 	 	 	—	 	 	 	12,329	 	 	 	—	 	
Asset-backed securities	 	 	2,099	 	 	 	—	 	 	 	2,099	 	 	 	—	 	
 	 	$	52,792	 	 	$	—	 	 	$	52,792	 	 	$	—	 	
 
F-12

 
 	 	 	 	 	 	Fair   Value Measurements at End of Period Using:	 	
 	 	Total	 	 	Quoted Market
Prices for
Identical Assets
(Level 1)	 	 	Significant
Other
Observable
Inputs
(Level 2)	 	 	Significant
Unobservable
Inputs
(Level 3)	 	
December 31, 2016	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Certificates of deposit	 	$	240	 	 	$	—	 	 	$	240	 	 	$	—	 	
Marketable securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Certificates of deposit	 	$	22,777	 	 	$	—	 	 	$	22,777	 	 	$	—	 	
U.S. Treasury securities	 	 	2,958	 	 	 	2,958	 	 	 	—	 	 	 	—	 	
 	 	$	25,735	 	 	$	2,958	 	 	$	22,777	 	 	$	—	 	
Preferred stock warrant liabilities	 	$	126	 	 	$	—	 	 	$	—	 	 	$	126	 	
 
Marketable Securities. For fair values determined by Level 1 inputs, which utilize quoted prices in active markets for identical assets, the level of judgment required to estimate fair value is relatively low. The fair values of investments in U.S. treasury securities were determined using Level 1 inputs. 
Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations. Investments in corporate debt securities, certificates of deposit, commercial paper, repurchase agreements and asset-backed securities are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors.
There were no transfers in or out of Level 1 or Level 2 investments during the years ended December 31, 2017 or 2016.
At December 31, 2017 and 2016, the Company had investments in money market funds of $20.2 million and $2.2 million, respectively, that were measured at fair value using the net asset value per share (or its equivalent) that have not been classified in the fair value hierarchy. The funds invest primarily in U.S. government securities.
Warrant Liabilities. The Company’s preferred stock warrants are accounted for as liabilities and measured at fair value on a recurring basis as they are convertible into preferred stock which is contingently redeemable under conditions that are not in the control of the Company. The Company estimates fair values of these warrant liabilities utilizing the Black-Scholes option pricing model, which requires Level 3 inputs.
Estimating fair values of derivative financial instruments, including Level 3 instruments, requires the use of significant and subjective inputs that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors, including changes in the estimated fair value of the Company’s equity securities.
The following table summarizes the activity in liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3 inputs) (in thousands):
 
 	 	Preferred
Stock Warrant
Liabilities	 	
Balance at December 31, 2015	 	$	176	 	
Gain on warrant valuation included in other income (expense), net	 	 	(50	)	
Balance at December 31, 2016	 	 	126	 	
Gain on warrant valuation included in other income (expense), net	 	 	(37	)	
Conversion of preferred stock warrant liabilities into warrants to purchase
   shares of common stock	 	 	(89	)	
Balance at December 31, 2017	 	$	—	 	
 
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Fair Values of Other Financial Instruments
The carrying amounts of certain of the Company’s financial instruments, including cash and accounts payable, approximate their respective fair values due to their short-term nature. The carrying amount of the Company’s notes payable of $10.8 million at December 31, 2017 approximated their fair value as the terms of the notes are consistent with the market terms of transactions with similar profiles of one of the lenders as of those dates (Level 3 inputs).
4. Certain Financial Statement Caption Information
Marketable Securities
The following is a summary of the Company’s marketable securities (in thousands):
 
 	 	Maturity
(in years)	 	Amortized Cost	 	 	Unrealized Gain	 	 	Unrealized Loss	 	 	Fair Value	 	
December 31, 2017:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate debt securities	 	1 or less	 	$	21,097	 	 	$	—	 	 	$	(16	)	 	$	21,081	 	
Corporate debt securities	 	>1 and <5	 	 	3,636	 	 	 	—	 	 	 	(4	)	 	 	3,632	 	
Certificates of deposit	 	1 or less	 	 	13,658	 	 	 	—	 	 	 	(7	)	 	 	13,651	 	
Commercial paper	 	1 or less	 	 	12,333	 	 	 	—	 	 	 	(4	)	 	 	12,329	 	
Asset-backed securities	 	1 or less	 	 	2,099	 	 	 	—	 	 	 	—	 	 	 	2,099	 	
 	 	 	 	$	52,823	 	 	$	—	 	 	$	(31	)	 	$	52,792	 	
December 31, 2016:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Certificates of deposit	 	1 or less	 	$	19,299	 	 	$	1	 	 	$	(2	)	 	$	19,298	 	
Certificates of deposit	 	>1 and <5	 	 	3,478	 	 	 	1	 	 	 	—	 	 	 	3,479	 	
U.S. Treasury securities	 	1 or less	 	 	1,678	 	 	 	—	 	 	 	—	 	 	 	1,678	 	
U.S. Treasury securities	 	>1 and <5	 	 	1,280	 	 	 	4	 	 	 	(4	)	 	 	1,280	 	
 	 	 	 	$	25,735	 	 	$	6	 	 	$	(6	)	 	$	25,735	 	
 
The Company has classified all of its available-for-sale investment securities, including those with maturity greater than one year, as current assets on the balance sheet based on the highly liquid nature of these investment securities and because these investment securities are considered available for use in current operations.
There were no impairments considered other-than-temporary during the periods presented, as it is management’s intention and ability to hold the securities until a recovery of the cost basis or recovery of fair value. Gross realized gains and losses on sales of marketable securities were immaterial for all periods presented.
Property and Equipment
Property and equipment is comprised of (in thousands):
 
 	 	December 31,	 	
 	 	2017	 	 	2016	 	
Laboratory equipment	 	$	3,553	 	 	$	2,841	 	
Computers, software and office equipment	 	 	232	 	 	 	187	 	
Furniture and fixtures	 	 	21	 	 	 	21	 	
Leasehold improvements	 	 	117	 	 	 	108	 	
 	 	 	3,923	 	 	 	3,157	 	
Less: accumulated depreciation	 	 	(2,706	)	 	 	(2,414	)	
 	 	$	1,217	 	 	$	743	 	
 
Depreciation expense was $0.3 million for each of the years ended December 31, 2017 and 2016. 
F-14

Accrued Liabilities
Accrued liabilities are comprised of (in thousands):
 
 	 	December 31,	 	
 	 	2017	 	 	2016	 	
Clinical trial expenses	 	$	2,809	 	 	$	2,196	 	
Payroll and other employee-related expenses	 	 	2,489	 	 	 	728	 	
Contract manufacturing services	 	 	1,536	 	 	 	1,508	 	
Professional fees	 	 	276	 	 	 	459	 	
Contract research services	 	 	104	 	 	 	114	 	
Interest payable	 	 	77	 	 	 	120	 	
Other	 	 	829	 	 	 	312	 	
Total accrued liabilities	 	$	8,120	 	 	$	5,437	 	
 
5. Notes Payable
Loan Agreement
On October 30, 2015, the Company entered into a Loan and Security Agreement (the Loan Agreement) with two lenders whereby it borrowed $18.0 million (the Loans). Balances under the Loan Agreement bear a floating rate of interest equal to the greater of 7.75% or the monthly prime rate plus 4.50% (8.75% and 8.00% at December 31, 2017 and 2016, respectively), and are due in monthly principal and interest payments, with final maturity of the Loans in May 2019. Each Loan bears a final payment fee of 7.95% of the original principal amount due upon maturity.
The costs incurred to issue the Loans of $0.6 million were deferred and are included in the discount to the carrying value of the Loans in the accompanying balance sheets. The Loans also include a final payment fee of $1.4 million due at the earlier of prepayment or the maturity date of the Loans. The deferred costs and the final payment fee are amortized to interest expense over the expected term of the Loans using the effective interest method. The effective interest rates on the Loans at December 31, 2017 and 2016 are 11.94% and 11.19%, respectively.
The aggregate carrying amounts of the Loans are comprised of the following (in thousands):
 
 	 	December 31,	 	
 	 	2017	 	 	2016	 	
Principal	 	$	10,200	 	 	$	17,400	 	
Add: accreted liability for final payment fee	 	869	 	 	 	462	 	
Less: unamortized discount	 	 	(244	)	 	 	(421	)	
 	 	$	10,825	 	 	$	17,441	 	
 
The Loans are secured by substantially all of the Company’s assets other than its intellectual property, except rights to payment from the sale, licensing or disposition of such intellectual property. The Company is also required to maintain its primary operating accounts at all times with one of the lenders. The Loan Agreement contains customary conditions of borrowing, events of default and covenants, including covenants that restrict the Company’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of its capital stock. Should an event of default occur, including the occurrence of a material adverse change, the Company could be liable for immediate repayment of all obligations under the Loan Agreement. At December 31, 2017, the Company was in compliance with the covenants contained in the Loan Agreement.
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Future maturities of the Loans, including the final payment fee, as of December 31, 2017 are as follows (in thousands):
 
 	 	December 31,
2017	 	
Year ending December 31, 2018	 	$	7,200	 	
Year ending December 31, 2019	 	 	4,431	 	
 	 	 	11,631	 	
Unaccreted balance for final payment fee on Loans	 	 	(562	)	
Unamortized discounts	 	 	(244	)	
 	 	 	10,825	 	
Less current portion	 	 	(7,200	)	
Noncurrent portion	 	$	3,625	 	
 
Convertible Promissory Notes Payable and Subscription Liability
During the three months ended March 31, 2017 and December 31, 2016, the Company issued convertible promissory notes to investors in aggregate principal amount of $7.5 million and $3.4 million, respectively, for a total aggregate principal amount of $10.9 million (the Convertible Notes). Of the Convertible Notes issued during the three months ended March 31, 2017, $140,000 was subscribed for at December 31, 2016, $250,000 was issued to a member of the Company’s board of directors and $10,000 was issued to the Company’s chief executive officer. The Convertible Notes, which bore interest at 7% per annum, were unsecured and were subordinated to the Loans.
At December 31, 2016, the aggregate carrying amount of the Convertible Notes was $3.4 million, which is net of an unamortized discount of $34,000. At December 31, 2016, the Convertible Notes included $1.0 million issued to members of the Company’s board of directors and $25,000 issued to the Company’s chief executive officer. The effective interest rate on the Convertible Notes at December 31, 2016 was 7.54%.
Upon completion of the Company’s IPO on April 19, 2017, $11.1 million of aggregate principal and accrued interest underlying the Convertible Notes were automatically converted into an aggregate of 1,109,176 shares of the Company’s common stock at the IPO price of $10.00 per share.  
6. Stockholders’ Equity (Deficit)
In March 2017, the Company’s board of directors and stockholders approved a 1-for-6.9 reverse stock split of the Company’s outstanding common stock. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented.
Upon completion of the Company’s IPO, all of the Company’s outstanding shares of convertible preferred stock were converted into an aggregate of 6,690,066 shares of the Company’s common stock.  As of December 31, 2017, the Company’s authorized capital stock consists of 200,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.
The Company had 19,882,551 and 2,202,517 shares of common stock outstanding as of December 31, 2017 and 2016, respectively.
F-16

Common Stock Reserved for Future Issuance
Common stock reserved for future issuance at December 31, 2017 and 2016 is as follows and for 2016 excludes shares issued upon conversion of all outstanding principal and accrued interest related to the convertible promissory notes payable upon completion of the Company’s IPO on April 19, 2017:
 
 	 	December 31,	 	
 	 	2017	 	 	2016	 	
Issued and Outstanding:	 	 	 	 	 	 	 	 	
Stock options	 	 	2,589,348	 	 	 	1,385,855	 	
Warrants for common stock	 	 	10,660	 	 	 	724	 	
Shares reserved for issuance under the ESPP	 	 	199,879	 	 	 	—	 	
Shares reserved for future award grants	 	 	513,333	 	 	 	172,495	 	
Conversion of all outstanding convertible preferred stock	 	 	—	 	 	 	6,690,070	 	
Conversion of preferred stock warrants issued and outstanding	 	 	—	 	 	 	9,936	 	
 
7. Equity Incentive Plans and Stock-Based Compensation
2017 Equity Incentive Plan
In March 2017, the Company’s board of directors and stockholders approved and adopted the Company’s 2017 Equity Incentive Plan (the 2017 Plan), which became effective on April 12, 2017. The 2017 Plan provides for the grant of incentive stock options (ISOs), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance based stock awards, other forms of equity compensation and performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to non-employee directors and consultants of the Company and its affiliates.
Initially, 1,600,000 new shares of common stock were approved for issuance under the 2017 Plan and, on April 12, 2017, 75,517 shares of common stock reserved for issuance under the Company’s 2009 Equity Incentive Plan, as amended (the 2009 Plan), were added to the shares initially reserved under the 2017 Plan. No further grants will be made under the 2009 Plan and any shares subject to outstanding stock options under the 2009 Plan that would otherwise be returned to the 2009 Plan will instead be added to the shares reserved under the 2017 Plan. Additionally, the number of shares of common stock reserved for issuance under the 2017 Plan will automatically increase on January 1 of each calendar year through January 1, 2027, by 4% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company’s board of directors.
As of December 31, 2017, awards for up to 3,102,681 shares of common stock are reserved under the 2009 Plan and the 2017 Plan, of which 2,589,348 shares are reserved for issuance upon exercise of granted and outstanding stock options and 513,333 shares are available for future grants. On January 1, 2018, the number of shares available for future grants under the 2017 Plan was increased by 795,302 shares such that the total number of shares available for future grants as of January 1, 2018 was 1,308,635 shares.
F-17

All grants of options to purchase common stock under the 2017 Plan expire in 10 years. Grants with time-based vesting provisions are subject to a four-year vesting schedule with 25% vesting after the fir st year, and the balance vesting monthly over the remaining 36 months. Grants with performance-based vesting provisions vest upon the achievement of three separate development and regulatory milestones, with one-third of the options vesting upon the achiev ement of each milestone.
The following table summarizes stock option activity under the 2009 Plan and the 2017 Plan:
 
 	 	Shares
Subject to
Options	 	 	Weighted-
Average
Exercise
Price per
Share	 	 	Weighted-
Average
Remaining
Contractual
Term
(in years)	 	 	Aggregate
Intrinsic Value
(in thousands)	 	
Outstanding at December 31, 2016	 	 	1,385,855	 	 	$	11.35	 	 	 	 	 	 	 	 	 	
Granted	 	 	1,400,245	 	 	$	14.92	 	 	 	 	 	 	 	 	 	
Exercised	 	 	(55,669	)	 	$	1.45	 	 	 	 	 	 	 	 	 	
Forfeitures and cancellations	 	 	(141,083	)	 	$	14.39	 	 	 	 	 	 	 	 	 	
Outstanding at December 31, 2017	 	 	2,589,348	 	 	$	13.33	 	 	8.1	 	 	$	2,643	 	
Time-based options at December 31, 2017:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding	 	 	2,400,697	 	 	$	13.09	 	 	8.1	 	 	$	2,643	 	
Vested and expected to vest	 	 	2,400,697	 	 	$	13.09	 	 	8.1	 	 	$	2,643	 	
Exercisable	 	 	742,213	 	 	$	8.68	 	 	5.6	 	 	$	2,602	 	
Performance-based options at December 31, 2017:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding	 	 	188,651	 	 	$	16.30	 	 	8.9	 	 	 	—	 	
Vested and expected to vest	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Exercisable	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 
The following table summarizes certain information regarding stock options (in thousands):
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
Fair value of options vested during the period	 	$	2,194	 	 	$	1,087	 	 	$	862	 	
Cash received from options exercised during the period	 	$	81	 	 	$	10	 	 	$	157	 	
Intrinsic value of options exercised during the period	 	$	677	 	 	$	62	 	 	$	160	 	
 
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock.
2017 Employee Stock Purchase Plan
In March 2017, the Company’s board of directors and stockholders approved and adopted the Company’s 2017 Employee Stock Purchase Plan (ESPP) whereby eligible employees may elect to withhold up to 15% of their earnings to purchase shares of the Company’s common stock at a price per share equal to the lower of (i) 85% of the fair market value of a share of the Company’s common stock on the first date of an offering or (ii) 85% of the fair market value of a share of the Company’s common stock on the date of purchase (purchase right). The ESPP became effective on April 12, 2017.  Initially, 250,000 shares of the Company’s common stock were approved for issuance under the ESPP pursuant to purchase rights granted to the Company’s employees or to employees of any of the Company’s designated affiliates. The number of shares of common stock reserved for issuance will automatically increase on January 1 of each calendar year through January 1, 2027, by the lesser of (a) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (b) 300,000 shares, or (c) a number determined by the Company’s board of directors that is less than (a) and (b).          
As of December 31, 2017, the Company had issued 50,121 shares of common stock at a per share price of $8.50 under the ESPP and had 199,879 shares available for future issuance. During the year ended December 31, 2017, the weighted average per share fair value of purchase rights granted was $4.61. During the year ended December 31, 2017, the Company recorded cash received from the exercise of purchase rights of $0.4 million. On January 1, 2018, the number of shares available for future issuance under the ESPP was increased by 198,826 shares such that the total number of shares available for future issuance as of January 1, 2018 was 398,705 shares.
F-18

Stock-Based Compensation Expense
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants with both time-based and performance-based vesting provisions and stock purchase rights were as follows:
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
 	 	Time-Based
Vesting Provisions	 	 	Performance-Based
Vesting Provisions	 	 	ESPP Purchase Rights	 	 	Time-Based Vesting Provisions	 	
Risk-free interest rate	 	1.83% - 2.27%	 	 	1.98% - 2.17%	 	 	1.04% - 1.82%	 	 	1.63%	 	 	1.61%	 	
Expected volatility	 	75.9% - 87.5%	 	 	75.2% - 76.3%	 	 	65.7% - 84.4%	 	 	73.3% - 73.5%	 	 	73.5% - 86.8%	 	
Weighted-average volatility	 	82.2%	 	 	75.9%	 	 	69.6%	 	 	73.4%	 	 	82.2%	 	
Dividend yield	 	0%	 	 	0%	 	 	0%	 	 	0%	 	 	0%	 	
Weighted-average expected term
   (in years)	 	 	6.1	 	 	 	6.3	 	 	 	1.3	 	 	 	6.1	 	 	 	6.1	 	
Weighted-average grant date
   fair value per share	 	$	10.39	 	 	$	6.73	 	 	$	4.61	 	 	$	9.69	 	 	$	13.56	 	
 
Risk-free interest rate . The Company bases the risk-free interest rate assumption on U.S. Treasury constant maturities with maturities similar to those of the expected term of the award being valued.
Expected volatility . Due to the Company’s limited trading of its common stock and lack of company-specific historical or implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies in the life sciences industry whose shares are publicly traded. The Company selects the peer group based on comparable characteristics, including development stage, product pipeline, and enterprise value. The Company computes historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until sufficient amount of historical information regarding the volatility of its own stock price become available.
Expected term. The expected term of employee stock options granted with time-based vesting provisions was calculated using the simplified method which utilizes the midpoint between the weighted average time of vesting and the end of the contractual term. The expected term of employee stock options granted with performance-based vesting provisions was calculated using the midpoint between the estimated service period and the contractual term of the option. These methods were utilized due to a lack of historical exercise behavior by the Company's employees. The expected term for stock purchase rights is the term from the date of grant to the date of purchase.
Expected dividend yield . The Company bases the expected dividend yield assumption on the fact that it has never paid, and does not expect to pay, dividends in the foreseeable future.
The Company calculates the estimated fair value of each non-employee stock option award at the date of grant using Black-Scholes option pricing model with the assumptions generally consistent with those used for employee stock options, with the exception of expected term, which is over the contractual life.
The Company has not recognized non-cash stock-based compensation expense for outstanding options to purchase 188,651 shares of common stock with performance-based vesting provisions after its evaluation that the occurrence of the individual milestones is not probable as of December 31, 2017.
Total non-cash stock-based compensation expense for all stock awards and purchase rights, net of forfeitures recognized as they occur, that was recognized in the statements of operations is as follows (in thousands):
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
Research and development	 	$	1,783	 	 	$	562	 	 	$	456	 	
General and administrative	 	 	2,668	 	 	 	761	 	 	 	606	 	
Total	 	$	4,451	 	 	$	1,323	 	 	$	1,062	 	
 
Unrecognized compensation expense for stock options at December 31, 2017 was $16.3 million which is expected to be recognized over a weighted-average period of 3.0 years and unrecognized compensation expense for stock purchase rights at December 31, 2017 was $0.4 million which is expected to be recognized over a weighted-average period of 0.7 years.
 
F-19

8. License and Collaboration Agreements
Siemens License and Collaboration
In November 2011, the Company entered into a laboratory services and license agreement with Siemens, which was amended in June 2015, pursuant to which the Company agreed to engage Siemens (i) to develop and perform certain in vitro diagnostic assays in connection with the cancer therapy trials of Toca 511 & Toca FC, (ii) concurrently and/or thereafter, to further develop, obtain U.S. Food and Drug Administration (FDA) approval for, and perform one or more of such in vitro diagnostic assays as companion diagnostics for Toca 511 & Toca FC after Toca 511 & Toca FC have received marketing approval from the FDA, and (iii) following FDA approval of such in vitro diagnostic assay as a companion diagnostic, to perform such in vitro diagnostic monitoring assays as necessary in connection with post-marketing clinical trials of Toca 511 & Toca FC. The Company granted Siemens the licensed intellectual property covered by the agreement on an exclusive and non-exclusive basis, depending on Siemens’ use of such intellectual property.
Under the terms of the agreement, Siemens paid the Company an initial upfront payment of $0.5 million in December 2011. Under the terms of the June 2015 amendment, the Company is required to reimburse Siemens for 50% of future costs of the new assay development. Additionally, beginning with the first commercial sale of a product that has received approval for clinical use under the agreement, Siemens will pay the Company a royalty in the 10-20 percent range of net assay revenue with respect to approved designated assay products and net sales revenue with respect to approved in vitro diagnostic products, until the fifth anniversary of such commercial sale, subject to certain reductions. Beginning with the first commercial sale of Toca 511 or Toca FC, the Company will pay a royalty to Siemens in the low single-digit percentage range on net product sales of Toca 511 & Toca FC for sales up to the mid nine-digit dollar range per year, until the fifth anniversary of such commercial sale.
In order to account for multiple-element arrangements, the Company identified the deliverables within the agreement and evaluated which deliverables represent units of accounting. The deliverables under the agreement included (i) a license under the Company’s licensed intellectual property, (ii) transfer of existing assays, (iii) training, and (iv) collaboration (i.e., the Company’s technical/regulatory support) with Siemens for its development of clinical assays to be used as companion diagnostics for the Company’s brain cancer product candidate. The collaboration arrangement does not contain a general right of return relative to the delivered item(s).
Based on the terms of the agreement, the Company identified one single unit of accounting for the deliverables and the up-front payment was allocated to it. The up-front payment is being recognized as license revenue on a straight-line basis over the estimated development period, and royalty revenue and royalty expenses will thereafter be recorded as earned and incurred, respectively.
USC Technology License
In October 2007, the Company entered into a license agreement with the University of Southern California (USC) pursuant to which the Company received a worldwide, exclusive license to, among other things, manufacture and market products utilizing the inventions claimed and described in the patents as described in the agreement.
Under the terms of the agreement, the Company paid an initial license fee to USC and issued to USC shares of the Company’s common stock. Pursuant to the agreement, the Company owes USC a royalty in the low single-digit percent range of the Company’s and the Company’s sub-licensees’ net sales of products covered by the agreement. In addition, the Company owes USC an additional royalty in the low single-digit percent range of revenue from its sub-licensees. Once the Company’s and its sub-licensees’ net sales reach an amount in the mid seven-digit dollar range, the minimum annual royalty payment due to USC will be in the low six-digit dollar range. The Company’s royalty obligations continue on a licensed product-by-licensed product and country-by-country basis until the expiration of the last valid claim in the licensed patent covering a licensed product in such country. In October 2010, the Company exercised its option under the agreement to reduce the royalty rate to a lower single-digit percent range.
9. Grant Agreements
In August 2017, the Company was awarded a $2.0 million grant by the U.S. Food and Drug Administration Office of Orphan Products Development to support its Phase 3 clinical trial (OOPD Grant). Under the grant agreement, the Company will be reimbursed for qualifying expenses over a four-year period subject to the availability of funds and satisfactory progress of the trial. During the year ended December 31, 2017, the Company has received and recorded reimbursable amounts totaling $0.5 million relating to the OOPD Grant as an offset against research and development costs incurred during the period.
 
The grants listed below contain repayment provisions contingent on future events which the Company reviewed at the execution of each grant and continues to review on an ongoing basis to determine the likelihood of repayment.
F-20

Accelerate Brain Cancer Cure, Inc. (ABC2 Grant)
Terms of the ABC2 Grant include a revenue share clause whereby an amount up to a maximum of $0.2 million is payable to ABC2 if and when net sales of the Company’s initial product candidate reach a total of $5.0 million within 10 years of the ABC2 Grant date of July 15, 2009. In addition, the ABC2 Grant includes a conversion option whereby the payment amount may be converted to common stock under certain circumstances. As the Company has not recognized any such revenues, no repayment liability has been recorded as of December 31, 2017.
American Brain Tumor Association (ABTA Grant)
Terms of the ABTA Grant include a revenue share clause whereby an amount up to a maximum of $0.2 million is payable to ABTA if and when net sales of the Company’s initial product candidate reach a total of $5.0 million within 10 years of the ABTA Grant date of April 21, 2010. As the Company has not recognized any such revenues, no repayment liability has been recorded as of December 31, 2017.
Voices Against Brain Cancer (VABC Grant)
Terms of the VABC Grant include a recovery clause whereby an amount up to a maximum of $0.3 million is payable to VABC if and when (1) net sales of the Company’s initial product candidate reach a total of $5.0 million within five years of the VABC Grant date of June 5, 2013, or (2) the Company enters into a definitive agreement for a favorable transaction resulting in (a) the sale of all or substantially all of the Company’s capital stock in a transaction other than an initial public offering, (b) a favorable merger transaction of the Company with another entity, or (c) the sale of all or substantially all of the Company’s assets for cash within a certain time period. In addition, the VABC Grant includes a conversion option whereby the payment may be converted to common stock under certain circumstances. As none of the recovery payment events were considered probable to occur as of December 31, 2017, no repayment liability has been recorded.
10. Income Taxes
The Company has not recorded a current or deferred tax expense or benefit for the years ended December 31, 2017, 2016 or 2015.
The (benefit) provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences:
 
 	 	Years Ended December 31,	 	
 	 	2017	 	 	2016	 	 	2015	 	
Federal statutory rate	 	 	34.0	%	 	 	34.0	%	 	 	34.0	%	
Adjustments for tax effects of:	 	 	 	 	 	 	 	 	 	 	 	 	
State taxes, net	 	 	5.7	%	 	 	5.6	%	 	 	5.6	%	
Permanent adjustments	 	 	(4.5	)%	 	 	(5.4	)%	 	 	(4.8	)%	
Tax Cuts and Jobs Act	 	 	(3.7	)%	 	 	—	%	 	 	—	%	
Net operating loss carryovers not recognized	 	 	(30.4	)%	 	 	(32.8	)%	 	 	(33.3	)%	
Valuation allowance	 	 	(1.0	)%	 	 	(1.1	)%	 	 	(1.7	)%	
Other	 	 	(0.1	)%	 	 	(0.3	)%	 	 	0.2	%	
Effective income tax rate	 	 	—	%	 	 	—	%	 	 	—	%	
 
F-21

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. Significant components of the Company’s deferred taxes are as follows (in thou sands):
 
 	 	December 31,	 	
 	 	2017	 	 	2016	 	
Deferred tax assets:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	$	52	 	 	$	52	 	
Deferred license revenue	 	 	15	 	 	 	38	 	
Share-based compensation	 	 	1,459	 	 	 	1,062	 	
Accrued liabilities and other	 	 	808	 	 	 	796	 	
Total deferred tax assets	 	 	2,334	 	 	 	1,948	 	
Less valuation allowance	 	 	(2,334	)	 	 	(1,948	)	
Net deferred tax assets	 	$	—	 	 	$	—	 	
 
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based upon the Company’s history of operating losses, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2017 and 2016. During 2017 and 2016, the valuation allowance increased by $0.4 million and $0.4 million, respectively.
The Company has federal and California net operating loss carryforwards which may be available to offset future income tax liabilities. As of December 31, 2017, the Company has federal and California net operating loss carryforwards of $137.8 million and $41.5 million, respectively. The federal and state net operating losses begin to expire in 2028 unless previously utilized. Excluded from the California net operating loss carryforward are net operating losses for the years ended December 31, 2013, 2014, 2015, 2016 and 2017 which were impacted by a California Supreme Court ruling on December 31, 2015. This ruling clarified how companies are allowed to apportion income or losses in the state. As a result of the ruling, the Company has completed an analysis to determine the re-apportionment of its losses to California using the required single sales factor market sourcing method for 2013 through 2017 by treating its passive interest income as California-source income which results in a 100% apportionment percentage to California. While this portion may not reach the more-likely-than-not recognition threshold, the Company has excluded a cumulative net operating loss of $109.6 million from its California net operating loss carryforward.
As of December 31, 2017, the Company has federal and California research and development tax credit carryforwards of $20.5 million and $4.7 million, respectively. The federal research and development tax credits begin to expire in 2028 unless previously utilized. The California credits do not expire.
Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, annual use of a company’s net operating loss and tax credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several equity offerings since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the IRC, or could result in a change in control in the future. The Company has not completed an IRC Section 382 and 383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. Until such an analysis has been completed, the Company has removed the deferred tax assets for net operating losses of $31.8 million and federal and California research and development credits of approximately $24.2 million from its deferred tax asset schedule, and has recorded a corresponding decrease to its valuation allowance. When this analysis is finalized, the Company plans to update its unrecognized tax benefits accordingly. The Company does not expect this analysis to be completed within the next 12 months and, as a result, the Company does not expect that the unrecognized tax benefits will change within 12 months of this reporting date. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.
The Company’s policy is to record interest and penalties relating to uncertain tax positions as a component of income tax expense. As of December 31, 2017 and 2016, there was no accrued interest or penalties for uncertain tax positions.
The Company is subject to taxation in the U.S. and state jurisdictions. As of December 31, 2017, the Company’s tax years beginning 2007 to date are subject to examination by federal and California taxing authorities due to the carry forward of unutilized net operating losses and research and development tax credits. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.
 Pursuant to the federal tax legislation that was enacted on December 22, 2017 (the Tax Act), the Company re-measured its existing deferred tax assets and liabilities based on 21%, the current rate at which they are expected to reverse in the future. As of
F-22

December 31, 2017, the Company recorded a provisional amount of $1.4 million relating to the re-measurement of its existing deferred tax asset balance, and i t was fully offset by a decrease in its valuation allowance.
As of December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Tax Act and it will continue to refine its calculations as additional analysis is completed. The additional analysis could potentially affect the measurement of the Company’s existing deferred tax balances or potentially give rise to new deferred tax amounts. In addition, the Company’s estimates may also be affected as it gains a more thorough understanding of the tax law.
11. Retirement Plan
The Company sponsors an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the IRC. Participating employees may defer up to the Internal Revenue Service annual contribution limit. Additionally, the Company may elect to make contributions into the savings plan at its sole discretion. The Company has not made any contributions for the years ended December 31, 2017, 2016 and 2015.
12. Commitments and Contingencies
Leases and Other Commitments
The Company leases its laboratory and office space under an operating lease. Rent expense under the lease was $0.4 million, $0.4 million, $0.3 million during the years ended December 31, 2017, 2016 and 2015, respectively. Future minimum obligations under all non-cancelable operating lease commitments at December 31, 2017 are $71,000 which is due during 2018.
The existing operating lease of the Company for laboratory and office space was amended in March 2018 to provide for an extension of the lease term until June 30, 2018. Additionally, the Company will continue to lease approximately 2,000 square feet of its existing laboratory and office space through December 31, 2018. Future minimum obligations related to the extension of the existing lease are $0.2 million during 2018.
On January 10, 2018, the Company entered into a new lease (New Lease) with a new landlord for the lease of approximately 39,000 square feet of laboratory and office space located at 4242 Campus Point Court, San Diego, California (New Premises). The commencement date of the New Lease will be the earlier of (a) June 1, 2018, (b) substantial completion of tenant improvements, or (c) the date the Company begins conducting business operations in all or any portion of the New Premises. The Company expects to use the New Premises as its new principal executive offices and for general office, research and development, lab and pilot manufacturing uses. The term of the New Lease is eight years and the Company has one option to extend the New Lease for a period of five additional years. The New Lease provides for an abatement of a portion of the lease payments for the first nine months of the lease term as well as a tenant improvement allowance of approximately $1.2 million.
Future annual minimum rental payments payable under the New Lease are as follows (shown in thousands):
 
Years ended December 31:	 	 	 	 	
2018	 	$	384	 	
2019	 	 	1,802	 	
2020	 	 	1,945	 	
2021	 	 	2,013	 	
2022	 	 	2,083	 	
Thereafter	 	 	7,674	 	
Total	 	$	15,901	 	
The Company enters into service agreements with indemnification clauses in the ordinary course of business. Pursuant to such clauses, the Company indemnifies, defends, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by third party claims arising out of the indemnified party’s performance of service. The term of these indemnification clauses is perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification clauses is unlimited. The Company has not incurred costs to defend lawsuits pursuant to these indemnification clauses.
Legal Proceedings
 From time to time, the Company may be involved in various claims and legal proceedings relating to claims arising out of the Company’s operations. The Company is not currently a party to any legal proceedings that, in the opinion of management, are likely
F-23

to have a material adverse effect on the Company’s business. Regardless of outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
13. Selected Quarterly Financial Data (unaudited)
The following table contains unaudited quarterly financial information for the years ended December 31, 2017 and 2016. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair statement of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.
 
 	 	First Quarter	 	 	Second Quarter	 	 	Third Quarter	 	 	Fourth Quarter	 	
Year Ended December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses	 	$	8,564	 	 	$	8,662	 	 	$	9,747	 	 	$	10,697	 	
Net loss	 	 	(9,073	)	 	 	(9,066	)	 	 	(9,953	)	 	 	(10,837	)	
Net loss per common share, basic and diluted	 	$	(4.11	)	 	$	(0.56	)	 	$	(0.50	)	 	$	(0.55	)	
Year Ended December 31, 2016	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses	 	$	7,580	 	 	$	7,633	 	 	$	8,542	 	 	$	7,985	 	
Net loss	 	 	(8,006	)	 	 	(8,042	)	 	 	(9,000	)	 	 	(8,430	)	
Net loss per common share, basic and diluted	 	$	(3.64	)	 	$	(3.66	)	 	$	(4.09	)	 	$	(3.83	)	

F-24

Exhibit 10.11
 
Tocagen Inc.
Amended and Restated Non-Employee Director Compensation Policy
 
Each member of the Board of Directors (the “Board” ) who is not also serving as an employee of or consultant to Tocagen Inc. ( “Tocagen” ) or any of its subsidiaries (each such member, an “Eligible Director” ) will receive the compensation described in this Amended and Restated Non-Employee Director Compensation Policy for his or her Board service.  This policy is effective as of February 8, 2018 (the “ Effective Date ”) and may be amended at any time in the sole discretion of the Board or the Compensation Committee of the Board.
 
Annual Cash Compensation
 
The annual cash compensation amount set forth below is payable in equal quarterly installments, payable in arrears on the last day of each fiscal quarter in which the service occurred. If an Eligible Director joins the Board or a committee of the Board at a time other than effective as of the first day of a fiscal quarter, each annual retainer set forth below will be pro-rated based on days served in the applicable fiscal year, with the pro-rated amount paid for the first fiscal quarter in which the Eligible Director provides the service, and regular full quarterly payments thereafter. All annual cash fees are vested upon payment.
 
1.	Annual Board Service Retainer :	
 	a.	All Eligible Directors: $35,000	
 	b.	Chairman of the Board Service Retainer (in addition to Eligible Director Service Retainer): $30,000	
 	c.	Lead Independent Director Service Retainer (in addition to Eligible Director Service Retainer): $20,000	
 
2 .	Annual Committee Member Service Retainer :	
 	a.	Member of the Audit Committee: $7,500	
 	b.	Member of the Compensation Committee: $5,000	
 	c.	Member of the Nominating & Governance Committee: $4,000	
 
3 .	Annual Committee Chair Service Retainer (in addition to Committee Member Service Retainer) :	
 	a.	Chairman of the Audit Committee: $15,000	
 	b.	Chairman of the Compensation Committee: $10,000	
 	c.	Chairman of the Nominating & Governance Committee: $7,500	
 
Equity Compensation
 
 The equity compensation set forth below will be granted under the Tocagen Inc. 2017 Equity Incentive Plan (the “Plan” ). All stock options granted under this policy will be nonstatutory stock options, with an exercise price per share equal to 100% of the Fair Market Value (as defined in the Plan) of the underlying Tocagen Common Stock on the date of grant, and a term
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of te n years from the date of grant ( subject to earlier termination in connection with a termination of service as provided in the Plan, provided that upon a termination of service other than for death, disability or cause, the post-termination exercise period will be 12 months from the date of termination).
 
1. Initial Grant : On the date of the Eligible Director’s initial election to the Board, for each Eligible Director who is first elected to the Board following the Effective Date (or, if such date is not a market trading day, the first market trading day thereafter), the Eligible Director will be automatically, and without further action by the Board or Compensation Committee of the Board, granted a stock option for 30,000 shares (the “ Initial Grant ”).  The shares subject to each Initial Grant will vest in equal monthly installments over a three year period such that the option is fully vested on the third anniversary of the date of grant, subject to the Eligible Director’s Continuous Service (as defined in the Plan) through each such vesting date and will vest in full upon a Change in Control (as defined in the Plan).
 
