Document and Entity Information

9 Months Ended

Sep. 30, 2012

Nov. 2, 2012

Document Type

10-Q

Amendment Flag

false

Document Period End Date

Sep. 30, 2012

Document Fiscal Year Focus

2012

Document Fiscal Period Focus

Q3

Trading Symbol

OPXA

Entity Registrant Name

OPEXA THERAPEUTICS, INC.

Entity Central Index Key

0001069308

Current Fiscal Year End Date

--12-31

Entity Filer Category

Smaller Reporting Company

Entity Common Stock, Shares Outstanding

23,048,488

CONSOLIDATED BALANCE SHEETS (USD $)

Sep. 30, 2012

Dec. 31, 2011

Current assets:

Cash and cash equivalents

$ 2,237,618

$ 7,109,215

Other current assets

1,188,237

124,773

Total current assets

3,425,855

7,233,988

Property & equipment, net of accumulated depreciation of $1,418,344 and $1,193,601, respectively

1,327,649

1,029,236

Restricted cash

1,000,000

Deferred financing costs, net of amortization of $24,710 and $0, respectively

245,408

Total assets

5,998,912

8,263,224

Current liabilities:

Accounts payable

534,368

476,315

Accounts payable - related parties

8,333

15,000

Accrued expenses

358,070

576,545

Warrant derivative liabilities

2,451,524

Total current liabilities

3,352,295

1,067,860

Long term liabilities:

Total liabilities

3,659,627

1,067,860

Commitments and contingencies

Stockholders' equity:

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

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

230,485

Additional paid in capital

109,686,066

107,645,666

Deficit accumulated during the development stage

(107,577,266)

(100,680,787)

Total stockholders' equity

2,339,285

7,195,364

Total liabilities and stockholders' equity

5,998,912

8,263,224

Unrelated Third Party

Long term liabilities:

Convertible debt, net of unamortized discount

259,934

Related Party Transactions

Long term liabilities:

Convertible debt, net of unamortized discount

$ 47,398

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)

Sep. 30, 2012

Dec. 31, 2011

Property & equipment, accumulated depreciation

$ 1,418,344

$ 1,193,601

Deferred financing costs, amortization

24,710

0

Convertible debt, unamortized discount

3,777,668

Preferred stock, no par value

Preferred stock, shares authorized

10,000,000

Preferred stock, shares issued

Preferred stock, shares outstanding

Common stock, par value

$ 0.01

Common stock, shares authorized

100,000,000

Common stock, shares issued

23,048,488

Common stock, shares outstanding

23,048,488

Unrelated Third Party

Convertible debt, unamortized discount

3,195,066

0

Related Party Transactions

Convertible debt, unamortized discount

$ 582,602

$ 0

CONSOLIDATED STATEMENTS OF EXPENSES (USD $)

3 Months Ended

9 Months Ended

116 Months Ended

Sep. 30, 2012

Sep. 30, 2011

Sep. 30, 2012

Sep. 30, 2011

Sep. 30, 2012

Research and development

$ 1,455,938

$ 654,772

$ 4,504,243

$ 2,194,141

$ 74,683,118

General and administrative

532,474

584,794

1,878,236

1,737,686

29,487,311

Depreciation and amortization

81,514

56,888

225,365

157,254

1,571,846

Loss on disposal of assets

413

510,248

Operating loss

(2,069,926)

(1,296,867)

(6,607,844)

(4,089,494)

(106,252,523)

Interest income

61

227

256

698

1,358,673

Other income, net

661,146

Gain on extinguishment of debt

1,612,440

Gain (loss) on derivative instruments

(136,889)

1,251,959

Gain on sale of technology

3,000,000

Interest expense

(151,029)

(638)

(152,002)

(2,643)

(9,208,961)

Net loss

$ (2,357,783)

$ (1,297,278)

$ (6,896,479)

$ (4,091,439)

$ (107,577,266)

Basic and diluted loss per share

$ (0.10)

$ (0.06)

$ (0.30)

$ (0.18)

Weighted average shares outstanding

23,048,488

22,358,611

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)

9 Months Ended

116 Months Ended

Sep. 30, 2012

Sep. 30, 2011

Sep. 30, 2012

Cash flows from operating activities

Net loss

$ (6,896,479)

$ (4,091,439)

$ (107,577,266)

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

Stock payable for acquired research and development

112,440

Stock issued for acquired research and development

26,286,589

Stock issued for services

87,028

2,061,743

Stock issued for debt in excess of principal

109,070

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

34,600

6,787,298

Gain on extinguishment of debt

(1,612,440)

Depreciation

225,365

157,254

1,571,846

Amortization of debt financing costs

24,710

549,088

Option expense

542,766

385,811

16,117,973

Gain on derivative instruments

136,889

(1,251,959)