2. Annual Grant : On the date of each Tocagen annual stockholder meeting held after the Effective Date, for each Eligible Director who continues to serve as a non-employee member of the Board (or who is first elected to the Board at such annual stockholder meeting), the Eligible Director will be automatically, and without further action by the Board or Compensation Committee of the Board, granted a stock option for 20,000 shares (the “ Annual Grant ”). In addition, each Eligible Director who is first elected to the Board following the Effective Date and other than at an annual stockholder meeting will be automatically, and without further action by the Board or Compensation Committee of the Board, granted an Annual Grant, pro rated for the number of months remaining until the next annual stockholder meeting.  The shares subject to the Annual Grant will vest in equal monthly installments over the 12 months following the date of grant, provided that the Annual Grant will in any case be fully vested on the date of Tocagen’s next annual stockholder meeting, subject to the Eligible Director’s Continuous Service (as defined in the Plan) through such vesting date and will vest in full upon a Change in Control (as defined in the Plan).
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Exhibit 10.12
TOCAGEN INC.
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement (the “ Agreement ”) is made and entered into effective as of February 12, 2018 (the “ Effective Date ”), by and between Martin J. Duvall (“ Executive ” ) and Tocagen Inc. (the “ Company ”).
Whereas , Executive and the Company are currently parties to that certain Executive Employment Agreement, dated October 27, 2016 (the “ Prior Agreement ”); and
Whereas , Executive and the Company desire to terminate and supersede in its entirety the Prior Agreement on the terms set forth herein.
Now, Therefore , in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Employment by the Company.
1.1 Position.   Executive shall serve as the Company’s Chief Executive Officer and shall report to the Company’s Board of Directors (the “ Board ”).  During the term of Executive’s employment with the Company, Executive will devote Executive’s best efforts and substantially all of Executive’s business time and attention to the business of the Company, except for approved vacation periods and reasonable periods of illness or other incapacities permitted by the Company’s general employment policies.  Following the Effective Date, Executive shall initially continue to serve as a member of the Board.  If Executive ceases to serve as an officer of the Company for any reason, then Executive will resign from his position as a member of the Board), if and as requested by the Board.
1.2 Duties and Location.   Executive shall perform such duties as are customarily associated with the position of Chief Executive Officer and such other duties as are assigned to Executive by the Board.  Executive’s primary office location shall be the Company’s headquarters located in San Diego, California. Subject to the terms of this Agreement, the Company reserves the right to (a) reasonably require Executive to perform Executive’s duties at places other than Executive’s primary office location from time to time and to require reasonable business travel, and (b) modify Executive’s job title and duties as it deems necessary and appropriate in light of the Company’s needs and interests from time to time.
1.3 Policies and Procedures.   The employment relationship between the parties shall be governed by the general employment policies and practices of the Company, except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, this Agreement shall control.
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2. Cash Compensation .
2.1 Base Salary.   For services to be rendered hereunder, Executive shall receive a base salary at the rate of $480,000 per year (the “ Base Salary ”), less standard payroll deductions and withholdings and payable in accordance with the Company’s regular payroll schedule; provided that, effective March 1, 2018, Executive’s Base Salary shall be $515,000 per year. The Board (or the Compensation Committee thereof) may review Executive’s Base Salary for adjustment from time to time.
2.2 Bonus.   Executive will be eligible to be considered for a discretionary annual performance bonus of up to 50% of the Base Salary, based on achievement of individual and/or corporate performance targets, metrics and/or objectives to be determined and approved by the Board or the Compensation Committee thereof, including pursuant to an annual incentive plan or similar plan approved by the Board, if any.  Any such bonus would be paid after the close of the fiscal year and after determination by the Board (or the Compensation Committee thereof) of (i) the level of achievement of the applicable individual and corporate performance targets, metrics and/or objectives and (ii) the amount of the annual incentive compensation earned by Executive (if any).  No annual incentive compensation is guaranteed and, in addition to the other conditions for earning such compensation, Executive must remain an employee in good standing of the Company on the annual incentive compensation payment date in order to be eligible for any annual incentive compensation.  The Board (or the Compensation Committee thereof) may review Executive’s annual performance bonus amount for adjustment from time to time.
3. Standard Company Benefits.   Executive shall, in accordance with Company policy and the terms and conditions of the applicable Company benefit plan documents, be eligible to participate in the benefit and fringe benefit programs provided by the Company to its executive officers and other employees from time to time.  Any such benefits shall be subject to the terms and conditions of the governing benefit plans and policies and may be changed by the Company in its discretion.
4. Other Expenses.   The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in furtherance or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.  
5. Equity Awards.   All Company equity awards previously granted to Executive (such awards, the “ Prior Equity Awards ”) shall continue in effect from and following the Effective Date in accordance with their existing terms.  Executive may be eligible to receive additional grants of Company equity awards in the sole discretion of and subject to the approval of the Board.
6. Proprietary Information Obligations .
6.1 Proprietary Information Agreement.   As a condition to employment, Executive agrees to execute, and will continue to abide by the Company’s standard Confidential Information and Invention Assignment Agreement attached hereto as Exhibit A (“ Proprietary Agreement ”).
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6.2 Third-Party Agreements and Information.   Executive represents and warrants that Executive’s employment by the Company does not conflict with any prior employment or consulting agreement or other agreement with any third party, and that Executive will perform Executive’s duties to the Company without violating any such agreement.  Executive represents and warrants that Executive does not possess confidential information arising out of prior employment, consulting, or other third party relationships, that would be used in connection with Executive’s employment by the Company, except as expressly authorized by that third party.  During Executive’s employment by the Company, Executive will use in the performance of Executive’s duties only information that is generally known and used by persons with training and experience comparable to Executive’s own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by Executive in the course of Executive’s work for the Company.
7. Outside Activities and Non-Competition and No-Solicit.
7.1 Outside Activities.   Throughout Executive’s employment with the Company, Executive may engage in civic and not-for-profit activities so long as such activities do not interfere with the performance of Executive’s duties hereunder or present a conflict of interest with the Company or its affiliates.  Subject to the restrictions set forth herein, and only with prior written disclosure to and consent of the Board, Executive may engage in other types of business or public activities.  The Board may rescind such consent, if the Board determines, in its sole discretion, that such activities compromise or threaten to compromise the Company’s or its affiliates’ business interests or conflict with Executive’s duties to the Company or its affiliates.
 7.2 Non-Competition During Employment.     Except as otherwise provided in this Agreement, during Executive’s employment by the Company, Executive will not, without the express written consent of the Board, directly or indirectly serve as an officer, director, stockholder, employee, partner, proprietor, investor, joint venturer, associate, representative or consultant of any person or entity engaged in, or planning or preparing to engage in, business activity competitive with any line of business engaged in (or planned to be engaged in) by the Company or its affiliates; provided, however, that Executive may purchase or otherwise acquire up to (but not more than) one percent (1%) of any class of securities of any enterprise (without participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange.  In addition, Executive will be subject to certain restrictions (including restrictions continuing after Executive’s employment ends) under the terms of the Proprietary Agreement.
7.3 Non-Solicitation .  Executive agrees that during the period of employment with the Company and for twelve (12) months after the date Executive’s employment is terminated for any reason, Executive will not, either directly or through others, solicit or encourage or attempt to solicit or encourage any employee, independent contractor, or consultant of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity.
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8. Termination of Employment; Severance and Change in Control Benefits .
8.1 At-Will Employment.   Executive’s employment relationship is at-will.  Either Executive or the Company may terminate the employment relationship at any time, with or without Cause (as defined below) or advance notice.  In the event Executive's employment with the Company is terminated for any reason, Executive will be entitled to all of Executive's earned compensation and benefits or otherwise as required by law through the date of termination.  For the avoidance of doubt, Executive shall not be entitled to any additional compensation or benefits hereunder in the event Executive's employment is terminated for Cause, due to Executive's resignation without Good Reason, upon Executive's death or Executive's Disability (as defined below); provided that this Section 8.1 does not purport to alter (a) any separate agreement entered into after the Effective Date and pursuant which Executive is expressly entitled to benefits or other compensation on or after the events set forth in this sentence, including, if applicable, the Equity Documents, or (b) any agreements between the Executive and any third party, including insurance policies or the like.  If Executive's employment terminates due to an Involuntary Termination (as defined below), Executive will be eligible to receive the additional compensation and benefits described in Sections 8.2 and 8.3, as applicable.
8.2 Termination Without Cause or Resignation for Good Reason Unrelated to Change in Control .  If at any time except during the Change in Control Period (as defined below) (i) the Company terminates Executive’s employment without Cause (as defined below and other than as a result of Executive’s death or Disability), or (ii) Executive resigns for Good Reason (as defined below), and provided in any case such termination constitutes a “separation from service”, as defined under Treasury Regulation Section 1.409A-1(h)) (a “ Separation from Service ”) (such termination described in (i) or (ii), an “ Involuntary Termination ”) , Executive shall be entitled to receive the following severance benefits, subject in all events to Executive’s compliance with Section 8.4 below:
(i) Executive shall receive severance pay in the form of continuation of Executive’s base salary in effect (ignoring any decrease that forms the basis for Executive’s resignation for Good Reason, if applicable) on the effective date of Executive’s Involuntary Termination for the first eighteen (18) months (the “ Severance Period ”) after the date of such termination;
 (ii) If Executive is eligible for and timely elects to continue Executive’s health insurance coverage under the Company’s group health plans under the Consolidated Omnibus Budget Reconciliation Act of 1985 or the state equivalent (“ COBRA ”) following Executive’s termination date, the Company will pay the COBRA group health insurance premiums for Executive and Executive’s eligible dependents until the earliest of (A) the close of the Severance Period, (B) the expiration of Executive’s eligibility for the continuation coverage under COBRA, or (C) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment.  For purposes of this Section, references to COBRA premiums shall not include any amounts payable by Executive under a Section 125 health care reimbursement plan under the U.S. Internal Revenue Code.  Notwithstanding the foregoing, if at any time the Company determines, in its sole discretion, that it cannot pay the COBRA premiums without potentially
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incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then regardless of whether Executive elects continued health coverage under COBRA, and in lieu of providing the COBRA premiums, the Company will instead pay Executive on the last day of each remaining month of the Severance Period, a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings (such amount, the “ Health Care Benefit Payment ”).  The Health Care Benefit Payment shall be paid in monthly installments on the same schedule that the COBRA premiums would otherwise have been paid and shall be equal to the amount that the Company would have otherwise paid for COBRA premiums, and shall be paid until the earlier of (i) expiration of the Severance Period or (ii) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment; and
(iii) Executive shall receive an extension of the period of time following which Executive may exercise vested shares subject to Executive's equity awards to purchase Company common stock that are outstanding immediately prior to Executive's Involuntary Termination until the date that is the earlier of (A) the original Expiration Date (as defined in the respective Equity Documents for such options) and (B) eighteen (18) months following the date of Involuntary Termination; provided, however, that Executive's rights to exercise vested options may terminate prior to such date, in accordance with the terms of the equity plan under which such options were granted (including upon a corporate transaction) or Executive's violation of the Proprietary Agreement or the Release (defined below).
8.3 Termination Without Cause or Resignation for Good Reason During Change in Control Period.   In the event of an Involuntary Termination at any time during the time period commencing three (3) months immediately prior to the effective date of a Change in Control (as defined in the Company’s 2017 Equity Incentive Plan (the “ Plan ”)) and ending on the date that is twelve (12) months after the effective date of a Change in Control (the “ Change in Control Period ”), in addition to the payments and benefits described in Section 8.2, and subject in all events to Executive’s compliance with Section 8.4 below, the Executive shall also be entitled to the following severance benefits:
(i) Notwithstanding anything to the contrary set forth in the Plan or any successor equity incentive plan or any award agreement, the vesting of all of Executive’s then-outstanding stock awards, including any Prior Equity Awards, that are subject to time-based vesting shall be fully accelerated such that on the effective date of such termination one hundred percent (100%) of the shares subject to time-based vesting in such stock awards granted to Executive prior to the effective date of such termination shall be fully vested and immediately exercisable by Executive.  Treatment of any performance-based vesting equity awards will be governed solely by the terms of the agreements under which such awards were granted and will not be eligible to accelerate vesting pursuant to the foregoing provision; and
(ii) A cash payment equal to 1.5 times Executive’s target bonus in effect at the time of termination, or if none, the last target bonus in effect for Executive, less standard deductions and withholdings, to be paid in a lump sum no later than ten (10) days following the later of (A) the effectiveness of the Release (as defined below) or (B) the effective date of the Change in Control.
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8.4 Conditions and Timing for Severance Benefits.   The severance benefits set forth in Sections 8.2 and 8.3 above are expressly conditioned upon: (i) Executive’s continuing to comply with Executive’s obligations under Executive’s Proprietary Agreement; and (ii) Executive signing and not revoking a general release of legal claims in the form provided by the Company which shall include a full general release of claims against the Company and related persons and entities and a commitment from Executive to comply with Executive’s continuing obligations under Executive’s Proprietary Agreement, but will not include a release of any rights or claims for indemnification Executive may have pursuant to any written indemnification agreement with the Company to which Executive is a party, the Company’s bylaws, or applicable law (the “ Release ”) within the applicable deadline set forth therein and permitting the Release to become effective in accordance with its terms, which must occur no later than forty-five (45) days following the date of termination (the “ Release Deadline ”).  The salary continuation payments described in Section 8.2 will be paid in substantially equal installments on the Company’s regular payroll schedule and subject to standard deductions and withholdings over the Severance Period following termination; provided, however, that no payments will be made prior to the effectiveness of the Release.  On the effective date of the Release, the Company will pay Executive the salary continuation payments that Executive would have received on or prior to such date in a lump sum under the original schedule but for the delay while waiting for the effectiveness of the release, with the balance of the cash severance being paid as originally scheduled.  
8.5 Definitions .  For purposes of this Agreement:
 (i) “ Cause ”   means, with respect to Executive, the occurrence of any of the following events:  (i) Executive’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) Executive’s intentional, material violation of any contract or agreement between Executive and the Company or of any statutory duty owed to the Company that has not been cured, if curable, within fifteen (15) days after written notice from the Board of such violation; (iv) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) Executive’s gross misconduct that has not been cured, if curable, within fifteen (15) days after written notice from the Board requesting that the Executive cure such misconduct.
(ii) “Disability” means the inability of a Executive to engage in substantially gainful Company activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months, and shall be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
 (iii) “ Good Reason ” means Executive’s resignation from employment with the Company (or successor to the Company, if applicable) due to any of the following actions taken by the Company (or successor to the Company, if applicable) without Executive’s prior written consent thereto: (1) a material reduction in Executive’s base salary, which the parties agree is a reduction of at least 10% of Executive’s base salary (unless pursuant to a salary
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reduction program applicable generally to the Company’s similarly situated employees); (2) a material reduction in Executive’s authority, duties or responsibilities; (3) a material reduction in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive reports to a corporate officer or employee instead of reporting directly to the Board; (4) a relocation of Executive’s principal place of employment to a place that increases Executive’s one-way commute by more than fifty (50) miles as compared to Executive’s then-current principal place of employment immediately prior to such relocation (excluding regular travel in the ordinary course of business); and (5) a breach of a material provision of this Agreement by the Company.   Notwithstanding the foregoing, in order to resign for Good Reason, Executive must provide written notice to the Company within thirty (30) days after the first occurrence of the event giving rise to Good Reason setting forth the basis for Executive’s resignation and allow the Company at least thirty (30) days from receipt of such written notice to cure such event, and, if such event is not reasonably cured within such period, Executive’s resignation from all positions Executive then holds with the Company is effective not later than thirty (30) days after the expiration of the cure period.
8.6 Section 409A. It is intended that all of the benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, an exemption from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”) and the regulations and other guidance thereunder and any state law of similar effect (collectively “ Section 409A ” ), and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A, and any ambiguities herein shall be interpreted accordingly.  Specifically, the benefits under this Agreement are intended to satisfy the exemptions from application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9) and each installment of  severance benefits is a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i).  However, if such exemptions are not available and Executive is, upon Separation from Service, a “specified employee” for purposes of Section 409A, then, solely to the extent necessary to avoid adverse personal tax consequences under Section 409A, the timing of the severance benefits payments shall be delayed until the earlier of (i) six (6) months and one day after Executive’s Separation from Service, or (ii) Executive’s death. Severance benefits shall not commence until Executive has a Separation from Service.  If the severance benefits are not covered by one or more exemptions from the application of Section 409A and the Release could become effective in the calendar year following the calendar year in which Executive's Separation from Service occurs, the Release will not be deemed effective, for purposes of payment of severance, any earlier than the Release Deadline.   Except to the minimum extent that payments must be delayed because Executive is a “specified employee” or until the effectiveness of the Release, all severance amounts will be paid as soon as practicable in accordance with the Company’s normal payroll practices.
 8.7 Section 280G .  If any payment or benefit Executive will or may receive from the Company or otherwise (a “ Payment ”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax ”), then such Payment will be equal to the Reduced Amount (defined below).  The “ Reduced Amount ” will be either (l) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the
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Excise Tax or (2) the entire Payment, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes), results in Executive’s receipt, on an after-tax basis, of the greatest amount of the Payment.  If a reduction in the Payment is to be made so that the Payment equals the Reduced Amount, (x) the Payment will be paid only to the extent permitted under the Reduced Amount alternative, and the Executive will have no rights to any additional payments and/or benefits constituting the Payment, and (y) reduction in payments and/or benefits will occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits paid to Executive.  In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of Executive’s equity awards.  In no event will the Company or any stockholder be liable to Executive for any amounts not paid as a result of the operation of this Section.  The professional firm engaged by the Company for general tax purposes as of the day prior to the effective date of the change in control will perform the foregoing calculations. If the tax firm so engaged by the Company is serving as accountant or auditor for the acquirer, the Company will appoint a nationally recognized tax firm to make the determinations required hereunder. The Company will bear all expenses with respect to the determinations by such firm required to be made hereunder.  If the tax firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it will furnish the Company and Executive with documentation that no Excise Tax is reasonably likely to be imposed with respect to such Payment. Any good faith determinations of the tax firm made hereunder will be final, binding and conclusive upon the Company and Executive.
9. Dispute Resolution.   To ensure the rapid and economical resolution of disputes that may arise in connection with Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Executive’s employment with the Company, or the termination of Executive’s employment from the Company, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in San Diego, California by JAMS, Inc. (“ JAMS ”) or its successors, under JAMS’ then applicable rules and procedures for employment disputes (which can be found at http://www.jamsadr.com/rules-clauses/, and which will be provided to Executive on request); provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.  Executive and the Company shall be entitled to all rights and remedies that either would be entitled to pursue in a court of law.   Both Executive and the Company acknowledge that by agreeing to this arbitration procedure, they waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding .  The Company shall pay all filing fees in excess of those which would be required if the dispute were decided in a court of law, and shall pay the arbitrator’s fee.  Nothing in this Agreement is intended to prevent either the Company or Executive from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.
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10. General Provisions .
10.1 Notices.   Any notices provided must be in writing and will be deemed effective upon the earlier of personal delivery (including personal delivery by fax) or the next day after sending by overnight carrier, to the Company at its primary office location and to Executive at the address as listed on the Company payroll.
10.2 Severability.   Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction to the extent possible in keeping with the intent of the Parties.
10.3 Waiver.   Any waiver of any breach of any provisions of this Agreement must be in writing to be effective, and it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
10.4 Complete Agreement.   This Agreement, together with the Proprietary Agreement, and the Indemnification Agreement attached hereto as Exhibit B , constitutes the entire agreement between Executive and the Company with regard to the subject matter hereof and is the complete, final, and exclusive embodiment of the Company’s and Executive’s agreement with regard to this subject matter.  This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations (including, but not limited to, the Prior Agreement).  It cannot be modified or amended except in a writing signed by a duly authorized officer of the Company, with the exception of those changes expressly reserved to the Company’s discretion in this Agreement.
10.5 Counterparts.   This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but both of which taken together will constitute one and the same Agreement.
10.6 Headings.   The headings of the paragraphs hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.
10.7 Successors and Assigns.   This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
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10.8 Tax Withholding.   All payments and awards contemplated or made pursuant to this Agreement will be subject to withholdings of applicable taxes in compliance with all relevant laws and regulations of all appropriate government authorities.  Executive acknowledges and agrees that the Company has neither made any assurances nor any guarantees concerning the tax treatment of any payments or awards contemplated by or made pursuant to this Agreement.  Executive has had the opportunity to retain a tax and financial advisor and fully understands the tax and economic consequences of all payments and awards made pursuant to the Agreement.
10.9 Choice of Law.   All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of California.
[Signature Page Follows]
 
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In Witness Whereof , the parties have executed this Agreement on the date first written above.  

Tocagen Inc.	
 	 	 	
By:	 	/s/ Faheem Hasnian	
 	 	Faheem Hasnain	
 	 	Chairman of the Board	
 	 	 	
Executive	
 	 	 	
/s/ Martin J. Duvall	
Martin J. Duvall	

11 .

Exhibit A
 
Proprietary Agreement
12 .

Exhibit B
 
Indemnification Agreement
 
13 .

Exhibit 10.13
TOCAGEN INC.
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement (the “ Agreement ”) is made and entered into effective as of February 12, 2018 (the “ Effective Date ”), by and between Mark Foletta (“ Executive ” ) and Tocagen Inc. (the “ Company ”).
Whereas , Executive and the Company are currently parties to that certain Executive Employment Agreement, dated February 27, 2017 (the “ Prior Agreement ”); and
Whereas , Executive and the Company desire to terminate and supersede in its entirety the Prior Agreement on the terms set forth herein.
Now, Therefore , in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Employment by the Company.
1.1 Position.   Executive shall serve as the Company’s Executive Vice President, Chief Financial Officer and shall report to the Company’s Chief Executive Officer.  During the term of Executive’s employment with the Company, Executive will devote Executive’s best efforts and substantially all of Executive’s business time and attention to the business of the Company, except for approved vacation periods and reasonable periods of illness or other incapacities permitted by the Company’s general employment policies.
1.2 Duties and Location.   Executive shall perform such duties as are customarily associated with the position of Executive Vice President, Chief Financial Officer and such other duties as are assigned to Executive by the Company’s Chief Executive Officer.  Executive’s primary office location shall be the Company’s headquarters located in San Diego, California. Subject to the terms of this Agreement, the Company reserves the right to (a) reasonably require Executive to perform Executive’s duties at places other than Executive’s primary office location from time to time and to require reasonable business travel, and (b) modify Executive’s job title and duties as it deems necessary and appropriate in light of the Company’s needs and interests from time to time.
1.3 Policies and Procedures.   The employment relationship between the parties shall be governed by the general employment policies and practices of the Company, except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, this Agreement shall control.
2. Cash Compensation .
 2.1 Base Salary.   For services to be rendered hereunder, Executive shall receive a base salary at the rate of $365,000 per year (the “ Base Salary ”), less standard payroll
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deductions and withholdings and payable in accordance with the Company’s regular payroll schedule ; provided that, effective March 1, 2018, Executive’s Base Salary shall be $380,000 per year . The Company’s Board of Directors (the “ Board ”) (or the Compensation Committee thereof) may review Executive’s Base Salary for adjustment from time to time .
2.2 Bonus.   Executive will be eligible to be considered for a discretionary annual performance bonus of up to 40% of the Base Salary, based on achievement of individual and/or corporate performance targets, metrics and/or objectives to be determined and approved by the Board or the Compensation Committee thereof, including pursuant to an annual incentive plan or similar plan approved by the Board, if any.  Any such bonus would be paid after the close of the fiscal year and after determination by the Board (or the Compensation Committee thereof) of (i) the level of achievement of the applicable individual and corporate performance targets, metrics and/or objectives and (ii) the amount of the annual incentive compensation earned by Executive (if any).  No annual incentive compensation is guaranteed and, in addition to the other conditions for earning such compensation, Executive must remain an employee in good standing of the Company on the annual incentive compensation payment date in order to be eligible for any annual incentive compensation. The Board (or the Compensation Committee thereof) may review Executive’s annual performance bonus amount for adjustment from time to time.
3. Standard Company Benefits.   Executive shall, in accordance with Company policy and the terms and conditions of the applicable Company benefit plan documents, be eligible to participate in the benefit and fringe benefit programs provided by the Company to its executive officers and other employees from time to time.  Any such benefits shall be subject to the terms and conditions of the governing benefit plans and policies and may be changed by the Company in its discretion.
4. Other Expenses.   The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in furtherance or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.  
5. Equity Awards.   All Company equity awards previously granted to Executive (such awards, the “ Prior Equity Awards ”) shall continue in effect from and following the Effective Date in accordance with their existing terms.  Executive may be eligible to receive additional grants of Company equity awards in the sole discretion of and subject to the approval of the Board.
6. Proprietary Information Obligations .
6.1 Proprietary Information Agreement.   As a condition to employment, Executive agrees to execute, and will continue to abide by the Company’s standard Confidential Information and Invention Assignment Agreement attached hereto as Exhibit A (“ Proprietary Agreement ”).
 6.2 Third-Party Agreements and Information.   Executive represents and warrants that Executive’s employment by the Company does not conflict with any prior employment or consulting agreement or other agreement with any third party, and that Executive
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will perform Executive’s duties to the Company without violating any such agreement.  Executive represents and warrants that Executive does not possess confidential information arising out of prior employment, consulting, or other third party relationships, that would be used in connection with Executive’s employment by the Company, except as expressly authorized by that third party.  During Executive’s employment by the Company, Executive will use in the performance of Executive’s duties only information that is generally known and used by persons with training and experience comparable to Executive’s own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by Executive in the course of Executive’s work for the Company.
7. Outside Activities and Non-Competition and No-Solicit.
7.1 Outside Activities.   Throughout Executive’s employment with the Company, Executive may engage in civic and not-for-profit activities so long as such activities do not interfere with the performance of Executive’s duties hereunder or present a conflict of interest with the Company or its affiliates.  Subject to the restrictions set forth herein, and only with prior written disclosure to and consent of the Board, Executive may engage in other types of business or public activities (and, for the avoidance of doubt, the activities listed on Annex I attached hereto are deemed disclosed to, and consented by, the Board).  The Board may rescind such consent, if the Board determines, in its sole discretion, that such activities compromise or threaten to compromise the Company’s or its affiliates’ business interests or conflict with Executive’s duties to the Company or its affiliates.
 7.2 Non-Competition During Employment.   Except as otherwise provided in this Agreement, during Executive’s employment by the Company, Executive will not, without the express written consent of the Board, directly or indirectly serve as an officer, director, stockholder, employee, partner, proprietor, investor, joint venturer, associate, representative or consultant of any person or entity engaged in, or planning or preparing to engage in, business activity competitive with any line of business engaged in (or planned to be engaged in) by the Company or its affiliates; provided, however, that Executive may purchase or otherwise acquire up to (but not more than) one percent (1%) of any class of securities of any enterprise (without participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange.  In addition, Executive will be subject to certain restrictions (including restrictions continuing after Executive’s employment ends) under the terms of the Proprietary   Agreement.
7.3 Non-Solicitation .  Executive agrees that during the period of employment with the Company and for twelve (12) months after the date Executive’s employment is terminated for any reason, Executive will not, either directly or through others, solicit or encourage or attempt to solicit or encourage any employee, independent contractor, or consultant of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity.
8. Termination of Employment; Severance and Change in Control Benefits .
 8.1 At-Will Employment.   Executive’s employment relationship is at-will.  Either Executive or the Company may terminate the employment relationship at any time, with
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or without C ause (as defined below) or advance notice .   In the event Executive's employment with the Company is terminated for any reason, Executive will be entitled to all of Executive's earned compensation and benefits or otherwise as required by law through the date of termination.  For the avoidance of doubt, Executive shall not be entitled to any additional compensation or benefits hereunder in the event Executive's employment is terminated for Cause, due to Executive's resignation without Good Reason, upon Executive's death or Executive's Disability (as defined below); provided that this Section 8 .1 does not purport to alter (a) any separate agreement entered into after the Effective Date and pursuant which Executive is expressly entitled to benefits or other compensation on or after the events set forth in this sentence , including, if applicable, the Equity Documents, or (b) any agreements between the Executive and any third party, including insurance policies or the like .  If Executive's employment terminates due to an Involuntary Termination (as defined below), Executive will be eligible to receive the additional compensation and benefits described in Section s 8 .2 and 8 .3 , as applicable .
8.2 Termination Without Cause or Resignation for Good Reason Unrelated to Change in Control .  If at any time except during the Change in Control Period (as defined below) (i) the Company terminates Executive’s employment without Cause (as defined below and other than as a result of Executive’s death or Disability), or (ii) Executive resigns for Good Reason (as defined below), and provided in any case such termination constitutes a “separation from service”, as defined under Treasury Regulation Section 1.409A-1(h)) (a “ Separation from Service ”) (such termination described in (i) or (ii), an “ Involuntary Termination ”) , Executive shall be entitled to receive the following severance benefits, subject in all events to Executive’s compliance with Section 8.4 below:
(i) Executive shall receive severance pay in the form of continuation of Executive’s base salary in effect (ignoring any decrease that forms the basis for Executive’s resignation for Good Reason, if applicable) on the effective date of Executive’s Involuntary Termination for the first twelve (12) months (the “ Severance Period ”) after the date of such termination;
 (ii) If Executive is eligible for and timely elects to continue Executive’s health insurance coverage under the Company’s group health plans under the Consolidated Omnibus Budget Reconciliation Act of 1985 or the state equivalent (“ COBRA ”) following Executive’s termination date, the Company will pay the COBRA group health insurance premiums for Executive and Executive’s eligible dependents until the earliest of (A) the close of the Severance Period, (B) the expiration of Executive’s eligibility for the continuation coverage under COBRA, or (C) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment.  For purposes of this Section, references to COBRA premiums shall not include any amounts payable by Executive under a Section 125 health care reimbursement plan under the U.S. Internal Revenue Code.  Notwithstanding the foregoing, if at any time the Company determines, in its sole discretion, that it cannot pay the COBRA premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then regardless of whether Executive elects continued health coverage under COBRA, and in lieu of providing the COBRA premiums, the Company will instead pay Executive on the last day of each remaining month of the Severance Period, a
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fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings (such amount, the “ Health Care Benefit Payment ”).  The Health Care Benefit Payment shall be paid in monthly installments on the same schedule that the COBRA premiums would otherwise have been paid and shall be equal to the amount that the Company would have otherwise paid for COBRA premiums, and shall be paid until the earlier of (i) expiration of the Se verance Period or (ii) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment; and
(iii) Executive shall receive an extension of the period of time following which Executive may exercise vested shares subject to Executive's equity awards to purchase Company common stock that are outstanding immediately prior to Executive's Involuntary Termination until the date that is the earlier of (A) the original Expiration Date (as defined in the respective Equity Documents for such options) and (B) twelve (12) months following the date of Involuntary Termination; provided, however, that Executive's rights to exercise vested options may terminate prior to such date, in accordance with the terms of the equity plan under which such options were granted (including upon a corporate transaction) or Executive's violation of the Proprietary Agreement or the Release (defined below).
8.3 Termination Without Cause or Resignation for Good Reason During Change in Control Period.   In the event of an Involuntary Termination at any time during the time period commencing three (3) months immediately prior to the effective date of a Change in Control (as defined in the Company’s 2017 Equity Incentive Plan (the “ Plan ”)) and ending on the date that is twelve (12) months after the effective date of a Change in Control (the “ Change in Control Period ”), in addition to the payments and benefits described in Section 8.2, and subject in all events to Executive’s compliance with Section 8.4 below, the Executive shall also be entitled to the following severance benefits:
(i) Notwithstanding anything to the contrary set forth in the Plan or any successor equity incentive plan or any award agreement, the vesting of all of Executive’s then-outstanding stock awards, including any Prior Equity Awards, that are subject to time-based vesting shall be fully accelerated such that on the effective date of such termination one hundred percent (100%) of the shares subject to time-based vesting in such stock awards granted to Executive prior to the effective date of such termination shall be fully vested and immediately exercisable by Executive.  Treatment of any performance-based vesting equity awards will be governed solely by the terms of the agreements under which such awards were granted and will not be eligible to accelerate vesting pursuant to the foregoing provision; and
(ii) A cash payment equal to 1.0 times Executive’s target bonus in effect at the time of termination, or if none, the last target bonus in effect for Executive, less standard deductions and withholdings, to be paid in a lump sum no later than ten (10) days following the later of (A) the effectiveness of the Release (as defined below) or (B) the effective date of the Change in Control.
 8.4 Conditions and Timing for Severance Benefits.   The severance benefits set forth in Sections 8.2 and 8.3 above are expressly conditioned upon: (i) Executive’s continuing to comply with Executive’s obligations under Executive’s Proprietary Agreement; and (ii) Executive signing and not revoking a general release of legal claims in the form provided by the
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Company which shall include a full general release of claims against the Company and related persons and entities and a commitment from Executive to comply with Executive’s continuing obligations under Executive’s Proprietary Agreement, but will not include a release of any rights or claims for indemnification Executive may have pursuant to any written indemnification agreement with the Company to which Executive is a party, the Company’s bylaws, or applicable law (the “ Release ”) within the applicable deadline set forth therein and permitting the Release to become effecti ve in accordance with its terms, which must occur no later than forty-five (45) days following the date of termination (the “ Release Deadline ”) .   The salary continuation payments described in Section 8 .2 will be paid in substantially equal installments on the Company’s regular payroll schedule and subject to standard deductions and withholdings over the Severance Period following termination; provided, however, that no payments will be made prior to the effectiveness of the Release.  On the effective date of the Release, the Company will pay Executive the salary continuation payments that Executive would have received on or prior to such date in a lump sum under the original schedule but for the delay while waiting for the effectiveness of the release, with the balance of the cash severance being paid as originally scheduled.  
8.5 Definitions .  For purposes of this Agreement:
 (i) “ Cause ” means, with respect to Executive, the occurrence of any of the following events:  (i) Executive’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) Executive’s intentional, material violation of any contract or agreement between Executive   and the Company or of any statutory duty owed to the Company that has not been cured, if curable, within fifteen (15) days after written notice from the Board of such violation; (iv) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) Executive’s gross misconduct that has not been cured, if curable, within fifteen (15) days after written notice from the Board requesting that the Executive cure such misconduct.
(ii) “Disability” means the inability of a Executive to engage in substantially gainful Company activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months, and shall be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
 (iii) “ Good Reason ” means Executive’s resignation from employment with the Company (or successor to the Company, if applicable) due to any of the following actions taken by the Company (or successor to the Company, if applicable) without Executive’s prior written consent thereto: (1) a material reduction in Executive’s base salary, which the parties agree is a reduction of at least 10% of Executive’s base salary (unless pursuant to a salary reduction program applicable generally to the Company’s similarly situated employees); (2) a material reduction in Executive’s authority, duties or responsibilities; (3) a material reduction in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive reports to a corporate officer or employee instead
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of reporting directly to the Chief Executive Officer; (4) a relocation of Executive’s principal place of employment to a place that increases Executive’s one-way commute by more than fifty (50) miles as compared to Executive’s then-current principal place of employment immediately prior to such relocation (excluding regular travel in the ordinary course of business) ; and (5) a breach of a material provision of this Agreement by the Company .   Notwithstanding the foregoing, in order to resign for Good Reason, Executive must provide written notice to the Company within thirty (30) days after the first occurrence of the event giving rise to Good Reason setting forth the basis for Executive’s resignation and allow the Company at least thirty (3 0) days from receipt of such written notice to cure such event, and , if such event is not reasonably cured within such period, Executive’s resignation from all positions Executive then hold s with the Company is effective not later than thirty (30) days after the expiration of the cure period.
8.6 Section 409A. It is intended that all of the benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, an exemption from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”) and the regulations and other guidance thereunder and any state law of similar effect (collectively “ Section 409A ” ), and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A, and any ambiguities herein shall be interpreted accordingly.  Specifically, the benefits under this Agreement are intended to satisfy the exemptions from application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9) and each installment of  severance benefits is a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i).  However, if such exemptions are not available and Executive is, upon Separation from Service, a “specified employee” for purposes of Section 409A, then, solely to the extent necessary to avoid adverse personal tax consequences under Section 409A, the timing of the severance benefits payments shall be delayed until the earlier of (i) six (6) months and one day after Executive’s Separation from Service, or (ii) Executive’s death. Severance benefits shall not commence until Executive has a Separation from Service.  If the severance benefits are not covered by one or more exemptions from the application of Section 409A and the Release could become effective in the calendar year following the calendar year in which Executive's Separation from Service occurs, the Release will not be deemed effective, for purposes of payment of severance, any earlier than the Release Deadline.   Except to the minimum extent that payments must be delayed because Executive is a “specified employee” or until the effectiveness of the Release, all severance amounts will be paid as soon as practicable in accordance with the Company’s normal payroll practices.
 8.7 Section 280G .  If any payment or benefit Executive will or may receive from the Company or otherwise (a “ Payment ”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax ”), then such Payment will be equal to the Reduced Amount (defined below).  The “ Reduced Amount ” will be either (l) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax or (2) the entire Payment, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in
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federal income taxes which could be obtained from a deduction of such state and local taxes), results in Executive’s receipt, on an after-tax basis, of the greatest amount of the Payment.  If a reduction in the Payment is to be made so that the Payment equals the Reduced Amount, (x) the Payment will be paid only to the extent permitted under the Reduced Amount alternative, and the Executive will have no rights to any additional payments and/or benefits constituting the Payment, and (y) reduction in payments and/or benefits will occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits paid to Executive.  In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of Executive’s equity awards.  In no event will the Company or any stockholder be liable to Executive for any amounts not paid as a result of the operation of this Section.  The professional firm engaged by the Company for general tax purposes as of the day prior to the effective date of the change in control will perform the foregoing calculations. If the tax firm so engaged by the Company is serving as accountant or auditor for the acquirer, the Company will appoint a nationally recognized tax firm to make the determinations required hereunder. The Company will bear all expenses with respect to the determinations by such firm required to be made hereunder.  If the tax firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it will furnish the Company and Executive with documentation that no Excise Tax is reasonably likely to be imposed with respect to such Payment. Any good faith determinations of the tax firm made hereunder will be final, binding and conclusive upon the Company and Executive .
9. Dispute Resolution.   To ensure the rapid and economical resolution of disputes that may arise in connection with Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Executive’s employment with the Company, or the termination of Executive’s employment from the Company, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in San Diego, California by JAMS, Inc. (“ JAMS ”) or its successors, under JAMS’ then applicable rules and procedures for employment disputes (which can be found at http://www.jamsadr.com/rules-clauses/, and which will be provided to Executive on request); provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.  Executive and the Company shall be entitled to all rights and remedies that either would be entitled to pursue in a court of law.   Both Executive and the Company acknowledge that by agreeing to this arbitration procedure, they waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding .  The Company shall pay all filing fees in excess of those which would be required if the dispute were decided in a court of law, and shall pay the arbitrator’s fee.  Nothing in this Agreement is intended to prevent either the Company or Executive from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.
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10. General Provisions .
10.1 Notices.   Any notices provided must be in writing and will be deemed effective upon the earlier of personal delivery (including personal delivery by fax) or the next day after sending by overnight carrier, to the Company at its primary office location and to Executive at the address as listed on the Company payroll.
10.2 Severability.   Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction to the extent possible in keeping with the intent of the Parties.
10.3 Waiver.   Any waiver of any breach of any provisions of this Agreement must be in writing to be effective, and it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
10.4 Complete Agreement.   This Agreement, together with the Proprietary Agreement, and the Indemnification Agreement attached hereto as Exhibit B , constitutes the entire agreement between Executive and the Company with regard to the subject matter hereof and is the complete, final, and exclusive embodiment of the Company’s and Executive’s agreement with regard to this subject matter.  This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations (including, but not limited to, the Prior Agreement).  It cannot be modified or amended except in a writing signed by a duly authorized officer of the Company, with the exception of those changes expressly reserved to the Company’s discretion in this Agreement.
10.5 Counterparts.   This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but both of which taken together will constitute one and the same Agreement.
10.6 Headings.   The headings of the paragraphs hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.
10.7 Successors and Assigns.   This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
 10.8 Tax Withholding.   All payments and awards contemplated or made pursuant to this Agreement will be subject to withholdings of applicable taxes in compliance with all relevant laws and regulations of all appropriate government authorities.  Executive acknowledges and agrees that the Company has neither made any assurances nor any guarantees
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concerning the tax treatment of any payments or awards contemplated by or made pursuant to this Agreement.  Executive has had the opportunity to retain a tax and financial advisor and fully understands the tax and economic consequences of all payments and awards made pursuant to the Agreement.
10.9 Choice of Law.   All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of California.
[Signature Page Follows]
 
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In Witness Whereof , the p arties have executed this Agreement on the date first written above.  

Tocagen Inc.	 	 	
 	 	 	
By:	 	/s/ Martin J. Duvall	 	
 	 	Martin J. Duvall	 	
 	 	Chief Executive Officer	
 	 	 	
Executive	
 	 	 	
/s/ Mark Foletta	 	
Mark Foletta	 	
 
11.

Annex I
 
 	•	AMN Healthcare Services, Inc. – member of the board of directors and chairman of the audit committee	
 	•	Dexcom, Inc. – lead director of the board of directors and chairman of the audit committee	
 	•	Regulus Therapeutics, Inc. – member of the board of directors, chairman of the audit committee and member of the nominating and governance committee	
 	•	Viacyte, Inc. – member of the board of directors and chairman of the audit committee	
 
12.

Exhibit A
 
Proprietary Agreement
13.

Exhibit B
 
Indemnification Agreement
 
14.

Exhibit 10.14
TOCAGEN INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the “ Agreement ”) is made and entered into effective as of February 12, 2018 (the “ Effective Date ”), by and between Asha Das, M.D. (“ Executive ” ) and Tocagen Inc. (the “ Company ”).
Whereas , Executive and the Company are currently parties to that certain Offer Letter, dated March 3, 2015 (the “ Prior Agreement ”); and
Whereas , Executive and the Company desire to terminate and supersede in its entirety the Prior Agreement on the terms set forth herein.
Now, Therefore , in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Employment by the Company.
1.1 Position.   Executive shall serve as the Company’s Senior Vice President, Chief Medical Officer and shall report to the Company’s Chief Executive Officer.  During the term of Executive’s employment with the Company, Executive will devote Executive’s best efforts and substantially all of Executive’s business time and attention to the business of the Company, except for approved vacation periods and reasonable periods of illness or other incapacities permitted by the Company’s general employment policies.
1.2 Duties and Location.   Executive shall perform such duties as are customarily associated with the position of Senior Vice President, Chief Medical Officer and such other duties as are assigned to Executive by the Company’s Chief Executive Officer.  Executive’s primary office location shall be the Company’s headquarters located in San Diego, California. Subject to the terms of this Agreement, the Company reserves the right to (a) reasonably require Executive to perform Executive’s duties at places other than Executive’s primary office location from time to time and to require reasonable business travel, and (b) modify Executive’s job title and duties as it deems necessary and appropriate in light of the Company’s needs and interests from time to time.
1.3 Policies and Procedures.   The employment relationship between the parties shall be governed by the general employment policies and practices of the Company, except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, this Agreement shall control.
2. Cash Compensation .
 2.1 Base Salary.   For services to be rendered hereunder, Executive shall receive a base salary at the rate of $370,000 per year (the “ Base Salary ”), less standard payroll
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deductions and withholdings and payable in accordance with the Company’s regular payroll schedule ; provided that, effective March 1, 2018, Executive’s Base Salary shall be $380,000 per year . The Company’s Board of Directors (the “ Board ”) (or the Compensation Committee thereof) may review Executive’s Base Salary for adjustment from time to time .
2.2 Bonus.   Executive will be eligible to be considered for a discretionary annual performance bonus of up to 40% of the Base Salary, based on achievement of individual and/or corporate performance targets, metrics and/or objectives to be determined and approved by the Board or the Compensation Committee thereof, including pursuant to an annual incentive plan or similar plan approved by the Board, if any.  Any such bonus would be paid after the close of the fiscal year and after determination by the Board (or the Compensation Committee thereof) of (i) the level of achievement of the applicable individual and corporate performance targets, metrics and/or objectives and (ii) the amount of the annual incentive compensation earned by Executive (if any).  No annual incentive compensation is guaranteed and, in addition to the other conditions for earning such compensation, Executive must remain an employee in good standing of the Company on the annual incentive compensation payment date in order to be eligible for any annual incentive compensation. The Board (or the Compensation Committee thereof) may review Executive’s annual performance bonus amount for adjustment from time to time.
3. Standard Company Benefits.   Executive shall, in accordance with Company policy and the terms and conditions of the applicable Company benefit plan documents, be eligible to participate in the benefit and fringe benefit programs provided by the Company to its executive officers and other employees from time to time.  Any such benefits shall be subject to the terms and conditions of the governing benefit plans and policies and may be changed by the Company in its discretion.
4. Other Expenses.   The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in furtherance or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.  
5. Equity Awards.   All Company equity awards previously granted to Executive (such awards, the “ Prior Equity Awards ”) shall continue in effect from and following the Effective Date in accordance with their existing terms.  Executive may be eligible to receive additional grants of Company equity awards in the sole discretion of and subject to the approval of the Board.
6. Proprietary Information Obligations .
6.1 Proprietary Information Agreement.   As a condition to employment, Executive agrees to execute, and will continue to abide by the Company’s standard Confidential Information and Invention Assignment Agreement attached hereto as Exhibit A (“ Proprietary Agreement ”).
 6.2 Third-Party Agreements and Information.   Executive represents and warrants that Executive’s employment by the Company does not conflict with any prior employment or consulting agreement or other agreement with any third party, and that Executive
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will perform Executive’s duties to the Company without violating any such agreement.  Executive represents and warrants that Executive does not possess confidential information arising out of prior employment, consulting, or other third party relationships, that would be used in connection with Executive’s employment by the Company, except as expressly authorized by that third party.  During Executive’s employment by the Company, Executive will use in the performance of Executive’s duties only information that is generally known and used by persons with training and experience comparable to Executive’s own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by Executive in the course of Executive’s work for the Company.
7. Outside Activities and Non-Competition and No-Solicit.
7.1 Outside Activities.   Throughout Executive’s employment with the Company, Executive may engage in civic and not-for-profit activities so long as such activities do not interfere with the performance of Executive’s duties hereunder or present a conflict of interest with the Company or its affiliates.  Subject to the restrictions set forth herein, and only with prior written disclosure to and consent of the Board, Executive may engage in other types of business or public activities.  The Board may rescind such consent, if the Board determines, in its sole discretion, that such activities compromise or threaten to compromise the Company’s or its affiliates’ business interests or conflict with Executive’s duties to the Company or its affiliates.
 7.2 Non-Competition During Employment.   Except as otherwise provided in this Agreement, during Executive’s employment by the Company, Executive will not, without the express written consent of the Board, directly or indirectly serve as an officer, director, stockholder, employee, partner, proprietor, investor, joint venturer, associate, representative or consultant of any person or entity engaged in, or planning or preparing to engage in, business activity competitive with any line of business engaged in (or planned to be engaged in) by the Company or its affiliates; provided, however, that Executive may purchase or otherwise acquire up to (but not more than) one percent (1%) of any class of securities of any enterprise (without participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange.  In addition, Executive will be subject to certain restrictions (including restrictions continuing after Executive’s employment ends) under the terms of the Proprietary   Agreement.
7.3 Non-Solicitation .  Executive agrees that during the period of employment with the Company and for twelve (12) months after the date Executive’s employment is terminated for any reason, Executive will not, either directly or through others, solicit or encourage or attempt to solicit or encourage any employee, independent contractor, or consultant of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity.
8. Termination of Employment; Severance and Change in Control Benefits .
 8.1 At-Will Employment.   Executive’s employment relationship is at-will.  Either Executive or the Company may terminate the employment relationship at any time, with or without Cause (as defined below) or advance notice.  In the event Executive's employment with the Company is terminated for any reason, Executive will be entitled to all of Executive's
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earned compensation and benefits or otherwise as required by law through the date of termination.  For the avoidance of doubt, Executive shall not be entitled to any additional compensation or benefits hereunder in the event Executive's employment is terminated for Cause, due to Executive's resignation without Good Reason, upon Executive's death or Executive's Disability (as defined below); provided that this Section 8 .1 does not purport to alter (a) any separate agreement entered into after the Effective Date and pursuant which Executive is expressly entitled to benefits or other compensation on or after the events set forth in this sentence , including, if applicable, the Equity Documents, or (b) any agreements between the Executive and any third party, including insurance policies or the like .  If Executive's employment terminates due to an Involuntary Termination (as defined below), Executive will be eligible to receive the additional compensation and benefits described in Section s 8 .2 and 8 .3 , as applicable .
8.2 Termination Without Cause or Resignation for Good Reason Unrelated to Change in Control .  If at any time except during the Change in Control Period (as defined below) (i) the Company terminates Executive’s employment without Cause (as defined below and other than as a result of Executive’s death or Disability), or (ii) Executive resigns for Good Reason (as defined below), and provided in any case such termination constitutes a “separation from service”, as defined under Treasury Regulation Section 1.409A-1(h)) (a “ Separation from Service ”) (such termination described in (i) or (ii), an “ Involuntary Termination ”) , Executive shall be entitled to receive the following severance benefits, subject in all events to Executive’s compliance with Section 8.4 below:
(i) Executive shall receive severance pay in the form of continuation of Executive’s base salary in effect (ignoring any decrease that forms the basis for Executive’s resignation for Good Reason, if applicable) on the effective date of Executive’s Involuntary Termination for the first nine (9) months (the “ Severance Period ”) after the date of such termination; and
 (ii) If Executive is eligible for and timely elects to continue Executive’s health insurance coverage under the Company’s group health plans under the Consolidated Omnibus Budget Reconciliation Act of 1985 or the state equivalent (“ COBRA ”) following Executive’s termination date, the Company will pay the COBRA group health insurance premiums for Executive and Executive’s eligible dependents until the earliest of (A) the close of the Severance Period, (B) the expiration of Executive’s eligibility for the continuation coverage under COBRA, or (C) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment.  For purposes of this Section, references to COBRA premiums shall not include any amounts payable by Executive under a Section 125 health care reimbursement plan under the U.S. Internal Revenue Code.  Notwithstanding the foregoing, if at any time the Company determines, in its sole discretion, that it cannot pay the COBRA premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then regardless of whether Executive elects continued health coverage under COBRA, and in lieu of providing the COBRA premiums, the Company will instead pay Executive on the last day of each remaining month of the Severance Period, a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings (such amount, the “ Health Care Benefit Payment ”).  The Health Care Benefit
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Payment shall be paid in monthly installments on the same schedule that the COBRA premiums would otherwise have been paid and shall be equal to the amount that the Company would have otherwise paid for COBRA premiums, and shall be paid until the earlier of (i) expiration of the Se verance Period or (ii) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment .
8.3 Termination Without Cause or Resignation for Good Reason During Change in Control Period.   In the event of an Involuntary Termination at any time during the time period commencing three (3) months immediately prior to the effective date of a Change in Control (as defined in the Company’s 2017 Equity Incentive Plan (the “ Plan ”)) and ending on the date that is twelve (12) months after the effective date of a Change in Control (the “ Change in Control Period ”), in addition to the payments and benefits described in Section 8.2, and subject in all events to Executive’s compliance with Section 8.4 below, the Executive shall also be entitled to the following severance benefits:
(i) Notwithstanding anything to the contrary set forth in the Plan or any successor equity incentive plan or any award agreement, the vesting of all of Executive’s then-outstanding stock awards, including any Prior Equity Awards, that are subject to time-based vesting shall be fully accelerated such that on the effective date of such termination one hundred percent (100%) of the shares subject to time-based vesting in such stock awards granted to Executive prior to the effective date of such termination shall be fully vested and immediately exercisable by Executive.  Treatment of any performance-based vesting equity awards will be governed solely by the terms of the agreements under which such awards were granted and will not be eligible to accelerate vesting pursuant to the foregoing provision;
(ii) A cash payment equal to 1.0 times Executive’s target bonus in effect at the time of termination, or if none, the last target bonus in effect for Executive, less standard deductions and withholdings, to be paid in a lump sum no later than ten (10) days following the later of (A) the effectiveness of the Release (as defined below) or (B) the effective date of the Change in Control; and
(iii) An extension to the Severance Period such that it is equal to twelve (12) months for purposes of clauses (i) and (ii) of Section 8.2.
 8.4 Conditions and Timing for Severance Benefits.   The severance benefits set forth in Sections 8.2 and 8.3 above are expressly conditioned upon: (i) Executive’s continuing to comply with Executive’s obligations under Executive’s Proprietary Agreement; and (ii) Executive signing and not revoking a general release of legal claims in the form provided by the Company which shall include a full general release of claims against the Company and related persons and entities and a commitment from Executive to comply with Executive’s continuing obligations under Executive’s Proprietary Agreement, but will not include a release of any rights or claims for indemnification Executive may have pursuant to any written indemnification agreement with the Company to which Executive is a party, the Company’s bylaws, or applicable law (the “ Release ”) within the applicable deadline set forth therein and permitting the Release to become effective in accordance with its terms, which must occur no later than forty-five (45) days following the date of termination (the “ Release Deadline ”).  The salary continuation payments described in Section 8.2 will be paid in substantially equal installments on
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the Company’s regular payroll schedule and subject to standard deductions and withholdings over the Severance Period following termination; provided, however, that no payments will be made prior to the effectiveness of the Release.  On the effective date of the Release, the Company will pay Executive the salary continuation payments that Executive would have received on or prior to such date in a lump sum under the original schedule but for the delay while waiting for the effectiveness of the release, with the balance of the cash severance being paid as originally scheduled.  
8.5 Definitions .  For purposes of this Agreement:
 (i) “ Cause ” means, with respect to Executive, the occurrence of any of the following events:  (i) Executive’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) Executive’s intentional, material violation of any contract or agreement between Executive   and the Company or of any statutory duty owed to the Company that has not been cured, if curable, within fifteen (15) days after written notice from the Board of such violation; (iv) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) Executive’s gross misconduct that has not been cured, if curable, within fifteen (15) days after written notice from the Board requesting that the Executive cure such misconduct.
(ii) “Disability” means the inability of a Executive to engage in substantially gainful Company activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months, and shall be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
(iii) “ Good Reason ” means Executive’s resignation from employment with the Company (or successor to the Company, if applicable) due to any of the following actions taken by the Company (or successor to the Company, if applicable) without Executive’s prior written consent thereto: (1) a material reduction in Executive’s base salary, which the parties agree is a reduction of at least 10% of Executive’s base salary (unless pursuant to a salary reduction program applicable generally to the Company’s similarly situated employees); (2) a material reduction in Executive’s authority, duties or responsibilities; (3) a relocation of Executive’s principal place of employment to a place that increases Executive’s one-way commute by more than fifty (50) miles as compared to Executive’s then-current principal place of employment immediately prior to such relocation (excluding regular travel in the ordinary course of business); and (4) a breach of a material provision of this Agreement by the Company.   Notwithstanding the foregoing, in order to resign for Good Reason, Executive must provide written notice to the Company within thirty (30) days after the first occurrence of the event giving rise to Good Reason setting forth the basis for Executive’s resignation and allow the Company at least thirty (30) days from receipt of such written notice to cure such event, and, if such event is not reasonably cured within such period, Executive’s resignation from all positions Executive then holds with the Company is effective not later than thirty (30) days after the expiration of the cure period.
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8.6 Section 409A. It is intended that all of the benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, an exe mption from the a pplication of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ” ) and the regulations and other guidance thereunder and any state law of similar effect (collectively “ Section 409A ” ) , and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent no t so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A , and any ambiguities herein shall be interpreted accordingly .    Specifically, the benefits under this Agreement are intended to satisfy the exemptions from application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9) and each installment of  severance benefits is a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i).   However, if such exemptions are not available and Executive is , upon Separation from Service, a “specified employee” for purposes of Section 409A, then, solely to the extent necessary to avoid adverse personal tax consequences under Section 409A, the timing of the severance benefits payments shall be delayed until the earlier of (i) six (6) months and one day after Executive’s Separation from Service, or (ii) Executive’s death. Severance benefits shall not commence until Executive has a Separation from Service.    If the severance benefits are not covered by one or more exemptions from the application of Section 409A and the Release could become effective in the calendar year following the calendar year in which Executive's Separation from Service occurs, the Release will not be deemed effective, for purposes of payment of severance, any earlier than the Release Deadline.   Except to the minimum extent that payments must be delayed because Executive is a “specified employee” or until the effectiveness of the Release, all severance amounts will be paid as soon as practicable in accordance with the Company’s normal payroll practices.
 8.7 Section 280G .  If any payment or benefit Executive will or may receive from the Company or otherwise (a “ Payment ”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax ”), then such Payment will be equal to the Reduced Amount (defined below).  The “ Reduced Amount ” will be either (l) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax or (2) the entire Payment, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes), results in Executive’s receipt, on an after-tax basis, of the greatest amount of the Payment.  If a reduction in the Payment is to be made so that the Payment equals the Reduced Amount, (x) the Payment will be paid only to the extent permitted under the Reduced Amount alternative, and the Executive will have no rights to any additional payments and/or benefits constituting the Payment, and (y) reduction in payments and/or benefits will occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits paid to Executive.  In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of Executive’s equity awards.  In no event will the Company or any stockholder be liable to Executive for any amounts not paid as a result of the operation of this Section.  The professional firm engaged by the Company for general tax purposes as of the day
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prior to the effective date of the change in control will perform the foregoing calculations. If the tax firm so engaged by the Company is serving as accountant or auditor for the acquirer, the Company will appoint a nationally recognized tax firm to make the determinations required hereunder. The Company will bear all expenses with respect to the determinations by such firm required to be made hereunder.  If the tax firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it will furnish the Company and Executive with documentation that no Excise Tax is reasonably likely to be imposed with respect to such Payment. Any good faith determinations of the tax firm made hereunder will be final, binding and conclusive upon the Company and Executive .
9. Dispute Resolution.   To ensure the rapid and economical resolution of disputes that may arise in connection with Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Executive’s employment with the Company, or the termination of Executive’s employment from the Company, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in San Diego, California by JAMS, Inc. (“ JAMS ”) or its successors, under JAMS’ then applicable rules and procedures for employment disputes (which can be found at http://www.jamsadr.com/rules-clauses/, and which will be provided to Executive on request); provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.  Executive and the Company shall be entitled to all rights and remedies that either would be entitled to pursue in a court of law.   Both Executive and the Company acknowledge that by agreeing to this arbitration procedure, they waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding .  The Company shall pay all filing fees in excess of those which would be required if the dispute were decided in a court of law, and shall pay the arbitrator’s fee.  Nothing in this Agreement is intended to prevent either the Company or Executive from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.
10. General Provisions .
10.1 Notices.   Any notices provided must be in writing and will be deemed effective upon the earlier of personal delivery (including personal delivery by fax) or the next day after sending by overnight carrier, to the Company at its primary office location and to Executive at the address as listed on the Company payroll.
10.2 Severability.   Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction to the extent possible in keeping with the intent of the Parties.
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10.3 Waiver.   Any waiver of any breach of any provisions of this Agreement must be in writing to be effective, and it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
10.4 Complete Agreement.   This Agreement, together with the Proprietary Agreement, and the Indemnification Agreement attached hereto as Exhibit B , constitutes the entire agreement between Executive and the Company with regard to the subject matter hereof and is the complete, final, and exclusive embodiment of the Company’s and Executive’s agreement with regard to this subject matter.  This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations (including, but not limited to, the Prior Agreement).  It cannot be modified or amended except in a writing signed by a duly authorized officer of the Company, with the exception of those changes expressly reserved to the Company’s discretion in this Agreement.
10.5 Counterparts.   This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but both of which taken together will constitute one and the same Agreement.
10.6 Headings.   The headings of the paragraphs hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.
10.7 Successors and Assigns.   This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
10.8 Tax Withholding.   All payments and awards contemplated or made pursuant to this Agreement will be subject to withholdings of applicable taxes in compliance with all relevant laws and regulations of all appropriate government authorities.  Executive acknowledges and agrees that the Company has neither made any assurances nor any guarantees concerning the tax treatment of any payments or awards contemplated by or made pursuant to this Agreement.  Executive has had the opportunity to retain a tax and financial advisor and fully understands the tax and economic consequences of all payments and awards made pursuant to the Agreement.
10.9 Choice of Law.   All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of California.
[Signature Page Follows]
 
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In Witness Whereof , the p arties have executed this Agreement on the date first written above.  
 
Tocagen Inc.	
By:	/s/ Martin J. Duvall	
 	Martin J. Duvall	
 	Chief Executive Officer	
 
Executive	
/s/ Asha Das, M.D.	
Asha Das, M.D.	
 
10.

Exhibit A
 
Proprietary Agreement
11.

Exhibit B
 
Indemnification Agreement
 
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Exhibit 10.15
TOCAGEN INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the “ Agreement ”) is made and entered into effective as of February 12, 2018 (the “ Effective Date ”), by and between Douglas Jolly, Ph.D. (“ Executive ” ) and Tocagen Inc. (the “ Company ”).
Whereas , the Company and Executive desire to enter into this Agreement to define their mutual rights and duties with respect to Executive’s compensation and benefits.
Now, Therefore , in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Employment by the Company.
1.1 Position.   Executive shall serve as the Company’s Executive Vice President, Research and Pharmaceutical Development and shall report to the Company’s Chief Executive Officer.  During the term of Executive’s employment with the Company, Executive will devote Executive’s best efforts and substantially all of Executive’s business time and attention to the business of the Company, except for approved vacation periods and reasonable periods of illness or other incapacities permitted by the Company’s general employment policies.  
1.2 Duties and Location.   Executive shall perform such duties as are customarily associated with the position of Executive Vice President, Research and Pharmaceutical Development and such other duties as are assigned to Executive by the Company’s Chief Executive Officer.  Executive’s primary office location shall be the Company’s headquarters located in San Diego, California. Subject to the terms of this Agreement, the Company reserves the right to (a) reasonably require Executive to perform Executive’s duties at places other than Executive’s primary office location from time to time and to require reasonable business travel, and (b) modify Executive’s job title and duties as it deems necessary and appropriate in light of the Company’s needs and interests from time to time.
1.3 Policies and Procedures.   The employment relationship between the parties shall be governed by the general employment policies and practices of the Company, except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, this Agreement shall control.
2. Cash Compensation .
 2.1 Base Salary.   For services to be rendered hereunder, Executive shall receive a base salary at the rate of $275,000 per year (the “ Base Salary ”), less standard payroll deductions and withholdings and payable in accordance with the Company’s regular payroll schedule; provided that, effective March 1, 2018, Executive’s Base Salary shall be $300,000 per
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year . The Company’s Board of Directors (the “ Board ”) (or the Compensation Committee thereof) may review Executive’s Base Salary for adjustment from time to time .
2.2 Bonus.   Executive will be eligible to be considered for a discretionary annual performance bonus of up to 40% of the Base Salary, based on achievement of individual and/or corporate performance targets, metrics and/or objectives to be determined and approved by the Board or the Compensation Committee thereof, including pursuant to an annual incentive plan or similar plan approved by the Board, if any.  Any such bonus would be paid after the close of the fiscal year and after determination by the Board (or the Compensation Committee thereof) of (i) the level of achievement of the applicable individual and corporate performance targets, metrics and/or objectives and (ii) the amount of the annual incentive compensation earned by Executive (if any).  No annual incentive compensation is guaranteed and, in addition to the other conditions for earning such compensation, Executive must remain an employee in good standing of the Company on the annual incentive compensation payment date in order to be eligible for any annual incentive compensation. The Board (or the Compensation Committee thereof) may review Executive’s annual performance bonus amount for adjustment from time to time.
3. Standard Company Benefits.   Executive shall, in accordance with Company policy and the terms and conditions of the applicable Company benefit plan documents, be eligible to participate in the benefit and fringe benefit programs provided by the Company to its executive officers and other employees from time to time.  Any such benefits shall be subject to the terms and conditions of the governing benefit plans and policies and may be changed by the Company in its discretion.
4. Other Expenses.   The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in furtherance or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.  
5. Equity Awards.   All Company equity awards previously granted to Executive (such awards, the “ Prior Equity Awards ”) shall continue in effect from and following the Effective Date in accordance with their existing terms.  Executive may be eligible to receive additional grants of Company equity awards in the sole discretion of and subject to the approval of the Board.
6. Proprietary Information Obligations .
6.1 Proprietary Information Agreement.   As a condition to employment, Executive agrees to execute, and will continue to abide by the Company’s standard Confidential Information and Invention Assignment Agreement attached hereto as Exhibit A (“ Proprietary Agreement ”).
 6.2 Third-Party Agreements and Information.   Executive represents and warrants that Executive’s employment by the Company does not conflict with any prior employment or consulting agreement or other agreement with any third party, and that Executive will perform Executive’s duties to the Company without violating any such agreement.  Executive represents and warrants that Executive does not possess confidential information
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arising out of prior employment, consulting, or other third party relationships, that would be used in connection with Executive’s employment by the Company, except as expressly authorized by that third party.  During Executive’s employment by the Company, Executive will use in the performance of Executive’s duties only information that is generally known and used by persons with training and experience comparable to Executive’s own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by Executive in the course of Executive’s work for the Company.
7. Outside Activities and Non-Competition and No-Solicit.
7.1 Outside Activities.   Throughout Executive’s employment with the Company, Executive may engage in civic and not-for-profit activities so long as such activities do not interfere with the performance of Executive’s duties hereunder or present a conflict of interest with the Company or its affiliates.  Subject to the restrictions set forth herein, and only with prior written disclosure to and consent of the Board, Executive may engage in other types of business or public activities.  The Board may rescind such consent, if the Board determines, in its sole discretion, that such activities compromise or threaten to compromise the Company’s or its affiliates’ business interests or conflict with Executive’s duties to the Company or its affiliates.
 7.2 Non-Competition During Employment.   Except as otherwise provided in this Agreement, during Executive’s employment by the Company, Executive will not, without the express written consent of the Board, directly or indirectly serve as an officer, director, stockholder, employee, partner, proprietor, investor, joint venturer, associate, representative or consultant of any person or entity engaged in, or planning or preparing to engage in, business activity competitive with any line of business engaged in (or planned to be engaged in) by the Company or its affiliates; provided, however, that Executive may purchase or otherwise acquire up to (but not more than) one percent (1%) of any class of securities of any enterprise (without participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange.  In addition, Executive will be subject to certain restrictions (including restrictions continuing after Executive’s employment ends) under the terms of the Proprietary   Agreement.
7.3 Non-Solicitation .  Executive agrees that during the period of employment with the Company and for twelve (12) months after the date Executive’s employment is terminated for any reason, Executive will not, either directly or through others, solicit or encourage or attempt to solicit or encourage any employee, independent contractor, or consultant of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity.
8. Termination of Employment; Severance and Change in Control Benefits .
 8.1 At-Will Employment.   Executive’s employment relationship is at-will.  Either Executive or the Company may terminate the employment relationship at any time, with or without Cause (as defined below) or advance notice.  In the event Executive's employment with the Company is terminated for any reason, Executive will be entitled to all of Executive's earned compensation and benefits or otherwise as required by law through the date of termination.  For the avoidance of doubt, Executive shall not be entitled to any additional
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compensation or benefits hereunder in the event Executive's employment is terminated for Cause, due to Executive's resignation without Good Reason, upon Executive's death or Executive's Disability (as defined below); provided that this Section 8 .1 does not purport to alter (a) any separate agreement entered into after the Effective Date and pursuant which Executive is expressly entitled to benefits or other compensation on or after the events set forth in this sentence , including, if applicable, the Equity Documents, or (b) any agreements between the Executive and any third party, including insurance policies or the like .  If Executive's employment terminates due to an Involuntary Termination (as defined below), Executive will be eligible to receive the additional compensation and benefits described in Section s 8 .2 and 8 .3 , as applicable .
8.2 Termination Without Cause or Resignation for Good Reason Unrelated to Change in Control .  If at any time except during the Change in Control Period (as defined below) (i) the Company terminates Executive’s employment without Cause (as defined below and other than as a result of Executive’s death or Disability), or (ii) Executive resigns for Good Reason (as defined below), and provided in any case such termination constitutes a “separation from service”, as defined under Treasury Regulation Section 1.409A-1(h)) (a “ Separation from Service ”) (such termination described in (i) or (ii), an “ Involuntary Termination ”) , Executive shall be entitled to receive the following severance benefits, subject in all events to Executive’s compliance with Section 8.4 below:
(i) Executive shall receive severance pay in the form of continuation of Executive’s base salary in effect (ignoring any decrease that forms the basis for Executive’s resignation for Good Reason, if applicable) on the effective date of Executive’s Involuntary Termination for the first nine (9) months (the “ Severance Period ”) after the date of such termination; and
 (ii) If Executive is eligible for and timely elects to continue Executive’s health insurance coverage under the Company’s group health plans under the Consolidated Omnibus Budget Reconciliation Act of 1985 or the state equivalent (“ COBRA ”) following Executive’s termination date, the Company will pay the COBRA group health insurance premiums for Executive and Executive’s eligible dependents until the earliest of (A) the close of the Severance Period, (B) the expiration of Executive’s eligibility for the continuation coverage under COBRA, or (C) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment.  For purposes of this Section, references to COBRA premiums shall not include any amounts payable by Executive under a Section 125 health care reimbursement plan under the U.S. Internal Revenue Code.  Notwithstanding the foregoing, if at any time the Company determines, in its sole discretion, that it cannot pay the COBRA premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then regardless of whether Executive elects continued health coverage under COBRA, and in lieu of providing the COBRA premiums, the Company will instead pay Executive on the last day of each remaining month of the Severance Period, a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings (such amount, the “ Health Care Benefit Payment ”).  The Health Care Benefit Payment shall be paid in monthly installments on the same schedule that the COBRA premiums would otherwise have been paid and shall be equal to the amount that the Company would have
4.

otherwise paid for COBRA premiums, and shall be paid until the earlier of (i) expiration of the Se verance Period or (ii) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employmen t.
8.3 Termination Without Cause or Resignation for Good Reason During Change in Control Period.   In the event of an Involuntary Termination at any time during the time period commencing three (3) months immediately prior to the effective date of a Change in Control (as defined in the Company’s 2017 Equity Incentive Plan (the “ Plan ”)) and ending on the date that is twelve (12) months after the effective date of a Change in Control (the “ Change in Control Period ”), in addition to the payments and benefits described in Section 8.2, and subject in all events to Executive’s compliance with Section 8.4 below, the Executive shall also be entitled to the following severance benefits:
(i) Notwithstanding anything to the contrary set forth in the Plan or any successor equity incentive plan or any award agreement, the vesting of all of Executive’s then-outstanding stock awards, including any Prior Equity Awards, that are subject to time-based vesting shall be fully accelerated such that on the effective date of such termination one hundred percent (100%) of the shares subject to time-based vesting in such stock awards granted to Executive prior to the effective date of such termination shall be fully vested and immediately exercisable by Executive.  Treatment of any performance-based vesting equity awards will be governed solely by the terms of the agreements under which such awards were granted and will not be eligible to accelerate vesting pursuant to the foregoing provision;
(ii) A cash payment equal to 1.0 times Executive’s target bonus in effect at the time of termination, or if none, the last target bonus in effect for Executive, less standard deductions and withholdings, to be paid in a lump sum no later than ten (10) days following the later of (A) the effectiveness of the Release (as defined below) or (B) the effective date of the Change in Control; and
(iii) An extension to the Severance Period such that it is equal to twelve (12) months for purposes of clauses (i) and (ii) of Section 8.2.
 8.4 Conditions and Timing for Severance Benefits.   The severance benefits set forth in Sections 8.2 and 8.3 above are expressly conditioned upon: (i) Executive’s continuing to comply with Executive’s obligations under Executive’s Proprietary Agreement; and (ii) Executive signing and not revoking a general release of legal claims in the form provided by the Company which shall include a full general release of claims against the Company and related persons and entities and a commitment from Executive to comply with Executive’s continuing obligations under Executive’s Proprietary Agreement, but will not include a release of any rights or claims for indemnification Executive may have pursuant to any written indemnification agreement with the Company to which Executive is a party, the Company’s bylaws, or applicable law (the “ Release ”) within the applicable deadline set forth therein and permitting the Release to become effective in accordance with its terms, which must occur no later than forty-five (45) days following the date of termination (the “ Release Deadline ”).  The salary continuation payments described in Section 8.2 will be paid in substantially equal installments on the Company’s regular payroll schedule and subject to standard deductions and withholdings over the Severance Period following termination; provided, however, that no payments will be
5.

made prior to the effectiveness of the Release.  On the effective date of the Release, the Company will pay Executive the salary continuation payments that Executive would have received on or prior to such date in a lump sum under the original schedule but for the delay while waiting for the effectiveness of the release, with the balance of the cash severance being paid as originally scheduled.  
8.5 Definitions .  For purposes of this Agreement:
 (i) “ Cause ” means, with respect to Executive, the occurrence of any of the following events:  (i) Executive’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) Executive’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) Executive’s intentional, material violation of any contract or agreement between Executive   and the Company or of any statutory duty owed to the Company that has not been cured, if curable, within fifteen (15) days after written notice from the Board of such violation; (iv) Executive’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) Executive’s gross misconduct that has not been cured, if curable, within fifteen (15) days after written notice from the Board requesting that the Executive cure such misconduct.
(ii) “Disability” means the inability of a Executive to engage in substantially gainful Company activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months, and shall be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
(iii) “ Good Reason ” means Executive’s resignation from employment with the Company (or successor to the Company, if applicable) due to any of the following actions taken by the Company (or successor to the Company, if applicable) without Executive’s prior written consent thereto: (1) a material reduction in Executive’s base salary, which the parties agree is a reduction of at least 10% of Executive’s base salary (unless pursuant to a salary reduction program applicable generally to the Company’s similarly situated employees); (2) a material reduction in Executive’s authority, duties or responsibilities; (3) a relocation of Executive’s principal place of employment to a place that increases Executive’s one-way commute by more than fifty (50) miles as compared to Executive’s then-current principal place of employment immediately prior to such relocation (excluding regular travel in the ordinary course of business); and (4) a breach of a material provision of this Agreement by the Company.   Notwithstanding the foregoing, in order to resign for Good Reason, Executive must provide written notice to the Company within thirty (30) days after the first occurrence of the event giving rise to Good Reason setting forth the basis for Executive’s resignation and allow the Company at least thirty (30) days from receipt of such written notice to cure such event, and, if such event is not reasonably cured within such period, Executive’s resignation from all positions Executive then holds with the Company is effective not later than thirty (30) days after the expiration of the cure period.
6.

8.6 Section 409A. It is intended that all of the benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, an exe mption from the a pplication of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ” ) and the regulations and other guidance thereunder and any state law of similar effect (collectively “ Section 409A ” ) , and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent no t so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A , and any ambiguities herein shall be interpreted accordingly .    Specifically, the benefits under this Agreement are intended to satisfy the exemptions from application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9) and each installment of  severance benefits is a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i).   However, if such exemptions are not available and Executive is , upon Separation from Service, a “specified employee” for purposes of Section 409A, then, solely to the extent necessary to avoid adverse personal tax consequences under Section 409A, the timing of the severance benefits payments shall be delayed until the earlier of (i) six (6) months and one day after Executive’s Separation from Service, or (ii) Executive’s death. Severance benefits shall not commence until Executive has a Separation from Service.    If the severance benefits are not covered by one or more exemptions from the application of Section 409A and the Release could become effective in the calendar year following the calendar year in which Executive's Separation from Service occurs, the Release will not be deemed effective, for purposes of payment of severance, any earlier than the Release Deadline.   Except to the minimum extent that payments must be delayed because Executive is a “specified employee” or until the effectiveness of the Release, all severance amounts will be paid as soon as practicable in accordance with the Company’s normal payroll practices.
 8.7 Section 280G .  If any payment or benefit Executive will or may receive from the Company or otherwise (a “ Payment ”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax ”), then such Payment will be equal to the Reduced Amount (defined below).  The “ Reduced Amount ” will be either (l) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax or (2) the entire Payment, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes), results in Executive’s receipt, on an after-tax basis, of the greatest amount of the Payment.  If a reduction in the Payment is to be made so that the Payment equals the Reduced Amount, (x) the Payment will be paid only to the extent permitted under the Reduced Amount alternative, and the Executive will have no rights to any additional payments and/or benefits constituting the Payment, and (y) reduction in payments and/or benefits will occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits paid to Executive.  In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of Executive’s equity awards.  In no event will the Company or any stockholder be liable to Executive for any amounts not paid as a result of the operation of this Section.  The professional firm engaged by the Company for general tax purposes as of the day
7.

prior to the effective date of the change in control will perform the foregoing calculations. If the tax firm so engaged by the Company is serving as accountant or auditor for the acquirer, the Company will appoint a nationally recognized tax firm to make the determinations required hereunder. The Company will bear all expenses with respect to the determinations by such firm required to be made hereunder.  If the tax firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it will furnish the Company and Executive with documentation that no Excise Tax is reasonably likely to be imposed with respect to such Payment. Any good faith determinations of the tax firm made hereunder will be final, binding and conclusive upon the Company and Executive .
9. Dispute Resolution.   To ensure the rapid and economical resolution of disputes that may arise in connection with Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Executive’s employment with the Company, or the termination of Executive’s employment from the Company, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in San Diego, California by JAMS, Inc. (“ JAMS ”) or its successors, under JAMS’ then applicable rules and procedures for employment disputes (which can be found at http://www.jamsadr.com/rules-clauses/, and which will be provided to Executive on request); provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.  Executive and the Company shall be entitled to all rights and remedies that either would be entitled to pursue in a court of law.   Both Executive and the Company acknowledge that by agreeing to this arbitration procedure, they waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding .  The Company shall pay all filing fees in excess of those which would be required if the dispute were decided in a court of law, and shall pay the arbitrator’s fee.  Nothing in this Agreement is intended to prevent either the Company or Executive from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.
10. General Provisions .
10.1 Notices.   Any notices provided must be in writing and will be deemed effective upon the earlier of personal delivery (including personal delivery by fax) or the next day after sending by overnight carrier, to the Company at its primary office location and to Executive at the address as listed on the Company payroll.
10.2 Severability.   Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction to the extent possible in keeping with the intent of the Parties.
8.

10.3 Waiver.   Any waiver of any breach of any provisions of this Agreement must be in writing to be effective, and it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
10.4 Complete Agreement.   This Agreement, together with the Proprietary Agreement, and the Indemnification Agreement attached hereto as Exhibit B , constitutes the entire agreement between Executive and the Company with regard to the subject matter hereof and is the complete, final, and exclusive embodiment of the Company’s and Executive’s agreement with regard to this subject matter.  This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations.  It cannot be modified or amended except in a writing signed by a duly authorized officer of the Company, with the exception of those changes expressly reserved to the Company’s discretion in this Agreement.
10.5 Counterparts.   This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but both of which taken together will constitute one and the same Agreement.
10.6 Headings.   The headings of the paragraphs hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.
10.7 Successors and Assigns.   This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of Executive’s duties hereunder and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
10.8 Tax Withholding.   All payments and awards contemplated or made pursuant to this Agreement will be subject to withholdings of applicable taxes in compliance with all relevant laws and regulations of all appropriate government authorities.  Executive acknowledges and agrees that the Company has neither made any assurances nor any guarantees concerning the tax treatment of any payments or awards contemplated by or made pursuant to this Agreement.  Executive has had the opportunity to retain a tax and financial advisor and fully understands the tax and economic consequences of all payments and awards made pursuant to the Agreement.
10.9 Choice of Law.   All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of California.
[Signature Page Follows]
9.

In Witness Whereof , the p arties have executed this Agreement on the date first written above.  
 
Tocagen Inc.	
By:	 	/s/ Martin J. Duvall	
 	 	Martin J. Duvall	
 	 	Chief Executive Officer	
 
Executive	
/s/ Douglas Jolly, Ph.D.	
Douglas Jolly, Ph.D.	
 
10.

Exhibit A
 
Proprietary Agreement
11.

Exhibit B
 
Indemnification Agreement
 
12.

Exhibit 10.16
GENESIS CAMPUS POINT
 LEASE
AP3-SD1 CAMPUS POINT LLC,
a Delaware limited liability company
as Landlord,
and
TOCAGEN INC., a Delaware corporation
as Tenant

 
 	 	Execution Original	

 
 SUMMARY OF BASIC LEASE INFORMATION
This Summary of Basic Lease Information (" Summary ") is hereby incorporated into and made a part of the attached Lease.  Each reference in the Lease to any term of this Summary shall have the meaning as set forth in this Summary for such term.  In the event of a conflict between the terms of this Summary and the Lease, the terms of the Lease shall prevail.  Any capitalized terms used herein and not otherwise defined herein shall have the meaning as set forth in the Lease.

TERMS OF LEASE 
(References are to the Lease)	DESCRIPTION	
1.       Date:	December 21, 2017	
2.       Landlord:	AP3-SD1 CAMPUS POINT LLC,
a Delaware limited liability company	
3.       Address of Landlord (Section 24.19):	AP3-SD1 Campus Point LLC
4380 La Jolla Village Drive, Suite 230
San Diego, CA  92121
Attention:  W. Neil Fox, CEO
with a copy to:
Allen Matkins Leck Gamble Mallory & Natsis LLP
600 West Broadway, 27th Floor
San Diego, California 92101
Attention:  Martin L. Togni, Esq.	
 	For payment of Rent only:
AP3‑SD1 Campus Point LLC
Dept. LA 23819
Pasadena, CA  91185-3819	
4.       Tenant:	Tocagen Inc., a Delaware corporation	
5.       Address of Tenant (Section 24.19):	Tocagen Inc.
3030 Bunker Hill Street, Suite 230
San Diego, CA  92109 
 Attention:  Mark Foletta
(Prior to Lease Commencement Date)	
 	(i)	Execution Original	

 

TERMS OF LEASE 
(References are to the Lease)	DESCRIPTION	
 	and
Tocagen Inc.
4242 Campus Point Court, Suite 600
San Diego, California  92121
Attention:  Mark Foletta
(After Lease Commencement Date)
 
In either case, with a copy to:
 
Cooley LLP
4401 Eastgate Mall
San Diego, CA  92121
Attention:  Michael Levinson, Esq.	
6.       Premises (Article 1):	 	
6.1      Premises:	38,849 rentable square feet of space located on the entire fifth (5 th ) and sixth (6 th ) floors of the Building (as defined below), as depicted on Exhibit A attached hereto.	
6.2      Building:	The Premises are located in the building whose address is 4242 Campus Point Court, San Diego, California (the " Building ").	
7.       Term (Article 2):	 	
7.1      Lease Term:	Eight (8) years.	
7.2      Lease Commencement Date:	The earlier of (a) June 1, 2018 or (b) Substantial Completion (as defined in the Tenant Work Letter) of the Tenant Improvements in accordance with the Tenant Work Letter, or (c) the date Tenant conducts business operations in all or any portion of the Premises; provided that (i) accessing the Premises for the purpose of constructing the Tenant Improvements and for installing Tenant's furniture, fixtures and equipment, including cabling, shall not be deemed conducting business for the purpose of this Section 7.2, and (ii) Tenant shall not be deemed to be conducting business in any portion of the Premises if the scope of the business being conducted in such portion is incidental and temporary (i.e., such persons have not permanently moved into such portion of the Premises for the conduct of business).	
7.3      Lease Expiration Date:	The last day of the month in which the ninety-sixth (96 th ) month anniversary of the Lease Commencement Date occurs.	
 	(ii)	Execution Original	

 

TERMS OF LEASE 
(References are to the Lease)	DESCRIPTION	
8.        Base Rent ( Article  3):	 	
Lease
Year/Months	Annual
Base Rent*	Monthly Installment
of Base Rent*	Monthly Rental Rate
per Rentable Square Foot*	
***1 - 12	$1,841,442.60	$153,453.55	$3.95	
13 - 24	$1,905,893.04	$158,824.42	$4.09**	
25 - 36	$1,972,599.24	$164,383.27	$4.23**	
37 - 48	$2,041,640.16	$170,136.68	$4.38**	
49 - 60	$2,113,097.52	$176,091.46	$4.53**	
61 - 72	$2,187,055.92	$182,254.66	$4.69**	
73 - 84	$2,263,602.84	$188,633.57	$4.86**	
85 - 96	$2,342,828.88	$195,235.74	$5.03**	
*The initial Monthly Installment of Base Rent amount was calculated by multiplying the initial Monthly Rental Rate per Rentable square Foot amount by the number of rentable square feet of space in the Premises, and the Annual Base Rent amount was calculated by multiplying the initial Monthly Installment of Base Rent amount by twelve (12).  In all subsequent Base Rent payment periods during the Lease Term commencing on the first (1 st ) day of the full calendar month that is Lease Month thirteen (13), the calculation of each Monthly Installment of Base Rent amount reflects an annual increase of three and one-half percent (3.5%) and each Annual Base Rent amount was calculated my multiplying the corresponding Monthly Installment of Base Rent amount by twelve (12.)
**The amounts identified in the column entitled "Monthly Rental Rate per Rentable Square Foot" are rounded amounts provided for informational purposes only.
***Subject to abatement as provided in Article 3 below.
9.       Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs (Section 4.2.6):	29.24% (38,849 rentable square feet within the Premises/132,873 rentable square feet within the Building).	
10.       Letter of Credit (Article 20):	$585,707.22.	
11.       Brokers (Section 24.25):	Jones Lang LaSalle, Inc. representing Landlord and Hughes Marino representing Tenant.	
12.       Parking (Article 23):	A total of one hundred sixteen (116) unreserved parking spaces (three (3) unreserved parking spaces for every 1,000 rentable square feet of the Premises).	

 	(iii)	Execution Original	

TABLE OF CONTENTS
Page

ARTICLE 1	PROJECT, BUILDING AND PREMISES	1	
ARTICLE 2	LEASE TERM	4	
ARTICLE 3	BASE RENT	4	
ARTICLE 4	ADDITIONAL RENT	5	
ARTICLE 5	USE OF PREMISES; HAZARDOUS MATERIALS; ODORS AND EXHAUST	13	
ARTICLE 6	SERVICES AND UTILITIES	17	
ARTICLE 7	REPAIRS	19	
ARTICLE 8	ADDITIONS AND ALTERATIONS	20	
ARTICLE 9	COVENANT AGAINST LIENS	21	
ARTICLE 10	INDEMNIFICATION AND INSURANCE	22	
ARTICLE 11	DAMAGE AND DESTRUCTION	24	
ARTICLE 12	CONDEMNATION	25	
ARTICLE 13	COVENANT OF QUIET ENJOYMENT	25	
ARTICLE 14	ASSIGNMENT AND SUBLETTING	26	
ARTICLE 15	SURRENDER; OWNERSHIP AND REMOVAL OF PERSONAL PROPERTY	29	
ARTICLE 16	HOLDING OVER	29	
ARTICLE 17	ESTOPPEL CERTIFICATES	30	
ARTICLE 18	SUBORDINATION	30	
ARTICLE 19	TENANT'S DEFAULTS; LANDLORD'S REMEDIES	31	
ARTICLE 20	LETTER OF CREDIT	33	
ARTICLE 21	COMPLIANCE WITH LAW	38	
ARTICLE 22	ENTRY BY LANDLORD	39	
ARTICLE 23	PARKING	39	
ARTICLE 24	MISCELLANEOUS PROVISIONS	40	
 
EXHIBITS:	 	 	
Exhibit A	Outline of Floor Plan of Premises	 	
Exhibit A-1	Site Plan of Project	 	
Exhibit A-2	Hazardous Material Storage Area	 	
Exhibit A-3	General Storage Area	 	
Exhibit B	Tenant Work Letter	 	
Exhibit C	Confirmation of Lease Terms/Amendment to Lease	 	
Exhibit D	Rules and Regulations	 	
Exhibit E	Form of Subordination, Non-Disturbance and Attornment Agreement	 	
Exhibit F	Letter of Credit	 	
Rider 1	Extension Option Rider	 	

 	(i)	Execution Original	

INDEX
Page(s)

Accountant	12	
Additional Rent	5	
Adverse Condition	2	
Affected Areas	14	
Affiliates	28	
Alterations	20	
Approved Working Drawings	Exhibit B	
Available Power	19	
Bank Credit Threat	34	
Bank’s Credit Rating Threshold	33	
Bankruptcy Code	31, 34	
Base Rent	4	
Base, Shell and Core	Exhibit B	
Brokers	44	
Building	ii	
Calendar Year	5	
City	Exhibit B	
Conditional Monument Sign	41	
Confirmation/Amendment	Exhibit C	
Construction	44	
Construction Drawings	Exhibit B	
Contract	Exhibit B	
Coordination Fee	Exhibit B	
Corrective Action	15	
Cost Pools	6	
Deposit Period	38	
Documents	14	
Eligibility Period	18	
Engineers	Exhibit B	
Environmental Law	13	
Environmental Permits	13	
Estimate	10	
Estimate Statement	10	
Estimated Expenses	10	
Excluded Changes	38	
Excluded Claims	22	
Exercise Date	Rider 1	
Exercise Notice	Rider 1	
Expense Year	5	
Extension Option	Rider 1	
Extension Option L-C Condition	36	
Extension Rider	Rider 1	
Fair Market Rental Rate	Rider 1	
FDIC	37	
Final Costs	Exhibit B	
Final Costs Statement	Exhibit B	
Final Retention	Exhibit B	
Final Space Plan	Exhibit B	
Final Working Drawings	Exhibit B	
Force Majeure	43	
Hazardous Materials	13	
Hazardous Materials List	14	
Interest Notice	Rider 1	
 	(ii)	Execution Original	

Page(s)

Interest Rate	12	
Interim Cash Deposit	37	
Landlord	1	
Landlord Parties	16	
L‑C	33	
L‑C Amount	33	
L-C Cure Period	34	
L‑C Draw Event	34	
L‑C Expiration Date	34	
L‑C FDIC Replacement Notice	34	
LC Reduction Contingency	35	
LC Replacement Notice	37	
Lease	1	
Lease Commencement Date	4	
Lease Expiration Date	4	
Lease Term	4	
Lease Year	4	
Name Sign	41	
Notices	43	
OFAC	43	
Operating Expenses	5	
Option Rent	Rider 1	
Option Rent Notice	Rider 1	
Option Term	Rider 1	
Other Buildings	11	
Over-Allowance Amount	Exhibit B	
Parking Areas	1	
Parking Operator	39	
Premises	1	
Premises Systems	19	
Project	1	
Proposition 13	9	
REA	13	
Receivership	37	
Release	14	
Rent	5	
Rent Commencement Date	Exhibit C	
rentable square feet	3	
Revenue Code	26	
Review Period	12	
Security Deposit Laws	36	
Statement	10	
Subject Space	26	
Subleasing Costs	27	
Substantial Completion	6	
Summary	i	
Systems and Equipment	8	
Tax Expenses	8	
Tenant	1	
Tenant Improvement Allowance	Exhibit B	
Tenant Improvement Allowance Items	Exhibit B	
Tenant Improvements	Exhibit B	
Tenant Parties	16, 22	
Tenant Work Letter	Exhibit B	
Tenant's Agents	Exhibit B	
 	(vii)	Execution Original	

Page(s)

Tenant's Parties	14	
Tenant's Share	9	
Transfer Notice	26	
Transfer Premium	27	
Transferee	26	
Transfers	26	
Utilities Costs	9	
Voluntary Improvements	2	
Wi-Fi Network	21	

 
 	(viii)	Execution Original	

 
LEASE
This Lease, which includes the preceding Summary and the exhibits attached hereto and incorporated herein by this reference (the Lease, the Summary and the exhibits to be known sometimes collectively hereafter as the " Lease "), dated as of the date set forth in Section 1 of the Summary, is made by and between AP3‑SD1 CAMPUS POINT LLC, a Delaware limited liability company (" Landlord "), and TOCAGEN INC., a Delaware corporation (" Tenant ").
ARTICLE 1

 PROJECT, BUILDING AND PREMISES
1.1 Project, Building and Premises .
1.1.1 Premises .  Upon and subject to the terms, covenants and conditions hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises described in Section 6.1 of the Summary (the " Premises "), which Premises are located in the Building (as defined in Section 6.2 of the Summary) and located within the Project (as defined below).  The floor plan of the Premises is attached hereto as Exhibit A .
1.1.2 Building and Project .  The Building consists of seven (7) floors with a total of 132,873 rentable square feet and is part of a multi-building commercial project known as "Genesis Campus Point", located in the City of San Diego.  The term " Project " as used in this Lease, shall mean, collectively: (i) the Building; (ii) the other existing buildings located at 4224 Campus Point Court, 4244 Campus Point Court and 10210 Campus Point Drive within the site (collectively, the " Other Existing Buildings "); (iii) any outside plaza areas, walkways, driveways, courtyards, public and private streets, transportation facilitation areas and other improvements and facilities now or hereafter constructed surrounding and/or servicing the Building and/or the Other Existing Buildings, which are reasonably designated from time to time by Landlord (and/or any other owners of the Project) as common areas appurtenant to or servicing the Building, the Other Existing Buildings and any such other improvements; (iv) any additional buildings, improvements, facilities and common areas which Landlord (any other owners of the Project and/or any common area association formed by Landlord, Landlord's predecessor-in-interest and/or Landlord's assignee for the Project) may add thereto from time to time within or as part of the Project; and (v) the land upon which any of the foregoing are situated.  The site plan depicting the current configuration of the Project is attached hereto as Exhibit A‑1 .  The Building, as well as each of the Other Existing Buildings contain parking areas (" Parking Areas ").  Notwithstanding the foregoing or anything contained in this Lease to the contrary (other than Section 1.1.3 below), (1) Landlord has no obligation to expand or otherwise make any improvements within the Project, including, without limitation, any of the outside plaza areas, walkways, driveways, courtyards, public and private streets, transportation facilitation areas and other improvements and facilities which may be depicted on Exhibit A‑1 attached hereto (as the same may be modified by Landlord (and/or any other owners of the Project) from time to time without notice to Tenant), other than Landlord's obligations (if any) specifically set forth in the Tenant Work Letter attached hereto as Exhibit B , and (2) Landlord (and/or any other owners of the Project) shall have the right from time to time to include or exclude any improvements or facilities within the Project, at such party's sole election, as more particularly set forth in Section 1.1.3 below.
 1.1.3 Tenant's and Landlord's Rights .  Tenant shall have the right to the nonexclusive use of the common corridors and hallways, stairwells, elevators (if any), restrooms and other public or common areas located within the Building, and the non-exclusive use of those areas located on the Project that are reasonably designated by Landlord (and/or any  other owners of the Project)  from time to time as common areas for the Building; provided, however, that (i) Tenant's use thereof shall be subject to (A) the provisions of any covenants, conditions and restrictions regarding the use thereof now or hereafter recorded against the Project, and (B) such reasonable, non-discriminatory rules and regulations as Landlord may make from time to time (which shall be provided in writing to Tenant), and (ii) Tenant may not go on the roof of Building or the Other Existing Buildings without Landlord's prior consent (which may be withheld in Landlord's sole and absolute discretion) and without otherwise being accompanied by a representative of Landlord.  Landlord (and/or any other owners of the Project) reserve the right from time to time to use any of the common areas of the Project, and the roof, risers and conduits of the Building and the Other Existing Buildings for telecommunications and/or any other purposes, and to do any of the following:  
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(1) make any changes, additions, improvements, repairs and/or replacements in or to the Project or any portion or elements thereof, including, without limitation, (x) changes in the location, size, shape and number of driveways, entrances, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways, public and private streets, plazas, courtyards, transportation facilitation areas and common areas, and (y) expanding or decreasing the size of the Project and any common areas and other elements thereof, including adding, deleting and/or excluding buildings (including any of the Other Existing Buildings) thereon and therefrom; (2) close temporarily any of the common areas while engaged in making repairs, improvements or alterations to the Project; (3) retain and/or form a common area association or associations under covenants, conditions and restrictions to own, manage, operate, maintain, repair and/or replace all or any portion of the landscaping, driveways, walkways, public and private streets, plazas, courtyards, transportation facilitation areas and/or other common areas located outside of the Building and the Other Existing Buildings and, subject to Article 4 below, include the common area assessments, fees and taxes charged by the association(s) and the cost of maintaining, managing, administering and operating the association(s), in Operating Expenses or Tax Expenses; and (4) perform such other acts and make such other changes with respect to the Project as Landlord may, in the exercise of good faith business judgment, deem to be appropriate.   Tenant's use of the common areas shall also include the right to use, in accordance with the terms of Exhibit D (and other commercially reasonable rules and regulations promulgated by Landlord any common area amenities which shall be located in the Project, including a café and a conference center, bike storage and access to a gym with a pool and locker rooms.   La ndlord acknowledges an d agrees that , subject to Force Majeure events, renovation s and temporary closures, the existing conference rooms shall be located in the Project during the entire Term of this Lease .   Notwithstanding anything to the contrary in this Lease, (w) Landlord shall not permit or suffer any covenant s, conditions and restrictions to be recorded against the Project that create an Adverse Condition, (x) with respect to any voluntary improvements or voluntary alterations (as opposed to improvements or alterations required by applicable laws (as defined below) or maintenance or repairs) (collectively, " Voluntary Improvements "), Landlord shall not cause an Adverse Condition (as defined below) during the course of the performance thereof or resulting therefrom, (y) with respect to any improvements or alterations required by applicable laws and with respect to maintenance, repairs and replacements, Landlord shall use commercially reasonable efforts to minimize any Adverse Conditions during the course of the performance thereof or resulting therefrom, and (z) except as may be required by applicable laws, Landlord shall not be permitted to change the configuration of the Building in a manner that results in an Adverse Condition .   As used herein, an " Adverse Condition " shall mean (I) any unreasonable adverse interference with Tenant's access to the Premises other than on a temporary basis during an on-going emergency, (II) any unreasonable adverse interference with Tenant's use of the Premises as a first-class biotechnology project , and (III) any reduction in, or unreasonable adverse interference with Tenant's access to, Tenant's parking rights hereunder.
1.2 Condition of Premises .  Except as expressly set forth in this Lease and in the Tenant Work Letter, Landlord shall not be obligated to provide or pay for any improvement, remodeling or refurbishment work or services related to the improvement, remodeling or refurbishment of the Premises, and Tenant shall accept the Premises in its "As Is" condition on the Lease Commencement Date.  For purposes of Section 1938(a) of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Premises have not undergone inspection by a Certified Access Specialist (CASp).  In addition, the following notice is hereby provided pursuant to Section 1938(e) of the California Civil Code:
"A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law.  Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant.  The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises."
 In furtherance of and in connection with such notice:  (i) Tenant, having read such notice and understanding Tenant's right to request and obtain a CASp inspection and with advice of counsel, hereby elects not to obtain such CASp inspection and waives its rights to obtain a CASp inspection with respect to the Premises, Building and/or Project to the extent permitted by applicable laws now or hereafter in effect; and (ii) if the waiver set forth in clause (i) hereinabove is not enforceable pursuant to applicable laws, then Landlord and Tenant hereby
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agree as follows (which constitute the mutual agreement of the parties as to the matters described in the last sentence of the foregoing notice):  (A) Tenant shall have the one-time right to request for and obtain a CASp inspection, which request must be made, if at all, in a written notice delivered by Tenant to Landlord on or before that date which is ten (10) days after the date hereof; (B) any CASp inspection timely requested by Tenant shall be conducted (1) between the hours of 9:00 a.m. and 5:00 p.m. on any business day, (2) only after ten (10) days' prior written notice to Landlord of the date of such CASp inspection, (3) in a professional manner by a CASp designated by Landlord and without any testing that would damage the Premises, Building or Project in any way, and (4) at Tenant's sole cost and expense, including, without limitation, Tenant's payment of the fee for such CASp inspection, the fee for any reports prepared by the CASp in connection with such CASp inspection (collectively, the " CASp Reports ") and all other costs and expenses in connection therewith; (C) Tenant shall deliver a copy of any CASp Reports to Landlord within three (3) business days after Tenant's receipt thereof; (D) Tenant, at its sole cost and expense, shall be responsible for making any improvements, alterations, modifications and/or repairs to or within the Premises to correct violations of construction-related accessibility standards including, without limitation, any violations disclosed by such CASp inspection; and (E) if such CASp inspection identifies any improvements, alterations, modifications and/or repairs necessary to correct violations of construction-related accessibility standards relating to those items of the Building and Project located outside the Premises that are Landlord's obligation to repair under the Lease (as amended hereby), then Landlord shall perform such improvements, alterations, modifications and/or repairs as and to the extent required by applicable laws to correct such violations, and Tenant shall reimburse Landlord for the cost of such improvements, alterations, modifications and/or repairs within ten (10) business days after Tenant's receipt of an invoice therefor from Landlord.   Tenant also acknowledges that, except as otherwise expressly set forth in this Lease, neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises, the Building, or the Project or their condition, or with respect to the suitability thereof for the conduct of Tenant ' s business (including, but not limited to, any zoning/conditional use permit requirements which shall be Tenant's responsibility and Tenant's failure to obtain any such zoning/use permits (if any are required) shall not affect Tenant's obligations under this Lease) .  The taking of possession of the Premises by Tenant shall conclusively establish that the Premises (including the Tenant Improvements therein), the Building and the Project were at such time complete and in good, sanitary and satisfactory condition (except for matters that could not be reasonably discovered by Tenant during its inspection thereof prior to taking possession) and without any obligation on Landlord ' s part to make any alterations, upgrades or improvements thereto .    Notwithstanding anything to the contrary set forth in this Lease , Landlord shall, at its sole expense, cause the Project, the Building and the Premises (and each system, component and part of the Project, the Building and/or the Premises), as of the Lease Commencement Date, to be in good working order, to be in good condition, and to be in compliance with all applicable laws.  Any expenses incurred by Landlord to comply with the provisions of the preceding sentence shall not be included in any Operating Expenses that may be charged to Tenant in any manner under this Lease.
1.3 Rentable Square Feet .  The rentable square feet of the Premises and the Building are as set forth in Section 6.1 of the Summary except that such rentable square feet of the Building shall be revised if and to the extent that the common areas of the Building are adjusted following the execution of this Lease, and such revision shall be reasonably determined by Landlord's planner/designer consistent with the methods used to determine the rentable square feet of the Building prior to the execution of this Lease.  Upon any such revision to the rentable square footage of the Building, and provided that such revised rentable square footage of the Building is used in a non-discriminatory manner for all tenants of the Building, then Tenant's Share shall be modified in accordance with such determination.  If such determination is made, it will be confirmed in writing by Landlord to Tenant; provided, however, that any such remeasurement shall be performed in a non-discriminatory manner vis-à-vis all tenants of the Building.
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ARTICLE 2

 LEASE TERM
The term of this Lease (the " Lease Term ") shall be as set forth in Section 7.1 of the Summary and shall commence on the date (the " Lease Commencement Date ") set forth in Section 7.2 of the Summary (subject, however, to the terms of the Tenant Work Letter), and shall terminate on the date (the " Lease Expiration Date ") set forth in Section 7.3 of the Summary, unless this Lease is sooner terminated as hereinafter provided or if the Lease Term is renewed pursuant to the Extension Option Rider.  For purposes of this Lease, the term " Lease Year " shall mean each consecutive twelve (12) month period during the Lease Term, provided that the last Lease Year shall end on the Lease Expiration Date.  If the Lease Commencement Date is a date which is other than the date set forth in Section 7.2(a) of the Summary then, following the Lease Commencement Date, Landlord shall deliver to Tenant an amendment in the form as set forth in Exhibit C , attached hereto, setting forth, among other things, the Lease Commencement Date and the Lease Expiration Date, which amendment Tenant shall execute and return to Landlord within five (5) business days after Tenant's receipt thereof.  If Tenant fails to execute and return the amendment within such 5-business day period, Tenant shall be deemed to have approved and confirmed the dates set forth therein, provided that such deemed approval shall not relieve Tenant of its obligation to execute and return the amendment (and such failure shall constitute a default by Tenant hereunder).  
ARTICLE 3