Loss on disposition of fixed assets

413

510,248

Changes in:

Other current assets

(1,025,807)

(20,120)

(1,567,253)

Accounts payable - third parties and related parties

(130,278)

59,817

(219,519)

Accrued expenses

(219,372)

(49,976)

302,848

Net cash used in operating activities

(7,307,606)

(3,471,212)

(57,819,294)

Cash flows from investing activities

Purchase of property & equipment

(512,048)

(284,017)

(2,183,858)

Restricted cash

(1,000,000)

Net cash used in investing activities

(1,512,048)

(284,017)

(3,183,858)

Cash flows from financing activities

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

8,618,157

49,072,488

Convertible promissory notes and warrants sold for cash, net of offering costs

Common stock repurchased and canceled

(325)

Proceeds from exercise of warrants and options

1,248,588

Proceeds from third party debt

3,455,000

12,738,184

Proceeds from related party debt

630,000

Debt financing costs

(136,943)

Repayments on notes payable

(35,607)

(311,222)

Net cash provided by financing activities

3,948,057

8,582,550

63,240,770

Net change in cash and cash equivalents

(4,871,597)

4,827,321

2,237,618

Cash and cash equivalents at beginning of period

7,109,215

3,812,535

Cash and cash equivalents at end of period

2,237,618

8,639,856

2,237,618

Cash paid for:

Income tax

Interest

1,460

2,643

154,623

NON-CASH TRANSACTIONS

Issuance of common stock to Sportan shareholders

147,733

Issuance of common stock for accrued interest

603,604

Issuance of warrants to placement agent

37,453

Conversion of notes payable to common stock

7,709,980

Conversion of accrued liabilities to common stock

197,176

Conversion of accounts payable to note payable

93,364

Discount on convertible notes relating to:

Warrants

2,314,635

5,974,372

Beneficial conversion feature

1,497,634

3,303,153

Stock attached to notes

1,287,440

Fair value of derivative instrument

4,680,220

Derivative reclassified to equity

587,609

Unpaid additions to property and equipment

11,730

10,911

11,730

Unpaid additions to deferred financing costs

$ 170,831

Basis of Presentation and Principles of Consolidation

Note 1. Basis of Presentation and Principles of Consolidation

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

The accompanying unaudited consolidated financial statements for the nine months ended September 30, 2012 and 2011 have been prepared assuming that the Company will continue as a going concern, meaning the Company will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. The Company does not currently generate commercial revenues and its burn rate during the nine months ended September 30, 2012, inclusive of the cost of preparations to commence the Phase IIb clinical study, was approximately $885,000 per month, thereby creating substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company continues to explore potential opportunities and alternatives to obtain the additional resources that will be necessary to complete the ongoing Phase IIb study and to support ongoing operations during the pendency of such study. However, there can be no assurance that the Company will be able to secure additional funds and that if such funds are available, whether the terms or conditions would be acceptable to the Company. The consolidated financial statements contain no adjustment for this uncertainty.

The accompanying consolidated financial statements include the accounts of Opexa and all wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation.

Cash and Cash Equivalents

Note 2. Cash and Cash Equivalents

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

At September 30, 2012, Opexa had $2,237,618 in cash and cash equivalents with approximately $2.0 million of this invested in a money market fund investing exclusively in high-quality, short-term money market instruments consisting of U.S. government obligations and repurchase agreements collateralized by the U.S. Government. While this fund seeks current income while preserving capital and liquidity, the fund is subject to risk, including U.S. government obligations risk, and is not federally insured or guaranteed by or obligations of the Federal Deposit Insurance Corporation or any other agency. For the nine months ended September 30, 2012, the money market fund recognized an average market yield of 0.01%. Interest income of $256 was recognized for the nine months ended September 30, 2012 in the statement of expenses.

Other Current Assets

Note 3. Other Current Assets

Other current assets at September 30, 2012 include prepaid reagents and supplies amounting to $719,879 that will be used in Opexa’s recently commenced clinical study. Opexa expects to amortize these prepaid reagents and supplies to research and development costs over the course of the clinical study.

Other current assets at September 30, 2012 also include costs incurred from third parties in connection with the implementation of an at-the-market program (“ATM Agreement”) pursuant to which Opexa may sell shares of its common stock from time to time depending upon market demand through a sales agent in transactions deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933. As of September 30, 2012, the costs of $47,657 in connection with the implementation of the ATM Agreement were capitalized and are included in other current assets. Upon the sales of any shares of common stock under the ATM Agreement, the capitalized costs will be offset against the proceeds of such sales of shares of common stock.