 BASE RENT
Tenant shall pay, without notice or demand, to Landlord at the address set forth in Section 3 of the Summary, or at such other place as Landlord may from time to time designate in writing, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (" Base Rent ") as set forth in Section 8 of the Summary, payable in equal monthly installments as set forth in Section 8 of the Summary in advance on or before the first day of each and every month during the Lease Term, without any setoff or deduction whatsoever.  Landlord agrees to provide ACH information to Tenant.  Concurrently with Tenant's execution of this Lease, Tenant shall deliver to Landlord an amount equal to One Hundred Eighty-Nine Thousand Five Hundred Eighty-Three and 12/100 Dollars ($189,583.12), which amount shall be comprised of the following:  (i) the Base Rent payable by Tenant for the Premises for the tenth (10 th ) full month of the Lease Term ( i.e. , One Hundred Fifty-Three Thousand Four Hundred Fifty-Three and 55/100 Dollars ($153,453.55); and (ii) the Estimated Expenses (as defined below) payable by Tenant for the Premises for the first (1 st ) full month of the Lease Term ( i.e. , Thirty Six Thousand One Hundred Twenty-Nine and 57/00 Dollars ($36,129.57).  If any rental payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any rental payment is for a period which is shorter than one month, then the rental for any such fractional month shall be a proportionate amount of a full calendar month's rental based on the proportion that the number of days in such fractional month bears to the number of days in the calendar month during which such fractional month occurs.  All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.  
Notwithstanding anything to the contrary contained herein and so long as Tenant is not then in default under this Lease (beyond the expiration of all applicable notice and cure periods), Landlord hereby agrees to abate Tenant's obligation to pay (i) one hundred percent (100%) of Tenant's monthly Base Rent during the period which is the first (1 st ), second (2 nd ) and third (3 rd ) full months of the initial Lease Term, (ii) fifty percent (50%) of Tenant's monthly Base Rent during the period which is the fourth (4 th ) and fifth (5 th ) full months of the initial Lease Term, and (iii) twenty-five percent (25%) of Tenant's monthly Base Rent during the period which is the sixth (6 th ), seventh (7 th ), eighth (8 th ) and ninth (9 th ) full months of the initial Lease Term (collectively the " Abated Rent ").  During such abatement period, Tenant shall still be responsible for the payment of all of its other monetary obligations under this Lease.  In the event of a default by Tenant under the terms of this Lease that results in early termination pursuant to the provisions of Article 19 of this Lease, then as part of the recovery set forth in Article 19 of this Lease, Landlord shall be entitled to the recovery of the unamortized amount (amortized over the ninety-six month Lease Term) of the monthly Base Rent that was abated under the provisions of this Article 3.
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 ARTICLE 4
ADDITIONAL RENT
4.1 Additional Rent .  In addition to paying the Base Rent specified in Article 3 above, Tenant shall pay as additional rent the sum of the following: (i) Tenant's Share (as such term is defined below) of the annual Operating Expenses allocated to the Building (pursuant to Section 4.3.4 below); plus (ii) Tenant's Share of the annual Tax Expenses allocated to the Building (pursuant to Section 4.3.4 below); plus (iii) Tenant's Share of the annual Utilities Costs allocated to the Building (pursuant to Section 4.3.4 below).  Such additional rent, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease (including, without limitation, pursuant to Article 6), shall be hereinafter collectively referred to as the " Additional Rent ."  The Base Rent and Additional Rent are herein collectively referred to as the " Rent ."  All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner, time and place as the Base Rent.  Without limitation on other obligations of Tenant which shall survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.
4.2 Definitions .  As used in this Article 4, the following terms shall have the meanings hereinafter set forth:
4.2.1 " Calendar Year " shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires.
4.2.2 " Expense Year " shall mean each Calendar Year.
 4.2.3 " Operating Expenses " shall mean all expenses, costs and amounts of every kind and nature which Landlord shall pay during any Expense Year because of or in connection with the ownership, management, maintenance, repair, restoration or operation of the Project, including, without limitation, any amounts paid for:  (i) the cost of operating, maintaining, repairing, renovating and managing the utility systems, lab systems, central plant, mechanical systems, sanitary and storm drainage systems, any elevator systems (if applicable) and all other "Systems and Equipment" (as defined in Section 4.2.4 of this Lease), and the cost of supplies and equipment and maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections, and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with implementation and operation (by Landlord or any common area association(s) formed for the Project) of any transportation system management program or similar program; (iii) the cost of insurance carried by Landlord, in such amounts as Landlord may reasonably determine or as may be reasonably required by any mortgagees of any mortgage or the lessor of any ground lease affecting the Project; (iv) the cost of landscaping, relamping, supplies, tools, equipment and materials, and all fees, charges and other costs (including consulting fees, legal fees and accounting fees) incurred in connection with the management, operation, repair and maintenance of the Project; (v) any equipment rental agreements or management agreements (including the cost of any management fee (to be equal to three percent (3%) of Tenant's then annual Base Rent) but excluding the rental of any office space provided thereunder); (vi) costs of operating amenities in and/or serving the Project and the wages, salaries and other compensation and benefits of all persons engaged in the operation, management, maintenance or security of the Project, and employer's Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits; (vii) payments under any easement, license, operating agreement, declaration, restrictive covenant, underlying or ground lease (excluding rent), or instrument pertaining to the sharing of costs by the Project (including but not limited to, the REA described in Article 5 hereof); (viii) the cost of janitorial service, trash removal (provided, however, Operating Expenses shall not include the cost of janitorial services and trash removal services provided to the Premises or the premises of other tenants of the Building and/or the Project or the cost of replacing light bulbs, lamps, starters and ballasts for lighting fixtures in the Premises and the premises of other tenants in the Building and/or the Project to the extent such services are directly provided and paid for by Tenant pursuant to Section 6.6 below), alarm and security service, if any, window cleaning, replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other common or public areas or facilities, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (ix) amortization (including interest on the unamortized cost) of the cost of acquiring or the rental expense of personal property used in the maintenance,
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operation and repair of the Project; (x )  the cost of any capital improvements or other costs (I )  which are intended as a labor-saving device or to effect other economies in the operation or maintenance of the Project or which are otherwise permitted hereunder , (II )  made to the Project or any portion thereof after the Lease Commencement Date that are required under any governmental law or regulation, or (III )  which are governmental ly mandated Conservation Costs (as defined below) and/or which are reasonably determined by Landlord to be in the best interests of the Project; provided, however, that if any such cost described in (I), (II) or (III) above (or any other Operating Expense) , is a capital expenditure, such cost shall be amortized (including interest on the unamortized cost) as Landlord shall reasonably determine; and (xi)  the costs and expenses of complying with, or participating in, conservation, recycling, sustainability, energy efficiency, waste reduction or other governmentally mandated programs or practices implemented or enacted from time to time at the Building and/or Project, including, without limitation, in connection with any LEED (Leadership in Energy and Environmental Design) rating or compliance system or program, including that currently coordinated through the U.S. Green Building Council or Energy Star rating and/or compliance system or program (collectively, " Conservation Costs ") .  If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses except to the extent prohibited in Article 4 hereof ) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant.  If any of (x) the Building, (y) the Other Existing Buildings (but only during the period of time the same are included by Landlord within the Project) and (z) any additional buildings are added to the Project pursuant to Section 1.1.3 above (but only during the period of time after such additional buildings have been fully constructed and ready for occupancy and are included by Landlord within the Project) are less than ninety-five percent (95%) occupied during all or a portion of any Expense Year, Landlord shall make an appropriate adjustment to the variable components of Operating Expenses for such year or applicable portion thereof, employing sound accounting and management principles, to determine the amount of Operating Expenses that would have been paid had the Building, such Other Existing Buildings and such additional buildings (if any) been ninety-five percent (95%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year, or applicable portion thereof.
Subject to the provisions of Section 4.3.4 below, Landlord shall have the right, from time to time, to equitably allocate some or all of the Operating Expenses (and/or Tax Expenses and Utilities Costs) between the Building and the Other Existing Buildings and/or among different tenants of the Project and/or among different buildings of the Project as and when such different buildings are constructed and added to (and/or excluded from) the Project or otherwise (the " Cost Pools ").  Such Cost Pools may also include a reasonable allocation of certain Operating Expenses (and/or Tax Expenses and Utilities Costs) within or under covenants, conditions and restrictions affecting the Project.  In addition, Landlord shall have the right from time to time, in its reasonable discretion, to include or exclude existing or future buildings in the Project for purposes of determining Operating Expenses, Tax Expenses and Utilities Costs and/or the provision of various services and amenities thereto, including allocation of Operating Expenses, Tax Expenses and Utilities Costs in any such Cost Pools.
Notwithstanding the foregoing, Operating Expenses shall not, however, include: (A) costs of leasing commissions, attorneys' fees and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Project; (B) costs (including permit, license and inspection costs) incurred in renovating or otherwise improving, decorating or redecorating rentable space for other tenants or vacant rentable space; (C) costs incurred due to the violation by Landlord of the terms and conditions of any lease of space in the Project; (D) costs of overhead or profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for services in or in connection with the Project to the extent the same exceeds the costs of overhead and profit increment included in the costs of such services which could be obtained from third parties on a competitive basis; (E) except as otherwise specifically provided in this Section 4.2.3, costs of interest on debt or amortization on any mortgages, and rent payable under any ground lease of the Project; (F) Utilities Costs; and (G) Tax Expenses and (H) any of the following (" Excluded Costs "):
(a) the original construction costs of the Premises, the Building or the Project and renovation prior to the date of this Lease and costs of correcting defects in such original construction or renovation;
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(b) capital expenditures for expansion or reconfiguration of the Building or the Project;
(c) capital expenditures except as expressly set forth above and then only to the extent that they are capitalized over the useful life of such improvement;
(d) interest, principal or any other payments under any mortgage or similar debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured and all payments of rent (but not taxes or operating expenses) under any ground lease or other underlying lease of all or any portion of the Building or the Project;
(e) reserves for or depreciation of the Building or the Project;
(f) advertising, marketing, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Building or the Project, including any leasing office maintained in the Building or the Project, free rent and construction allowances for tenants;
(g) legal and other expenses incurred in the negotiation or enforcement of leases;
(h) completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;
(i) costs to be reimbursed by other tenants of the Building or the Project or Taxes to be paid directly by Tenant or other tenants of the Building or the Project, whether or not actually paid;
(j) salaries, wages, benefits and other compensation paid to officers and employees of Landlord who are not assigned in whole or in part (and, if in part, then on a pro rata basis based on the amount of time devoted to the Building or the Project) to the operation, management, maintenance or repair of the Building or the Project;
(k) general organizational, administrative and overhead costs relating to maintaining Landlord's existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;
(l) costs (including attorneys' fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;
(m) costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space in the Building or the Project or any legal requirement;
(n) penalties, fines or interest incurred as a result of Landlord's inability or failure  to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlord's failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency;
(o) overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Building or the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;
(p) costs of Landlord's charitable or political contributions, or of fine art maintained at the Building or the Project;
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(q) costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Building or the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Building or the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord;
(r) costs incurred in the sale or refinancing of the Building or the Project;
(s) items and services which Landlord offers selectively to one or more tenants of the Building or the Project (not including Tenant) without reimbursement;
(t) costs of repairs directly resulting from the gross negligence or willful misconduct of Landlord or its employees, officers, directors, contractors or agents;
(u) any costs incurred to remove, study, test or remediate hazardous materials that exist in or about the Building or the Project prior to the Lease Commencement Date;
(v) the cost of installing or upgrading any utility metering for any part of the Building or the Project;
(w) a property management fee in excess of 3% of gross receipts;
(x) net income taxes of Landlord or the owner of any interest in the Building or the Project, franchise, capital stock, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Building or the Project or any portion thereof or interest therein;
(y) any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Building or the Project under leases for space in the Building or the Project;
(z) any costs with respect to amenities that Tenant is prohibited from using under this Lease; and
(aa) the costs and expenses of complying with, or participating in, non-government mandated conservation, recycling, sustainability, energy efficiency, waste reduction or other programs or practices implemented or enacted from time to time at the Building and/or Project, including, without limitation, in connection with any LEED (Leadership in Energy and Environmental Design) rating or compliance system or program, including that currently coordinated through the U.S. Green Building Council or Energy Star rating and/or compliance system or program (and only government mandated programs and policies shall be included in Operating Expenses).
4.2.4 " Systems and Equipment " shall mean any plant (including any central plant), machinery, transformers, duct work, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, lab, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Building and/or any other building in the Project in whole or in part.
 4.2.5 " Tax Expenses " shall mean all federal, state, county, or local governmental or municipal taxes, fees, assessments, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit assessments, fees and taxes, child care subsidies, fees and/or assessments, job training subsidies, fees and/or assessments, open space fees and/or assessments, housing subsidies and/or housing fund fees or assessments, public art fees and/or assessments, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the
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Project), which Landlord shall pay during any Expense Year because of or in connection with the ownership, leasing and operation of the Project or Landlord's interest therein.  For purposes of this Lease, Tax Expenses shall be calculated as if (i) the tenant improvements in the Building, the Other Existing Buildings and any additional buildings added to the Project pursuant to Section 1.1.3 above (but only during the period of time that such Other Existing Buildings and additional buildings are included by Landlord within the Project) were fully constructed, and (ii) the Project, the Building, such Other Existing Buildings and such additional buildings (if any) and all tenant improvements therein were fully assessed for real estate tax purposes.
4.2.5.1 Tax Expenses shall include, without limitation:
(i) Any tax on Landlord's rent, right to rent or other income from the Project or as against Landlord's business of leasing any of the Project;
(ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (" Proposition 13 ") and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants.  It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies, and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of Tax Expenses for purposes of this Lease;
(iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the rent payable hereunder, including, without limitation, any gross income tax upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and
(v) Any reasonable expenses incurred by Landlord in attempting to protest, reduce or minimize Tax Expenses.
4.2.5.2 Notwithstanding anything to the contrary contained in this Section 4.2.5, there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state net income taxes, and other taxes to the extent applicable to Landlord's net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, (iii) any items paid by Tenant under Section 4.4 below and (iv) the Excluded Costs.
4.2.6 " Tenant's Share " shall mean the percentage set forth in Section 9 of the Summary.  Tenant's Share was calculated by dividing the number of rentable square feet of the Premises by the total rentable square feet in the Building (as set forth in Section 9 of the Summary), and stating such amount as a percentage.  Landlord shall have the right from time to time to redetermine the rentable square feet of the Building (but only in accordance with Section 1.3), and Tenant's Share shall be appropriately adjusted to reflect any such redetermination.  If Tenant's Share is adjusted pursuant to the foregoing, as to the Expense Year in which such adjustment occurs, Tenant's Share for such year shall be determined on the basis of the number of days during such Expense Year that each such Tenant's Share was in effect.
 4.2.7 " Utilities Costs " shall mean all actual charges for utilities for the Building and the Project (including utilities for the Other Existing Buildings and additional buildings, if any, added to the Project during the period of time the same are included by Landlord within the Project) which Landlord shall pay during any Expense Year, including, but not limited to, the costs of water, sewer, gas and electricity, and the costs of HVAC and other utilities, including any lab utilities and central plant utilities (but excluding those charges for which tenants
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directly reimburse Landlord or otherwise pay directly to the utility company) as well as related fees, assessments and surcharges.  Utilities Costs shall be calculated assuming the Building ( and, during the period of time when such buildings are included by Landlord within the Project, the Other Existing Buildings and any additional buildings, if any, added to the Project) are at least ninety-five percent (95%) occupied.  If, during all or any part of any Expense Year, Landlord shall not provide any utilities (the cost of which, if provided by Landlord, would be included in Utilities Costs) to a tenant (including Tenant) who has undertaken to provide the same instead of Landlord, Utilities Costs shall be deemed to be increased by an amount equal to the additional Utilities Costs which would reasonably have been incurred during such period by Landlord if Landlord had at its own expense provided such utilities to such tenant.  Utilities Costs shall include any costs of utilities which are allocated to the Project under any declaration, restrictive covenant, or other instrument pertaining to the sharing of costs by the Project or any portion thereof, including any covenants, conditions or restrictions now or hereafter recorded against or affecting the Project.
4.3 Calculation and Payment of Additional Rent .
4.3.1 Payment of Operating Expenses, Tax Expenses and Utilities Costs .  For each Expense Year ending or commencing within the Lease Term, Tenant shall pay to Landlord, as Additional Rent, the following, which payment shall be made in the manner set forth in Section 4.3.2 below: (i) Tenant's Share of Operating Expenses allocated to the Building pursuant to Section 4.3.4 below; plus (ii) Tenant's Share of Tax Expenses allocated to the Building pursuant to Section 4.3.4 below; plus (iii) Tenant's Share of Utilities Costs allocated to the Building pursuant to Section 4.3.4 below.
 4.3.2 Statement of Actual Operating Expenses, Tax Expenses and Utilities Costs and Payment by Tenant .  Landlord shall give to Tenant on or before the first (1 st ) day of June following the end of each Expense Year, a statement (the " Statement  ") which shall state the Operating Expenses, Tax Expenses and Utilities Costs incurred or accrued for such preceding Expense Year that are allocated to the Building pursuant to Section 4.3.4 below, and which shall indicate therein Tenant's Share thereof.  Within thirty (30) days after Tenant's receipt of the Statement for each Expense Year ending during the Lease Term, Tenant shall pay to Landlord the full amount of the Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs for such Expense Year, less the amounts, if any, paid during such Expense Year as the Estimated Expenses as defined in and pursuant to Section 4.3.3 below.  If any Statement reflects that Tenant has overpaid Tenant's Share of Operating Expenses and/or Tenant's Share of Tax Expenses and/or Tenant's Share of Utilities Costs for such Expense Year, then Landlord shall credit such overpayment toward the additional Rent next due and payable to Tenant under this Lease unless the overpayment is greater than the additional Rent next due or reasonably estimated to be due during the balance of the Lease Term, in which event Landlord shall remit such overpayment to Tenant within thirty (30) days after such applicable Statement is delivered to Tenant.  Landlord's failure to timely furnishing statement shall not prejudice Landlord from enforcing its rights under this Article 4; provided, however, that Tenant shall not be responsible for Tenant's Share of any Operating Expenses, Tax Expenses or Utilities Costs attributable to any Expense Year which was first billed to Tenant more than twelve (12) months after the date (the " Cutoff Date ") which is the earlier of (i) the expiration of the applicable Expense Year or (ii) the Lease Expiration Date.  Even though the Lease Term has expired and Tenant has vacated the Premises, if the Statement for the Expense Year in which this Lease terminates reflects that Tenant has overpaid and/or underpaid  Tenant's Share of the Operating Expenses and/or Tenant's Share of Tax Expenses and/or Tenant's Share of Utilities Costs for such Expense Year, then within thirty (30) days after Landlord's delivery of such Statement to Tenant, Landlord shall refund to Tenant any such overpayment, or Tenant shall pay to Landlord any such underpayment, as the case may be.  Tenant's failure to object any Statement within sixty (60) days after Tenant 's receipt thereof shall constitute Tenant's irrevocable waiver to object to the same .  The provisions of this Section 4.3.2 shall survive the expiration or earlier termination of the Lease Term.
 4.3.3 Statement of Estimated Operating Expenses, Tax Expenses and Utilities Costs .  Landlord shall endeavor to give Tenant a yearly expense estimate statement (the " Estimate Statement ") which shall set forth Landlord's reasonable estimate (the " Estimate ") of  the total amount of Tenant's Share of the Operating Expenses, Tax Expenses and Utilities Costs allocated to the Building pursuant to Section 4.3.4 below for the then-current Expense Year shall be, and which shall indicate therein Tenant's Share thereof (the " Estimated Expenses ").  The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Expenses under this Article 4.  Following Landlord's delivery of the Estimate Statement for the then-current Expense Year, Tenant shall pay, with its next installment of Base Rent due,
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a fraction of the Estimated Expenses for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.3.3).  Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year to the month of such payment, both months inclusive, and shall have twelve (12) as its denominator.  Until a new Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant.
4.3.4 Allocation of Operating Expenses, Tax Expenses and Utilities Costs to Building .  The parties acknowledge that the Building is part of a multi-building commercial project consisting of the Building, and the Other Existing Buildings and such other buildings as Landlord (and/or any other owners of the Project) may elect to construct and include as part of the Project from time to time (the Other Existing Buildings and any such other buildings are sometimes referred to herein, collectively, as the " Other Buildings "), and that certain of the costs and expenses incurred in connection with the Project ( i.e.  the Operating Expenses, Tax Expenses and Utilities Costs) shall be shared among the Building and/or such Other Buildings, while certain other costs and expenses which are solely attributable to the Building and such Other Buildings, as applicable, shall be allocated directly to the Building and the Other Buildings, respectively.  Accordingly, as set forth in Sections 4.1 and 4.2 above, Operating Expenses, Tax Expenses and Utilities Costs are determined annually for the Project as a whole, and a portion of the Operating Expenses, Tax Expenses and Utilities Costs, which portion shall be determined by Landlord on an equitable basis, shall be allocated to the Building (as opposed to the tenants of the Other Buildings), and such portion so allocated shall be the amount of Operating Expenses, Tax Expenses and Utilities Costs payable with respect to the Building upon which Tenant's Share shall be calculated.  Such portion of the Operating Expenses, Tax Expenses and Utilities Costs allocated to the Building shall include all Operating Expenses, Tax Expenses and Utilities Costs which are attributable solely to the Building, and an equitable portion of the Operating Expenses, Tax Expenses and Utilities Costs attributable to the Project as a whole.  As an example of such allocation with respect to Tax Expenses and Utilities Costs, it is anticipated that Landlord (and/or any other owners of the Project) may receive separate tax bills which separately assess the improvements component of Tax Expenses for each building in the Project and/or Landlord may receive separate utilities bills from the utilities companies identifying the Utilities Costs for certain of the utilities costs directly incurred by each such building (as measured by separate meters installed for each such building), and such separately assessed Tax Expenses and separately metered Utilities Costs shall be calculated for and allocated separately to each such applicable building.  In addition, in the event Landlord (and/or any other owners of the Project) elect to subdivide certain common area portions of the Project such as landscaping, public and private streets, driveways, walkways, courtyards, plazas, transportation facilitation areas and/or accessways into a separate parcel or parcels of land (and/or separately convey all or any of such parcels to a common area association to own, operate and/or maintain same), the Operating Expenses, Tax Expenses and Utilities Costs for such common area parcels of land may be aggregated and then reasonably allocated by Landlord to the Building and such Other Buildings on an equitable basis as Landlord (and/or any applicable covenants, conditions and restrictions for any such common area association) shall provide from time to time.
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible .  Tenant shall reimburse Landlord upon demand for all taxes or assessments required to be paid by Landlord (except to the extent included in Tax Expenses by Landlord), excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, when:
4.4.1 said taxes are measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, to the extent the cost or value of such leasehold improvements exceeds the cost or value of a building standard build-out as determined by Landlord regardless of whether title to such improvements shall be vested in Tenant or Landlord;
4.4.2 said taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project; or
4.4.3 said taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.
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4.5 Late Charges .  If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee by five (5) business days after the due date therefor, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the amount due ; provided, however, that Landlord will waive the imposition of the late charge for the first late payment of rent in any one (1) calendar year .  The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder, at law and/or in equity and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner.  In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid on or before five (5) business days after the date that they are due shall thereafter bear interest until paid at a rate (the " Interest Rate ") equal to the lesser of (i )  the "Prime Rate" or "Reference Rate" announced from time to time by the Bank of America (or such reasonable comparable national banking institution as selected by Landlord in the event Bank of America ceases to exist or publish a Prime Rate or Reference Rate), plus four percent (4%), or (ii )  the highest rate permitted by applicable law.
 4.6 Audit Rights .  Tenant shall have the right, at Tenant's cost, after reasonable notice to Landlord, to have Tenant's authorized employees or agents inspect, at Landlord's main corporate office during normal business hours, Landlord's books, records and supporting documents concerning the Operating Expenses, Tax Expenses and Utilities Costs set forth in any Statement delivered by Landlord to Tenant for a particular Expense Year pursuant to Section 4.3.2 above and the twenty-four (24) months preceding any such Statement; provided, however, Tenant shall have no right to conduct such inspection or object to or otherwise dispute the amount of the Operating Expenses, Tax Expenses and Utilities Costs set forth in any such Statement, unless Tenant notifies Landlord of such inspection objection and dispute, completes such inspection within twelve (12) months immediately following Landlord's delivery of a Statement (the " Review Period "); provided, further, that notwithstanding any such timely inspection, objection, dispute, and/or audit, and as a condition precedent to Tenant's exercise of its right of inspection, objection, dispute, and/or audit as set forth in this Section 4.6, Tenant shall not be permitted to withhold payment of, and Tenant shall timely pay to Landlord, the full amounts as required by the provisions of this Article 4 in accordance with such Statement.  However, such payment may be made under protest pending the outcome of any audit.  In connection with any such inspection by Tenant, Landlord and Tenant shall reasonably cooperate with each other so that such inspection can be performed pursuant to a mutually acceptable schedule, in an expeditious manner and without undue interference with Landlord's operation and management of the Project.  If after such inspection and/or request for documentation, Tenant disputes the amount of the Operating Expenses, Tax Expenses and Utilities Costs set forth in the Statement, Tenant shall have the right, but not the obligation, within the Review Period, to cause an independent certified public accountant which is not paid on a contingency basis and which is mutually approved by Landlord and Tenant (the " Accountant ") to complete an audit of Landlord's books and records to determine the proper amount of the Operating Expenses, Tax Expenses and Utilities Costs incurred and amounts payable by Tenant for the Expense Year which is the subject of such Statement.  Such audit by the Accountant shall be final and binding upon Landlord and Tenant.  If Landlord and Tenant cannot mutually agree as to the identity of the Accountant within thirty (30) days after Tenant notifies Landlord that Tenant desires an audit to be performed, then the Accountant shall be one of the "Big 4" accounting firms selected by Landlord, which is not paid on a contingency basis and is not, and has not been, otherwise employed or retained by Landlord.  If such audit reveals that Landlord has over-charged Tenant, then within thirty (30) days after the results of such audit are made available to Landlord, Landlord shall reimburse to Tenant the amount of such over-charge.  If the audit reveals that the Tenant was under-charged, then within thirty (30) days after the results of such audit are made available to Tenant, Tenant shall reimburse to Landlord the amount of such under-charge.  Tenant agrees to pay the cost of such audit unless it is subsequently determined that Landlord's original Statement which was the subject of such audit was in error to Tenant's disadvantage by five percent (5%) or more of the total Operating Expenses, Tax Expenses and Utilities Costs which was the subject of the audit (in which case Landlord shall pay the cost of such audit).  The payment by Tenant of any amounts pursuant to this Article 4 shall not preclude Tenant from questioning the correctness of any Statement provided by Landlord at any time during the Review Period, but the failure of Tenant to object thereto, conduct and complete its inspection and have the Accountant conduct and complete the audit as described above prior to the expiration of the Review Period shall be conclusively deemed Tenant's approval of the Statement in question and the amount of Operating Expenses, Tax Expenses and Utilities Costs shown thereon, subject to Tenant's right to review Statements for the prior twelve (12) months.  In connection with any inspection and/or audit conducted by Tenant pursuant to this Section 4.6, Tenant agrees to keep, and to cause all of Tenant's employees and consultants and the Accountant to keep, all of Landlord's books and records and the audit, and all information pertaining thereto and the results thereof, strictly confidential, and in connection therewith, Tenant shall cause such
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employees, consultants and the Accountant to execute such reasonable confidentiality agreements as Landlord may require prior to conducting any such inspections and/or audits.
 ARTICLE 5
USE OF PREMISES; HAZARDOUS MATERIALS; ODORS AND EXHAUST
5.1 Use .  Tenant shall use the Premises solely for purposes consistent with the character of the Project as a first-class biotechnology project, including, without limitation, office and lab uses, and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever.  Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of Exhibit D , attached hereto, or in violation of the laws of the United States of America, the state in which the Project is located, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project.  Tenant shall comply with the Rules and Regulations and all recorded covenants, conditions, and restrictions, and the provisions of all ground or underlying leases, now or hereafter affecting the Project, including but not limited to, that certain Reciprocal Easement and Maintenance Agreement recorded in the Official Records of San Diego County on February 1, 2011 as Instrument No. 2011‑0061146 and re-recorded on February 24, 2011 as Instrument No. 2011‑0102151, as amended by that certain First Amendment to Reciprocal Easement and Maintenance Agreement recorded February 12, 2013 as Instrument No. 2013‑00094397 (the existing " REA "), as the same may be amended, amended and restated, supplemented or otherwise modified from time to time; provided that any such amendments, restatements, supplements or modifications do not materially modify Tenant's rights or obligations hereunder.
5.2 Hazardous Materials .
5.2.1 Definitions :  As used in this Lease, the following terms have the following meanings:
(a) " Environmental Law " means any past, present or future federal, state or local statutory or common law, or any regulation, ordinance, code, plan, order, permit, grant, franchise, concession, restriction or agreement issued, entered, promulgated or approved thereunder, relating to (a) the environment, human health or safety, including, without limitation, emissions, discharges, releases or threatened releases of Hazardous Materials (as defined below) into the environment (including, without limitation, air, surface water, groundwater or land), or (b) the manufacture, generation, refining, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport, arranging for transport, or handling of Hazardous Materials.
(b) " Environmental Permits " mean collectively, any and all permits, consents, licenses, approvals and registrations of any nature at any time required pursuant to, or in order to comply with, any Environmental Law or otherwise reasonably desired by Landlord including, but not limited to, any Spill Control Countermeasure Plan and any Hazardous Materials Management Plan.
(c) " Hazardous Materials " shall mean and include any hazardous or toxic materials, substances or wastes as now or hereafter (during the Lease Term) designated or regulated under any Environmental Law, including, without limitation, asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), Freon and other chlorofluorocarbons, "biohazardous waste," "medical waste," "infectious agent", "mixed waste" or other waste under California Health and Safety Code §§ 117600 et, seq.
(d) " Release " shall mean with respect to any Hazardous Materials, any release, deposit, discharge, emission, leaking, pumping, leaching, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials.
 5.2.2 Tenant's Obligations – Environmental Permits .  Tenant will (i) obtain and maintain in full force and effect all Environmental Permits that are required under any Environmental Laws applicable to Tenant's operations or Tenant's use of the Premises and (ii) be and remain in compliance with all terms and conditions of all such Environmental Permits and with all other limitations, restrictions, conditions, standards, prohibitions,
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requirements, obligations, schedules and timetables contained in all Environmental Laws applicable to Tenant or Tenant's use of the Premises.
5.2.3 Tenant's Obligations – Hazardous Materials .  Except as expressly permitted herein, Tenant agrees not to cause or permit any Hazardous Materials to be brought upon, stored, used, handled, generated, released or disposed of on, in, under or about the Premises, or any other portion of the Property by Tenant, its agents, employees, subtenants, assignees, licensees, contractors or invitees (collectively, " Tenant's Parties "), in violation of any Environmental Law without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion.  Landlord acknowledges that it is not the intent of this Section 5.2 to prohibit or materially impair Tenant from operating its business for the uses permitted hereunder.  Tenant may operate its business according to the custom of Tenant's industry so long as the use or presence of Hazardous Materials is strictly and properly monitored in accordance with applicable Environmental Laws.  As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Lease Commencement Date a list identifying each type of Hazardous Material to be present at the Premises and setting forth any and all governmental approvals or permits required in connection with the presence of such Hazardous Material at the Premises (the " Hazardous Materials List ").  Tenant shall deliver to Landlord an updated Hazardous Materials List on or prior to each annual anniversary of the Lease Commencement Date and shall also deliver an updated Hazardous Materials List before any new Hazardous Materials are brought to the Premises.  Tenant shall deliver to Landlord (prior to the Lease Commencement Date or, if unavailable at the time, concurrently with the receipt from or submission to any Governmental Authority) true and correct copies of the following documents (hereinafter referred to as the " Documents ") relating to the handling, storage, disposal and emission of Hazardous Materials by Tenant at the Premises:  permits; approvals; reports and correspondence; storage and management plans; notices of violations of applicable Environmental Laws; plans relating to the installation of any storage tanks to be installed in, on, under or about the Premises (provided that installation of storage tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent Landlord may withhold in its sole and absolute discretion); and all closure plans or any other documents required by any and all governmental authorities for any storage tanks installed in, on, under or about the Premises for the closure of any such storage tanks.  For each type of Hazardous Material listed, the Documents shall include (t) the chemical name, (u) the material state (e.g., solid, liquid, gas or cryogen), (v) the concentration, (w) the storage amount and storage condition (e.g., in cabinets or not in cabinets), (x) the use amount and use condition (e.g., open use or closed use), (y) the location (e.g., room number or other identification) and (z) if known, the chemical abstract service number.  Tenant shall not be required, however, to provide Landlord with any portion of the Documents containing information of a proprietary nature, which Documents, in and of themselves, do not contain a reference to any Hazardous Materials or activities related to Hazardous Materials.  Upon the expiration or earlier termination of this Lease, Tenant agrees to promptly remove from the Premises, the Building and the Project, at its sole cost and expense, any and all Hazardous Materials brought onto the Premises by Tenant, including any equipment or systems containing Hazardous Materials which are installed, brought upon, stored, used, generated or released upon, in, under or about the Premises, the Building and/or the Project or any portion thereof by Tenant or any of Tenant's Parties during the Term of this Lease.  
5.2.4 Landlord's Right to Conduct Environmental Assessment .  At any time during the Lease Term, Landlord shall have the right, at Landlord's sole cost and expense, to conduct an environmental assessment of the Premises (as well as any other areas in, on or about the Project that Landlord reasonably believes may have been affected adversely by Tenant's use of the Premises (collectively, the " Affected Areas ") in order to confirm that the Premises and the Affected Areas do not contain any Hazardous Materials in violation of applicable Environmental Laws or under conditions constituting or likely to constitute a Release of Hazardous Materials.  Such environmental assessment shall be a so-called "Phase I" assessment or such other level of investigation which shall be the standard of diligence in the purchase or lease of similar property at the time, together with, at Landlord's sole cost and expense, any additional investigation and report which would customarily follow any discovery contained in such initial Phase I assessment (including, but not limited to, any so-called "Phase II" report).  Such right to conduct such environmental assessment shall not be exercised more than once per calendar year unless Tenant is in default under this Section 5.2.  Landlord shall use its commercially reasonable efforts to minimize any disruption to Tenant's business or use of the Premises from any such assessment.  Notwithstanding anything above to the contrary, in the event that any such environmental assessment performed by Landlord reveals that Tenant is in breach of this Lease pertaining to Hazardous Materials, then the cost of any such environmental assessment shall be at Tenant's sole cost and expense.
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5.2.5 Tenant's Obligations to perform Corrective Action .  If the data from any environmental assessment authorized and undertaken by Landlord pursuant to Section  5.2.4 supports a conclusion that Tenant has released Hazardous Materials on, under or emanating from the Premises and the Affected Areas that may require any investigation and/or active response action, including without limitation active or passive remediation and monitoring or any combination of these activities (" Corrective Action "), Tenant shall undertake Corrective Action with respect to contamination caused by Tenant if, and to the extent, required by the governmental authority exercising jurisdiction over the matter.  Any Corrective Action performed by Tenant will be performed with Landlord's prior written approval , not to be unreasonably withheld, and in accordance with applicable Environmental Laws, at Tenant's sole cost and expense and by a n environmental consulting firm (reasonably acceptable to Landlord).  Tenant may perform the Corrective Action before or after the expiration or earlier termination of this Lease, to the extent permitted by governmental agencies with jurisdiction over the Premises, the Building and the Project (provided, however, that any Corrective Action performed after the expiration or earlier termination of this Lease shall be subject to the access fee provisions set forth below).  Tenant or its consultant may install, inspect, maintain, replace and operate remediation equipment and conduct the Corrective Action as it considers necessary, subject to Landlord's approval.  Tenant and Landlord shall, in good faith, cooperate with each other with respect to any Corrective Action after the expiration or earlier termination of this Lease so as not to interfere unreasonably with the conduct of Landlord's or any third party's business on the Premises, the Building and the Project.  It shall be reasonable for Landlord to require Tenant to deliver a "no further action" letter or substantially similar document from the applicable governmental agency and Landlord shall provide reasonable access until such time as such approval is obtained .  Landlord's "reasonableness" as used in the immediately preceding sentence shall be based on (i )  the zoning of the Premises as of the date in question, and (ii )  the logical uses of the Premises as of the date in question.  If Landlord desires to situate a tenant in the Premises, the Building and the Project and remediation of the Premises and the Affected Areas is ongoing, Landlord shall be deemed to be unable to use the Premises, the Building and the Project in the way Landlord reasonably desires and Tenant shall be obligated to pay an access fee equal to the Monthly Rent which shall be prorated daily until such time as Landlord is able to situate said tenant in the Premises, the Building and/or the Project.  Tenant agrees to install, at Tenant's sole cost and expense, screening around its remediation equipment so as to protect the aesthetic appeal of the Premises, the Building and the Project. Tenant also agrees to use reasonable efforts to locate its remediation and/or monitoring equipment, if any (subject to the requirements of Tenant's consultant and governmental agencies with jurisdiction over the Premises, the Building and the Project) in a location which will allow Landlord, to the extent reasonably practicable, the ability to lease the Premises, the Building and the Project to a subsequent user.  Any Hazardous Materials contamination on, in, under or about the Premises and the Affected Areas   existing prior to commencement of this Lease are solely Landlord's responsibility and Tenant shall have no obligations whatsoever for any investigation or remediation associated with Hazardous Materials existing on the Premises prior to the Lease Commencement Date.  Landlord will indemnify Tenant for any and all costs and expenses associated with Hazardous Materials existing on the Premises prior to the Lease Commencement Date; provided, however, that Landlord's indemnity obligation shall not extend to loss of business, loss of profits or other consequential damages which may be suffered by Tenant .
5.2.6 Tenant's Duty to Notify Landlord Regarding Releases .  Tenant agrees to promptly notify Landlord of any Release of Hazardous Materials in the Premises, the Building or any other portion of the Project which Tenant becomes aware of during the Term of this Lease, whether caused by Tenant or any other persons or entities.  In the event of any release of Hazardous Materials in violation of Environmental Laws caused or permitted by Tenant or any of Tenant's Parties, Landlord shall have the right, but not the obligation, to cause Tenant, at Tenant's sole cost and expense, to immediately take all legally required steps necessary to remediate such Release and prevent any similar future release.  Tenant will, upon the reasonable and good faith request of Landlord at any time during which Landlord has a reasonable basis to conclude that Tenant is not in compliance with this Section 5.2 (and in any event no earlier than sixty (60) days and no later than thirty (30) days prior to the expiration of this Lease), cause to be performed a Phase I environmental assessment of the Premises at Tenant's expense by an established environmental consulting firm reasonably acceptable to Landlord.  In the event the assessment concludes that Tenant has caused conditions that require Corrective Action, then Tenant shall immediately perform the same at its sole cost and expense.
 5.2.7 Tenant's Environmental Indemnity .  To the fullest extent permitted by law, Tenant agrees to promptly indemnify, protect, defend and hold harmless Landlord and Landlord's members, partners, subpartners, independent contractors, officers, directors, shareholders, employees, agents, successors and assigns (collectively,
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" Landlord Parties ") from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, clean-up, removal, remediation and restoration costs, sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees and court costs) which arise or result from the presence of Hazardous Materials on, in, under or about the Premises, the Building or any other portion of the Project caused by Tenant or any of Tenant's Parties during the Term of this Lease ; provided, however, that Tenant's indemnity obligations shall not extend to loss of business, loss of profits or other consequential damages which may be suffered by Landlord .  Tenant's obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, cleanup or detoxification or decontamination of the Premises, the Building and/or the Project, or the preparation and implementation of any closure, remedial action or other required plans in connection therewith.  The provisions of this Section 5.2.7 will survive the expiration or earlier termination of this Lease.
5.2.8 Landlord's Environmental Indemnity .  To the fullest extent permitted by law, Landlord agrees to promptly indemnify, protect, defend and hold harmless Tenant and Tenant's members, partners, subpartners, independent contractors, officers, directors, shareholders, employees, agents, successors and assigns (collectively, " Tenant Parties ") from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, clean-up, removal, remediation and restoration costs, sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees and court costs) which arise or result from the presence of Hazardous Materials on, in, under or about the Premises, the Building or any other portion of the Project caused by Landlord or any of Landlord's Parties (or any of Landlord's tenants) during the Term of this Lease; provided, however, that Landlord's indemnity obligations shall not extend to loss of business, loss of profits or other consequential damages which may be suffered by Tenant.
5.2.9 Landlord's Remediation .  If Hazardous Materials are present at the Premises that are required by Environmental Law to be remediated and Tenant is not responsible therefor pursuant to Section 5.2, Landlord shall remediate such Hazardous Materials
5.2.10 Hazardous Material Storage Area and General Storage Area .  Tenant's Hazardous Material Storage Area is located on the first (1 st ) floor of the Building and is depicted on Exhibit A-2 attached hereto (" Hazardous Material Storage Area ").  Tenant's general storage area is located on the first (1 st ) floor of the Building and is depicted on Exhibit A-3 attached hereto (" General Storage Area "), such Hazardous Material storage area and General Storage Area are part of the Premises leased to Tenant and all terms and conditions of this Lease shall apply to Tenant's leasing of the same for chemical use or storage.
5.3 Odors and Exhaust .  Tenant acknowledges that Landlord would not enter into this Lease with Tenant unless Tenant assured Landlord that under no circumstances will the Premises be damaged by any exhaust from Tenant's operations.  Landlord and Tenant therefore agree as follows:
5.3.1 Tenant shall not cause or permit (or conduct any activities that would cause) any release of any odors or fumes of any kind from the Premises.
5.3.2 If the Building has a ventilation system that, in Landlord's judgment, is adequate, suitable, and appropriate to vent the Premises in a manner that does not release odors affecting any indoor or outdoor part of the Premises, Tenant shall vent the Premises through such system.  If Landlord at any time determines that any existing ventilation system is inadequate, or if no ventilation system exists, Tenant shall in compliance with applicable laws vent all fumes and odors from the Premises (and remove odors from Tenant's exhaust stream) as Landlord reasonably requires consistent with practices at comparable buildings in San Diego County.  The placement and configuration of all ventilation exhaust pipes, louvers and other equipment shall be subject to Landlord's approval, not to be unreasonably withheld.  Tenant acknowledges Landlord's legitimate desire to maintain the Premises (indoor and outdoor areas) in an odor-free manner, and Landlord may require Tenant to abate and remove all odors in a manner that goes beyond the requirements of applicable laws.
 5.3.3 Tenant shall, at Tenant's sole cost and expense, provide odor eliminators and other devices (such as filters, air cleaners, scrubbers and whatever other equipment may in Landlord's reasonable judgment be necessary or appropriate from time to time) to completely remove, eliminate and abate any odors,
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fumes or other substances in Tenant ' s exhaust stream that, in Landlord ' s judgment, emanate from the Premises.  Any work Tenant performs under this Section  5.3 shall constitute Alterations.
5.3.4 Tenant's responsibility to remove, eliminate and abate odors, fumes and exhaust shall continue throughout the Term.
5.3.5 If Tenant fails to install satisfactory odor control equipment within ten (10) business days after Landlord's demand made at any time, then Landlord may, without limiting Landlord's other rights and remedies, require Tenant to cease and suspend any operations in the Premises that, in Landlord's determination, cause odors, fumes or exhaust.
 ARTICLE 6
SERVICES AND UTILITIES
6.1 Standard Tenant Services .  Landlord shall provide the following services on all days during the Lease Term, unless otherwise stated below.
6.1.1 Subject to all governmental rules and regulations applicable thereto, Landlord shall provide heating and air conditioning capacity to the Premises.
6.1.2 Landlord shall provide adequate electrical wiring and facilities for power for the Premises.  Landlord shall designate the electricity utility provider from time to time.
6.1.3 Landlord shall provide nonexclusive automatic passenger elevator service at all times.
6.1.4 Landlord shall provide water in the Common Areas and Premises for lavatory, drinking, laboratory and landscaping purposes.  Such cost shall be paid by Tenant as Additional Rent.
6.2 Overstandard Tenant Use .  Tenant shall not overload the Systems and Equipment serving the Building.
6.3 Utilities .  Tenant shall pay for all water (including the cost to service, repair and replace reverse osmosis, de-ionized and other treated water), gas, heat, light, power, telephone, internet service, cable television, other telecommunications and other utilities supplied to the Premises, together with any fees, surcharges and taxes thereon.  If any such utility is not separately metered or submetered to Tenant, Tenant shall pay Tenant's Share of all charges of such utility jointly metered with other premises as Additional Rent or, in the alternative, Landlord may, at its option, monitor the usage of such utilities by Tenant and charge Tenant with the cost of purchasing, installing and monitoring such metering equipment, which cost shall be paid by Tenant as Additional Rent.  To the extent that Tenant uses more than Tenant's Share of any utilities, then Tenant shall pay Landlord Tenant's Share of Operating Expenses to reflect such excess.
6.4 Interruption of Use .  Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including, but not limited to, any central plant or other lab system, telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord's reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease.  Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property (including scientific research and any intellectual property) or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6.
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6.5 Additional Services .  Landlord shall also have the exclusive right, but not the obligation, to provide any additional services which may be required by Tenant, including, without limitation, locksmithing and additional repairs and maintenance, provided that Tenant shall pay to Landlord within ten (10) days after billing and as Additional Rent hereunder, the sum of all costs to Landlord of such additional services.
6.6 Janitorial Service .  Landlord shall not be obligated to provide any janitorial services to the Premises or replace any light bulbs, lamps, starters and ballasts for lighting fixtures within the Premises.  Tenant shall be solely responsible, at Tenant’s sole cost and expense, for (i) performing all janitorial services, trash removal and other cleaning of the Premises, and (ii) replacement of all light bulbs, lamps, starters and ballasts for lighting fixtures within the Premises, all as appropriate to maintain the Premises in a first-class manner consistent with the first-class nature of the Building and Project.  Such services to be provided by Tenant shall be performed by contractors and pursuant to service contracts approved by Landlord.  Tenant shall deposit trash as reasonably required in the area designated by Landlord from time to time.  All trash containers must be covered and stored in a manner to prevent the emanation of odors into the Premises or the Project.  Landlord shall have the right to inspect the Premises upon reasonable notice to Tenant and to require Tenant to provide additional cleaning, if necessary.  In the event Tenant shall fail to provide any of the services described in this Section 6.6 to be performed by Tenant within five (5) days after notice from Landlord, which notice shall not be required in the event of an emergency, Landlord shall have the right to provide such services and any charge or cost incurred by Landlord in connection therewith shall be deemed Additional Rent due and payable by Tenant upon receipt by Tenant of a written statement of cost from Landlord.
6.7 Energy Statements .  For any utilities serving the Premises for which Tenant is billed directly by such utility provider, Tenant agrees to furnish to Landlord (a) any invoices or statements for such utilities within thirty (30) days after Tenant's receipt thereof, (b) within thirty (30) days after Landlord's request, any other utility usage information reasonably requested by Landlord, and (c) within thirty (30) days after each calendar year during the Term, an ENERGY STAR® Statement of Performance (or similar comprehensive utility usage report if requested by Landlord) and any other information reasonably requested by Landlord for the immediately preceding year.  Tenant shall retain records of utility usage at the Premises, including invoices and statements from the utility provider, for at least sixty (60) months, or such other period of time as may be requested by Landlord.  Tenant acknowledges that any utility information for the Premises may be shared with third parties, including Landlord's consultants and governmental authorities.  In the event that Tenant fails to comply with this Section, Tenant hereby authorizes Landlord to collect utility usage information directly from the applicable utility providers and agree to pay Landlord a fee of One Thousand Dollars ($1,000) per month to collect such utility usage information.
6.8 Abatement of Rent When Tenant Is Prevented From Using Premises .  Notwithstanding anything to the contrary in this Lease, if Tenant is prevented from using, and does not use, the Premises or any portion thereof, for five (5) consecutive business days (the " Eligibility Period ") as a result of (i) any repair, maintenance or alteration performed or failed to be performed by Landlord after the Lease Commencement Date, including any Construction (as defined in Section 24.30 below), or (ii) any failure to provide to the Premises any of the essential utilities and services required to be provided in Sections 16.1(a) or 16.1(b) above, or (iii) any failure to provide access to the Premises including Tenant's access to the Parking Areas, then Tenant's obligation to pay Rent shall be abated or reduced, as the case may be, from and after the first (1st) day of the Eligibility Period and continuing until such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable square feet of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable square feet of the Premises.  To the extent Tenant shall be entitled to abatement of rent because of a damage or destruction pursuant to Section 18 or a taking pursuant to Section 19, then the Eligibility Period shall not be applicable.
6.9 Landlord's Emergency Generator .  Tenant shall have the right to draw power from the emergency generator serving the Project (" Generator ") at times when the emergency generator is in emergency operation; provided, however, that Tenant may only draw Tenant's Share of Available Power for Tenant's critical power requirements (i.e., certain portions of Tenant's labs in the Premises).  As used herein, " Available Power " means 4.69 watts per rentable square foot of the Premises.  
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 ARTICLE 7
REPAIRS
7.1 Tenant's Repairs .  Subject to Landlord's repair obligations in Sections 7.2 and 11.1 below, Tenant shall, at Tenant's own expense, keep the Premises, including all improvements, fixtures and furnishings therein, in good order, repair and condition at all times during the Lease Term, which repair obligations shall include, without limitation, the obligation to promptly and adequately repair all damage to the Premises and replace or repair all damaged or broken fixtures and appurtenances, together with all portions (to the extent accessible to Tenant) of the HVAC, electrical, mechanical plumbing, life safety and lab systems from the point that such systems solely serves the Premises and all portions of all fume hoods and other exhaust systems (all such systems collectively being referred to as the “ Premises Systems ”), in a first-class condition.  Tenant’s obligations shall include restorations, replacements or renewals, including capital expenditures for restorations, replacements or renewals which will have an expected life beyond the Term, when necessary to keep the Premises and all improvements thereon or a part thereof and the Premises Systems in first-class order, condition and repair and in compliance with all applicable laws.  Except as expressly set forth in this Lease, it is intended by the parties hereto that Landlord shall have no obligation, in any manner whatsoever, to repair or maintain the Premises, the improvements located therein or the equipment therein, or the Premises Systems whether structural or nonstructural, all of which obligations are intended to be the expense of Tenant (whether or not such repairs, maintenance or restoration shall have an expected life extending beyond the Term).  Tenant’s maintenance of the Premises Systems shall comply with the manufacturers’ recommended operating and maintenance procedures.  Tenant shall enter into and pay for maintenance contracts (in forms reasonably satisfactory to Landlord, which may require, without limitation, that any third party contractor provide Landlord with evidence of insurance as reasonably required by Landlord) for the Premises Systems in accordance with the manufacturers’ recommended operating and maintenance procedures.  Such maintenance contracts shall be with reputable contractors, reasonably satisfactory to Landlord, who shall have commercially reasonable experience in maintaining such systems in biotechnical facilities.  Upon Landlord's request, Tenant shall provide maintenance reports from any such contractors.  Tenant shall be solely responsible for the cost of all improvements or alterations to the Premises or the Premises Systems required by law.  Notwithstanding the foregoing, at Landlord's option, or if Tenant fails to make such repairs, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord's involvement with such repairs and replacements forthwith upon being billed for same.  In addition, in the event Tenant has not provided Landlord with evidence that Tenant has entered into such service contracts, Landlord reserves the right, upon notice to Tenant, to procure and maintain any or all of such service contracts, and if Landlord so elects, Tenant shall reimburse Landlord, upon demand, for the costs thereof.  Tenant shall, no later than January 31 st of each calendar year during the Term, provide to Landlord a copy of the budget for maintenance, repairs and replacements at the Premises for the preceding calendar year, as well as a detailed summary of the amounts actually expended by Tenant during such period for maintenance, repairs and replacements at the Premises.
7.2 Landlord's Repairs .  Anything contained in Section 7.1 above to the contrary notwithstanding, and subject to Articles 11 and 12 below, Landlord shall repair and maintain the structural portions of the Building, including the mechanical, plumbing, elevator, HVAC and electrical systems serving the Building and not located in and exclusively serving the Premises; provided, however, to the extent such maintenance and repairs are caused by the act, neglect, fault of or omission of any duty by Tenant, its agents, servants, employees or invitees, Tenant shall pay to Landlord as Additional Rent, the reasonable cost of such maintenance and repairs.  Except as expressly set forth in this Lease, Landlord shall not be liable for any failure to make any such repairs, or to perform any maintenance.  Except as expressly set forth in this Lease, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Project, Building or the Premises or in or to fixtures, appurtenances and equipment therein.  Tenant hereby waives and releases its right to make repairs at Landlord's expense under Sections 1941 and 1942 of the California Civil Code; or under any similar law, statute, or ordinance now or hereafter in effect.
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 ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 Landlord's Consent to Alterations .  Tenant may not make any improvements, alterations, additions or changes to the Premises (collectively, the " Alterations ") without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord; provided, however, Landlord may withhold its consent in its sole and absolute discretion with respect to any Alterations which may materially adversely affect the structural components of the Building or the Systems and Equipment or which can be seen from outside the Premises.  Tenant shall pay for all overhead, general conditions, fees and other costs and expenses of the Alterations, and shall pay to Landlord a Landlord supervision fee of five percent (5%) of the cost of the Alterations.  The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8 and shall not be deemed " Alterations ".
8.2 Manner of Construction .  Landlord may impose, as a condition of its consent to all Alterations or repairs of the Premises reasonable requirements, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors, materials, mechanics and materialmen reasonably approved by Landlord.  Tenant shall construct such Alterations and perform such repairs in compliance with any and all applicable rules and regulations of any federal, state, county or municipal code or ordinance and pursuant to a valid building permit, issued by the city in which the Building is located, and in conformance with Landlord's reasonable construction rules and regulations.  Landlord's approval of the plans, specifications and working drawings for Tenant's Alterations shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities.  All work with respect to any Alterations must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work.  Tenant shall cause all Alterations to be performed in such manner as not to obstruct access by any person to the Building or Project or the common areas, and as not to obstruct the business of Landlord or other tenants of the Project, or interfere with the labor force working at the Project.  If Tenant makes any Alterations, Tenant agrees to carry "Builder's All Risk" insurance in an amount reasonably approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 below immediately upon completion thereof.  If Landlord has reasonable cause therefor, then Landlord may require Tenant to obtain a lien and completion bond or some alternate form of security reasonably satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.  Upon completion of any Alterations, Tenant shall (i) cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Project is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, (ii) deliver to the management office of the Building a reproducible copy of the "as built" drawings of the Alterations, and (iii) deliver to Landlord evidence of payment, contractors' affidavits and full and final waivers of all liens for labor, services or materials.
 8.3 Landlord's Property .  All Alterations, improvements, fixtures and/or equipment which may be installed or placed in or about the Premises (including, but not limited to, all floor and wall coverings, built-in cabinet work and paneling, sinks and related plumbing fixtures, laboratory benches, exterior venting fume hoods and walk-in freezers and refrigerators, ductwork, conduits, electrical panels and circuits), shall be at the sole cost of Tenant, and shall be and become the property of Landlord.  Furthermore, Landlord may require that Tenant remove any Alterations, improvements, fixtures and/or equipment upon the expiration or early termination of the Lease Term, and repair any damage to the Premises and Building caused by such removal (provided that Landlord so designates at the time that Landlord consents to such Alteration but Landlord will only be required to so designate in the event Tenant requests, in Tenant's request for such consent, that Landlord make such determination).  Notwithstanding anything above to the contrary, Tenant shall have the right to remove any fixtures or equipment (but not Alterations except for Alterations which are in the nature of equipment fixtures) from the Premises which have been paid solely by Tenant's funds (and repair any damage to the Premises caused by such removal).  If Tenant fails to complete such removal and/or to repair by the end of the Lease Term (plus a reasonable cure period not to exceed five (5) business days), Landlord may do so and may charge the cost thereof to Tenant.  Notwithstanding any other provision of this Article 8 to the contrary, in no event shall Tenant remove any improvement from the
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Premises as to which Landlord contributed payment, including the Tenant Improvements, without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion.
 8.4 Wi-Fi Network .  Without limiting the generality of the foregoing, if Tenant desires to install wireless intranet, Internet and communications network (" Wi-Fi Network ") in the Premises for the use by Tenant and its employees, then the same shall be subject to the provisions of this Section 8.4 (in addition to the other provisions of this Article 8).  In the event Landlord consents to Tenant's installation of such Wi-Fi Network, Tenant shall, in accordance with Article 15 below, remove the Wi-Fi Network from the Premises prior to the termination of the Lease.  Tenant shall use the Wi-Fi Network so as not to cause any interference to other tenants in the Building or to other tenants at the Project or with any other tenant's communication equipment, and not to damage the Building or Project or interfere with the normal operation of the  Building or Project, and Tenant hereby agrees to indemnify, defend and hold Landlord harmless from and against any and all claims, costs, damages, expenses and liabilities (including attorneys' fees) arising out of Tenant's failure to comply with the provisions of this Section 8.4, except to the extent same is caused by the gross negligence or willful misconduct of Landlord and which is not covered by the insurance carried by Tenant under this Lease (or which would not be covered by the insurance required to be carried by Tenant under this Lease).  Should any interference occur, Tenant shall take all necessary steps as soon as reasonably possible and no later than three (3) calendar days following such occurrence to correct such interference.  If such interference continues after such three (3) day period, Tenant shall immediately cease operating such Wi-Fi Network until such interference is corrected or remedied to Landlord’s satisfaction.  Tenant acknowledges that Landlord has granted and/or may grant telecommunication rights to other tenants and occupants of the Building and Project and to telecommunication service providers and in no event shall Landlord be liable to Tenant for any interference of the same with such Wi-Fi Network; provided, however, that Landlord will use commercially reasonable efforts to assist Tenant in resolving such interference  .  Landlord makes no representation that the Wi-Fi Network will be able to receive or transmit communication signals without interference or disturbance.  Tenant shall (i) be solely responsible for any damage caused as a result of the Wi-Fi Network, (ii) comply with all precautions and safeguards recommended by all governmental authorities, (iii) pay for all necessary repairs, replacements to or maintenance of the Wi-Fi Network, and (iv) be responsible for any modifications, additions or repairs to the Building or Project, including without limitation, Building or Project systems or infrastructure, which are required by reason of the installation, operation or removal of Tenant’s Wi-Fi Network.  The mere appearance of Tenant's Wi-Fi Network outside the Premises shall not be deemed interference or a violation of this Section.  
 ARTICLE 9
COVENANT AGAINST LIENS
 Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon the Project, Building or Premises, and any and all liens and encumbrances created by Tenant shall attach to Tenant's interest only.  Landlord shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens.  Tenant shall not cause or permit any lien of mechanics or materialmen or others to be placed against the Project, the Building or the Premises with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and, in case of any such lien attaching or notice of any lien, Tenant shall cause it to be immediately released and removed of record.  If any such lien is not released and removed within five (5) business days after notice of such lien is delivered by Landlord to Tenant, then Landlord may, at its option, take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys' fees and costs, incurred by Landlord in connection with such lien shall be deemed Additional Rent under this Lease and shall immediately be due and payable by Tenant.  In the event that Tenant leases or finances the acquisition of equipment, furnishings or other personal property of a removable nature utilized by Tenant in the operation of Tenant's business, Tenant warrants that any Uniform Commercial Code financing statement shall, upon its face or by exhibit thereto, indicate that such financing statement is applicable only to removable personal property of Tenant located within the Premises.  In no event shall the address of the Premises be furnished on a financing statement without qualifying language as to applicability of the lien only to removable personal property located in an identified suite leased by Tenant.  Should any holder of a financing statement record or place of record a financing statement that appears to constitute a lien against any interest of Landlord or against equipment that may be located other than within an identified suite leased by Tenant, Tenant shall, within ten (10) days after filing such financing statement, cause (a) a
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copy of the Lender security agreement or other documents to which the financing statement pertains to be furnished to Landlord to facilitate Landlord ' s ability to demonstrate that the lien of such financing statement is not applicable to Landlord ' s interest and (b )  Tenant ' s l ender to amend such financing statement and any other documents of record to clarify that any liens imposed thereby are not applicable to any interest of Landlord in the Premises.
 ARTICLE 10
INDEMNIFICATION AND INSURANCE
10.1 Indemnification and Waiver .  Tenant hereby assumes all risk of damage to property and injury to persons, in, on, or about the Premises from any cause whatsoever and agrees that Landlord and the Landlord Parties shall not be liable for, and are hereby released from any responsibility for, any damage to property or injury to persons or resulting from the loss of use thereof, which damage or injury is sustained by Tenant or by other persons claiming through Tenant, except to the extent caused by the gross negligence or willful misconduct of Landlord or any Landlord Parties.  Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys' fees) (collectively, " Claims ") incurred in connection with or arising from any cause in, on or about the Premises (including, without limitation, Tenant's installation, placement and removal of Alterations, improvements, fixtures and/or equipment in, on or about the Premises), due to the acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, licensees or invitees of Tenant or any such person, in, on or about the Premises, the Building and Project, but only to the extent Tenant's liability is not waived and released by Landlord pursuant to the terms of Section 10.4 of this Lease; provided, however, that Tenant's indemnity shall, in no event, extend to loss of profits, loss of business or other consequential damages incurred by Landlord or any Landlord Parties.  Notwithstanding anything in this Section 10.1 to the contrary, the foregoing assumption of risk, release and indemnity shall not apply to any Claims to the extent resulting from the gross negligence or willful misconduct of Landlord or any Landlord Parties (collectively, the " Excluded Claims "), and Landlord shall indemnify, protect, defend and hold harmless Tenant and Tenant's officers, agents and employees (collectively, " Tenant Parties ") from and against any such Excluded Claims, but only to the extent Landlord's liability is not waived and released by Tenant pursuant to the terms of Section 10.4 of this Lease (provided, however, that Landlord's indemnity shall, in no event, extend to loss of profits, loss of business or other consequential damages incurred by Tenant or any Tenant Parties).  Each party's agreement to indemnify the other pursuant to this Section 10.1 is not intended and shall not relieve any insurance carrier of its obligations under policies required to be carried by the indemnifying party pursuant to the provisions of this Lease.  The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease.  Notwithstanding anything in this Lease to the contrary but subject to Section 6.8 and Landlord's indemnity obligations in this Lease, Landlord shall not be liable to Tenant for, and Tenant assumes all risk of, damage to personal property or scientific research or intellectual property, including loss of records kept by Tenant within the Premises and damage or losses caused by fire, electrical malfunction, gas explosion or water damage of any type (including broken water lines, malfunctioning fire sprinkler systems, malfunctioning lab systems including any malfunction of the central plant systems, roof leaks or stoppages of lines), except to the extent caused by the gross negligence or willful misconduct of Landlord or any Landlord Parties.  Tenant further waives any claim for injury to Tenant's business or loss of income relating to any such damage or destruction of personal property as described above.
10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance .  Tenant shall, at Tenant's expense, comply as to the Premises with all commercially reasonable insurance company requirements pertaining to the use of the Premises (provided they do not unreasonably interfere with Tenant's use of the Premises as first-class biotechnology space).  If Tenant's conduct or use of the Premises (other than as first-class biotechnology space) causes any increase in the premium for such insurance policies, then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's expense, shall comply with all commercially reasonable rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.
10.3 Tenant's Insurance .  Tenant shall maintain the following coverages in the following amounts.
 10.3.1 Commercial General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, assumed liabilities or use of the
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Premises, including a Broad Form Commercial General Liability endorsement covering the insuring provisions of this Lease and , to the extent consistent with insurance industry custom and practice, the performance by Tenant of the indemnity agreements set forth in Section 10.1 above (and liquor liability coverage if alcoholic beverages are served on the Premises) for limits of liability not less than:
Bodily Injury and
Property Damage Liability	$5,000,000 each occurrence
$5,000,000 annual aggregate	
Personal Injury Liability	$5,000,000 each occurrence
$5,000,000 annual aggregate	
10.3.2 Physical Damage Insurance covering (i) all furniture, trade fixtures, equipment, merchandise and all other items of Tenant's property on the Premises installed by, for, or at the expense of Tenant, (ii) the Tenant Improvements, including any Tenant Improvements which Landlord permits to be installed above the ceiling of the Premises or below the floor of the Premises, and (iii) all other improvements, alterations and additions to the Premises, including any improvements, alterations or additions installed at Tenant's request above the ceiling of the Premises or below the floor of the Premises.  Such insurance shall be written on a "physical loss or damage" basis under a "special form" policy, for the full replacement cost value new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage coverage.
10.3.3 Workers' compensation insurance as required by law.
10.3.4 Loss-of-income, business interruption and extra-expense insurance in such amounts as will reimburse Tenant for direct and indirect loss of earnings attributable to all perils commonly insured against by prudent tenants or attributable to prevention of loss of access to the Premises or to the Building as a result of such perils.
10.3.5 Form of Policies .  The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease.  Such insurance shall:  (i) name Landlord, and any other party it so specifies, as an additional insured; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant's obligations under Section 10.1 above (to the extent generally available in such coverage); (iii) be issued by an insurance company having a rating of not less than A–/VII in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the state in which the Project is located; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) to the extent reasonably available based on then insurance industry custom and practices, provide that said insurance shall not be canceled or coverage changed unless ten (10) days' prior written notice shall have been given to Landlord and any mortgagee or ground or underlying lessor of Landlord (provided that such provision is commercially available); (vi) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord; and (vii) with respect to the insurance required in Sections 10.3.1, 10.3.2 and 10.3.4 above, have deductible amounts not exceeding Fifty Thousand Dollars ($50,000.00).  Tenant shall deliver such policies or certificates thereof to Landlord on or before the Lease Commencement Date and at least five (5) days before the expiration dates thereof.  If Tenant shall fail to procure such insurance, or to deliver such policies or certificate, within such time periods, Landlord may, at its option, in addition to all of its other rights and remedies under this Lease, and without regard to any notice and cure periods set forth in Section 19.1, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within ten (10) days after delivery of bills therefor.  Tenant shall have the right to carry the insurance required hereunder in the form of blanket and/or umbrella policies.
10.4 Subrogation .  Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be.  Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of insurance for fire and all risk coverage, theft, public liability, or other similar insurance.
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 ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 Repair of Damage to Premises by Landlord .  Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty.  If the Premises or any common areas of the Building or Project serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this Article 11, restore the base, shell, and core of the Premises and such common areas.  Such restoration shall be to substantially the same condition of the base, shell, and core of the Premises and common areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Project and/or the Building, or the lessor of a ground or underlying lease with respect to the Building, or any other modifications to the common areas deemed desirable by Landlord, provided access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Upon the occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required under Section 10.3 of this Lease, and Landlord shall repair any damage to the tenant improvements and alterations installed in the Premises and shall return such tenant improvements and alterations to their original condition; provided that if the costs of such repair of such tenant improvements and Alterations by Landlord exceeds the amount of insurance proceeds received by Landlord therefor from Tenant's insurance carrier, as assigned by Tenant, the excess costs of such repairs shall be paid by Tenant to Landlord prior to Landlord's repair of the damage.  In connection with such repairs and replacements of any such tenant improvements and Alterations, Tenant shall, prior to Landlord's commencement of such improvement work, submit to Landlord, for Landlord's review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work.  Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or common areas necessary to Tenant's occupancy, and if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's employees, contractors, licensees, or invitees, Landlord shall allow Tenant a proportionate abatement of Base Rent and Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs to the extent Landlord is reimbursed from the proceeds of rental interruption insurance purchased by Landlord as part of Operating Expenses, during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof.
11.2 Landlord's Option to Repair .  Notwithstanding Section 11.1 above to the contrary, Landlord may elect not to rebuild and/or restore the Premises, the Building and/or any other portion of the Project and instead terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date Landlord becomes aware of such damage, such notice to include a termination date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present:  (i) repairs cannot reasonably be substantially completed within one hundred twenty (120) days after the date of such damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Project and/or the Building or ground or underlying lessor with respect to the Project and/or the Building shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground or underlying lease, as the case may be; or (iii) the damage is not fully covered, except for deductible amounts, by Landlord's insurance policies.  In addition, if the Premises or the Building is destroyed or damaged to any substantial extent during the last year of the Lease Term, then notwithstanding anything contained in this Article 11, Landlord shall have the option to terminate this Lease by giving written notice to Tenant of the exercise of such option within thirty (30) days after such damage, in which event this Lease shall cease and terminate as of the date of such notice.  Upon any such termination of this Lease pursuant to this Section 11.2, Tenant shall pay the Base Rent and Additional Rent, properly apportioned up to such date of termination, and both parties hereto shall thereafter be discharged of all further obligations under this Lease, except for those obligations which expressly survive the expiration or earlier termination of the Lease Term.
 11.3 Waiver of Statutory Provisions .  The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or
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any part of the Premises, the Building or any other portion of the Project, and any statute or regulation of the state in which the Project is located, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or any other portion of the Project.
 ARTICLE 12
CONDEMNATION
12.1 Permanent Taking .  If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease upon ninety (90) days' notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking, condemnation, deed or other instrument.  If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, Tenant shall have the option to terminate this Lease upon ninety (90) days' notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking.  Landlord shall be entitled to receive the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claim does not diminish the award available to Landlord, or its ground lessor or mortgagee with respect to the Project, and such claim is payable separately to Tenant.  All Rent shall be apportioned as of the date of such termination, or the date of such taking, whichever shall first occur.  If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Base Rent and Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs shall be proportionately abated.  Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure.
12.2 Temporary Taking .  Notwithstanding anything to the contrary contained in this Article 12, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate but the Base Rent and Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises.  Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.
 ARTICLE 13
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, and agreements hereof without interference by any persons lawfully claiming by or through Landlord.  The foregoing covenant is in lieu of any other covenant express or implied.
 ARTICLE 14
ASSIGNMENT AND SUBLETTING
 14.1 Transfers .  Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest
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hereunder, permit any assignment or other such foregoing transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or permit the use of the Premises by any persons other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as " Transfers " and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a " Transferee ").  If Tenant shall desire Landlord's consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the " Transfer Notice ") shall include (i )  the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii )  a description of the portion of the Premises to be transferred (the " Subject Space "), (iii )  all of the terms of the proposed Transfer, the name and address of the proposed Transferee, and a copy of all existing and/or proposed documentation pertaining to the proposed Transfer, (iv )  current financial statements of the proposed Transferee certified by an officer, partner or owner thereof (which Landlord shall treat as confidential and shall not disclose) , (v )  a list of Hazardous Materi als, certified by the proposed T ransferee to be true and correct, that the proposed T ransferee intends to use or store in the Premises, and (v i )  such other information as Landlord may reasonably require.  Any Transfer made without Landlord's prior written consent shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute a default by Tenant under this Lease.  Whether or not Landlord shall grant consent, within thirty (30) days after written request by Landlord, Tenant shall pay to Landlord One Thousand Five Hundred Dollars ($1,500.00) to reimburse Landlord for its review and processing fees, and Tenant shall also reimburse Landlord for any reasonable legal fees incurred by Landlord in connection with Tenant's proposed Transfer.
14.2 Landlord's Consent .  Landlord shall not unreasonably withhold its consent to any proposed Transfer on the terms specified in the Transfer Notice.  In no event shall Landlord be deemed to be unreasonable for declining to consent to a Transfer to a transferee jeopardizing directly or indirectly the status of Landlord or any of Landlord's affiliates as a Real Estate Investment Trust under the Internal Revenue Code of 1986 (as the same may be amended from time to time, the " Revenue Code ") in accordance with the following sentence.  Notwithstanding anything contained in this Lease to the contrary, (w) no Transfer shall be consummated on any basis such that the rental or other amounts to be paid by the occupant, assignee, manager or other transferee thereunder would be based, in whole or in part, on the income or profits derived by the business activities of such occupant, assignee, manager or other transferee; (x) Tenant shall not furnish or render any services to an occupant, assignee, manager or other transferee with respect to whom transfer consideration is required to be paid, or manage or operate the Premises or any capital additions so transferred, with respect to which transfer consideration is being paid; (y) Tenant shall not consummate a Transfer with any person in which Landlord owns an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the Revenue Code); and (z) Tenant shall not consummate a Transfer with any person or in any manner that could cause any portion of the amounts received by Landlord pursuant to this Lease or any sublease, license or other arrangement for the right to use, occupy or possess any portion of the Premises to fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Revenue Code, or any similar or successor provision thereto or which could cause any other income of Landlord to fail to qualify as income described in Section 856(c)(2) of the Revenue Code.  The parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply, without limitation as to other reasonable grounds for withholding consent:
14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or Project;
14.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or instrumentality thereof;
14.2.4 The Transfer will result in more than a reasonable and safe number of occupants per floor within the Subject Space;
14.2.5 The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved under the Lease on the date consent is requested;
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14.2.6 The proposed Transfer would cause Landlord to be in violation of another lease or agreement to which Landlord is a party, or would give an occupant of the Project a right to cancel its lease; provided that Landlord notified Tenant of such restrictions prior to the date of this Lease ;
14.2.7 The terms of the proposed Transfer will allow the Transferee to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Tenant (or will allow the Transferee to occupy space leased by Tenant pursuant to any such right); or
14.2.8 Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Project at the time of the request for consent, or (ii) is negotiating with Landlord to lease space in the Project at such time.
If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 below), Tenant may within six (6) months after Landlord's consent, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 above, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, or (ii) which would cause the proposed Transfer to be materially more favorable to the Transferee than the terms set forth in Tenant's original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord's right of recapture, if any, under Section 14.4 of this Lease).
14.3 Transfer Premium .  If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any Transfer Premium received by Tenant from such Transferee.  " Transfer Premium " shall mean all rent, additional rent or other consideration payable by such Transferee in excess of the Rent and Additional Rent payable by Tenant under this Lease on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any reasonable changes, alterations and improvements to the Premises in connection with the Transfer (but only to the extent approved by Landlord), and (ii) any reasonable brokerage commissions, marketing expenses, allowances or other reasonable costs in connection with the Transfer (collectively, the " Subleasing Costs ").  Transfer Premium shall also include, but not be limited to, key money and bonus money paid by Transferee to Tenant as compensation for such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee.
14.4 Landlord's Option as to Subject Space .  Notwithstanding anything to the contrary contained in this Article 14, if the proposed Transfer is an assignment (to other than an Affiliate) or a sublessee with respect to the balance of the Lease Term, Landlord shall have the option, by giving written notice to Tenant within ten (10) days after receipt of any Transfer Notice, to recapture the Subject Space.  Such recapture notice shall terminate this Lease with respect to the Subject Space as of the date stated in the Transfer Notice as the effective date of the proposed Transfer until the last day of the term of the Transfer as set forth in the Transfer Notice.  If this Lease is terminated with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the rentable square feet retained by Tenant in proportion to the rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same.  If Landlord declines, or fails to elect in a timely manner to recapture the Subject Space under this Section 14.4, then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject Space to the proposed Transferee, subject to provisions of the last paragraph of Section 14.2 above.
 14.5 Effect of Transfer .  If Landlord consents to a Transfer: (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified; (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee; (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord; and (iv) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of the Lease from liability under this Lease.  Landlord or
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its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof , provided that Landlord executes a commercially reasonable non-disclosure agreement .  If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency and Landlord's costs of such audit.
14.6 Additional Transfers .  For purposes of this Lease, the term "Transfer" shall also include: (i) if Tenant is a partnership or limited liability company, the withdrawal or change, voluntary, involuntary or by operation of law, of more than fifty percent (50%) of the partners or members, or transfer of more than fifty percent (50%) of the partnership or membership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof; and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant, (B) the sale or other transfer of more than an aggregate of fifty percent (50%) of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or pledge of more than an aggregate of fifty percent (50%) of the value of the unencumbered assets of Tenant within a twelve (12)-month period.
14.7 Affiliated Companies/Restructuring of Business Organization .  Neither (A) the assignment or subletting by Tenant of all or any portion of this Lease or the Premises to (i) a parent or subsidiary of Tenant, or (ii) any person or entity which controls, is controlled by or under common control with Tenant, or (iii) any entity which purchases all or substantially all of the assets of Tenant in one or a series of transactions, or (iv) any entity into which Tenant is merged or consolidated (all such persons or entities described in (i), (ii), (iii) and (iv) being sometimes hereinafter referred to as " Affiliates "), nor (B) any transfer of the stock of Tenant, shall be deemed a Transfer under this Article 14, provided that:
14.7.1 Any such Affiliate was not formed, nor was such financing intended, as a subterfuge to avoid the obligations of this Article 14;
14.7.2 Tenant gives Landlord prior written notice of any such assignment, sublease, financing or public offering, unless precluded by non-disclosure obligations, in which case Tenant shall notify Landlord promptly thereafter;
14.7.3 Tenant or any such Affiliate has, following the effective date of any such assignment, sublease, financing or public offering, a tangible net worth, in the aggregate, computed in accordance with generally accepted accounting principles, which is equal to or greater than Tenant as of the effective date of any such assignment, sublease, financing or public offering;
14.7.4 Any such Affiliate shall assume, in a written document reasonably satisfactory to Landlord and delivered to Landlord upon or prior to the effective date of such assignment or sublease, all the obligations of Tenant under this Lease; and
14.7.5 Tenant shall remain fully liable for all obligations to be performed by Tenant under this Lease.
An Affiliate that is an assignee of Original Tenant's (or a prior Affiliate Assignee's) entire interest in this Lease may be referred to as an " Affiliate Assignee ."
 14.8 Special Transferees .  Tenant shall be permitted, upon prior written notice to Landlord (but without otherwise triggering the other provisions of this Article 14) to enter into any license agreements of space (the " Occupancy Agreements ") within the Premises with business affiliates of Tenant; provided, however, that in no event shall the rentable square feet of space licensed to any one third party exceed 2,000 rentable square feet of space; provided that (a) Tenant shall give Landlord prior written notice of any such Occupancy Agreement and promptly supply Landlord with any documents or information requested by Landlord regarding such transferees (including, but not limited to, applicable certificates of insurance), (b) each licensee is consistent with the character of the Project as a first-class project, and (c) in no event shall such licensees be permitted to maintain a separate
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reception area in the Premises.  Any proposed license which is greater than 2,000 rentable square feet of the Premises shall require Landlord's prior written consent and shall be deemed a Transfer under this Article 14 (and shall be subject to all of the terms and conditions of this Article 14).
 ARTICLE 15
SURRENDER; OWNERSHIP AND REMOVAL OF PERSONAL PROPERTY
15.1 Surrender of Premises .  No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in a writing signed by Landlord.  The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated.  The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises.
15.2 Removal of Tenant Property by Tenant .  Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted.  Tenant's restoration obligations with respect to any Alterations may also include satisfying Landlord's commercially reasonable procedures regarding the cleaning of any lab systems and sealing any connection points of any such lab systems to the Premises, all at Tenant's sole cost and expense.  Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all telephone, data, and other cabling and wiring (including any cabling and wiring associated with the Wi-Fi Network, if any) installed or caused to be installed by Tenant (including any cabling and wiring, installed above the ceiling of the Premises or below the floor of the Premises), all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.  Tenant's obligations under this Section 15.2 shall survive the expiration or earlier termination of this Lease.
 ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate equal to one hundred fifty percent (150%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease.  Such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein.  Landlord hereby expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease.  The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law.  If Tenant fails to surrender the Premises prior to three (3) months after the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys' fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender, and any lost profits to Landlord resulting therefrom.
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 ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be in the form as may be required by any prospective mortgagee or purchaser of the Project (or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord's mortgagee or Landlord's prospective mortgagees.  Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes.  Upon request from time to time, Tenant agrees to provide to Landlord, within ten (10) days after Landlord's delivery of written request therefor, current financial statements for Tenant, dated no earlier than one (1) year prior to such written request, certified as accurate by Tenant or, if available, audited financial statements prepared by an independent certified public accountant with copies of the auditor's statement; provided that Landlord executed Tenant's customary and commercially reasonable non-disclosure agreement.  Landlord from time to time shall, within twenty (20) business days after written request by Tenant, execute, acknowledge and deliver to Tenant a written statement certifying that the Lease is unmodified and in full force and effect (or that the same is in full force and effect as modified, listing the instruments of modification), the dates to which rent and the other charges have been paid; and that to the actual knowledge of Landlord, without having made independent investigation, Tenant is not in default hereunder (or specifying the nature of any default(s) Landlord claims to exist at the time of such certification).
 ARTICLE 18
SUBORDINATION
This Lease is subject and subordinate to all present and future ground leases of the Project and to the lien of any mortgages or trust deeds, now or hereafter in force against the Project, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground lease, require in writing that this Lease be superior thereto; provided, however, that a condition precedent to the subordination of this Lease to any future ground or underlying lease or to the lien of any future mortgage or deed of trust is that Landlord shall obtain for the benefit of Tenant a commercially reasonable subordination, non-disturbance and attornment agreement from the landlord or lender of such future instrument.  Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage, or if any ground lease is terminated, to attorn, without any deductions or set-offs whatsoever, to the purchaser upon any such foreclosure sale, or to the lessor of such ground lease, as the case may be, if so requested to do so by such purchaser or lessor, and to recognize such purchaser or lessor as the lessor under this Lease.  Tenant shall, within five (5) days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, or ground leases.  Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.  Within sixty (60) days after the execution of this Lease, Landlord shall obtain a non-disturbance agreement from the holder of any pre-existing mortgage encumbering the Building in the form attached hereto as Exhibit E and Tenant shall execute the same within ten (10) days of Landlord's written request.  In the event that Landlord is unable to provide the non-disturbance agreement within said sixty (60) days, then Tenant shall have the right to terminate this Lease.
 ARTICLE 19
TENANT'S DEFAULTS; LANDLORD'S REMEDIES
19.1 Events of Default by Tenant .  All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent.  Tenant shall only be deemed to be in default or breach of this Lease upon the occurrence of any of the following:
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19.1.1 Any failure by Tenant to pay any Rent , Additional Rent or any other charge required to be paid under this Lease, or any part thereof, within five (5) days after delivery of written notice that the same was not paid when due; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 or any similar or successor law ; or
19.1.2 Any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant (other than the payment of Rent or Additional Rent) where such failure continues for fifteen (15) days after written notice thereof from Landlord to Tenant; provided however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 or any similar or successor law; and provided further that if the nature of such default is such that the same cannot reasonably be cured within a fifteen (15)-day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure said default as soon as possible; or
19.1.3 Permanent abandonment of the Premises by Tenant.
19.1.4 Tenant makes an assignment for the benefit of creditors.
19.1.5 A receiver, trustee or custodian is appointed to or does take title, possession or control of all or substantially all of Tenant's assets and Tenant does not cure same within one hundred twenty (120) days.
19.1.6 Tenant files a voluntary petition under the United States Bankruptcy Code or any successor statute (as the same may be amended from time to time, (the " Bankruptcy Code ") or an order for relief is entered against Tenant pursuant to a voluntary or involuntary proceeding commenced under any chapter of the Bankruptcy Code and is not dismissed within one hundred twenty (120) days.
19.1.7 Any involuntary petition is filed against Tenant under any chapter of the Bankruptcy Code and is not dismissed within one hundred twenty (120) days.
19.1.8 Intentionally blank.
19.1.9 Tenant fails to deliver an estoppel certificate in accordance with Article 17 following a second request from Landlord and the passage of five (5) business days.
19.1.10 Tenant's interest in this Lease is attached, executed upon or otherwise judicially seized and such action is not released within one hundred twenty (120) days of the action.
19.2 Landlord's Remedies Upon Default .  Upon the occurrence of any such default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim for damages therefor; and Landlord may recover from Tenant the following:
(i)       the worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus
(ii)       the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
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(iii)        the worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(iv)       any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; plus
(v)       at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others.  As used in Sections 19.2.1(i) and (ii), above, the "worth at the time of award" shall be computed by allowing interest at the Interest Rate set forth in Section 4.5 above.  As used in Section 19.2.1(iii) above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations).  Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.
19.2.3 Landlord may, but shall not be obligated to, make any such payment or perform or otherwise cure any such obligation, provision, covenant or condition on Tenant's part to be observed or performed (and may enter the Premises for such purposes).  In the event of Tenant's failure to perform any of its obligations or covenants under this Lease, and such failure to perform poses a material risk of injury or harm to persons or damage to or loss of property, then Landlord shall have the right to cure or otherwise perform such covenant or obligation at any time after such failure to perform by Tenant, whether or not any such notice or cure period set forth in Section 19.1 above has expired.  Any such actions undertaken by Landlord pursuant to the foregoing provisions of this Section 19.2.3 shall not be deemed a waiver of Landlord's rights and remedies as a result of Tenant's failure to perform and shall not release Tenant from any of its obligations under this Lease.
19.3 Payment by Tenant .  Tenant shall pay to Landlord, within ten (10) days after delivery by Landlord to Tenant of statements therefor:  (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with Landlord's performance or cure of any of Tenant's obligations pursuant to the provisions of Section 19.2.3 above; and (ii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended.  Tenant's obligations under this Section 19.3 shall survive the expiration or sooner termination of the Lease Term.
19.4 Sublessees of Tenant .  Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements.  If Landlord elects to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.
 19.5 Waiver of Default .  No waiver by Landlord of any violation or breach by Tenant of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other or
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later violation or breach by Tenant of the same or any other of the terms, provisions, and covenants herein contained.  Forbearance by Landlord in enforcement of one or more of the remedies herein provided upon a default by Tenant shall not be deemed or construed to constitute a waiver of such default.  The acceptance of any Rent hereunder by Landlord following the occurrence of any default, whether or not known to Landlord, shall not be deemed a waiver of any such default, except only a default in the payment of the Rent so accepted.
19.6 Efforts to Relet .  For the purposes of this Article 19, Tenant's right to possession shall not be deemed to have been terminated by efforts of Landlord to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord's interests hereunder.  The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Landlord without terminating Tenant's right to possession.
19.7 Bankruptcy .  In the event a debtor, trustee or debtor in possession under the Bankruptcy Code, or another person with similar rights, duties and powers under any other applicable laws, proposes to cure any default under this Lease or to assume or assign this Lease and is obliged to provide adequate assurance to Landlord that (a) a default shall be cured, (b) Landlord shall be compensated for its damages arising from any breach of this Lease and (c) future performance of Tenant's obligations under this Lease shall occur, then such adequate assurances shall include any or all of the following, as designated by Landlord in its sole and absolute discretion:
(i)       Those acts specified in the Bankruptcy Code or other applicable laws as included within the meaning of "adequate assurance," even if this Lease does not concern a shopping center or other facility described in such applicable laws;
(ii)       A prompt cash payment to compensate Landlord for any monetary defaults or actual damages arising directly from a breach of this Lease;
(iii)       A cash deposit in an amount at least equal to the then-current amount of the Security Deposit; or
(iv)       The assumption or assignment of all of Tenant's interest and obligations under this Lease.
 ARTICLE 20
LETTER OF CREDIT
 20.1 Delivery of Letter of Credit .  Tenant shall deliver to Landlord, concurrently with Tenant's execution of this Lease, an unconditional, clean, irrevocable letter of credit (the " L‑C ") in the amount set forth in Section 20.3 below (the " L‑C Amount "), which L‑C shall be issued by Silicon Valley Bank or other bank reasonably acceptable to Landlord (such approved, issuing bank being referred to herein as the " Bank "), which Bank must have a long-term rating from Moody’s Professional Rating Service of "A3" (the “ Bank’s Credit Rating Threshold ”), and which L‑C shall be in the form of Exhibit E , attached hereto.  Tenant shall pay all expenses, points and/or fees incurred by Tenant in obtaining the L‑C.  The L‑C shall (i) be "callable" at sight, irrevocable and unconditional (other than as set forth in the L-C), (ii) be maintained in effect, whether through renewal or extension, for the period commencing on the date of this Lease and continuing until the date (the " L‑C Expiration Date ") that is no less than forty-five (45) days after the expiration of the Lease Term as the same may be extended (provided that the Bank shall have the right, annually, not to renew by providing the notice to Landlord described herein), and, if the L-C shall expire (without auto-renewal) prior to L-C Expiration Date, Tenant shall deliver a new L‑C or certificate of renewal or extension to Landlord at least fifteen (15) days prior to such expiration prior to the L-C Expiration Date of the L‑C then held by Landlord, without any action whatsoever on the part of Landlord, (iii) be fully assignable by Landlord, its successors and assigns, (iv) permit partial draws and multiple presentations and drawings, and (v) be otherwise subject to the International Standby Practices-ISP 98, International Chamber of Commerce Publication #590.  Landlord, or its then managing agent, shall have the right to draw down an amount up to the face amount of the L‑C if any of the following shall have occurred or be applicable:  (A) such amount is due to Landlord under the terms and conditions of this Lease, beyond any L-C Cure Period (as defined below), or (B) Tenant has filed a voluntary petition under the U. S. Bankruptcy Code or any state bankruptcy code
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(collectively, " Bankruptcy Code "), or (C) an involuntary petition has been filed against Tenant under the Bankruptcy Code (and the same has not been vacated within sixty (60) days thereafter) , or (D) the Lease has been rejected, or is deemed rejected, under Section 365 of the U.S. Bankruptcy Code, following the filing of a voluntary petition by Tenant under the Bankruptcy Code, or the filing of an involuntary petition against Tenant under the Bankruptcy Code , or (E) the Bank has notified Landlord that the L ‑C will not be renewed or extended through the L ‑C Expiration Date and Tenant has not provided a replacement L-C within the applicable time period above , or (F) Tenant is placed into receivership or conservatorship, or becomes subject to similar proceedings under Federal or State law, or (G) Tenant executes an assignment for the benefit of creditors, or (H) if (1) any of  the Bank's Moody's r atings (or other comparable ratings to the extent the Moody's r atings are no longer available) have been reduced below the Bank's Credit Rating Threshold, or (2) there is otherwise a material adverse change in the financial condition of the Bank (each a " Bank Credit Threat ") , and Tenant has failed to provide Landlord with a replacement letter of credit, conforming in all respects to the requirements of this Article 20 (including, but not limited to, the requirements placed on the issuing Bank more particularly set forth in this Section  20.1 above), in the amount of the applicable L ‑C Amount or , if applicable, provide Landlord with the Interim Cash Deposit (as provided in Section 20.8.1. below) , all within ten (10) days following Landlord’s written demand therefor (with no other notice or cure or grace period being applicable thereto, notwithstanding anything in this Lease to the contrary) (each of the foregoing being an " L ‑C Draw Event ") .  The L ‑C shall be honored by the Bank regardless of whether Tenant disputes Landlord's right to draw upon the L ‑C.  In addition, in the event the Bank is placed into receivership or conservatorship by the Federal Deposit Insurance Corporation or any successor or similar entity, then, effective as of the date such receivership or conservatorship occurs, said L ‑C shall be deemed to fail to meet the requirements of this Article 21 , and, within ten (10) days following Landlord's notice to Tenant of such receivership or conservatorship (the " L ‑C FDIC Replacement Notice "), Tenant shall replace such L ‑C with a substitute letter of credit from a different issuer (which issuer shall meet or exceed the Bank's Credit Rating Threshold and shall otherwise be acceptable to Landlord in its reasonable discretion) and that complies in all respects with the requirements of this Article 20 .  If Tenant fails to replace such L ‑C with such conforming, substitute letter of credit pursuant to the terms and conditions of this Article  20 , then, notwithstanding anything in this Lease to the contrary, Landlord shall have the right to declare Tenant in default of this Lease for which there shall be no notice or grace or cure periods being applicable thereto (other than the aforesaid ten (10) day period).  Tenant shall be responsible for the payment of any and all costs incurred with the review of any replacement L ‑C (including without limitation Landlord’s reasonable attorneys’ fees), which replacement is required pursuant to this Section or is otherwise requested by Tenant.   In the event of an assignment by Tenant of its interest in this Lease (and irrespective of whether Landlord's consent is required for such assignment), the acceptance of any replacement or substitute  letter of credit by Landlord from the assignee shall be subject to Landlord's prior written approval, in Landlord's sole and absolute discretion, and the attorney's fees incurred by Landlord in connection with such determination shall be payable by Tenant to Landlord within ten (10) days of billing.    " L-C Cure Period " shall mean any applicable notice and cure period expressly set forth in this Lease except that there shall be no L-C Cure Period if Landlord is not permitted for any legal reason from providing written notice of a default.
 20.2 Application of L‑C .  Tenant hereby acknowledges and agrees that Landlord is entering into this Lease in material reliance upon the ability of Landlord to draw upon the L‑C upon the occurrence of any L‑C Draw Event.  In the event of any L‑C Draw Event, Landlord may, but without obligation to do so, and without notice to Tenant (except in connection with an L-C Draw Event under Section 20.1(H) above), draw upon the L‑C, in part or in whole, to cure any such L-C Draw Event and/or to compensate Landlord for any and all damages of any kind or nature sustained or which Landlord reasonably estimates that it will sustain resulting from Tenant's breach or default of the Lease, beyond any applicable notice and cure period expressly set forth in this Lease, or other L-C Draw Event and/or to compensate Landlord for any and all damages arising out of, or incurred in connection with, the termination of this Lease, including, without limitation, those specifically identified in Section 1951.2 of the California Civil Code.  The use, application or retention of the L‑C, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by any applicable law, it being intended that Landlord shall not first be required to proceed against the L‑C, and such L‑C shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled.  Tenant agrees not to interfere in any way with payment to Landlord of the proceeds of the L‑C, either prior to or following a "draw" by Landlord of any portion of the L‑C, regardless of whether any dispute exists between Tenant and Landlord as to Landlord's right to draw upon the L‑C; provided that nothing in this Section 20.2 shall in any way limit Tenant's rights under Section 20.7.  No condition or term of this Lease shall be deemed to render the L‑C conditional to justify the issuer of the L‑C in failing to honor a drawing upon such L‑C in a timely manner.  Tenant agrees and acknowledges that (i) the
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L ‑C constitutes a separate and independent contract between Landlord and the Bank, (ii) Tenant is not a third party beneficiary of such contract, (iii) Tenant has no property interest whatsoever in the L ‑C or the proceeds thereof, and (iv) in the event Tenant becomes a debtor under any chapter of the Bankruptcy Code, Tenant is placed into receivership or conservatorship, and/or there is an event of a receivership, conservatorship or a bankruptcy filing by, or on behalf of, Tenant, neither Tenant, any trustee, nor Tenant's bankruptcy estate shall have any right to restrict or limit Landlord's claim and/or rights to the L ‑C and/or the proceeds thereof by application of Section 502(b)(6) of the U. S. Bankruptcy Code or otherwise.
20.3 L-C Amount; Maintenance of L-C by Tenant; Liquidated Damages .  
20.3.1 L-C Amount .  The initial L-C Amount shall be equal to the amount set forth in Section 10 of the Summary.   
20.3.2 Reduction of L‑C Amount .  To the extent that Tenant is not in default under this Lease (beyond the applicable notice and cure period set forth in this Lease) and so long as on the applicable date of reduction, Tenant has a market capitalization of Two Hundred Ten Million Dollars ($210,000,000) or greater (collectively, the " LC Reduction Contingency "), the L-C Amount shall be reduced as follows:

Date of Reduction	L-C Amount	
The last day of the sixtieth (60 th ) month anniversary of the Lease Commencement Date	$390,471.48	
The last day of the seventy-second (72 nd ) month anniversary of the Lease Commencement Date	$195,235.74	
Notwithstanding anything to the contrary set forth in this Section 20.3.2, in no event shall the L-C Amount as set forth above decrease during any period in which Tenant is in default under this Lease (beyond the expiration of all applicable notice and cure periods) and/or in the event the LC Reduction Contingency is not satisfied, but such decrease shall take place retroactively after such default is cured and/or after the LC Reduction Contingency is satisfied, provided that no such decrease shall thereafter take effect in the event this Lease is terminated early due to such default by Tenant.
 20.3.3 In General .    If, as a result of any drawing by Landlord of all or any portion of the L-C, the amount of the L-C shall be less than the L-C Amount, Tenant shall, within ten (10) days thereafter, provide Landlord with additional letter(s) of credit in an amount equal to the deficiency, and any such additional letter(s) of credit shall comply with all of the provisions of this Article 20, and if Tenant fails to comply with the foregoing, the same shall be subject to the terms of Section 20.3.3 below.  Tenant further covenants and warrants that it will neither assign nor encumber the L-C or any part thereof and that neither Landlord nor its successors or assigns will be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.  Without limiting the generality of the foregoing, if the L-C expires earlier than the L‑C Expiration Date, Landlord will accept a renewal thereof (such renewal letter of credit to be in effect and delivered to Landlord, as applicable, not later than sixty (60) days prior to the expiration of the L-C), which shall be irrevocable and, subject to the annual right of the Bank not to renew, automatically renewable as above provided through the L‑C Expiration Date upon the same terms as the expiring L‑C or such other terms as may be acceptable to Landlord in its sole discretion.  As an express condition to Tenant's right to extend the Term of this Lease pursuant to the Extension Option Rider, Tenant shall, not later than fifteen (15) days prior to the commencement of the Option Term, deliver to Landlord a new L C or certificate of renewal or extension evidencing the L-C Expiration Date as forty-five (45) days after the expiration of the Option Term (the " Extension Option L-C Condition ").  However, if the L‑C is not timely renewed, or if Tenant fails to maintain the L‑C in the amount and in accordance with the terms set forth in this Article 20, Landlord shall have the right to present the L‑C to the Bank in accordance with the terms of this Article 20, and the proceeds of the L-C may be applied by Landlord against any Rent payable by Tenant under this Lease that is not paid when due, beyond any applicable notice and cure period expressly set forth in this Lease, and/or to pay for all losses and
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damages that Landlord has suffered or that Landlord reasonably estimates that it will suffer as a result of any breach or default by Tenant under this Lease, beyond any applicable notice and cure period expressly set forth in this Lease .  In the event Landlord elects to exercise its rights under the foregoing sentence , (I) any unused proceeds shall constitute the property of Landlord (and not Tenant’s property or, in the event of a receivership, conservatorship, or a bankruptcy filing by, or on behalf of, Tenant, property of such receivership, conservatorship or Tenant’s bankruptcy estate) and need not be segregated from Landlord’s other assets, and (II) Landlord agrees to pay to Tenant within thirty (30) days after the L ‑C Expiration Date the amount of any proceeds of the L-C received by Landlord and not applied against any Rent payable by Tenant under this Lease that was not paid when due or used to pay for any losses and/or damages suffered by Landlord (or reasonably estimated by Landlord that it will suffer) as a result of any breach or default by Tenant under this Lease , beyond any applicable notice and cure period expressly set forth in this Lease ; provided, however, that if prior to the L ‑C Expiration Date a voluntary petition is filed by Tenant, or an involuntary petition is filed against Tenant by any of Tenant’s creditors, under the Bankruptcy Code, then Landlord shall not be obligated to make such payment in the amount of the unused L-C proceeds until either all preference issues relating to payments under this Lease have been resolved in such bankruptcy or reorganization case or such bankruptcy or reorganization case has been dismissed.
20.3.4 Intentionally omitted.
20.4 Transfer and Encumbrance .  The L-C shall provide that Landlord, its successors and assigns, may, at any time and without notice to Tenant and without first obtaining Tenant's consent thereto, transfer (one or more times) all or any portion of its interest in and to any party, person or entity, provided such transfer is part of the assignment by Landlord of its rights and interests in and to this Lease or is a transfer by Landlord to its lender.  In the event of a transfer of Landlord's interest in the Building, Landlord shall transfer the L-C, in whole or in part, to the transferee and thereupon Landlord shall, without any further agreement between the parties, be released by Tenant from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said L-C to a new landlord.  In connection with any such transfer of the L-C by Landlord, Tenant shall, at Tenant's sole cost and expense, execute and submit to the Bank such applications, documents and instruments as may be necessary to effectuate such transfer, and Tenant shall be responsible for paying the Bank's transfer and processing fees in connection therewith.  
20.5 L-C Not a Security Deposit .  Landlord and Tenant (1) acknowledge and agree that in no event or circumstance shall the L‑C or any renewal thereof or substitute therefor or any proceeds thereof be deemed to be or treated as a “security deposit” under any law applicable to security deposits in the commercial context, including, but not limited to, Section 1950.7 of the California Civil Code, as such Section now exists or as it may be hereafter amended or succeeded (the " Security Deposit Laws " ), (2) acknowledge and agree that the L‑C (including any renewal thereof or substitute therefor or any proceeds thereof) is not intended to serve as a security deposit, and the Security Deposit Laws shall have no applicability or relevancy thereto, and (3) waive any and all rights, duties and obligations that any such party may now, or in the future will, have relating to or arising from the Security Deposit Laws.  Tenant hereby irrevocably waives and relinquishes the provisions of Section 1950.7 of the California Civil Code and any successor statute, and all other provisions of law, now or hereafter in effect, which (x) establish the time frame by which a landlord must refund a security deposit under a lease, and/or (y) provide that a landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a tenant or to clean the premises, it being agreed that Landlord may, in addition, claim those sums specified in this Article 20 and/or those sums reasonably necessary to (a) compensate Landlord for any loss or damage caused by Tenant's breach of this Lease, including any damages Landlord suffers following termination of this Lease, and/or (b) compensate Landlord for any and all damages arising out of, or incurred in connection with, the termination of this Lease, including, without limitation, those specifically identified in Section 1951.2 of the California Civil Code .
20.6 Non-Interference By Tenant .  Tenant agrees not to interfere in any way with any payment to Landlord of the proceeds of the L-C, either prior to or following a "draw" by Landlord of all or any portion of the L-C, regardless of whether any dispute exists between Tenant and Landlord as to Landlord's right to draw down all or any portion of the L-C.  No condition or term of this Lease shall be deemed to render the L‑C conditional and thereby afford the Bank a justification for failing to honor a drawing upon such L-C in a timely manner.  Tenant shall not request or instruct the Bank of any L‑C to refrain from paying sight draft(s) drawn under such L‑C.
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20. 7 Remedy for Improper Drafts .  Tenant's sole remedy in connection with the improper presentment or payment of sight drafts drawn under any L ‑C shall be the right to obtain from Landlord a refund of the amount of any sight draft(s) that were improperly presented or the proceeds of which were misapplied, together with interest at the Interest Rate and reasonable actual out-of-pocket attorneys' fees, provided that at the time of such refund, Tenant increases the amount of such L ‑C to the amount (if any) then required under the applicable provisions of this Lease.  Tenant acknowledges that the presentment of sight drafts drawn under any L ‑C, or the Bank's payment of sight drafts drawn under such L ‑C, could not under any circumstances cause Tenant injury that could not be remedied by an award of money damages, and that the recovery of money damages would be an adequate remedy therefor.  In the event Tenant shall be entitled to a refund as aforesaid and Landlord shall fail to make such payment within ten (10) business days after demand, Tenant shall have the right to deduct the amount thereof together with interest thereon at the Interest Rate from the next installment(s) of Base Rent.
20.8 Bank Placed Into Receivership .
20.8.1 Bank Placed Into Receivership .  In the event the Bank is placed into receivership or conservatorship (any such event, a " Receivership ") by the Federal Deposit Insurance Corporation or any successor or similar entity (the " FDIC ") or in the event of a Bank Credit Threat then, effective as of the date such Receivership or Bank Credit Threat occurs, the L-C shall be deemed to not meet the requirements of this Article 20, and, within ten (10) days following Landlord's notice to Tenant of such Receivership (the " LC Replacement Notice "), Tenant shall (i) replace the L-C with a substitute L-C from a different issuer reasonably acceptable to Landlord and that complies in all respects with the requirements of this Article 20 or (ii), in the event Tenant demonstrates to Landlord that Tenant is reasonably unable to obtain a substitute L-C from a different issuer reasonably acceptable to Landlord and that complies in all respects with the requirements of this Article 20 within the foregoing ten (10) day period, deposit with Landlord cash in the L-C Amount (the " Interim Cash Deposit "); provided, however, that, in the case of the foregoing sub-clause (ii), Tenant shall, within sixty (60) days after the LC Replacement Notice, replace the L-C with a substitute L-C from a different issuer reasonably acceptable to Landlord and that complies in all respects with the requirements of this Article 20, and upon Landlord's receipt and acceptance of such replacement L-C, Landlord shall return to Tenant the Interim Cash Deposit, with no obligation on the part of Landlord to pay any interest thereon.  If Tenant fails to comply in any respect with the requirements of this Section 20.8.1, then, notwithstanding anything in this Lease to the contrary, Landlord shall have the right to (a) declare Tenant in default of this Lease for which there shall be no notice or grace or cure periods being applicable thereto other than the aforesaid ten (10) day and sixty (60) day periods, (b) if applicable, retain such Interim Cash Deposit until such time as such default is cured by Tenant, which retention shall not constitute a waiver of any right or remedy available to Landlord under the terms of this Lease or at law, and (c) pursue any and all remedies available to it under this Lease and at law, including, without limitation, if Tenant has failed to provide the Interim Cash Deposit, treating any Receivership as a Bank Credit Threat and exercising Landlord's remedies under Section 20.8.1 above, to the extent possible pursuant to then existing FDIC policy.  Tenant shall be responsible for the payment of any and all costs incurred with the review of any replacement L-C (including without limitation Landlord's reasonable attorneys' fees), which replacement is required pursuant to this Section or is otherwise requested by Tenant.
 20.8.2 Interim Cash Deposit .  During any period that Landlord remains in possession of the Interim Cash Deposit (any such period, a " Deposit Period "), it is understood by the parties that such Interim Cash Deposit shall be held by Landlord as security for the full and faithful performance of Tenant's covenants and obligations under this Lease.  The Interim Cash Deposit shall not constitute an advance of any Rent, an advance payment of any other kind, nor a measure of Landlord's damages in case of Tenant's default.  If, during any such Deposit Period, Tenant defaults with respect to any provisions of this Lease beyond any applicable notice and cure period expressly set forth in this Lease, including, but not limited to, the provisions relating to the payment of Rent, the removal of property and the repair of resultant damage, then Landlord may but shall not be required to, from time to time, without notice to Tenant and without waiving any other remedy available to Landlord, use the Interim Cash Deposit, or any portion of it, to the extent necessary to cure or remedy such default or failure or to compensate Landlord for all damages sustained by Landlord or which Landlord reasonably estimates that it will sustain resulting from Tenant's default or failure to comply fully and timely with its obligations pursuant to this Lease, in each case beyond any applicable notice and cure period expressly set forth in this Lease.  Tenant shall immediately pay to Landlord on demand any amount so applied in order to restore the Interim Cash Deposit to its original amount, and Tenant's failure to immediately do so shall constitute a default under this Lease.  In the event Landlord is in
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possession of the Interim Cash Deposit at the expiration or earlier termination of this Lease, and Tenant is in compliance with the covenants and obligations set forth in this Lease at the time of such expiration or termination, then Landlord shall return to Tenant the Interim Cash Deposit, less any amounts deducted by Landlord to reimburse Landlord for any sums to which Landlord is entitled under the terms of this Lease, within sixty (60) days following both such expiration or termination and Tenant's vacation and surrender of the Premises.  Landlord's obligations with respect to the Interim Cash Deposit are those of a debtor and not a trustee.  Landlord shall not be required to maintain the Interim Cash Deposit separate and apart from Landlord's general or other funds, and Landlord may commingle the Interim Cash Deposit with any of Landlord's general or other funds.  Tenant shall not at any time be entitled to interest on the Interim Cash Deposit.  In the event of a transfer of Landlord's interest in the Building, Landlord shall transfer the Interim Cash Deposit, in whole or in part, to the transferee (including the Ground Lessor) and thereupon Landlord shall, without any further agreement between the parties, be released by Tenant from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said Interim Cash Deposit to a new landlord.  Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, or any successor statute.
 ARTICLE 21
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated.  At its sole cost and expense, Tenant shall promptly comply with all such governmental measures, other than the making of structural changes or changes to the Building's life safety system (collectively the " Excluded Changes "); provided, however, to the extent such Excluded Changes are required due to or triggered by Tenant's improvements or alterations to and/or manner of use of the Premises, Landlord shall perform such work, at Tenant's cost (which shall be paid by Tenant to Landlord within ten (10) days after Tenant's receipt of invoice therefor from Landlord).  In addition, Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Project, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.  The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant.
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 ARTICLE 22
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable notice to Tenant to enter the Premises to:  (i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees or tenants, or to the ground lessors; (iii) to post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building if necessary to comply with current building codes or other applicable laws, or for structural alterations, repairs or improvements to the Building, or as Landlord may otherwise reasonably desire or deem necessary.  Notwithstanding anything to the contrary contained in this Article 22, Landlord may enter the Premises at any time, without notice to Tenant, in emergency situations and/or to perform janitorial or other services required of Landlord pursuant to this Lease.  Any such entries shall be without the abatement of Rent and shall include the right to take such reasonable steps as required to accomplish the stated purposes; provided, however, that Landlord shall use commercially reasonable efforts to minimize any disruption to Tenant's business operations in the Premises during any such entry.  Subject to Section 6.8 and Landlord's indemnity obligations in this Lease, Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby.  For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant.  In an emergency, Landlord shall have the right to enter without notice and use any means that Landlord may deem proper to open the doors in and to the Premises.  Any entry into the Premises in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.  Notwithstanding anything to the contrary set forth in this Article 22, Tenant may designate certain areas of the Premises as "Secured Areas" should Tenant require such areas for the purpose of securing certain valuable property or confidential information.  In connection with the foregoing, Landlord shall not enter such Secured Areas except in the event of an emergency (and in such event Landlord agrees to keep any information discovered in such emergency entry strictly confidential).  Landlord need not clean any area designated by Tenant as a Secured Area and shall only maintain or repair such secured areas to the extent (i) such repair or maintenance is required in order to maintain and repair the Building Structure and/or the Building Systems; (ii) as required by applicable laws, or (iii) in response to specific requests by Tenant and in accordance with a schedule reasonably designated by Tenant, subject to Landlord's reasonable approval.
 ARTICLE 23
PARKING
 Throughout the Lease Term, Tenant shall have the right to use, on a "first-come, first-serve" basis, in common with other tenants of the Building and free of parking charges, the number of unreserved parking spaces set forth in Section 12 of the Summary, which unreserved parking spaces are located in the Parking Areas servicing the Building as shall be reasonably designated by Landlord from time to time for unreserved parking for the tenants of the Building.  Tenant's continued right to use the parking spaces is conditioned upon (i) Tenant abiding by (A) the Parking Rules and Regulations which are in effect on the date hereof, as set forth in the attached Exhibit D and all reasonable modifications and additions thereto which are prescribed from time to time for the orderly operation and use of the Parking Areas by Landlord, and/or Landlord's Parking Operator (as defined below), and (B) all recorded covenants, conditions and restrictions affecting the Building, and (ii) upon Tenant's cooperation in seeing that Tenant's employees and visitors also comply with the Parking Rules and Regulations (and all such modifications and additions thereto, as the case may be), any such other rules and regulations and covenants, conditions and restrictions.  So long as Tenant's parking rights are not adversely affected (including Tenant being provided with the number of parking spaces to which Tenant is entitled to under this Lease and Landlord providing a reasonable number of visitor parking spaces), (a) Landlord (and/or any other owners of the Project) specifically reserve the right to change the size, configuration, design, layout, location and all other aspects of the Parking Areas (including without limitation, implementing paid visitor parking), and (b) Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Parking Areas.  Landlord may delegate its responsibilities hereunder to a parking operator (the " Parking Operator ") in which case the Parking Operator shall have all the rights of control attributed hereby to Landlord.  Any parking tax or other charges imposed by governmental authorities in connection with the
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use of such parking shall be paid directly by Tenant or the parking users, or, if directly imposed against Landlord, Tenant shall reimburse Landlord for all such taxes and/or charges within ten (10) days after Landlord's demand therefor.  The parking rights provided to Tenant pursuant to this Article  23 are provided solely for use by Tenant's own personnel and such rights may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord's prior approval, except in connection with an assignment of this Lease or sublease of the Premises made in accordance with Article  14 above.  All visitor parking by Tenant's visitors shall be subject to availability, as reasonably determined by Landlord (and/or the Parking Operator, as the case may be), parking in such visitor parking areas as may be designated by Landlord (and/or the Parking Operator from time to time, and payment by such visitors of the prevailing visitor parking rate (if any) charged by Landlord (and/or the Parking Operator ) from time to time.
 ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1 Terms; Captions .  The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed.  The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.
24.2 Binding Effect .  Each of the provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 above.
24.3 No Waiver .  No waiver of any provision of this Lease shall be implied by any failure of a party to enforce any remedy on account of the violation of such provision, even if such violation shall continue or be repeated subsequently, any waiver by a party of any provision of this Lease may only be in writing, and no express waiver shall affect any provision other than the one specified in such waiver and that one only for the time and in the manner specifically stated.  No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.
24.4 Modification of Lease .  If any current or prospective mortgagee or ground lessor for the Project requires modifications to this Lease, which modifications will not cause an increased cost or expense to Tenant or in any other way adversely (other than adversely in a non-material manner) change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever commercially reasonable documents are required therefor and deliver the same to Landlord within ten (10) days following the request therefor.  If Landlord or any such current or prospective mortgagee or ground lessor require execution of a short form of Lease for recording, containing, among other customary provisions, the names of the parties, a description of the Premises and the Lease Term, Tenant shall execute such short form of Lease (provided that such form is in a commercially reasonable form) and to deliver the same to Landlord within ten (10) days following the request therefor.
 24.5 Transfer of Landlord's Interest .  Landlord has the right to transfer all or any portion of its interest in the Project, the Building and/or in this Lease, and upon any such transfer, Landlord shall automatically be released from all liability under this Lease for matters arising after such transfer and Tenant shall look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer.  The liability of any transferee of Landlord shall be limited to the interest of such transferee in the Project and such transferee shall be without personal liability under this Lease, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.  Landlord may also assign its interest in this Lease to a mortgage lender as additional security but such assignment shall not release Landlord from its obligations hereunder and Tenant shall continue to look to Landlord for the performance of its obligations hereunder.  None of
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the Landlord , partners, shareholders, directors, officers, employees, members or agents shall be personally liable for Landlord ' s obligations or any deficiency under this Lease, and service of process shall not be made against any shareholder, member, director, officer, employee or agent of Landlord or any of Landlord ' s affiliates.  No partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates shall be sued or named as a party in any suit or action, and service of process shall not be made against any partner or member of Landlord except as may be necessary to secure jurisdiction of the partnership, joint venture or limited liability company, as applicable.  No partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates shall be required to answer or otherwise plead to any service of process, and no judgment shall be taken or writ of execution levied against any partner, shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates.
24.6 Prohibition Against Recording .  Except as provided in Section 24.4 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording thereof in violation of this provision shall make this Lease null and void at Landlord's election.
24.7 Landlord's Title; Air Rights .  Landlord's title is and always shall be paramount to the title of Tenant.  Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.  No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease.
24.8 Tenant's Signs .  
24.8.1 Interior Signage .  Tenant shall be entitled, at its sole cost and expense, to one (1) identification sign on or near the entry doors of the Premises and for multi-tenant floors (if any) on which the Premises are located, one (1) identification or directional sign, as designated by Landlord, in the elevator lobby on the floors on which the Premises are located.  Such signs shall be installed by a signage contractor designated by Landlord.  The location, quality, design, style, lighting and size of such signs shall be consistent with the Landlord's Building standard signage program and shall be subject to Landlord's prior written approval, which shall not be unreasonably withheld, conditioned or delayed.  Upon the expiration or earlier termination of this Lease, Tenant shall be responsible, at its sole cost and expense, for the removal of such signage and the repair of all damage to the Building caused by such removal.  Except for such identification signs, Tenant may not install any signs on the exterior or roof of the Building, the Other Existing Buildings or the common areas of the Building or the Project.  Any signs, window coverings, or blinds (even if the same are located behind the Landlord approved window coverings for the Building), or other items visible from the exterior of the Premises or Building are subject to the prior approval of Landlord, in its sole and absolute discretion.
 24.8.2 Conditional Monument Sign .   Subject to the approval of all applicable governmental and quasi- governmental entities, and subject to all applicable governmental and quasi-governmental laws, rules, regulations and codes and any covenants, conditions and restrictions affecting the Real Property, in the event that Landlord elects, in its sole discretion, to construct a multi-tenant monument sign serving the Building (" Conditional Monument Sign "), then Landlord shall allow Tenant the non-exclusive right to have one (1) name sign (" Name Sign ") containing the name "Tocagen" on such Conditional Monument Sign (the size of which Name Sign shall be consistent with the size of other name signs on the Conditional Monument Sign).  In the event Tenant effects a name change, then Tenant shall have the right to have the Name Sign reflect such change so long as such name would not offend the sensibilities of an institutional landlord in the general vicinity of the Building.  In such event, the design, size, specifications, graphics, materials, manner of affixing, exact location, colors and lighting (if applicable) of Tenant's Name Sign shall be (i) consistent with the quality and appearance of the Project, (ii) subject to the approval of all applicable governmental and quasi-governmental authorities, and subject to all applicable governmental and quasi-governmental laws, rules, regulations and codes and any covenants, conditions and restrictions affecting the Real Property, and (iii) subject to Landlord's approval (which shall not be unreasonably withheld, conditioned or delayed).  Landlord shall install Tenant's Name Sign at Tenant's sole cost and expense.  In addition, Tenant shall be responsible for all other costs attributable to the fabrication, insurance, lighting (if applicable), maintenance, repair and removal of Tenant's Name Sign.  The conditional signage right granted to Tenant under this Section 24.8.2 is personal to the Original Tenant and any Affiliate Assignee and may not be exercised or used by or assigned to any other person or entity.  In addition, Original Tenant (or such Affiliate Assignee, as the case may be) shall no longer
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have any right to Tenant's Name Sign if at any time during the Term the Original Tenant (or such Affiliate Assignee) does not lease and occupy the entire Premises then leased by Tenant hereunder.  Upon the expiration or sooner termination of this Lease, or upon the earlier termination of Tenant's signage rights under this Section 24. 8.2 , Landlord shall have the right to permanently remove Tenant's Name Sign from the Building and/or the Project and to repair all damage to the Building and/or the Project resulting from such removal and restore the affected area to its original condition existing prior to the installation of such Name Sign, and Tenant shall reimburse Landlord for the costs thereof.
24.9 Relationship of Parties .  Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Rent nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant.
24.10 Application of Payments .  Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant's designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.
24.11 Time of Essence .  Time is of the essence of this Lease and each of its provisions.
24.12 Partial Invalidity .  If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.
24.13. No Warranty .  In executing and delivering this Lease, Tenant has not relied on any representation, including, but not limited to, any representation whatsoever as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the Exhibits attached hereto.
24.14 Landlord Exculpation .  Notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of Landlord and the Landlord Parties under this Lease (including any successor landlord) and any recourse by Tenant against Landlord or the Landlord Parties shall be limited solely and exclusively to an amount which is equal to the ownership interest of Landlord in the Project (excluding any proceeds thereof), and neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.
24.15 Entire Agreement .  There are no oral agreements between the parties hereto affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease.  This Lease and any side letter or separate agreement executed by Landlord and Tenant in connection with this Lease and dated of even date herewith contain all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises, shall be considered to be the only agreement between the parties hereto and their representatives and agents, and none of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.  All negotiations and oral agreements acceptable to both parties have been merged into and are included herein.  There are no other representations or warranties between the parties, and all reliance with respect to representations is based totally upon the representations and agreements contained in this Lease.
 24.16 Right to Lease .  Landlord reserves the absolute right to effect such other tenancies in the Building, the Other Existing Buildings and/or in any other building and/or any other portion of the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Project.  Tenant does not
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rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building, the Other Existing Buildings or Project.
24.17 Force Majeure .  Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except with respect to Tenant's obligations under the Tenant Work Letter (collectively, the " Force Majeure "), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure.
24.18 Waiver of Redemption by Tenant .  Tenant hereby waives for Tenant and for all those claiming under Tenant all right now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease.
24.19 Notices .  All notices, demands, statements or communications (collectively, " Notices ") given or required to be given by either party to the other hereunder shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested, (B) delivered by a nationally recognized overnight courier, or (C) delivered personally or sent by overnight courier services that provides for proof of delivery (i) to Tenant at the appropriate address set forth in Section 5 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section 3 of the Summary, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant.  Any Notice will be deemed given on the date it is mailed as provided in this Section 24.19, the date overnight courier delivery is made or upon the date personal delivery is made or rejected.  If Tenant is notified of the identity and address of Landlord's mortgagee or ground lessor, Tenant shall give to such mortgagee or ground lessor written notice of any default by Landlord under the terms of this Lease by registered or certified mail, and such mortgagee or ground lessor shall be given a reasonable opportunity to cure such default prior to Tenant's exercising any remedy available to Tenant.
24.20 Joint and Several .  If there is more than one person or entity executing this Lease as Tenant, the obligations imposed upon such persons and entities under this Lease are and shall be joint and several.
24.21 Representations .  Tenant guarantees, warrants and represents that (a) Tenant is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, establishment or formation, (b) Tenant has and is duly qualified to do business in the state in which the Project is located, (c) Tenant has full corporate, partnership, trust, association or other appropriate power and authority to enter into this Lease and to perform all Tenant's obligations hereunder, (d) each person (and all of the persons if more than one signs) signing this Lease on behalf of Tenant is duly and validly authorized to do so and (e) neither (i) the execution, delivery or performance of this Lease nor (ii) the consummation of the transactions contemplated hereby will violate or conflict with any provision of documents or instruments under which Tenant is constituted or to which Tenant is a party.  In addition, Tenant guarantees, warrants and represents that none of (x) it, (y) its affiliates or partners nor (z) to the best of its knowledge, its members, shareholders or other equity owners or any of their respective employees, officers, directors, representatives or agents is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (" OFAC ") of the Department of the Treasury (including those named on OFAC's Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) or other similar governmental action.
 24.22 Jury Trial; Attorneys' Fees .  IF EITHER PARTY COMMENCES LITIGATION AGAINST THE OTHER FOR THE SPECIFIC PERFORMANCE OF THIS LEASE, FOR DAMAGES FOR THE BREACH HEREOF OR OTHERWISE FOR ENFORCEMENT OF ANY REMEDY HEREUNDER, THE PARTIES HERETO AGREE TO AND HEREBY DO WAIVE ANY RIGHT TO A TRIAL BY JURY.  In the event of any such commencement of litigation, the prevailing party shall be entitled to recover from the other party such costs
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and reasonable attorneys' fees as may have been incurred, including any and all costs incurred in enforcing, perfecting and executing such judgment.
24.23 Governing Law .  This Lease shall be construed and enforced in accordance with the laws of the state in which the Project is located.
24.24 Submission of Lease .  Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or an option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.
24.25 Brokers .  Landlord and Tenant each hereby represents and warrants to the other party that it (i) has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 11 of the Summary (collectively, the " Brokers "), and (ii) knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease.  Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of the indemnifying party's dealings with any real estate broker or agent in connection with this Lease other than the Brokers.
24.26 Independent Covenants .  This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building, Project or any portion thereof, of whose address Tenant has theretofore been notified, and an opportunity is granted to Landlord and such holder to correct such violations as provided above.
 24.27 Building Name and Signage  .  Landlord shall have the right at any time to change the name(s) of the Building, the Other Existing Buildings and Project and to install, affix and maintain any and all signs on the exterior and on the interior of the Building, the Other Existing Buildings and any portion of the Project as Landlord may, in Landlord's sole discretion, desire; provided that Landlord does not change such name more often than twice during the Lease Term.  Tenant shall not use the names of the Building, the Other Existing Buildings or Project or use pictures or illustrations of the Building, the Other Existing Buildings or Project in advertising or other publicity, without the prior written consent of Landlord.
24.28 Building Directory .  If the Building contains a tenant name directory, Landlord shall include Tenant's name and location in the Building on one (1) line on the Building directory.  The initial cost of such directory signage shall be paid for by Landlord, but any subsequent charges thereto shall be at Tenant's cost.  
24.29 Intentionally Omitted.
 24.30 Landlord's Construction .  Except as specifically set forth in this Lease or in the Tenant Work Letter: (i) Landlord has no obligation to alter, remodel, improve, renovate, repair or decorate the Premises, the Building, the Other Existing Buildings, the Project, or any part thereof; and (ii) no representations or warranties respecting the condition of the Premises, the Building, the Other Existing Buildings or the Project have been made by Landlord to Tenant.  Tenant acknowledges that prior to and during the Lease Term, Landlord (and/or any common area association) will be completing construction and/or demolition work pertaining to various portions of the Building, the Other Existing Buildings, the Premises, and/or the Project, including without limitation, landscaping and tenant improvements for premises for other tenants and, at Landlord's sole election, such other buildings, improvements, landscaping and other facilities within or as part of the Project as Landlord (and/or such common area association) shall from time to time desire (collectively, the " Construction "); provided that, notwithstanding anything to the contrary in this Lease, such Construction does not cause any Adverse Condition.  In connection with such Construction, Landlord may, among other things, erect scaffolding or other necessary
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structures in the Building and/or the Other Existing Buildings, limit or eliminate access to portions of the Project, including portions of the common areas, or perform work in the Building, the Other Existing Buildings and/or the Project, which work may create noise, dust or leave debris in the Building, the Other Existing Buildings and/or the Project.   Subject to Section 6.8 above, and Landlord's indemnity obligations in this Lease, Tenant hereby agrees that such Construction and Landlord's actions in connection with such Construction shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent.   Landlord reserves full control over the Project to the extent not inconsistent with Tenant's enjoyment the same as provided in this Lease.  This reservation includes Landlord's right to subdivide the Project and convert portions of the Project to condominium units , change the size of the Project by selling all or a portion of the Project or adding real property and any improvements thereon to the Project; grant easements and licenses to third parties and maintain or establish ownership of the Buildings separate from the fee title to the Project ; provided, however, in each instance that it has no adverse effect on Tenant or Tenant's use of the Premises, parking or any other right sunder this Lease .
24.31 Net Lease .  This Lease shall be deemed and construed to be an "absolute net lease" and, except as herein expressly provided, Landlord shall receive all payments required to be made by Tenant free from all charges, assessments, impositions, expenses and deductions of any and every kind or nature whatsoever.  Landlord shall not be required to furnish any services or facilities or to make any repairs, replacements or alterations of any kind in or on the Premises except as specifically provided herein.
[Remainder of Page Intentionally Left Blank; Signatures on Next Page]