Restricted Cash

Note 4. Restricted Cash

Opexa issued a total of $4,085,000 in principal amount of convertible secured promissory notes to related parties and third parties on July 25, 2012 (see Note 6). As part of the security interest granted by Opexa to the investors, $1,000,000 of the proceeds are required to be maintained in an account subject to a deposit account control agreement while the Notes are outstanding. As of September 30, 2012, the $1,000,000 balance in the controlled account is reported as restricted cash in the consolidated balance sheets.

Deferred Financing Costs

Note 5. Deferred Financing Costs

Deferred financing costs at September 30, 2012 consist of costs incurred from third parties in conjunction with the debt financing which closed on July 25, 2012 (See Note 6). The costs in connection with the debt financing were capitalized and are amortized to interest expense over the term of the related debt. As of September 30, 2012, the unamortized deferred financing costs totaling $245,408 are reported as deferred financing costs in the consolidated balance sheets. During the quarter ended September 30, 2012, Opexa amortized $24,710 of deferred financing costs as interest expense.

Convertible Secured Promissory Notes

Note 6. Convertible Secured Promissory Notes

On July 25, 2012, Opexa issued a total of $4,085,000 in principal amount of secured convertible promissory notes (“Notes”) to third parties and related parties, of which an aggregate of $630,000 was issued to related parties (See Note 7). The Notes mature on July 25, 2014 and accrue interest at the rate of 12% per annum, compounded annually. Interest is payable semi-annually on June 30 and December 31 in either cash or registered shares of common stock, at Opexa’s election. The Notes are secured by substantially all of Opexa’s assets and are convertible into a new class of non-voting Series A convertible preferred stock. The Notes can be converted into Series A convertible preferred stock at the option of the investors at a price of $100.00 per share, subject to certain limitations and adjustments. Additionally, Opexa can elect to convert the Notes into Series A convertible preferred stock if (i) Opexa’s common stock closes at or above $2.50 per share for 20 consecutive trading days or (ii) Opexa achieves certain additional funding milestones to continue its clinical trial program. These milestones include (x) executing a strategic agreement with a partner or potential partner by which Opexa will receive a minimum of $5 million to partially fund, or an option to partner with Opexa for, its Phase II clinical trial for Tcelna in patients with SPMS and (y) receiving a minimum of $25 million in additional capital (including the Note offering proceeds) from any partner, potential partner or any other source.

The Series A convertible preferred stock accrues dividends at the rate of 8% per annum, which are cumulative and payable semi-annually on June 30 and December 31 in either cash or registered shares of common stock at Opexa’s election. The Series A convertible preferred stock has a liquidation preference of $100.00 per share, entitling holders to payment from the assets of the Company available for distribution to its shareholders before any payment is made to the holders of the common stock. The Series A convertible preferred stock participates in any dividends or other distributions on shares of common stock (other than dividends payable in shares of common stock) along with the common stock. The Series A convertible preferred stock is convertible into shares of Opexa’s common stock at the option of the holders at a price of $0.80 per share, subject to certain limitations and adjustments. Additionally, Opexa can elect to convert the Series A convertible preferred stock into common stock if Opexa’s common stock closes at or above $4.00 per share for 20 consecutive trading days. If, as of December 31, 2012, Opexa has not entered into a strategic agreement with a partner or potential partner pursuant to which Opexa has or will receive at least $5 million in funding for use toward the clinical development of Tcelna or in return for granting a license, other rights, or an option to license or otherwise acquire rights with respect to Tcelna, the then applicable Series A convertible preferred stock conversion price will be adjusted in the event of the closing of the first down-round financing following July 25, 2012 for the issuance of common stock or common stock equivalents, to the price per share at which Opexa sells securities in such financing, subject to a floor of $0.780625.

As part of the security interest in all of Opexa’s assets granted to the noteholders, $1,000,000 of the proceeds are maintained in a controlled account (see Note 4). The noteholders were granted certain registration rights for the shares of underlying common stock.

The Notes were analyzed for a beneficial conversion feature and Opexa concluded that a beneficial conversion feature exists. The beneficial conversion feature was measured using the commitment-date stock price and was determined to be $1,497,634, of which $230,969 was attributable to related parties. This amount was recorded as a debt discount and is amortized to interest expense over the term of the Notes. Opexa also analyzed the Notes for derivative accounting consideration and determined that derivative accounting does not apply.