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 IN WI TNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.
 
" Landlord ":	
 	
AP3-SD1 CAMPUS POINT LLC,
a Delaware limited liability company	
 	
By:	/s/ Michael Gerrity	
Name:	Michael Gerrity	
Its:	President	
 
" Tenant ":	
 	
TOCAGEN INC., a Delaware corporation	
 	
By:	/s/ Martin J. Duvall	
Name:	Martin J. Duvall	
Its:	CEO	
 	 	
By:	/s/ Mark Foletta	
Name:	Mark Foletta	
Its:	Corporate Secretary	
 
*** If Tenant is a CORPORATION, the authorized officers must sign on behalf of the corporation and indicate the capacity in which they are signing.  The Lease must be executed by the president or vice president and the secretary or assistant secretary, unless the bylaws or a resolution of the board of directors shall otherwise provide, in which event, the bylaws or a certified copy of the resolution, as the case may be, must be attached to this Lease.

 
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 EXHI BIT A
OUTLINE OF FLOOR PLAN OF PREMISES

 
 	EXHIBIT A
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 EXHIB IT A-1
SITE PLAN OF PROJECT

 
 	EXHIBIT A-1
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EXHIBIT A- 2
HAZARDOUS MATERIAL STORAGE AREA

 
 
 	EXHIBIT A-2
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EXHIBIT A-3
GENERAL STORAGE AREA

 

 	EXHIBIT A-3
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 EXHI BIT B
TENANT WORK LETTER
This Tenant Work Letter (" Tenant Work Letter ") shall set forth the terms and conditions relating to the construction of the Premises.  All references in this Tenant Work Letter to the " Lease " shall mean the relevant portions of the Lease to which this Tenant Work Letter is attached as Exhibit B .
SECTION 1

BASE, SHELL AND CORE
Landlord has previously constructed the base, shell and core (i) of the Premises and (ii) of the floor(s) of the Building on which the Premises are located (collectively, the " Base, Shell and Core "), and, except as set forth otherwise in the Lease, Tenant shall accept the Base, Shell and Core in its current "As-Is" condition existing as of the date of the Lease and the Lease Commencement Date (except for matters that could not be reasonably discovered by Tenant during its inspection thereof prior to taking possession).  Except for the Tenant Improvement Allowance set forth below, Landlord shall not be obligated to make or pay for any alterations or improvements to the Premises, the Building or the Project; provided, however, that Landlord shall, at Landlord's sole cost, on or before Lease Commencement Date (or as soon thereafter as reasonably possible), using Building-standard materials and in Landlord's Building-standard manner, build-out the deck space on the fifth (5 th ) floor of the Building in a manner substantially comparable to the deck build-out on the second (2 nd ) floor of the Building.  Landlord's scope of work shall include modification to the glazing system to add a single door, as well as any landing, step, ramp or modification to the Building elements to provide for level compliant access from the Premises to such deck space.
SECTION 2

TENANT IMPROVEMENTS
2.1        Tenant Improvement Allowance .  Tenant shall be entitled to a one-time tenant improvement allowance (the " Tenant Improvement Allowance ") in the amount of up to, but not exceeding Thirty –Two Dollars ($32.00) per rentable square foot of the Premises ( i.e. , up to One Million Two Hundred Forty-Three Thousand One Hundred Sixty-Eight Dollars ($1,243,168.00) based on 38,849 rentable square feet of the Premises), to help Tenant pay for the costs of the design, permitting and construction of Tenant's initial improvements which are permanently affixed to the Premises (collectively, the " Tenant Improvements "); provided, however, that Landlord shall have no obligation to disburse all or any portion of the Tenant Improvement Allowance to Tenant unless Tenant makes a request for disbursement pursuant to the terms and conditions of Section 2.2 below prior to that date which is nine (9) months after the Lease Commencement Date.  In no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance.  Tenant shall not be entitled to receive any cash payment or credit against Rent or otherwise for any unused portion of the Tenant Improvement Allowance which is not used to pay for the Tenant Improvement Allowance Items (as defined below).
2.2        Disbursement of the Tenant Improvement Allowance .
2.2.1        Tenant Improvement Allowance Items .  Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord only for the following items and costs (collectively, the " Tenant Improvement Allowance Items "):
2.2.1.1 Payment of (i ) the fees of the Architect and the Engineers (as such terms are defined below), and (ii) the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord's consultants in connection with the preparation and review of the Construction Drawings (as defined below);
 	EXHIBIT B
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2.2.1.2 The payment of plan check, permit and license fees relating to construction of the Tenant Improvements;
2.2.1.3 The cost of construction of the Tenant Improvements, including, without limitation, contractors' fees and general conditions, testing and inspection costs, costs of utilities, trash removal, parking and hoists, and the costs of after-hours freight elevator usage.
2.2.1.4 The cost of any changes in the Base, Shell and Core work when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;
2.2.1.5 The cost of any changes to the Construction Drawings or Tenant Improvements required by applicable laws ;
2.2.1.6 Sales and use taxes and Title 24 fees;
2.2.1.7 The Coordination Fee (as defined below); and
2.2.1.8 The costs of Tenant's project manager, Hughes Marino CM, not to exceed three percent (3%) of the sum of all other Tenant Improvement Allowance Items.
2.2.2        Disbursement of Tenant Improvement Allowance .  Subject to Section 2.1 above, during the construction of the Tenant Improvements, Landlord shall make monthly disbursements of the Tenant Improvement Allowance for Tenant Improvement Allowance Items for the benefit of Tenant and shall authorize the release of monies for the benefit of Tenant as follows:
2.2.2.1 Monthly Disbursements .  From time to time during the construction of the Tenant Improvements (but no more frequently than monthly), Tenant shall deliver to Landlord:  (i) a request for payment of the Contractor (as defined below), approved by Tenant, in a form to be provided by Landlord, showing the schedule, by trade, of percentage of completion of the Tenant Improvements in the Premises, detailing the portion of the work completed and the portion not completed, and demonstrating that the relationship between the cost of the work completed and the cost of the work to be completed complies with the terms of the Construction Budget (as defined below); (ii) invoices from all of Tenant's Agents (as defined below), for labor rendered and materials delivered to the Premises; (iii) executed conditional mechanic's lien releases from all of Tenant's Agents, the form of which which shall comply with the applicable provisions of the California Civil Code; (iv) all other information reasonably requested by Landlord and (v) if requested by Landlord, the construction back-up items described on Schedule 2 attached hereto to the extent not covered above.  Following Landlord's receipt of a completed disbursement request submission, Landlord shall deliver a check to the Contractor (for Tenant Improvement Allowance Items payable directly to Contractor) and to Tenant (for Tenant Improvement Allowance Items which Tenant has paid directly to the service provider) in payment of the lesser of (A) the amounts so requested by Tenant, as set forth in this Section 2.2.2.1, above, less (unless already deducted from the invoice) a ten percent (10%) retention (the aggregate amount of such retentions to be known as the " Final Retention ") and (B) the balance of any remaining available portion of the Tenant Improvement Allowance (not including the Final Retention), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the Approved Working Drawings (as defined below), or due to any substandard work.  Landlord's payment of such amounts shall not be deemed Landlord's approval or acceptance of the work furnished or materials supplied as set forth in Tenant's payment request.
 2.2.2.2 Final Retention .  Subject to the provisions of this Tenant Work Letter, a check for the Final Retention payable jointly to Tenant and Contractor shall be delivered by Landlord to Tenant following the completion of construction of the Premises, provided that (i) Landlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, HVAC, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenant's use of such other tenant's leased premises in the Building; and (ii) Tenant has delivered to Landlord:  (A) properly
 	EXHIBIT B
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executed conditional final mechanics lien waivers and releases ( the form of which shall be in accordance with the applicable provisions of the California Civil Code) in the amount set forth in Contractor's final application executed by Contractor and each subcontractor, supplier, equipment renter or other person who has provided labor, services, equipment or materials for which a lien could be filed; it being agreed that with respect to the payment of retentions to those contractors, subcontractors, suppliers, equipment renters, and others for whom retentions are being paid prior to substantial completion of the Premises, the foregoing lien waivers shall only be required from such parties being paid their final retention. ; (B )  a certificate of occupancy or permit cards signed off by the City of San Diego (the " City ") with respect to the Premises; (C )  as-built plans and City-permitted plans for the Tenant Improvements; (D )  operation manuals and warranties for equipment included within the Tenant Improvements, if applicable; (E )  copy of the contract with the Contractor; (F )  copy of the Contractor's certificate of insurance, including Additional Insured endorsement naming Landlord ( and any other party requested by Landlord) as additional insureds; and (G )  the Contractor's schedule of values, showing total contract value.
2.2.2.3 Other Terms .  Landlord shall only be obligated to make disbursements from the Tenant Improvement Allowance to the extent costs are incurred by Tenant for Tenant Improvement Allowance Items.
2.2.3        Specifications for Building Standard Components .  Unless otherwise agreed to by Landlord (which shall not be unreasonably withheld, conditioned or delayed), the Tenant Improvements shall be consistent with the specifications for the Building standard components existing in the Premises as of the date hereof.
SECTION 3

CONSTRUCTION DRAWINGS
3.1        Selection of Architect/Construction Drawings .  Tenant shall retain DGA (the " Architect ").  Tenant or the Architect shall retain the engineering consultants, as reasonably approved by Landlord (the " Engineers ") to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work in the Premises.  The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the " Construction Drawings ."  All Construction Drawings shall comply with industry standards.  Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith.  Landlord's review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord's review of the same, or obligate Landlord to review the same, for quality, design, code compliance or other like matters.  Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings.
3.2        	Final Space Plan .  Attached hereto as Schedule 1 is a final space plan for the Premises (the " Final Space Plan "), which Final Space Plan is hereby approved by Landlord and Tenant.	
3.3        	Final Working Drawings .  As soon as possible after the date hereof, Tenant shall promptly cause the Architect and the Engineers to complete the architectural and engineering drawings for the Premises, and cause the Architect to compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits for the Tenant Improvements (collectively, the " Final Working Drawings "), and shall submit the same to Landlord for Landlord's approval, which shall not be unreasonably withheld, conditioned or delayed.  Tenant shall supply Landlord with electronic copies of such Final Working Drawings.  Landlord shall advise Tenant within three (3) business days after Landlord's receipt of the Final Working Drawings for the Premises if the same is unsatisfactory or incomplete in any respect.  If Tenant is so advised, Tenant shall promptly (i) revise the Final Working Drawings in accordance with such review and any disapproval of Landlord in connection therewith, and	
 	EXHIBIT B
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	(ii) deliver such revised Final Working Drawings to Landlord.   If Landlord fails to provide reasonable objections within three (3) business days of submittal , then Landlord shall be deemed to have approved the same .	
3.4        	Approved Working Drawings .  The Final Working Drawings shall be approved by Landlord (the " Approved Working Drawings ") prior to the commencement of construction of the Premises by Tenant.  Concurrently with such delivery to Landlord for approval, Tenant shall promptly submit the same to the appropriate governmental authorities for all applicable building permits.  Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant's responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy.  No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed.	
SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1        Tenant's Selection of Contractor and Tenant's Agents .
4.1.1        The Contractor .  Tenant shall select and retain a general contractor to construct the Tenant Improvements (" Contractor "), which Contractor shall be subject to Landlord's prior written approval (not to be unreasonably withheld).
4.1.2        Tenant's Agents .  All subcontractors, laborers, materialmen, and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor to be known collectively as " Tenant's Agents ") must be approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed; provided that, in any event, Tenant must contract with Landlord's base building subcontractors for any mechanical, electrical, plumbing, life safety, structural, and HVAC work in the Premises.
4.2        Construction of Tenant Improvements by Tenant's Agents .
4.2.1        Construction Contract; Cost Budget .  Prior to Tenant's execution of the construction contract and general conditions with Contractor (the " Contract "), Tenant shall submit the Contract to Landlord for its approval, which approval shall not be unreasonably withheld or delayed.  Prior to the commencement of the construction of the Tenant Improvements, Tenant shall provide Landlord with a written detailed cost breakdown (the " Final Costs Statement "), by trade, of the final costs to be incurred, or which have been incurred, as set forth more particularly in Section 2.2.1.1 through 2.2.1.8 above, in connection with the design, permitting and construction of the Tenant Improvements to be performed by or at the direction of Tenant or the Contractor (which costs form a basis for the amount of the Contract, if any (the " Final Costs ").  Prior to the commencement of construction of the Tenant Improvements, Tenant shall supply Landlord with cash in an amount equal to fifty percent (50%) of the amount (the " Over-Allowance Amount ") by which the Final Costs exceed the Tenant Improvement Allowance (less any portion thereof already disbursed by Landlord, or in the process of being disbursed by Landlord, on or before the commencement of construction of the Tenant Improvements).  The Over-Allowance Amount shall be disbursed by Landlord prior to the disbursement of any of the then remaining portion of the Tenant Improvement Allowance, and such disbursement shall be pursuant to the same procedure as the Tenant Improvement Allowance.  If, after the Final Costs have been delivered by Landlord to Tenant, the costs relating to the design, permitting and construction of the Tenant Improvements shall change, there are any additional costs necessary to such design, permitting and construction in excess of the Final Costs that exceed the remaining balance of the Tenant Improvement Allowance, then Tenant shall pay to Landlord half of such excess as an addition to the Over-Allowance Amount within three (3) business days after Tenant's receipt of invoice therefor from Landlord and, in any event, prior to the commencement of the construction of such changes, or, at Landlord's option, Tenant shall make payments for such additional costs out of its own funds, but Tenant shall continue to provide Landlord with the documents described in Sections 2.2.2.1 (i), (ii), (iii) and (iv) above, for Landlord's approval, prior to Tenant paying such costs.  
 	EXHIBIT B
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4.2.2         Tenant's Agents .
4.2.2.1        Landlord's General Conditions for Tenant's Agents and Tenant Improvement Work .  Tenant's and Tenant's Agents' construction of the Tenant Improvements shall comply with the following:  (i) the Tenant Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenant and Tenant's Agents shall not, in any way, interfere with, obstruct, or delay, the work of Landlord's base building contractor and subcontractors with respect to the Base, Shell and Core or any other work in the Building or Project; (iii) Tenant's Agents shall submit schedules of all work relating to the Tenant's Improvements to Contractor and Contractor shall, within five (5) business days after Tenant's receipt thereof, inform Tenant's Agents of any changes which are necessary thereto, and Tenant's Agents shall adhere to such corrected schedule; and (iv) Tenant shall abide by all reasonable non-discriminatory rules made by Landlord's Building contractor or Landlord's Building manager with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other tenants, and any other matter in connection with this Tenant Work Letter, including, without limitation, the construction of the Tenant Improvements.
4.2.2.2        Coordination Fee .  Tenant shall pay a logistical coordination fee (the " Coordination Fee ") to Landlord in an amount equal to the product of (i) one percent (1%), and (ii) the sum of the Tenant Improvement Allowance, the Over-Allowance Amount, as such amount may be increased hereunder, and any other amounts expended by Tenant in connection with the design and construction of the Tenant Improvements, which Coordination Fee shall be for services relating to the coordination of the construction of the Tenant Improvements and shall be deducted by Landlord from the Tenant Improvement Allowance.
4.2.2.3        Indemnity .  Tenant's indemnity of Landlord as set forth in the Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenant's Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenant's non-payment of any amount arising out of the Tenant Improvements and/or Tenant's disapproval of all or any portion of any request for payment.  Such indemnity by Tenant, as set forth in the Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlord's performance of  any ministerial acts reasonably necessary (i) to permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to obtain any building permit or certificate of occupancy for the Premises.
4.2.2.4        Insurance Requirements .
4.2.2.4.1   General Coverages .  All of Tenant's Agents shall carry worker's compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as typically carried by similar contractors, subcontractors, laborers, materialmen and suppliers performing work in first-class buildings in the general vicinity of the Building.
4.2.2.4.2   Special Coverages .  Tenant shall carry "Builder's All Risk" insurance in an amount equal to the full replacement cost of the improvements being constructed by Tenant, and such other insurance as Landlord may reasonably require, it being understood and agreed that the Tenant Improvements shall be insured by Tenant pursuant to the Lease immediately upon completion thereof.  Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Landlord, and in form and with companies as are required to be carried by Tenant as set forth in the Lease.
 4.2.2.4.3   General Terms .  Certificates for all insurance carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord before the commencement of construction of the Tenant Improvements and before the Contractor's equipment is moved onto the site.  All such policies of insurance must contain, if commercially reasonably available, a provision that the company writing said policy will give Landlord thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance.  If the Tenant Improvements are damaged by any cause during the course of the construction thereof, Tenant shall immediately repair the same at Tenant's sole cost and expense.  All policies carried under this Section 4.2.2.4 shall insure Landlord and Tenant, as their interests may appear, as well as Contractor and Tenant's Agents, and shall name as additional insureds Landlord's property manager, Landlord's asset manager, and all mortgagees and ground lessors of the Building and any other parties specified by Landlord.  All insurance, except
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Workers' Compensation, maintained by Tenant's Agents shall preclude subrogation claims by the insurer against anyone insured thereunder.  Such insurance shall provide that it is primary insurance as respects the owner and that any other insurance maintained by owner is excess and noncontributing with the insurance required hereunder.  The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under Section 4.2.2.3 of this Tenant Work Letter.
4.2.3        Governmental Compliance .  The Tenant Improvements shall comply in all respects with the following:  (i) the Code and other state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer's specifications.
4.2.4        Inspection by Landlord .  Landlord shall have the right to inspect the Tenant Improvements at all times (except that Landlord’s inspection shall be limited to conformity with the Approved Working Drawings and compliance with applicable laws), provided however, that Landlord's failure to inspect the Tenant Improvements shall in no event constitute a waiver of any of Landlord's rights hereunder nor shall Landlord's inspection of the Tenant Improvements constitute Landlord's approval of the same.  Should Landlord disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved.  Any defects or deviations in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at no expense to Landlord, provided however, that if Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Tenant Improvements and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, HVAC or life-safety systems of the Building, the structure or exterior appearance of the Building or any other tenant's use of such other tenant's leased premises, Landlord may, after written notice to Tenant and a reasonable opportunity for Tenant to cure same, take such action as Landlord deems necessary, at Tenant's expense and without incurring any liability on Landlord's part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Tenant Improvements until such time as the defect, deviation and/or matter is corrected to Landlord's satisfaction.
4.2.5        Meetings .  Commencing two weeks before the commencement of construction of the Tenant Improvements, Tenant shall hold weekly meetings at a reasonable time, with the Architect and the Contractor regarding the progress of the preparation of Construction Drawings and the construction of the Tenant Improvements, which meetings shall be held at a location designated by Landlord, and Landlord and/or its agents shall receive prior notice of, and shall have the right to attend, all such meetings, and, upon Landlord's request, certain of Tenant's Agents shall attend such meetings.  In addition, minutes shall be taken at all such meetings, a copy of which minutes shall be promptly delivered to Landlord.  One such meeting each month shall include the review of Contractor's current request for payment.
4.2.6        Substantial Completion .  For purposes of this Lease, " Substantial Completion " of the Tenant Improvements shall mean completion of construction of the Tenant Improvements pursuant to the Approved Working Drawing with the exception of punch-list items (items that do not materially interfere with Tenant's conduct of business in the Premises) and Tenant's receipt of a temporary or final certificate of occupancy (or its functional equivalent) from the applicable governmental authority.
 4.3        Notice of Completion; Copy of "As Built" Plans .  Within ten (10) days after completion of construction of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County in which the Building is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Landlord upon such recordation.  If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenant's agent for such purpose, at Tenant's sole cost and expense.  At the conclusion of construction, (i) Tenant shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the "record-set" of as-built drawings are true and correct, which certification shall survive the expiration or termination of the Lease, (C) to deliver to Landlord two (2) sets of sepias of such as-built drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises, and (D) to deliver to Landlord a computer disk containing the Approved Working Drawings in AutoCAD format, and (ii) Tenant shall deliver to Landlord a copy of
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all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises.
4.4        Coordination by Tenant's Agents with Landlord .  Upon Tenant's delivery of the Contract to Landlord under Section 4.2.1 of this Tenant Work Letter, Tenant shall furnish Landlord with a schedule setting forth the projected date of the completion of the Tenant Improvements and showing the critical time deadlines for each phase, item or trade relating to the construction of the Tenant Improvements.
SECTION 5

MISCELLANEOUS
5.1        Tenant's Representative .  Tenant has designated Mark Foletta as its sole representative with respect to the matters set forth in this Tenant Work Letter, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.
5.2        Landlord's Representative .  Landlord has designated Evan Guttenberg as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.
5.3        Time of the Essence in This Tenant Work Letter .  Unless otherwise indicated, all references herein to a "number of days" shall mean and refer to calendar days.  If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord.
5.4        Tenant's Lease Default .  Notwithstanding any provision to the contrary contained in the Lease, if an event of default by Tenant of this Tenant Work Letter (provided that Landlord has provided to Tenant written notice of such default and a reasonable opportunity to cure) or the Lease (beyond the expiration of all applicable notice and cure periods) has occurred at any time on or before the substantial completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, at law and/or in equity, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease  (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such inaction by Landlord).  In addition, if the Lease is terminated prior to the Lease Commencement Date, for any reason due to a default by Tenant as described in Section 19.1 of the Lease, in addition to any other remedies available to Landlord under the Lease, at law and/or in equity, Tenant shall pay to Landlord, as Additional Rent under the Lease, within five (5) business days after Tenant's receipt of a statement therefor, any and all costs (if any) incurred by Landlord (including any portion of the Tenant Improvement Allowance disbursed by Landlord) and not reimbursed or otherwise paid by Tenant through the date of such termination in connection with the Tenant Improvements to the extent planned, installed and/or constructed as of such date of termination, including, but not limited to, any costs related to the removal of all or any portion of the Tenant Improvements and restoration costs related thereto.

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SCHEDULE 1
FINAL SPACE PLAN

LEVEL FIVE

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LEVEL SIX

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SCHEDULE 2
 
ADDITIONAL DISBURSEMENT BACKUP INFORMATION TO BE PROVIDED BY TENANT
 
 	–	General Contractor G702/703 - e-mailed copy signed and notarized	
 
 	–	Subcontractor G702/703 or equivalent for each sub  (Copies of signed & notarized)	
 
 	–	Copies of executed Change Orders or executed Schedule of Values (" SOV ") change authorizations (pre GMP)	
 
 	–	Unconditional Lien Releases from GC and Subs for prior payment (Civil Code § 8134) required before current payapp funding will be released; review and payapp approval will occur without the prior payapp unconditional lien releases but funding will not	
 
 	–	Conditional Lien Releases from GC and Subs for payment request (Civil Code § 8132)	
 
 	–	Releases from suppliers of materials or equipment of any purchase money security interests	
 
 	–	Stored Material Inventory with appropriate backup (bills of sale, evidence of insurance {with Owner as Certificate Holder and standard additional insureds}, confirmation of location, Affidavit, etc.)	
 
 	–	Change Order Log (need to include all pending change orders and status tracking)	
 
 	–	Clarification of self-performed vs. subcontracted work	
 
 	–	List of all subcontractors	
 
 	–	List of contracts/subcontracts entered into since the last request	
 
 	–	Changes to SOV Values must be authorized by Owner either through an executed Change Order or an executed letter of authorization (pre GMP).  Payapps submitted with unauthorized SOV changes on G703’s will not be accepted.	
The General Contractor shall provide all items to Landlord's Representative directly.

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 EXHIBI T C
CONFIRMATION OF LEASE TERMS/AMENDMENT TO LEASE
This CONFIRMATION OF LEASE TERMS/AMENDMENT TO LEASE (" Confirmation/Amendment ") is made and entered into effective as of _________________, 20__, by and between AP3-SD1 CAMPUS POINT LLC, a Delaware limited liability company (" Landlord ") and _______________, a ____________ (" Tenant ").
R E C I T A L S :
A.        Landlord and Tenant entered into that certain Lease dated as of _____________________ (the " Lease ") pursuant to which Landlord leased to Tenant and Tenant leased from Landlord certain "Premises", as described in the Lease, in that certain building located at ________________ , ____________, California ______.
B.        Except as otherwise set forth herein, all capitalized terms used in this Amendment shall have the same meaning as such terms have in the Lease.
C.        Landlord and Tenant desire to amend the Lease to confirm the commencement and expiration dates of the term, as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.         Confirmation of Dates .  The parties hereby confirm that (a) the Premises are Ready for Occupancy, and (b) the term of the Lease commenced as of ____________________ for a term of _________________________ ending on _______________________ (unless sooner terminated as provided in the Lease.  Tenant shall commence to pay rent on _______________, 20__ (“ Rent Commencement Date ”).
2.         No Further Modification .  Except as set forth in this Confirmation/Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, this Confirmation/Amendment has been executed as of the day and year first above written.
 
" Landlord ":	
 	
AP3-SD1 CAMPUS POINT LLC,
a Delaware limited liability company	
 	
By:	 	
Name:	 	
Its:	 	

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" Tenant ":	
 	
,	
a	 	
 	 	
By:	 	
Name:	 	
Its:	 	
 	 	
By:	 	
Name:	 	
Its:	 	

 
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 EXHIB IT D
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and Regulations and the Parking Rules and Regulations.  Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations and/or the Parking Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Building and/or the Project.  In the event of any inconsistency between any provision of the following Rules and Regulations and the provisions of the Lease, the provisions of the Lease shall control.  In the event Landlord's consent or approval is required pursuant to any of the following Rules and Regulations, such consent or approval shall not be unreasonably withheld, conditioned or delayed.
1. Tenant shall not place any lock(s) on any door, or install any security system (including, without limitation, card key systems, alarms or security cameras), in the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld, and Landlord shall have the right to retain at all times and to use keys or other access codes or devices to all locks and/or security systems within and to the Premises.  A reasonable number of keys to the locks on the entry doors of the Premises shall be furnished by Landlord to Tenant at Tenant's cost, and Tenant shall not make any duplicate keys.  All keys shall be returned to Landlord at the expiration or earlier termination of the Lease.  Further, if and to the extent Tenant re-keys, re-programs or otherwise changes any locks in or for the Premises, all such locks and key systems must be consistent with the master lock and key system at the Building, all at Tenant's sole cost and expense.
2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises, unless electrical hold backs have been installed.  Sidewalks, doorways, passages, entrances, vestibules, halls, stairways and other Common Areas shall not be obstructed by Tenant or used by Tenant for any purpose other than ingress and egress to and from the Premises, and Tenant, its employees and agents shall not loiter in the entrances or corridors.
3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the vicinity of the Building.  Tenant and its employees and agents shall ensure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building.  Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register when so doing.  After-hours access by Tenant’s authorized employees may be provided by hard-key, card-key access or other procedures adopted by Landlord from time to time; Tenant shall pay for the costs of all access cards provided to Tenant’s employees and all replacements thereof for lost, stolen and/or damaged cards.  Access to the Building and/or the Project may be refused unless the person seeking access has proper identification or has a previously arranged pass for such access.  Landlord and its agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building and/or the Project of any person.  In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building and/or the Project during the continuance of same by any means it deems appropriate for the safety and protection of life and property.
4. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building.  Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight.  Landlord will not be responsible for loss of or damage to any such safe or property in any case.  All damage done to any part of the Building, its contents, occupants and/or visitors by moving or maintaining any such safe or other property shall be the sole responsibility of Tenant and any expense of said damage or injury shall be borne by Tenant.
 5. No furniture, freight, packages, supplies, equipment or merchandise will be brought into or removed from the Building or carried up or down in the elevators, except upon prior notice to Landlord, and in such manner, in such specific elevator, and between such hours as shall be designated by Landlord.  Tenant shall provide Landlord with not less than 24 hours' prior notice of the need to utilize an elevator for any such purpose, so as to provide Landlord with a reasonable period to schedule such use and to install such padding or take such other actions or prescribe such procedures as are appropriate to protect against damage to the elevators or other parts of
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the Building.  Tenant shall assume all risk for damage to articles moved and injury to any persons resulting from such activity described herein.  If equipment, property, or personnel of Landlord or of any other party is damaged or injured as a result of or in connection with such activity described herein, Tenant shall be solely liable for any resulting damage or loss.
6. Landlord shall have the right to control and operate the public portions of the Building and Project, the public facilities, the heating and air conditioning, and any other facilities furnished for the common use of tenants, in such manner as is customary for comparable buildings in the vicinity of the Building.
7. No signs, advertisements or notices shall be painted or affixed to windows, doors or other parts of the Building, except those of such color, size, style and in such places as are first approved in writing by Landlord.  Landlord shall have the right to remove any signs, advertisements, and notices not approved in writing by Landlord without notice to and at the expense of Tenant.  Landlord may provide and maintain in the first floor (main lobby) of the Building an alphabetical directory board or other directory device listing tenants, and no other directory shall be permitted unless previously consented to by Landlord in writing.
8. The requirements of Tenant will be attended to only upon application at the management office of the Project or at such office location designated by Landlord.   Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instruction from Landlord.
9. Tenant shall not disturb (by use of any television, radio or musical instrument, making loud or disruptive noises, creating offensive odors or otherwise), solicit, or canvass any occupant of the Building and/or the Project and shall cooperate with Landlord or Landlord’s agents to prevent same.
10. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein.  The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it.
11. Tenant shall not overload the floor of the Premises.  Tenant shall not mark, drive nails or screws, or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof without Landlord’s consent first had and obtained; provided, however, Landlord’s prior consent shall not be required with respect to Tenant’s placement of pictures and other normal office wall hangings on the interior walls of the Premises (but at the end of the Lease Term, Tenant shall repair any holes and other damage to the Premises resulting therefrom).
12. Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines of any description other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.  Tenant shall not install, operate or maintain in the Premises or in any other area of the Building, electrical equipment that would overload the electrical system beyond its capacity for proper, efficient and safe operation as determined solely by Landlord.
13. Tenant shall not use any method of heating or air conditioning other than that which may be supplied by Landlord, without the prior written consent of Landlord.  Tenant shall not furnish cooling or heating to the Premises, including, without limitation, the use of electronic or gas heating devices, portable coolers (such as "move n cools") or space heaters, without Landlord's prior written consent, and any such approval will be for devices that meet federal, state and local code.
 14. No inflammable, explosive or dangerous fluids or substances shall be used or kept by Tenant in the Premises, Building and/or about the Project, except for those substances as are typically found in similar premises used for general office and/or laboratory purposes and are being used by Tenant in a safe manner and in accordance with all applicable Laws, rules and regulations.  Tenant shall not, without Landlord's prior written consent, use, store, install, spill, remove, release or dispose of, within or about the Premises or any other portion of the Project, any asbestos-containing materials or any solid, liquid or gaseous material now or subsequently considered toxic or hazardous under the provisions of 42 U.S.C. Section 9601 et seq. or any other applicable
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environmental Laws which may now or later be in effect.  Tenant shall comply with all Laws pertaining to and governing the use of these materials by Tenant, and shall remain solely liable for the costs of abatement and removal.
15. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building and/or the Project by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therewith.
16. Tenant shall not bring into or keep within the Project, the Building or the Premises any animals (except those assisting handicapped persons), birds, fish tanks, bicycles (bicycles can be stored in the bicycle storage area serving the Project) or other vehicles.
17. Tenant shall not use or occupy the Premises in any manner or for any purpose which might injure the reputation or impair the present or future value of the Premises, the Building and/or the Project.  Tenant shall not use, or permit any part of the Premises to be used, for lodging, sleeping or for any illegal purpose.
18. No cooking shall be done or permitted by Tenant on the Premises, nor shall the Premises be used for the storage of merchandise or for any improper, objectionable or immoral purposes.  Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations, and does not cause odors which are objectionable to Landlord and other tenants.   Whenever possible, Tenant shall utilize and purchase Energy Star products in their suites.  Tenant understands the importance of energy conservation and sustainability to both the Landlord and the Project, and will assist in conserving energy in their suite with regards to practices and equipment.
19. Landlord will approve where and how telephone and telegraph wires and other cabling are to be introduced to the Premises.  No boring or cutting for wires shall be allowed without the consent of Landlord.  The location of telephone, call boxes and other office equipment and/or systems affixed to the Premises shall be subject to the approval of Landlord.  Tenant shall not use more than its proportionate share of telephone lines and other telecommunication facilities available to service the Building.
20. Landlord reserves the right to exclude or expel from the Building and/or the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations or cause harm to Building occupants and/or property.
21. All contractors, contractor's representatives and installation technicians performing work in the Building or at the Project shall be subject to Landlord's prior approval, which approval shall not be unreasonably withheld, and shall be required to comply with Landlord's standard rules, regulations, policies and procedures, which may be revised from time to time.
22. Tenant shall not employ any person other than the janitor of Landlord for the purpose of cleaning the Premises without prior written consent of Landlord, and without Landlord's consent, no person or persons shall be permitted to enter the Building for the purpose of cleaning the same.  Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness.
23. Intentionally Omitted.
24. Tenant at all times shall maintain the entire Premises in a neat and clean, first class condition, free of debris.  Tenant shall not place items, including, without limitation, any boxes, files, trash receptacles or loose cabling or wiring, in or near any window to the Premises which would be visible anywhere from the exterior of the Premises.
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25 . Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building’s heating and air conditioning system, including, without limitation, the use of window blinds to block solar heat load, and shall refrain from attempting to adjust any controls.  Tenant shall comply with and participate in any program for metering or otherwise measuring the use of utilities and services, including, without limitation, programs requiring the disclosure or reporting of the use of any utilities or services.  Tenant shall also cooperate and comply with, participate in, and assist in the implementation of (and take no action that is inconsistent with, or which would result in Landlord, the Building and/or the Project failing to comply with the requirements of) any conservation, sustainability, recycling, energy efficiency, and waste reduction programs, environmental protection efforts and/or other programs that are in place and/or implemented from time to time at the Building and/or the Project, including, without limitation, any required reporting, disclosure, rating or compliance system or program (including, but not limited to, any LEED [Leadership in Energy and Environmental Design] rating or compliance system, including those currently coordinated through the U.S. Green Building Council).
26. Tenant shall store all its recyclables, trash and garbage within the interior of the Premises.  No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of recyclables, trash and garbage in the city in which the Project is located without violation of any law or ordinance governing such disposal.  All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate.
27. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.
28. Tenant shall assume any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed, when the Premises are not occupied, or when the entry to the Premises is not manned by Tenant on a regular basis.
29. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord.  No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord.  The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.  All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and bulb color approved by Landlord.
30. The washing and/or detailing of or, the installation of windshields, radios, telephones in or general work on, automobiles shall not be allowed on the Project, except under specific arrangement with Landlord.
31. Food vendors shall be allowed in the Building upon receipt of a written request from Tenant delivered to Landlord.  The food vendor shall service only the tenants that have a written request on file in the management office of the Project.  Under no circumstance shall the food vendor display their products in a public or Common Area including corridors and elevator lobbies.  Any failure to comply with this rule shall result in immediate permanent withdrawal of the vendor from the Building.  Tenant shall obtain ice, drinking water, linen, barbering, shoe polishing, floor polishing, cleaning, janitorial, plant care or other similar services only from vendors who have registered in the management office of the Project and who have been approved by Landlord for provision of such services in the Premises.
32. Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.
33. Tenant shall comply with any non-smoking ordinance adopted by any applicable governmental authority.  Neither Tenant nor its agents, employees, contractors, guests or invitees shall smoke or permit smoking in the Premises and/or the Common Areas, unless the Common Areas have been declared a designated smoking area by Landlord, nor shall the above parties allow smoke from the Premises to emanate into the Common Areas or any other part of the Building.  Landlord shall have the right to designate the Building (including the Premises) as a non-smoking building.
 	EXHIBIT D
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34 . Tenant shall not take any action which would violate Landlord's labor contracts or which would cause a work stoppage, picketing, labor disruption or dispute, or interfere with Landlord's or any other tenant's or occupant's business or with the rights and privileges of any person lawfully in the Building (" Labor Disruption ").  Tenant shall take the actions necessary to resolve the Labor Disruption, and shall have pickets removed and, at the request of Landlord, immediately terminate any work in the Premises that gave rise to the Labor Disruption, until Landlord gives its written consent for the work to resume, and Tenant shall have no claim for damages against Landlord or any of its trustees, members, principals, beneficiaries, partners, officers, directors, employees, mortgagees, or agents in connection therewith.
35. No tents, shacks, temporary or permanent structures of any kind shall be allowed on the Project.  No personal belongings may be left unattended in any Common Areas.
36. Landlord shall have the right to prohibit the use of the name of the Building or Project or any other publicity by Tenant that in Landlord's sole opinion may impair the reputation of the Building or Project or the desirability thereof.  Upon written notice from Landlord, Tenant shall refrain from and discontinue such publicity immediately.
37. Landlord shall have the right to designate and approve standard window coverings for the Premises and to establish rules to assure that the Building presents a uniform exterior appearance.  Tenant shall ensure, to the extent reasonably practicable, that window coverings are closed on windows in the Premises while they are exposed to the direct rays of the sun.
38. Reserved.
39. Tenant shall comply with all Building security procedures as Landlord may effectuate.
40. Tenant shall at all times cooperate with Landlord in preserving a first-class image for the Building.
PARKING RULES AND REGULATIONS
1. Landlord reserves the right to establish and reasonably change the hours for the Parking Areas, on a non-discriminatory basis, from time to time.  Tenant shall not store or permit its employees to store any automobiles in the Parking Areas without the prior written consent of Landlord (and/or the Parking Operator, as the case may be).  Except for emergency repairs, Tenant and its employees shall not perform any work on any automobiles while located in the Parking Areas or on the Project.  The Parking Areas may not be used by Tenant or its agents for overnight parking of vehicles.  If it is necessary for Tenant or its employees to leave an automobile in the Parking Areas overnight, Tenant shall provide Landlord (or the Parking Operator as the case may be) with prior notice thereof designating the license plate number and model of such automobile.
2. Tenant (including Tenant's employees and agents) will use the parking spaces solely for the purpose of parking passenger model cars, small vans and small trucks and will comply in all respects with any rules and regulations that may be promulgated by Landlord and/or the Parking Operator from time to time with respect to the Parking Areas.
3. Vehicles must be parked entirely within the stall lines painted on the floor, and only small cars may be parked in areas reserved for small cars.
4. All directional signs and arrows must be observed.
5. The speed limit shall be 5  miles per hour.
6. Parking spaces reserved for handicapped persons must be used only by vehicles properly designated.
 	EXHIBIT D
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7. Parking is prohibited in all areas not expressly designated for parking, including without limitation:
(a) areas not striped for parking;
(b) aisles;
(c) where "no parking" signs are posted;
(d) ramps; and
(e) loading zones.
8. Parking stickers, key cards and any other devices or forms of identification or entry supplied by Landlord or the Parking Operator shall remain the property of Landlord (or the Parking Operator as the case may be).  Such device must be displayed as requested and may not be mutilated in any manner.  The serial number of any such parking identification device may not be obliterated.  Any parking passes and/or devices supplied by Landlord (or the Parking Operator, as the case may be) are not transferable and any pass or device in the possession of an unauthorized holder will be void.
9. Parking managers or attendants are not authorized to make or allow any exceptions to these Parking Rules and Regulations.
10. Every parker is required to park and lock his/her own car.
11. Loss or theft of parking passes, identification, key cards or other such devices must be reported to Landlord (and/or to the Parking Operator as the case may be) immediately.  Any parking devices reported lost or stolen found on any authorized car will be confiscated and the illegal holder will be subject to prosecution.  Lost or stolen passes and devices found by Tenant or its employees must be reported to Landlord (and to the Parking Operator, as the case may be) immediately.
12. Washing, waxing, cleaning or servicing of any vehicle by the customer and/or its agents is prohibited.
13. Tenant agrees to acquaint all persons to whom Tenant assigns a parking space with these Parking Rules and Regulations.
14. Neither Landlord nor the Parking Operator (as the case may be), from time to time will be liable for loss of or damage to any vehicle or any contents of such vehicle or accessories to any such vehicle, or any property left in any of the Parking Areas, resulting from fire, theft, vandalism, accident, conduct of other users of the Parking Areas and other persons, or any other casualty or cause.  Further, Tenant understands and agrees that:  (i) Landlord will not be obligated to provide any traffic control, security protection or Parking Operator for the Parking Areas; (ii) Tenant uses the Parking Areas at its own risk; and (iii) Landlord will not be liable for personal injury or death, or theft, loss of or damage to property.  Tenant indemnifies and agrees to hold Landlord, any Parking Operator and their respective agents and employees harmless from and against any and all claims, demands, and actions arising out of the use of the Parking Areas by Tenant and its employees and agents, whether brought by any of such persons or any other person.
15. Tenant will ensure that any vehicle parked in any of the parking spaces will be kept in proper repair and will not leak excessive amounts of oil or grease or any amount of gasoline.  
16. Tenant's right to use the Parking Areas will be in common with other tenants of the Building and with other parties permitted by Landlord to use the Parking Areas.  Landlord reserves the right to assign and reassign, from time to time, particular parking spaces for use by persons selected by Landlord, provided that Tenant's rights under the Lease are preserved.  Landlord will not be liable to Tenant for any unavailability of Tenant's designated spaces, if any, nor will any unavailability entitle Tenant to any refund, deduction, or allowance.  Tenant will not park in any numbered space or any space designated as:  RESERVED, HANDICAPPED, VISITORS ONLY, or LIMITED TIME PARKING (or similar designation).
 	EXHIBIT D
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17. If the Parking Area ( s ) is /are damaged or destroyed, or if the use of the Parking Area(s) is/are limited or prohibited by any governmental authority, or the use or operation of the Parking Area(s) is/are limited or prevented by strikes or other labor difficulties or other causes beyond Landlord's reasonable control, Tenant's inability to use the parking spaces will not subject Landlord (and/or the Parking Operator, as the case may be) to any liability to Tenant and will not relieve Tenant of any of its obligations under the Lease and the Lease will remain in full force and effect.  Tenant will pay to Landlord upon demand, and Tenant indemnifies Landlord against, any and all loss or damage to the Parking Areas , or any equipment, fixtures, or signs used in connection with the Parking Areas and any adjoining buildings or structures caused by Tenant or any of its employees and agents.
18. Tenant has no right to assign or sublicense any of its rights in the parking passes, except as part of a permitted assignment or sublease of the Lease; however, Tenant may allocate the parking passes among its employees.
Tenant shall be responsible for the observance of all of the Rules and Regulations and Parking Rules and Regulations in this Exhibit D by Tenant’s employees, agents, clients, customers, invitees and guests.  Landlord may waive any one or more of the Rules and Regulations and/or Parking Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations and/or Parking Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules or Regulations and/or Parking Rules and Regulations against any or all tenants of the Building and/or the Project.  Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations and/or the Parking Rules and Regulations, or to make such other and further reasonable Rules and Regulations and/or Parking Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building and Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein.  Tenant shall be deemed to have read these Rules and Regulations and Parking Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.
COMMON AREA AMENITIES
1. Tenant understands that Landlord may provide certain common area amenities for Tenant’s non-exclusive use.  Such amenities are for the use of tenants during regular business hours and shall be reserved through the management office in advance.  Tenant and Tenant's agents, employees and invitees shall adhere to all rules Landlord reasonably sets forth in respect to use of the amenities, which may change from time to time.
2. Intentionally Omitted.  3. All amenities offered shall remain at the locations designated by Landlord all times.  Tenant must use the equipment only in the manner intended.  Landlord reserves the right to reasonably limit Tenant’s use of any equipment or amenities (in a non-discriminatory manner) to ensure the equitable use of the equipment and amenities by all tenants.  Tenant shall not move or modify the equipment in any manner whatsoever.  
4. Tenant shall be responsible for the cost of repairs or replacements of any amenities that are not returned to management after use or are damaged during the use of any such amenity by Tenant or Tenant's agents, employees or invitees and Tenant shall reimburse Landlord for any such cost within thirty (30) days after receipt of an invoice therefor.
5. Tenant shall conduct themselves in a quiet and well-mannered fashion when on or about the amenities and not cause any disturbances or interfere with the use or enjoyment of the amenities by other tenants.
6. Tenant shall not bring any food or beverages into any amenity area with respect to which food or beverage is reasonably prohibited by Landlord.
7. No alcoholic beverages shall be permitted at the amenities at any time.
8. Neither Tenant nor its agents, employees or invitees shall smoke or permit smoking in the amenity areas at any time.

 	EXHIBIT D
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EXHIBIT E
FORM OF SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
RECORDING REQUESTED BY:
First American Title Insurance Company
WHEN RECORDED MAIL TO:
Gibson Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
Attention:  Eric Feuerstein, Esq.
 
(Space Above For Recorder's Use)
This SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT (the " Agreement ") is dated as of _____________, and is by and among AP3-SD1 CAMPUS POINT LLC, a Delaware limited liability company, having an office at Attention:  W. Neil Fox, III, 4380 La Jolla Village Drive, Suite 230, San Diego, California 92122 (" Landlord "), TOCAGEN INC., a Delaware corporation, having an office at 4242 Campus Point Court, Suite 600, San Diego, CA 92121 (" Tenant "), and TPG RE FINANCE, LTD., an exempted company organized under the laws of the Cayman Islands, having an office at 888 7th Avenue, 35th Floor, New York, New York 10106, as agent (in such capacity, together with its successors and assigns, the " Agent ") for TPG RE FINANCE 1, LTD., an exempted company organized under the laws of the Cayman Islands, having an office at 888 7th Avenue, 35th Floor, New York, New York 10106, and such other co-lenders as may exist from time to time (together with their successors and assigns, " Lender ").
WHEREAS, Lender has made or intends to make a loan to Landlord (the " Loan "), which Loan shall be evidenced by one or more promissory notes (as the same may be amended, modified, restated, severed, consolidated, renewed, replaced, or supplemented from time to time, the " Promissory Note ") and secured by, among other things, that certain Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (as the same may be amended, restated, replaced, severed, split, supplemented or otherwise modified from time to time, the " Mortgage ", recorded in the Official Records of the County of San Diego on October 16, 2015 as Document No. 2015-0543789) encumbering the real property located at 4242 Campus Point Court, San Diego, California 92121, and  more particularly described on Exhibit A annexed hereto and made a part hereof (the " Property ");
WHEREAS, by an unrecorded lease agreement (the " Lease ") dated December 21, 2017, between Landlord (or Landlord's predecessor in title) and Tenant, Landlord leased to Tenant a portion of the Property, as said portion is more particularly described in the Lease (such portion of the Property hereinafter referred to as the " Premises ");
WHEREAS, Tenant acknowledges that Lender will rely on this Agreement in making the Loan to Landlord; and
WHEREAS, Lender and Tenant desire to evidence their understanding with respect to the Mortgage and the Lease as hereinafter provided.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, the parties hereto hereby agree as follows:
 1. Tenant covenants, stipulates and agrees that the Lease and all of Tenant's right, title and interest in and to the Property thereunder (including but not limited to any option to purchase, right of first refusal to purchase or right of first offer to purchase the Property or any portion thereof) is hereby, and shall at all times continue to be,
 	EXHIBIT E
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subordinated and made secondary and inferior in each and every respect to the Mortgage and the lien thereof, to all of the terms, conditions and provisions thereof and to any and all advances made or to be made thereunder, so that at all times the Mortgage shall be and remain a lien on the Property prior to and superior to the Lease for all purposes, subject to the provisions set forth herein.  Subordination is to have the same force and effect as if the Mortgage and such renewals, modifications, consolidations, replacements and extensions had been executed, acknowledged, delivered and recorded prior to the Lease, any amendments or modifications thereof and any notice thereof.
2. So long as no default by Tenant exists, nor any event has continued to exist, in either case for such period of time (after notice, if any, required by the Lease) as would entitle Landlord under the Lease to terminate the Lease or would cause, without any further action of Landlord, the termination of the Lease or would entitle Landlord to dispossess Tenant thereunder, the Lease shall not be terminated nor shall Tenant's use, possession, or enjoyment of the Premises be interfered with, nor shall the leasehold estate granted by the Lease be affected in any enjoyment of the Premises be interfered with, nor shall the leasehold estate granted by the Lease be affected in any foreclosure or in any action or proceeding instituted under or in connection with the Mortgage.
3. If, at any time Agent or Lender (or any person, or such person's successors or assigns, who acquires the interest of Landlord under the Lease through foreclosure of the Mortgage or otherwise) shall succeed to the rights of Landlord under the Lease as a result of a default or event of default under the Mortgage, Tenant shall attorn to and recognize such person so succeeding to the rights of Landlord under the Lease (herein sometimes called " Successor Landlord ") as Tenant's landlord under the Lease, said attornment to be effective and self-operative without the execution of any further instruments.  Although said attornment shall be self-operative, Tenant agrees to execute and deliver to Agent or to any Successor Landlord, such other instrument or instruments as Agent or such other person shall from time to time request in order to confirm said attornment.
4. Landlord authorizes and directs Tenant to honor any written demand or notice from Agent instructing Tenant to pay rent or other sums to Agent rather than Landlord (a " Payment Demand "), regardless of any other or contrary notice or instruction which Tenant may receive from Landlord before or after Tenant's receipt of such Payment Demand.  Tenant may rely upon any notice, instruction, Payment Demand, certificate, consent or other document from, and signed by, Agent and shall have no duty to Landlord to investigate the same or the circumstances under which the same was given.  Any payment made by Tenant to Agent or in response to a Payment Demand shall be deemed proper payment by Tenant of such sum pursuant to the Lease.
5. If Agent or Lender shall become the owner of the Property or the Property shall be sold by reason of foreclosure or other proceedings brought to enforce the Mortgage or if the Property shall be transferred by deed in lieu of foreclosure, Agent, Lender, or any Successor Landlord shall not be:
(a) liable for any act or omission of any prior landlord (including Landlord) or bound by any obligation to make any payment to Tenant which was required to be made prior to the time Agent succeeded to any prior landlord (including Landlord); or
(b) obligated to cure any defaults of any prior landlord (including Landlord) which occurred, or to make any payment to Tenant which was required to be paid by any prior landlord (including Landlord), prior to the time that Agent, Lender, or any Successor Landlord succeeded to the interest of such landlord under the Lease; or
(c) obligated to perform any construction obligations of any prior landlord (including Landlord) under the Lease or liable for any defects (latent, patent or otherwise) in the design, workmanship, materials, construction or otherwise with respect to improvements and buildings constructed on the Property; or
(d) subject to any offsets, defenses or counterclaims which Tenant may be entitled to assert against any prior landlord (including Landlord); or
(e) bound by any payment of rent or additional rent by Tenant to any prior landlord (including Landlord) for more than one month in advance; or
 	EXHIBIT E
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(f) bound by any amendment, modification, termination or surrender of the Lease made without the written consent of Agent; or
(g) liable or responsible for or with respect to the retention, application and/or return to Tenant of any security deposit paid to any prior landlord (including Landlord), whether or not still held by such prior landlord, unless and until Agent or any Successor Landlord has actually received said deposit for its own account as the landlord under the Lease as security for the performance of Tenant's obligation under the Lease (which deposit shall, nonetheless, be held subject to the provisions of the Lease).
Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement shall limit either (A) Tenant's right to exercise against Agent, Lender, or any Successor Landlord, any rights under the Lease otherwise available to Tenant because of events occurring after the date of attornment or (B) Agent's, Lender's or any Successor landlord's obligation to correct any conditions that existed as of the date of attornment and violate Agent's, Lender's, or any Successor Landlord's continuing obligations arising after the date of attornment as landlord under the Lease.
6. Tenant hereby represents, warrants, covenants and agrees to and with Agent:
(a) to deliver to Agent, by certified mail, return receipt requested, a duplicate of each notice of default delivered by Tenant to Landlord at the same time as such notice is given to Landlord and no such notice of default shall be deemed given by Tenant under the Lease unless and until a copy of such notice shall have been so delivered to Agent.  Agent or Lender shall have the right (but shall not be obligated) to cure such default.  Tenant shall accept performance by Agent or Lender of any term, covenant, condition or agreement to be performed by Landlord under the Lease with the same force and effect as though performed by Landlord.  Tenant further agrees to afford Agent or Lender a period of thirty (30) days beyond any period afforded to Landlord for the curing of such default during which period Agent or Lender may elect (but shall not be obligated) to seek to cure such default, or, if such default cannot be cured within that time, then such additional time as may be necessary to cure such default (including but not limited to commencement of foreclosure proceedings) during which period Agent or Lender may elect (but shall not be obligated) to seek to cure such default, prior to taking any action to terminate the Lease. If the Lease shall terminate for any reason, upon Agent's written request given within thirty (30) days after such termination, Tenant, within fifteen (15) days after such request, shall execute and deliver to Agent a new lease of the Premises for the remainder of the term of the Lease and upon all of the same terms, covenants and conditions of the Lease;
(b) that Tenant is the sole owner of the leasehold estate created by the Lease; and
(c) to promptly certify in writing to Agent, in connection with any proposed assignment of the Mortgage, whether or not any default on the part of Landlord then exists under the Lease and to deliver to Agent any tenant estoppel certificates required under the Lease.
7. Tenant acknowledges that the interest of Landlord under the Lease is assigned to Agent solely as security for the Promissory Note, and Agent shall have no duty, liability or obligation under the Lease or any extension or renewal thereof, unless Agent shall specifically undertake such liability in writing or Agent becomes and then only with respect to periods in which Agent becomes, the fee owner of the Property.
8. This Agreement shall be governed by and construed in accordance with the laws of the State in which the Premises is located (excluding the choice of law rules thereof).
9. This Agreement and each and every covenant, agreement and other provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns (including, without limitation, any successor holder of the Promissory Note) and may be amended, supplemented, waived or modified only by an instrument in writing executed by the party against which enforcement of the termination, amendment, supplement, waiver or modification is sought.
 	EXHIBIT E
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10. All notices to be given under this Agreement shall be in writing and shall be deemed served upon receipt by the addressee if served personally or, if mailed, upon the first to occur of receipt or the refusal of delivery as shown on a return receipt, after deposit in the United States Postal Service certified mail, postage prepaid, addressed to the address of Landlord, Tenant, or Agent appearing below.  Such addresses may be changed by notice given in the same manner.  If any party consists of multiple individuals or entities, then notice to any one of same shall be deemed notice to such party.
 	If to Agent:	TPG RE Finance, Ltd.
888 7th Avenue, 35th Floor
New York, NY  10106
Attention:  Ian McColough
Facsimile No. (212) 430-4131
Email:  imccolough@tpg.com	
 	with a copy to:	Gibson Dunn & Crutcher LLP
200 Park Avenue
New York, NY  10166
Attention:  Eric M. Feuerstein, Esq.
Facsimile No. (212) 351-5223
Email:  efeuerstein@gibsondunn.com	
 	with a copy to:	Hanover Street Capital, LLC
48 Wall Street, 14th Floor
New York, NY  10005
Attention:  Amy Sinensky
Facsimile No. 212-380-9405
Email:  amy.sinensky@hanoverstcap.com	
 	If to Tenant:	Tocagen Inc.
3030 Bunker Hill Street, Suite 230
San Diego, CA 92109
Attention: Mark Foletta
(Prior to Lease Commencement Date)

or

Tocagen Inc.
4242 Campus Point Court, Suite 600
San Diego, California 92121
Attention: Mark Foletta
(After Lease Commencement Date)	
In either case
 	With a copy to:	Cooley LLP	
4401 Eastgate Mall
San Diego, CA  92121
Attention:  Michael Levinson, Esq.
 	If to Landlord:	AP3-SD1 Campus Point LLC
4380 La Jolla Village Drive, Suite 230
San Diego, CA  92122
Attention:  W. Neil Fox, III
Email:   fox@p3re.com	
 	EXHIBIT E
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 	with a copy to:	Ropes & Gray LLP 
Prudential Tower, 800 Boylston Street 
Boston, MA  02199-3600 
Attention:  Marc D. Lazar, Esq. 
Email:  marc.lazar@ropesgray.com	
11. If this Agreement conflicts with the Lease, then this Agreement shall govern as between the parties and any Successor Landlord, including upon any attornment pursuant to this Agreement.  This Agreement supersedes, and constitutes full compliance with, any provisions in the Lease that provide for subordination of the Lease to, or for delivery of nondisturbance agreements by the holder of, the Mortgage.
12. In the event Agent or Lender shall acquire Landlord's interest in the Premises, Tenant shall look only to the estate and interest, if any, of Agent or Lender in the Property for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by Agent or Lender as a Successor Landlord under the Lease or under this Agreement, and no other property or assets of Agent or Lender shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to the Lease, the relationship of the landlord and tenant under the Lease or Tenant's use or occupancy of the Premises or any claim arising under this Agreement.
13. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to be enforceable, or if such modification is not practicable, such provision shall be deemed deleted from this Agreement, and the other provisions of this Agreement shall remain in full force and effect, and shall be liberally construed in favor of Agent.
14. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]

 	EXHIBIT E
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
 
TENANT :	
 	
TOCAGEN INC., a Delaware corporation	
 	
By:	 	
Name:	 	
Its:	 	
 
LANDLORD :	
 	
AP3-SD1 CAMPUS POINT LLC,
a Delaware limited liability company	
 	
By:	 	
Name:	 	
Its:	 	
 
AGENT :	
 	
TPG RE FINANCE, LTD.,
an exempted company incorporated with limited liability under the laws of the Cayman Islands	
 	
By:	 	
Name:	 	
Its:	 	

 	EXHIBIT E
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A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.	
State of _________________
County of _________________
On ____________________, 20___, before me, ___,
(here insert name and title of officer)          
personally appeared __________________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ______________________________________ (Seal)

 	EXHIBIT E
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A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.	
State of _________________
County of _________________
On ____________________, 20___, before me, ___,
(here insert name and title of officer)          
personally appeared __________________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ______________________________________ (Seal)

 	EXHIBIT E
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STATE OF ________________ ) 
 ) ss. 
COUNTY OF ______________ )
On the ___ day of ________ in the year 20___ before me, the undersigned, a Notary Public in and for said State, personally appeared ____________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
 
(Notarial Seal)	 	
 	Notary Public	
STATE OF ________________ )
) ss.
COUNTY OF ______________ )
On the ___ day of ________ in the year 20___ before me, the undersigned, a Notary Public in and for said State, personally appeared ____________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
 
(Notarial Seal)	 	
 	Notary Public	

 	EXHIBIT E
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Exhibit A
Legal Description of Property
Real property in the City of San Diego, County of San Diego, State of California, described as follows:
Real property in the City of San Diego, County of San Diego, State of California, described as follows:
PARCEL ONE:
PARCEL A:
PARCEL 3 OF PARCEL MAP NO. 20824, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, AS PER THE MAP THEREOF FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, CALIFORNIA, ON SEPTEMBER 21, 2010 AS INSTRUMENT NO. 2010-0500181 OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, CALIFORNIA.
EXCEPTING THEREFROM ALL OIL, GAS, HYDROCARBON SUBSTANCES AND MINERALS OF EVERY KIND AND CHARACTER LYING MORE THAN 500 FEET BELOW THE SURFACE, TOGETHER WITH THE RIGHT TO DRILL INTO, THROUGH, AND TO USE AND OCCUPY ALL PARTS OF THE SITE LYING MORE THAN 500 FEET BELOW THE SURFACE THEREOF FOR ANY AND ALL PURPOSES INCIDENTAL TO THE EXPLORATION FOR ANY PRODUCTION OF OIL, GAS, HYDROCARBON SUBSTANCES OR MINERAL FROM THE SITE, BUT WITHOUT, HOWEVER, ANY RIGHT TO USE OR DISTURB EITHER THE SURFACE OF THE SITE OR ANY PORTION THEREOF WITHIN 500 FEET OF THE SURFACE FOR ANY PURPOSE OR PURPOSES WHATSOEVER, AS RESERVED IN DEED FROM THE CITY OF SAN DIEGO, RECORDED APRIL 1, 1983 AS FILE NO. 83-103384 AND OCTOBER 5, 1984 AS FILE NO. 84-379481, BOTH OF OFFICIAL RECORDS.
PARCEL B:
PERPETUAL NON-EXCLUSIVE EASEMENTS FOR ACCESS, STORM DRAIN AND PARKING AND INCIDENTAL PURPOSES, AS CONVEYED, SET FORTH AND DESCRIBED IN THAT CERTAIN RECIPROCAL EASEMENT AND MAINTENANCE AGREEMENT DATED AS OF FEBRUARY 1, 2011, MADE BY AND AMONG CAMPUS POINT REALTY CORPORATION, A CALIFORNIA CORPORATION, MIG OFFICE PROPERTIES I, LLC, A DELAWARE LIMITED LIABILITY COMPANY AND SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, UNDER THEIR TERMS AND PROVISIONS AS CONTAINED THEREIN, RECORDED FEBRUARY 01, 2011, AS INSTRUMENT NO. 2011-0061146 AND RE-RECORDED FEBRUARY 24, 2011 AS INSTRUMENT NO. 2011-0102151 AND AMENDED BY DOCUMENT RECORDED FEBRUARY 12, 2013 AS INSTRUMENT NO. 2013-0094397 ALL OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, CALIFORNIA.
PARCEL C:
A PERPETUAL AND EXLUSIVE EASEMENT ON, OVER AND ACROSS THE PARKING AREA AS APPURTNENAT TO THE PROPERTY DESCRIBED ABOVE IN PARCEL A, AS SET FORTH, CONVEYED AND DESCRIBED PURSUANT TO THE TERMS AND PROVISIONS OF THAT CERTAIN PARKING EASEMENT AGREEMENT RECORDED NOVEMBER 18, 2014 AS INSTRUMENT NO. 2014-0501702 OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, CALIFORNIA.

 	EXHIBIT E
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PARCEL TWO:
PARCEL A:
PARCEL 4 OF PARCEL MAP NO. 20824, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, AS PER THE MAP THEREOF FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, CALIFORNIA, ON SEPTEMBER 21, 2010 AS INSTRUMENT NO. 2010-0500181 OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, CALIFORNIA.
EXCEPTING THEREFROM ALL OIL, GAS, HYDROCARBON SUBSTANCES AND MINERALS OF EVERY KIND AND CHARACTER LYING MORE THAN 500 FEET BELOW THE SURFACE, TOGETHER WITH THE RIGHT TO DRILL INTO, THROUGH, AND TO USE AND OCCUPY ALL PARTS OF THE SITE LYING MORE THAN 500 FEET BELOW THE SURFACE THEREOF FOR ANY AND ALL PURPOSES INCIDENTAL TO THE EXPLORATION FOR ANY PRODUCTION OF OIL, GAS, HYDROCARBON SUBSTANCES OR MINERAL FROM THE SITE, BUT WITHOUT, HOWEVER, ANY RIGHT TO USE OR DISTURB EITHER THE SURFACE OF THE SITE OR ANY PORTION THEREOF WITHIN 500 FEET OF THE SURFACE FOR ANY PURPOSE OR PURPOSES WHATSOEVER, AS RESERVED IN DEED FROM THE CITY OF SAN DIEGO, RECORDED APRIL 1, 1983 AS FILE NO. 83-103384 AND OCTOBER 5, 1984 AS FILE NO. 84-379481, AND RECORDED AUGUST 14, 1987 AS FILE NOS. 87-462262 AND 87-462263, ALL OF OFFICIAL RECORDS.
PARCEL B:
NON-EXCLUSIVE EASEMENTS AS SET FORTH IN THAT CERTAIN RECIPROCAL EASEMENT AND MAINTENANCE AGREEMENT RECORDED FEBRUARY 1, 2011 AS INSTRUMENT NO. 2011-0061146 AND RE-RECORDED FEBRUARY 24, 2011 AS INSTRUMENT NO. 2011-0102151 AND AS AMENDED BY THAT CERTAIN FIRST AMENDMENT TO RECIPROCAL EASEMENT AND MAINTENANCE AGREEMENT RECORDED FEBRUARY 12, 2013 AS INSTRUMENT NO. 2013-0094397, ALL OF OFFICIAL RECORDS.
PARCEL THREE:
PARCEL A:
PARCEL 1 OF PARCEL MAP NO. 12822, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, FILED IN THE OFFICE OF COUNTY RECORDER OF SAN DIEGO COUNTY, JULY 22, 1983.
EXCEPT THEREFROM ALL OIL, GAS, HYDROCARBON SUBSTANCES AND MINERALS OF EVERY KIND AND CHARACTER LYING MORE THAN 500 FEET BELOW THE SURFACE, TOGETHER WITH THE RIGHT TO DRILL INTO, THROUGH AND TO USE AND OCCUPY ALL PARTS OF THE SITE LYING MORE THAN 500 FEET BELOW THE SURFACE THEREOF FOR ANY AND ALL PURPOSES INCIDENTAL TO THE EXPLORATION FOR AND PRODUCTION OF OIL, GAS, HYDROCARBON, SUBSTANCES OR MINERAL FROM THE SITE, BUT WITHOUT, HOWEVER, ANY RIGHT TO USE OR DISTURB EITHER THE SURFACE OF THE SITE OR ANY PORTION THEREOF WITHIN 500 FEET OF THE SURFACE FOR ANY PURPOSE OR PURPOSES WHATSOEVER, AS RESERVED BY CITY OF SAN DIEGO IN DOCUMENT RECORDED APRIL 1, 1983 AS FILE NO. 83-103384 OF OFFICIAL RECORDS.

 	EXHIBIT E
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PARCEL B:
PERPETUAL EASEMENTS FOR ACCESS, STORM DRAIN, PARKING AND OTHER EASEMENTS BENEFITING PARCEL A REFERENCED ABOVE, AND INCIDENTAL PURPOSES, AS CONVEYED, SET FORTH AND DESCRIBED IN THAT CERTAIN RECIPROCAL EASEMENT AND MAINTENANCE AGREEMENT DATED AS OF FEBRUARY 1, 2011, MADE BY AND AMONG CAMPUS POINT REALTY CORPORATION, A CALIFORNIA CORPORATION, MIG OFFICE PROPERTIES I, LLC, A DELAWARE LIMITED LIABILITY COMPANY AND SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, UNDER THEIR TERMS AND PROVISIONS AS CONTAINED THEREIN, RECORDED FEBRUARY 1, 2011 AS INSTRUMENT NO. 2011-0061146, AND RE-RECORDED ON FEBRUARY 24, 2011 AS INSTRUMENT NO. 2011- 0102151, TOGETHER WITH THAT CERTAIN FIRST AMENDMENT TO RECIPROCAL EASEMENT AND MAINTENANCE AGREEMENT, MADE BY AND AMONG CAMPUS POINT REALTY CORPORATION, A CALIFORNIA CORPORATION; 4224 CAMPUS POINT COURT, LLC, A DELAWARE LIMITED LIABILITY COMPANY; 4110 CAMPUS POINT COURT, LLC, A DELAWARE LIMITED LIABILITY COMPANY; SCIENCE APPLICATIONS INTERNATIONAL CORPORATION AND WALTON/GREENLAW CAMPUS POINT HOLDINGS VI, L.L.C, A DELAWARE LIMITED LIABILITY COMPANY, RECORDED FEBRUARY 13, 2013 AS INSTRUMENT NO. 2013-0094397, ALL OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, CALIFORNIA.

 	EXHIBIT E
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EXHIBIT F
FORM LETTER OF CREDIT
L/C DRAFT LANGUAGE
IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER _____________
ISSUE DATE:  ______________
ISSUING BANK:
SILICON VALLEY BANK
3003 TASMAN DRIVE
2ND FLOOR, MAIL SORT HF210
SANTA CLARA, CALIFORNIA 95054
BENEFICIARY:
AP3-SD1 CAMPUS POINT LLC
4380 LA JOLLA VILLAGE DRIVE, SUITE 230
SAN DIEGO, CA 92121
ATTN:  W. NEIL FOX, CEO
APPLICANT:
TOCAGEN INC.
3030 BUNKER HILL STREET, STE 230
SAN DIEGO, CA 92109
AMOUNT:	US$585,707.22 (FIVE HUNDRED EIGHTY FIVE THOUSAND SEVEN HUNDRED SEVEN AND 22/100 U.S. DOLLARS)	
EXPIRATION DATE:	ONE YEAR FROM ISSUANCE	
LOCATION:	SANTA CLARA, CALIFORNIA	
LADIES AND GENTLEMEN:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. ___________ IN YOUR FAVOR FOR THE ACCOUNT OF TOCAGEN INC., A DELAWARE CORPORATION, UP TO THE AGGREGATE AMOUNT OF USD $585,707.22 (U.S. DOLLARS) EFFECTIVE IMMEDIATELY AND EXPIRING ON _______________ AVAILABLE BY PAYMENT UPON PRESENTATION OF YOUR
DRAFT AT SIGHT DRAWN ON SILICON VALLEY BANK WHEN ACCOMPANIED BY THE FOLLOWING DOCUMENT(S):
1.  THE ORIGINAL OF THIS IRREVOCABLE STANDBY LETTER OF CREDIT AND AMENDMENT(S), IF ANY (EXCEPT BY PRESENTATION BY FACSIMILE).
 
ALL THE DETAILS SET FORTH HEREIN IN THIS LETTER OF CREDIT DRAFT IS APPROVED BY APPLICANT.  IF THERE IS ANY DISCREPANCY BETWEEN THE DETAILS OF THIS LETTER OF CREDIT DRAFT AND THE LETTER OF CREDIT APPLICATION, BETWEEN APPLICANT AND SILICON VALLEY BANK, THE DETAILS HEREOF SHALL PREVAIL.

Applicant’s  Authorized Signature	 	DATE	
 
 	EXHIBIT F
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2.  BENEFICIARY'S SIGNED STATEMENT SIGNED BY AN AUTHORIZED SIGNATORY OF AP3-SD1 CAMPUS POINT, LLC, A DELAWARE LIMITED LIABILITY COMPANY ("LANDLORD") STATING THE FOLLOWING:
"THE UNDERSIGNED HEREBY CERTIFIES THAT THE LANDLORD, EITHER (A) UNDER THE LEASE (DEFINED BELOW), OR (B) AS A RESULT OF THE TERMINATION OF SUCH LEASE, HAS THE RIGHT TO DRAW DOWN THE AMOUNT OF USD IN ACCORDANCE WITH THE TERMS OF THAT CERTAIN LEASE DATED _________, AS THE SAME MAY HAVE BEEN AMENDED (COLLECTIVELY, THE "LEASE"), OR SUCH AMOUNT CONSTITUTES DAMAGES OWING BY THE TENANT TO BENEFICIARY RESULTING FROM THE BREACH OF SUCH LEASE BY THE TENANT THEREUNDER, OR THE TERMINATION OF SUCH LEASE, AND SUCH AMOUNT REMAINS UNPAID AT THE TIME OF THIS DRAWING."
OR
"THE UNDERSIGNED HEREBY CERTIFIES THAT WE HAVE RECEIVED A WRITTEN NOTICE OF SILICON VALLEY BANK'S ELECTION NOT TO EXTEND ITS STANDBY LETTER OF CREDIT NO. ___________ AND HAVE NOT RECEIVED A REPLACEMENT LETTER OF CREDIT WITHIN AT LEAST SIXTY (60) DAYS PRIOR TO THE PRESENT EXPIRATION DATE."
OR
"THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF LETTER OF CREDIT NO. ___________ AS THE RESULT OF THE FILING OF A VOLUNTARY PETITION UNDER THE U.S. BANKRUPTCY CODE OR A STATE BANKRUPTCY CODE BY THE TENANT UNDER THAT CERTAIN OFFICE LEASE DATED ______________, AS THE SAME MAY HAVE BEEN AMENDED (COLLECTIVELY, THE "LEASE"), WHICH FILING HAS NOT BEEN DISMISSED AT THE TIME OF THIS DRAWING."
OR
"THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF LETTER OF CREDIT NO. ___________ AS THE RESULT OF AN INVOLUNTARY PETITION HAVING BEEN FILED UNDER THE U.S. BANKRUPTCY CODE OR A STATE BANKRUPTCY CODE AGAINST THE TENANT UNDER THAT CERTAIN OFFICE LEASE DATED _____________, AS THE SAME MAY HAVE BEEN AMENDED (COLLECTIVELY, THE "LEASE"), WHICH FILING HAS NOT BEEN DISMISSED AT THE TIME OF THIS DRAWING."
OR
"THE UNDERSIGNED HEREBY CERTIFIES THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF LETTER OF CREDIT NO. ________________ AS THE RESULT OF THE REJECTION, OR DEEMED REJECTION, OF THAT CERTAIN OFFICE LEASE DATED _________________, AS THE SAME MAY HAVE BEEN AMENDED, UNDER SECTION 365 OF THE U.S. BANKRUPTCY CODE."
SPECIAL CONDITIONS:
PARTIAL DRAWINGS AND MULTIPLE PRESENTATIONS MAY BE MADE UNDER THIS STANDBY LETTER OF CREDIT, PROVIDED, HOWEVER, THAT EACH SUCH DEMAND THAT IS PAID BY US SHALL REDUCE THE AMOUNT AVAILABLE UNDER THIS STANDBY LETTER OF CREDIT.
ALL INFORMATION REQUIRED WHETHER INDICATED BY BLANKS, BRACKETS OR OTHERWISE, MUST BE COMPLETED AT THE TIME OF DRAWING.
ALL SIGNATURES MUST BE MANUALLY EXECUTED IN ORIGINALS.
 	EXHIBIT E
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ALL BANKING CHARGES ARE FOR THE APPLICANT ' S ACCOUNT.
IT IS A CONDITION OF THIS STANDBY LETTER OF CREDIT THAT IT SHALL BE DEEMED AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR A PERIOD OF ONE YEAR FROM THE PRESENT OR ANY FUTURE EXPIRATION DATE, UNLESS AT LEAST SIXTY (60) DAYS PRIOR TO THE EXPIRATION DATE WE SEND YOU NOTICE BY NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE THAT WE ELECT NOT TO EXTEND THIS LETTER OF CREDIT FOR ANY SUCH ADDITIONAL PERIOD.  SAID NOTICE WILL BE SENT TO THE ADDRESS INDICATED ABOVE, UNLESS A CHANGE OF ADDRESS IS OTHERWISE NOTIFIED BY YOU TO US IN WRITING BY RECEIPTED MAIL OR COURIER.  ANY NOTICE TO US WILL BE DEEMED EFFECTIVE ONLY UPON ACTUAL RECEIPT BY US WHICH WE HAVE ACKNOWLEDGED AT OUR DESIGNATED OFFICE.  IN NO EVENT, AND WITHOUT FURTHER NOTICE FROM OURSELVES, SHALL THE EXPIRATION DATE BE EXTENDED BEYOND A FINAL EXPIRATION DATE OF JULY 15, 2026.
THIS LETTER OF CREDIT MAY BE TRANSFERRED SUCCESSIVELY IN WHOLE AND NOT IN PART AND ONLY UP TO THE THEN AVAILABLE AMOUNT IN FAVOR OF A NOMINATED TRANSFEREE ("TRANSFEREE"), ASSUMING SUCH TRANSFER TO SUCH TRANSFEREE IS IN COMPLIANCE WITH ALL APPLICABLE U.S. LAWS AND REGULATIONS.  AT THE TIME OF TRANSFER, THE ORIGINAL LETTER OF CREDIT AND ORIGINAL AMENDMENT(S) IF ANY, MUST BE SURRENDERED TO US TOGETHER WITH OUR TRANSFER FORM ATTACHED HERETO AS EXHIBIT "A" DULY EXECUTED.  THE CORRECTNESS OF THE SIGNATURE AND TITLE OF THE PERSON SIGNING THE TRANSFER FORM MUST BE VERIFIED BY BENEFICIARY'S BANK.  APPLICANT SHALL PAY OUR TRANSFER FEE OF ¼ OF 1% OF THE TRANSFER AMOUNT (MINIMUM US$250.00) UNDER THIS LETTER OF CREDIT.  IN CASE OF ANY TRANSFER UNDER THIS LETTER OF CREDIT, THE DRAFT AND ANY REQUIRED STATEMENT MUST BE EXECUTED BY THE TRANSFEREE AND WHERE THE BENEFICIARY'S NAME APPEARS WITHIN THIS STANDBY LETTER OF CREDIT, THE TRANSFEREE'S NAME IS AUTOMATICALLY SUBSTITUTED THEREFOR.
ALL DRAFTS REQUIRED UNDER THIS STANDBY LETTER OF CREDIT MUST BE MARKED:  ''DRAWN UNDER SILICON VALLEY BANK STANDBY LETTER OF CREDIT NO. ___________."
WE HEREBY AGREE WITH YOU THAT IF DRAFTS ARE PRESENTED TO SILICON VALLEY BANK UNDER THIS LETTER OF CREDIT AT OR PRIOR TO 11:00 AM CALIFORNIA TIME, ON A BUSINESS DAY, AND PROVIDED THAT SUCH DRAFTS PRESENTED CONFORM TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, PAYMENT SHALL BE INITIATED BY US IN IMMEDIATELY AVAILABLE FUNDS BY OUR CLOSE OF BUSINESS ON THE SUCCEEDING BUSINESS DAY.  IF DRAFTS ARE PRESENTED TO SILICON VALLEY BANK UNDER THIS LETTER OF CREDIT AFTER 11:00 AM CALIFORNIA TIME, ON A BUSINESS DAY, AND PROVIDED THAT SUCH DRAFTS CONFORM WITH THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, PAYMENT SHALL BE INITIATED BY US IN IMMEDIATELY AVAILABLE FUNDS BY OUR CLOSE OF BUSINESS ON THE SECOND SUCCEEDING BUSINESS DAY.  AS USED IN THIS LETTER OF CREDIT, "BUSINESS DAY" SHALL MEAN ANY DAY OTHER THAN A SATURDAY, SUNDAY OR A DAY ON WHICH BANKING INSTITUTIONS IN THE STATE OF CALIFORNIA ARE AUTHORIZED OR REQUIRED BY LAW TO CLOSE.  IF THE EXPIRATION DATE FOR THIS LETTER OF CREDIT SHALL EVER FALL ON A DAY WHICH IS NOT A BUSINESS DAY THEN SUCH EXPIRATION DATE SHALL AUTOMATICALLY BE EXTENDED TO THE DATE WHICH IS THE NEXT BUSINESS DAY.
 PRESENTATION OF A DRAWING UNDER THIS LETTER OF CREDIT MAY BE MADE ON OR PRIOR TO THE THEN CURRENT EXPIRATION DATE HEREOF BY HAND DELIVERY, COURIER SERVICE, OVERNIGHT MAIL, OR FACSIMILE.  PRESENTATION BY FACSIMILE TRANSMISSION SHALL BE BY TRANSMISSION OF THE ABOVE REQUIRED SIGHT DRAFT DRAWN ON US TO OUR FACSIMILE NUMBER (408) 496-2418 OR (408) 969-6510, ATTENTION:  STANDBY LETTER OF CREDIT NEGOTIATION SECTION, WITH TELEPHONIC CONFIRMATION OF OUR RECEIPT OF SUCH FACSIMILE TRANSMISSION AT OUR TELEPHONE NUMBER (408) 654-6274 OR (408) 654-7716, OR TO SUCH OTHER FACSIMILE OR TELEPHONE NUMBERS, AS TO WHICH YOU HAVE RECEIVED WRITTEN NOTICE FROM US AS BEING THE APPLICABLE SUCH NUMBER.  WE AGREE TO NOTIFY
 	EXHIBIT E
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YOU IN WRITING, BY NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE, OF ANY CHANGE IN SUCH DIRECTION.    IN CASE DEMAND FOR PAYMENT HEREUNDER IS PRESENTED BY FACSIMILE TRANSMISSION, PRESENTATION OF THE ORIGINAL OF SUCH DEMAND FOR PAYMENT IS NOT REQUIRED.    IN ADDITION, ABSENCE OF THE AFORESAID TELEPHONE ADVICE SHALL NOT AFFECT OUR OBLIGATION TO HONOR ANY DRAW REQUEST.
WE HEREBY ENGAGE WITH YOU THAT ALL DOCUMENT(S) DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS STANDBY LETTER OF CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR PAYMENT AT OUR OFFICE LOCATED AT SILICON VALLEY BANK, 3003 TASMAN DRIVE, SANTA CLARA, CA 95054, ATTN:  STANDBY LETTER OF CREDIT NEGOTIATION SECTION, ON OR BEFORE THE EXPIRATION DATE OF THIS CREDIT OR ANY AUTOMATICALLY EXTENDED EXPIRATION DATE.
IF THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT NO. ___________ IS LOST, STOLEN OR DESTROYED, WE WILL ISSUE YOU A "CERTIFIED TRUE COPY" OF THIS STANDBY LETTER OF CREDIT NO. ____________ UPON OUR RECEIPT OF YOUR INDEMNITY LETTER TO SILICON VALLEY BANK WHICH WILL BE SENT TO YOU UPON OUR RECEIPT OF YOUR WRITTEN REQUEST THAT THIS STANDBY LETTER OF CREDIT NO. ___________ IS LOST, STOLEN, OR DESTROYED.  IF THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT NO. ____________ IS MUTILATED, WE WILL ISSUE YOU A REPLACEMENT STANDBY LETTER OF CREDIT WITH THE SAME NUMBER, DATE AND TERMS AS THE ORIGINAL UPON OUR RECEIPT OF THE MUTILATED STANDBY LETTER OF CREDIT.
IF ANY INSTRUCTIONS ACCOMPANYING A DRAWING UNDER THIS LETTER OF CREDIT REQUEST THAT PAYMENT IS TO BE MADE BY TRANSFER TO YOUR ACCOUNT WITH ANOTHER BANK, WE WILL ONLY EFFECT SUCH PAYMENT BY FED WIRE TO A U.S. REGULATED BANK, AND WE AND/OR SUCH OTHER BANK MAY RELY ON AN ACCOUNT NUMBER SPECIFIED IN SUCH INSTRUCTIONS EVEN IF THE NUMBER IDENTIFIES A PERSON OR ENTITY DIFFERENT FROM THE INTENDED PAYEE.
EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED HEREIN, THIS STANDBY LETTER OF CREDIT IS SUBJECT TO THE "INTERNATIONAL STANDBY PRACTICES" (ISP 98) INTERNATIONAL CHAMBER
OF COMMERCE (PUBLICATION NO. 590).

 	EXHIBIT E
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SILICON VALLEY BANK,

 	 	 	
AUTHORIZED SIGNATURE	 	AUTHORIZED SIGNATURE	

 
 	EXHIBIT E
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EXHIBIT "A"
TRANSFER FORM
DATE: ____________________
 
TO:	SILICON VALLEY BANK	 	
 	3003 TASMAN DRIVE	RE: IRREVOCABLE STANDBY LETTER OF CREDIT	
 	SANTA CLARA, CA 95054	NO. _____________   ISSUED BY	
 	ATTN:INTERNATIONAL DIVISION.	SILICON VALLEY BANK, SANTA CLARA	
 	STANDBY LETTERS OF CREDIT	L/C AMOUNT: ___________________	
 
GENTLEMEN:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:
_________________________________________________________________________________________
(NAME OF TRANSFEREE)
_________________________________________________________________________________________
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF CREDIT UP TO ITS AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS TRANSFER.
 
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF CREDIT ARE TRANSFERRED TO THE TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS, WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECTLY TO THE TRANSFEREE WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.
 
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.
 
SIGNATURE AUTHENTICATED
The names(s), title(s), and signature(s) conform to that/those on file with us for the company and the signature(s) is/are authorized to execute this instrument.
_______________________________________
(Name of Bank)
_______________________________________
(Address of Bank)
_______________________________________
(City, State, Zip Code)
_______________________________________
(Print Authorized Name and Title)
_______________________________________
(Authorized Signature)
_______________________________________
(Telephone Number)

______________________________
(BENEFICIARY’S NAME)
By:________________________________

Printed Name:________________________

Title:_______________________________

 
 
 	EXHIBIT "A"
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 RI DER 1
EXTENSION OPTION RIDER
This Extension Option Rider (" Extension Rider ") is attached to and made a part of the Lease by and between Landlord and Tenant.  The agreements set forth in this Extension Rider shall have the same force and effect as if set forth in the Lease.  To the extent the terms of this Extension Rider are inconsistent with the terms of the Lease, the terms of this Extension Rider shall control.
1.         Extension Option .  Landlord hereby grants Tenant one (1) option (the " Extension Option ") to extend the Lease Term for a period of five (5) years (the " Option Term "), which option shall be exercisable only by written Exercise Notice (as defined below) delivered by Tenant to Landlord as provided below.  Upon the proper exercise of the Extension Option, the Lease Term shall be extended for the Option Term.  Notwithstanding the foregoing, at Landlord's option, in addition to any other remedies available to Landlord under the Lease, at law or in equity, the Extension Option shall not be deemed properly exercised if as of the date of delivery of the Exercise Notice (as defined below) by Tenant is in default under the Lease beyond all applicable notice and cure periods.  The Extension Option is personal to the Original Tenant (or any Affiliate Assignee) and may only be exercised by the Original Tenant (or any Affiliate Assignee but not any other assignee, sublessee or other transferee of Tenant's interest in the Lease) if the Original Tenant (or any Affiliate Assignee) occupies the entire Premises as of the date of Tenant's delivery of the Exercise Notice.
2.         Option Rent .  The annual Base Rent payable by Tenant during the Option Term (the " Option Rent ") shall be equal to the greater of:  (i) the annual Base Rent payable by Tenant during the last year of the initial Lease Term; or (ii) the Fair Market Rental Rate for comparable office/laboratory space in the San Diego market.  As used herein, the " Fair Market Rental Rate " shall mean the annual base rent at which tenants, as of the commencement of the Option Term, will be leasing non-sublease space comparable in size, location (including views) and quality to the Premises for a comparable term as the Option Term, which comparable space is located in the Building, the Other Existing Buildings in the Project and in other comparable first-class biotechnology buildings in the UTC/Eastgate/Campus Point submarket of San Diego County, taking into consideration all free rent and other out-of-pocket concessions generally being granted at such time for such comparable space for the Option Term (including, without limitation, any tenant improvement allowance provided for such comparable space, with the amount of such tenant improvement allowance to be provided for the Premises during the Option Term to be determined after taking into account the age, quality and layout of the tenant improvements in the Premises as of the commencement of the Option Term with consideration given to the fact that the improvements existing in the Premises are specifically suitable to Tenant).  All other terms and conditions of the Lease shall apply throughout the Option Term; however, Tenant shall, in no event, have the option to extend the Lease Term beyond the Option Term described in Section 1 above.
3.         Exercise of Option .  The Extension Option shall be exercised by Tenant, if at all, only in the following manner:  (i) Tenant shall deliver written notice (" Interest Notice ") to Landlord not more than fifteen (15) months nor less than fourteen (14) months prior to the expiration of the initial Lease Term stating that Tenant may be interested in exercising the Extension Option; (ii) Landlord, after receipt of Tenant's notice, shall deliver notice (the " Option Rent Notice ") to Tenant not less than one (1) month after receipt of the Interest Notice setting forth the Option Rent; and (iii) if Tenant wishes to exercise the Extension Option, Tenant shall, on or before the date (the " Exercise Date ") which is no later than the later of (A) twelve (12) months prior to the expiration of the initial Lease Term and (B) one month after receipt of the Option Rent Notice, exercise the Extension Option by delivering written notice (" Exercise Notice ") thereof to Landlord.  Tenant's failure to deliver the Interest Notice or Exercise Notice on or before the applicable delivery dates therefore specified hereinabove shall be deemed to constitute Tenant's waiver of the Extension Option.
 4.         Determination of Option Rent .  If Tenant timely and appropriately objects in its Exercise Notice to Landlord to the Fair Market Rental Rate for the Option Term initially determined by Landlord, then Landlord and Tenant shall attempt in good faith to agree upon the Fair Market Rental Rate.  If Landlord and Tenant fail to reach agreement within ten (10) business days following Tenant's delivery of such Exercise Notice (the "Outside Agreement Date"), then each party shall submit to the other party a separate written determination of the Fair
 	RIDER 1
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Market Rental Rate within fifteen (15) business days after the Outside Agreement Date, and such determinations shall be submitted to arbitration in accordance with the provisions of Sections 4.1 through 4.7 below.  The failure of Tenant or Landlord to submit a written determination of the Fair Market Rental Rate within such fifteen (15) business day period shall conclusively be deemed to be such party's approval of the Fair Market Rental Rate submitted within such fifteen (15) business day period by the other party .
4.1. Landlord and Tenant shall each appoint one (1) arbitrator who shall by profession be an independent real estate broker who shall have no ongoing relationship with Tenant or Landlord and who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of first class office buildings in the UTC/Eastside submarket of San Diego County.  The determination of the arbitrators shall be limited solely to the issue of whether Landlord's or Tenant's submitted Fair Market Rental Rate is the closer to the actual Fair Market Rental Rate as determined by the arbitrators, taking into account the requirements with respect thereto set forth in Section 2 above.  Each such arbitrator shall be appointed within fifteen (15) days after the Outside Agreement Date.
4.2 The two (2) arbitrators so appointed shall, within fifteen (15) days of the date of the appointment of the last appointed arbitrator, agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) arbitrators.
4.3 The three (3) arbitrators shall, within thirty (30) days of the appointment of the third arbitrator, reach a decision as to which of Landlord's or Tenant's submitted Fair Market Rental Rate is closer to the actual Fair Market Rental Rate and shall select such closer determination as the Fair Market Rental Rate and notify Landlord and Tenant thereof.
4.4 The decision of the majority of the three (3) arbitrators shall be binding upon Landlord and Tenant.
4.5 If either Landlord or Tenant fails to appoint an arbitrator within the time period specified in Section 4.1 hereinabove, the arbitrator  appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator's decision shall be binding upon Landlord and Tenant.
If the two (2) arbitrators fail to agree upon and appoint a third arbitrator, within the time period provided in Section 4.2 above, then the parties shall mutually select the third arbitrator.  If Landlord and Tenant are unable to agree upon the third arbitrator within ten (10) days after the fifteen (15) day period described in Section 4.2 above, then either party may, upon at least five (5) days' prior written notice to the other party, request the Presiding Judge of the San Diego County Superior Court, acting in his private and nonjudicial capacity, to appoint the third arbitrator.  Following the appointment of the third arbitrator, the panel of arbitrators shall within thirty (30) days thereafter reach a decision as to whether Landlord's or Tenant's submitted Fair Market Rental Rate shall be used and shall notify Landlord and Tenant thereof.
4.7 The cost of the arbitrators and the arbitration proceeding shall be paid by the non -prevailing party.
 	RIDER 1
-2-	Execution Original	

Exhibit 10.17
 
SEVENTEENTH AMENDMENT TO LEASE
THIS SEVENTEENTH AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of this 25 th day of July, 2017 (the “ Seventeenth Amendment Execution Date ”), by and between BMR-BUNKER HILL LP, a Delaware limited partnership (“ Landlord, ” formerly known as BMR-3030 Bunker Hill Street LLC), and TOCAGEN, INC., a Delaware corporation (“ Tenant ”).
RECITALS
A. WHEREAS, Landlord and Tenant entered into that certain Lease dated as of July 21, 2008, as amended by that certain First Amendment to Lease dated as of July 29, 2008, that certain Second Amendment to Lease dated as of June 4, 2009, that certain Third Amendment to Lease dated as of July 21, 2009, that certain Fourth Amendment to Lease dated as of October 20, 2009, that certain Fifth Amendment to Lease dated as of March 4, 2011, that certain Sixth Amendment to Lease dated as of May 16, 2012, that certain Seventh Amendment to Lease dated as of September 25, 2012, that certain Eighth Amendment to Lease dated as of January 24, 2013, that certain Ninth Amendment to Lease dated as of December 20, 2013, that certain Tenth Amendment to Lease dated as of July 18, 2014, that certain Eleventh Amendment to Lease dated as of August 20, 2014, that certain Twelfth Amendment to Lease dated as of March 10, 2015, that certain Thirteenth Amendment to Lease dated as of July 15, 2015, that certain Fourteenth Amendment to Lease dated as of September 22, 2015, that certain Fifteenth Amendment to Lease dated as of February 25, 2016 and that certain Sixteenth Amendment to Lease dated as of July 5, 2016 (the “Sixteenth Amendment”) (collectively, and as the same may have been further amended, amended and restated, supplemented or modified from time to time, the “Existing Lease”), whereby Tenant leases certain premises (the “Existing Premises”) from Landlord at 3030 Bunker Hill Street in San Diego, California (the “Building”);
B. WHEREAS, Landlord and Tenant desire to expand the Existing Premises to include that certain space containing approximately one thousand four hundred forty-two (1,442) square feet of Rentable Area located on the second (2nd) floor of the Building and known as Suite 216 (as more particularly described on Exhibit A attached hereto, the “Seventeenth Amendment Premises”); and
C. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1. Definitions. For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the “Lease.” From and after the date hereof, the term “Lease,” as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.
 
1.

2. Seventeenth Amendment Premises. Effective as of the day that is the later of (a) August 1, 2017, and (b) the Seventeenth Amendment Execution Date (such date, the “Seventeenth Amendment Premises Commencement Date”), Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Seventeenth Amendment Premises. From and after the Seventeenth Amendment Premises Commencement Date, the term “Premises” as used in the Lease shall mean the Existing Premises plus the Seventeenth Amendment Premises, for a total of eighteen thousand six hundred fifty-four (18,654) square feet of Rentable Area.
2.1 Seventeenth Amendment Premises Term. The Term with respect to the Seventeenth Amendment Premises (the “Seventeenth Amendment Premises Term”) shall commence on the Seventeenth Amendment Premises Commencement Date and shall thereafter be coterminous with the Term for the Existing Premises, such that the Term with respect to the entire Premises (including both the Existing Premises and the Seventeenth Amendment Premises) shall expire on the Term Expiration Date (as set forth in Article 2 of the Sixteenth Amendment).
 2.2 Condition of Seventeenth Amendment Premises. Tenant acknowledges that (a) it is fully familiar with the condition of the Seventeenth Amendment Premises and, notwithstanding anything to the contrary in the Lease, agrees to take the same in its condition “as is” as of the Seventeenth Amendment Premises Commencement Date, (b) neither Landlord nor any agent of Landlord has made (and neither Landlord nor any agent of Landlord hereby makes) any representation or warranty of any kind whatsoever, express or implied, regarding the Seventeenth Amendment Premises, including (without limitation) any representation or warranty with respect to the condition of the Seventeenth Amendment Premises or with respect to the suitability of the Seventeenth Amendment Premises for the conduct of Tenant’s business and (c) Landlord shall have no obligation to alter, repair or otherwise prepare the Seventeenth Amendment Premises for Tenant’s occupancy or to pay for any improvements to the Seventeenth Amendment Premises. The Seventeenth Amendment Premises have not undergone inspection by a Certified Access Specialist (“CASp,” as defined in California Civil Code Section 55.52). Even if not required by California law, the Seventeenth Amendment Premises may be inspected by a CASp to determine whether the Seventeenth Amendment Premises comply with the ADA, and Landlord may not prohibit a CASp performing such an inspection. If Tenant requests that such an inspection take place, Landlord and Tenant shall agree on the time and manner of the inspection, as well as which party will pay the cost of the inspection and the cost to remedy any defects identified by the CASp. A Certified Access Specialist can inspect the Premises and determine whether the Premises comply with all of the applicable construction-related accessibility standards under State law. Although State law does not require a Certified Access Specialist inspection of the Seventeenth Amendment Premises, Landlord may not prohibit Tenant from obtaining a Certified Access Specialist inspection of the Seventeenth Amendment Premises for the occupancy or potential occupancy of Tenant, if requested by Tenant. Landlord and Tenant shall agree on the arrangements for the time and manner of the Certified Access Specialist inspection, the payment of the fee for the Certified Access Specialist inspection, and the cost of making any repairs necessary to correct violations of construction related accessibility standards within the Seventeenth Amendment Premises. Tenant’s taking possession of the Seventeenth Amendment Premises shall, except as otherwise agreed to in writing by Landlord and Tenant, conclusively establish that the Seventeenth Amendment
 
2.

Premises, the Building and the Project were at such time in good, sanitary and satisfactory condition and repair.
2.3 Base Rent for Seventeenth Amendment Premises. Tenant shall pay Base Rent for the Seventeenth Amendment Premises during the Seventeenth Amendment Premises Term in accordance with the terms and provisions of the Lease; provided that, Base Rent for the Seventeenth Amendment Premises during the Seventeenth Amendment Premises Term shall equal Two and 25/100 Dollars ($2.25) per square foot of Rentable Area (of the Seventeenth Amendment Premises) per month. For avoidance of doubt, (a) Base Rent for the Seventeenth Amendment Premises shall be in addition to the Base Rent payable by Tenant with respect to the Existing Premises (as set forth in Article 3 of the Sixteenth Amendment) and (b) the term “Premises” as used in Article 3 of the Sixteenth Amendment means the Existing Premises (as defined in this Amendment).
2.4 Additional Rent for Seventeenth Amendment Premises. In addition to all Additional Rent for the Existing Premises, during the Seventeenth Amendment Premises Term, Tenant shall pay (a) Tenant’s Pro Rata Share of Operating Expenses, (b) the Property Management Fee and (c) any other amounts set forth in the Lease, in each case with respect to the Seventeenth Amendment Premises.
3. Tenant’s Pro Rata Share . Commencing as of the Seventeenth Amendment Execution Date, Tenant’s Pro Rata Share of the Building shall equal 17.70%.
4. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment and agrees to reimburse, indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord, at Tenant’s sole cost and expense) and hold harmless Landlord and its affiliates (and their respective employees, agents and contractors) for, from and against any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.
5. No Default . Tenant represents, warrants and covenants that, to the best of Tenant’s knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.
6. Notices . Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Lease should be sent to:
Tocagen, Inc.
3030 Bunker Hill Street, Suite 230
San Diego, California 92109
Attn: Chief Financial Officer.
 7. Effect of Amendment . Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms
 
3.

contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.
8. Successors and Assigns . Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.
9. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
10. Authority . Tenant guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
11. Counterparts; Facsimile and PDF Signatures . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 
4.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date and year first above written.
 
LANDLORD :	
 	
BMR-BUNKER HILL LP ,	
a Delaware limited partnership	
 	
By:	    /s/ Marie Lewis	
Name:	    Marie Lewis	
Its:	    Vice President, Legal	
 
TENANT :	
 	
TOCAGEN INC.,	
a Delaware corporation	
 	
By:	    /s/ Marty J. Duvall	
Name:	    Marty J. Duvall	
Its:	    CEO	

 

 
EXHIBIT A
SEVENTEENTH AMENDMENT PREMISES
[See attached]

 

EIGHTEENTH AMENDMENT TO LEASE
THIS EIGHTEENTH AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of this 7 th day of March, 2018 (but retroactively effective as of February 19, 2018), by and between BMR-BUNKER HILL LP, a Delaware limited partnership (“ Landlord ,” as successor-in-interest to BMR-3030 Bunker Hill Street LLC), and TOCAGEN INC., a Delaware corporation (“ Tenant ”).
RECITALS
A. WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of July 21, 2008, as amended by that certain First Amendment to Lease dated as of July 29, 2008, that certain Second Amendment to Lease dated as of June 4, 2009, that certain Third Amendment to Lease dated as of July 21, 2009, that certain Fourth Amendment to Lease dated as of October 20, 2009, that certain Fifth Amendment to Lease dated as of March 4, 2011 (the “Fifth Amendment”), that certain Sixth Amendment to Lease dated as of May 16, 2012, that certain Seventh Amendment to Lease dated as of September 25, 2012, that certain Eighth Amendment to Lease dated as of January 24, 2013 (the “Eighth Amendment”), that certain Ninth Amendment to Lease dated as of December 20, 2013, that certain Tenth Amendment to Lease dated as of July 18, 2014, that certain Eleventh Amendment to Lease dated as of August 20, 2014, that certain Twelfth Amendment to Lease dated as of March 10, 2015, that certain Thirteenth Amendment to Lease dated as of July 15, 2015, that certain Fourteenth Amendment to Lease dated as of September 22, 2015, that certain Fifteenth Amendment to Lease dated as of February 25, 2016, that certain Sixteenth Amendment to Lease dated as of July 5, 2016 and that certain Seventeenth Amendment to Lease dated as of July 25, 2017 (collectively, and as the same may have been further amended, amended and restated, supplemented or modified from time to time, the “Existing Lease”), whereby Tenant leases certain premises (the “Premises”) from Landlord at 3030 Bunker Hill Street in San Diego, California (the “Building”);
B. WHEREAS, Landlord and Tenant desire to extend the Term of the Existing Lease and set the Base Rent for the such extension; and
C. WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
 1. Definitions .  For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein.  The Existing Lease, as amended by this Amendment, is referred to collectively herein as the “ Lease .” From and after the date hereof, the term “Lease,” as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.  For purposes of this Amendment, the term (a) “ Initial Expiration Premises ” means the entire Premises, but excluding (i) the Suite 220A Premises (as defined in the Fifth Amendment) and (ii) the Storage Premises (as defined in the Eighth Amendment), for a

total of sixteen thousand three hundred forty-one (16,341) square feet of Rentable Area and (b) “ Subsequent Expiration Premises ” means (a) the Suite 220A Premises (as defined in the Fifth Amendment and consisting of two thousand one hundred forty-eight (2,148) square feet of Rentable Area) and (b) the Storage Premises (as defined in the Eighth Amendment and consisting of one hundred sixty-five (165) square feet of Rentable Area), for a total of two thousand three hundred thirteen (2,313) square feet of Rentable Area.  The Initial Expiration Premises together with the Subsequent Expiration Premises is the entire Premises.
2. Initial Expiration Premises .
2.1. The Term of the Lease with respect to the Initial Expiration Premises is hereby extended by four (4) months and nine (9) days, such that the Term with respect to the Initial Expiration Premises shall expire on June 30, 2018 (the “Initial Expiration Premises Expiration Date”).  As it applies to the Initial Expiration Premises, the period commencing February 20, 2018 and ending on the Initial Expiration Premises Expiration Date is referred to herein as the “Initial Expiration Extension Term”).  The term “Term,” as used in the Lease (but only as applied to the Initial Expiration Premises), shall refer to the Term as extended by the Initial Expiration Extension Term.
2.2. Tenant shall pay Base Rent for the Initial Expiration Premises during the Initial Expiration Extension Term in accordance with the terms of the Lease.  Base Rent for the Initial Expiration Premises during the Initial Expiration Extension Term shall be Thirty-Five Thousand Nine Hundred Two and 25/100 Dollars ($35,902.25) per month.
2.3. During the Initial Expiration Extension Term, Tenant shall continue to pay (a) Tenant’s Pro Rata Share of Operating Expenses, (b) the Property Management Fee and (c) any other amounts set forth in the Lease, in each case in connection with the Initial Expiration Premises.  For purposes of clarity, Tenant’s Pro Rata Share with respect to the Initial Expiration Premises is 15.51%.
2.4. Tenant acknowledges that (a) it is in possession of and is fully familiar with the condition of the Initial Expiration Premises and, notwithstanding anything contained in the Lease to the contrary, agrees to take the same in its condition “as is” as of the first day of the Initial Expiration Extension Term, and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Initial Expiration Premises for Tenant’s continued occupancy for the Initial Expiration Extension Term or to pay for any improvements to the Initial Expiration Premises, except as may be expressly provided in the Lease.
 2.5. Upon the expiration of the Initial Expiration Extension Term, Tenant shall surrender the Initial Expiration Premises to Landlord in broom clean condition and in the condition (and with all documentation) required under the Lease for surrendering the Premises (or any portion thereof) (including, without limitation, Section 19.2 and Section 27.1 of the Lease).  If Tenant does not surrender the Initial Expiration Premises in accordance with this Section by the Initial Expiration Premises Expiration Date, Tenant shall become a tenant at sufferance, under Section 28.2 of the Lease, with respect to the Initial Expiration Premises until the actual date that Tenant surrenders the Initial Expiration Premises in accordance with this Section.  Without waiving any right Landlord may have to terminate the Lease earlier, as of the
 
2.

later of (a) the Initial Expiration Premises Expiration Date and (b) the date Tenant surrenders the Initial Expiration Premises in accordance with this Section, the Lease shall terminate as to the Initial Expiration Premises only and shall no longer be of any force or effect with regard to the Initial Expiration Premises only, except for those provisions, that, by their express terms, survive the expiration or earlier termination of the Lease.  Accordingly, following the later of (y) the Initial Expiration Premises Expiration Date and (z) the date Tenant surrenders the Initial Expiration Premises in accordance with this Section, the term “Premises,” as defined in the Lease shall mean only the Subsequent Expiration Premises.
3. Subsequent Expiration Premises .
3.1. The Term of the Lease with respect to the Subsequent Expiration Premises is hereby extended by ten (10) months and nine (9) days, and therefore, the “Term Expiration Date” is hereby amended to mean December 31, 2018.  As it applies to the Subsequent Expiration Premises, the period commencing February 20, 2018 and ending on the Term Expiration Date is referred to herein as the “Subsequent Expiration Extension Term”).  The term “Term,” as used in the Lease, shall refer to the Term as extended by the Subsequent Expiration Extension Term.
3.2. Tenant shall pay Base Rent for the Subsequent Expiration Premises during the Subsequent Expiration Extension Term in accordance with the terms of the Lease.  Base Rent for the Subsequent Expiration Premises during the Subsequent Expiration Extension Term shall be the sum of (a) Four Thousand Seven Hundred Nineteen and 30/100 Dollars ($4,719.30) per month for the Suite 220A Premises (as defined in the Fifth Amendment) and (b) One Hundred Sixty-Nine and 95/100 Dollars ($169.95) per month  for the Storage Premises (as defined in the Eighth Amendment), for a total of Four Thousand Eight Hundred Eighty-Nine and 25/100 Dollars ($4,889.25) per month.
3.3. During the Subsequent Expiration Extension Term, Tenant shall continue to pay (a) Tenant’s Pro Rata Share of Operating Expenses, (b) the Property Management Fee and (c) any other amounts set forth in the Lease, in each case in connection with the Subsequent Expiration Premises.  For purposes of clarity, Tenant’s Pro Rata Share with respect to the Subsequent Expiration Premises is 2.20%.
3.4. Tenant acknowledges that (a) it is in possession of and is fully familiar with the condition of the Subsequent Expiration Premises and, notwithstanding anything contained in the Lease to the contrary, agrees to take the same in its condition “as is” as of the first day of the Subsequent Expiration Extension Term, and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Subsequent Expiration Premises for Tenant’s continued occupancy for the Subsequent Expiration Extension Term or to pay for any improvements to the Subsequent Expiration Premises, except as may be expressly provided in the Lease.
4. Insurance .  The term “ Landlord Parties ,” as used in the Lease, is hereby amended to mean Landlord, BioMed Realty LLC, BioMed Realty, L.P., BRE Edison L.P., BRE Edison LLC, BRE Edison Holdings L.P., BRE Edison Holdings LLC, BRE Edison Parent L.P. and their respective officers, employees, agents, general partners, members, subsidiaries, affiliates and Lenders.
 
3.

5. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, other than Hughes Marino, Inc. (“ Broker ”), and agrees to reimburse, indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord, at Tenant’s sole cost and expense) and hold harmless Landlord and its affiliates, employees, agents and contractors; and any Lender (collectively with Landlord and its affiliates, employees, agents and contractors, the “ Landlord Indemnitees ”) for, from and against any and all cost or liability for compensation claimed by any such broker or agent, other than Broker, employed or engaged by it or claiming to have been employed or engaged by it.  Broker is entitled to a leasing commission in connection with the making of this Amendment, and Landlord shall pay such commission to Broker pursuant to a separate agreement between Landlord and Broker.
6. No Default .  Tenant represents, warrants and covenants that, to the best of Tenant’s knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.
7. Notices .  Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Lease should be sent to:
Tocagen Inc
3030 Bunker Hill Street, Suite 230
San Diego, California 92109
Attn: Chief Financial Officer.
 
8. Effect of Amendment .  Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed.  In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.
9. Successors and Assigns .   Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees.  Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.
10. Miscellaneous .  This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof.  All exhibits hereto are incorporated herein by reference.  Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
 
4.

11. Authority .  Tenant guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
12. Counterparts; Facsimile and PDF Signatures .  This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.  A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.
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5.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date and year first above written.
 
LANDLORD :	
 	
BMR-BUNKER HILL LP ,	
a Delaware limited partnership	
 	
By:	    /s/ Marie Lewis	
Name:	    Marie Lewis	
Its:	    Vice President, Legal	
 
TENANT :	
 	
TOCAGEN INC.,	
a Delaware corporation	
 	
By:	   /s/ Mark G. Foletta	
Name:	   Mark G. Foletta	
Its:	   EVP & CFO	

 

Exhibit 23.1
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement on Form S-8 (333-217300) pertaining to the 2009 Equity Incentive Plan, the 2017 Equity Incentive Plan, and the 2017 Employee Stock Purchase Plan of Tocagen Inc. of our report dated March 9, 2018, with respect to the financial statements of Tocagen Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2017.
/s/ Ernst & Young LLP
San Diego, California
March 9, 2018

 
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Martin J. Duvall, certify that:
1.	I have reviewed this annual report on Form 10-K of Tocagen Inc., a Delaware corporation (the “registrant”);	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:	
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	(b )	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	(c )	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.	
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):	
 	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and	
 	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.	
 
Date: March 9, 2018	 	By:	/s/ MARTIN J. DUVALL	
 	 	 	Martin J. Duvall	
 	 	 	Chief Executive Officer
(Principal Executive Officer)	

 
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark Foletta, certify that:
1.	I have reviewed this annual report on Form 10-K of Tocagen Inc., a Delaware corporation (the “registrant”);	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:	
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	( b )	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	(c )	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.	
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):	
 	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and	
 	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.	
 
Date: March 9, 2018	 	By:	/s/MARK FOLETTA	
 	 	 	Mark Foletta	
 	 	 	Chief Financial Officer
(Principal Financial Officer)	

 
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Tocagen Inc. (the “Company”) on Form 10-K for the period ending December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.	
 
Date: March 9, 2018	 	By:	/s/ MARTIN J. DUVALL	
 	 	 	Martin J. Duvall	
 	 	 	Chief Executive Officer
(Principal Executive Officer)	
 
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Tocagen Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.

 
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Tocagen Inc. (the “Company”) on Form 10-K for the period ending December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.	
 
Date: March 9, 2018	 	By:	/s/ MARK FOLETTA	
 	 	 	Mark Foletta	
 	 	 	Chief Financial Officer
(Principal Financial Officer)	
 
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Tocagen Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.