In connection with the issuance of the Notes, Opexa also issued Series I warrants to the noteholders to purchase an aggregate of 3,829,689 shares of Opexa’s common stock at $1.25 per share, subject to certain limitations and adjustments. The warrants have a five-year term and are exercisable after six months from the date of issuance. Opexa can redeem the warrants at $0.01 per share if its common stock closes at or above $2.50 per share for 20 consecutive trading days. In the event Opexa issues shares of common stock or common stock equivalents at a price less than the then current warrant exercise price, then the warrant exercise price will be reduced to the price at which Opexa issues such shares, subject to a warrant exercise floor price of $0.64 per share. If an adjustment to the warrant exercise price would otherwise go below the warrant exercise price floor, but for the floor limit, the number of warrant shares for which the warrant is exercisable may be increased by a factor equal to the warrant exercise price floor dividend by the lower price, subject to an aggregate increase cap of 50% of the original number of warrant shares. As a result, Opexa accounted for these reset provisions in accordance with Accounting Standards Codification (“ASC”) ASC 815-40, which requires Opexa to record the warrants as a derivative liability at the grant date and to record changes in fair value relating to the warrants at each subsequent balance sheet date.

The initial fair value of the warrant liabilities of $2,314,635, together with the beneficial conversion feature of $1,497,634 were recognized as a debt discount and are amortized to interest expense over the term of the Notes using the effective interest method. The amortized debt discount for the quarter-ended September 30, 2012 was $34,600 and Opexa recognized $136,889 as a derivative loss due to the change in fair value of the liability. The unamortized discount as of September 30, 2012 amounted to $3,777,668.

Related Party Transactions

Note 7. Related Party Transactions

Investors in the July 25, 2012 Note offering included two members of Opexa’s Board of Directors and entities affiliated with a third director (See Note 6). Opexa issued an aggregate of $630,000 in principal amount of Notes to the two directors and an entity for which a third director reports beneficial ownership of Opexa securities. In connection with the issuance of such Notes, Opexa also issued warrants to purchase an aggregate of 590,625 shares of common stock. The fair value of the warrants was $356,969. Opexa also determined the Notes contained a beneficial conversation feature with fair value of $230,969. Opexa recorded a total of $587,939 as debt discount associated with the Notes issued to the related parties and amortized $5,336 as interest expense for the quarter ended September 30, 2012.

On August 15, 2012, Opexa appointed director David E. Jorden as its Acting Chief Financial Officer. As a non-employee officer of Opexa, Mr. Jorden will receive cash compensation of $100,000 per annum for his service. As of September 30, 2012, cash compensation totaling $8,333 was due to Mr. Jorden and is reported as accounts payable-related parties in the consolidated balance sheets.

Fair Value of Financial Instruments

Note 8. Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses approximates their fair values because of the short-term nature of these instruments. The carrying value of the Notes approximates fair value since the related rate of interest approximates current market rates. Management believes Opexa is not exposed to significant interest or credit risks arising from these financial instruments.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. Opexa utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

●

Level 1 — Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

●

Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

●

Level 3 — Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The following table presents the derivative financial instruments, Opexa’s only financial liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of September 30, 2012:

		September 30, 2012		Level 1		Level 2		Level 3
Warrant derivative liabilities	$	2,451,524	$	-	$	-	$	2,451,524
Total	$	2,451,524	$	-	$	-	$	2,451,524

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:

Balance at December 31, 2011	$	-
Fair value of warrant derivative liabilities at issuance	$	2,314,635
Unrealized derivative losses included in other income (expense)	$	136,889
Balance at September 30, 2012	$	2,451,524

The fair value of the derivative liabilities are calculated at the time of issuance using the Lattice option pricing model with Monte Carlo simulation. Opexa records a derivative liability for the calculated value. Changes in the fair value of the derivative liabilities are reported in other income (expense) in the consolidated statements of expenses. The variables used in the Lattice option pricing model for the derivative liabilities during the nine months ended September 30, 2012 include:

	July 25, 2012	September 30, 2012
Market value of common stock on measurement date	$0.64	$0.68
Projected exercise price	$1.25	$1.13
Risk free interest rate	0.56%	0.56%
Warrant lives in years	5	4.88
Expected volatility	193%	193%
Expected dividend yields	0%	0%
Offering price range	$0.64-$1.64	$0.68-$1.68

Stock Options and Warrants

Note 9. Stock Options and Warrants

Stock Options

The 2010 Stock Incentive Plan (the “2010 Plan”) provides for the grant of equity incentive awards to employees, directors and consultants of Opexa in the form of incentive stock options or nonqualified stock options, as well as restricted stock, stock appreciation rights, restricted stock units and performance awards that may be settled in cash, stock or other property. The 2010 Plan is the successor to and continuation of Opexa’s June 2004 Compensatory Stock Option Plan (the “2004 Plan”). A total of 2,500,000 shares of common stock are authorized to be issued for awards made under the 2010 Plan through September 2020, plus (i) the number of shares subject to stock options outstanding under the 2004 Plan that are forfeited or terminate prior to exercise and would otherwise be returned to the share reserves under the 2004 Plan and (ii) any reserved shares under the 2004 Plan that were not issued or subject to outstanding grants. In addition, shares subject to awards granted under the 2010 Plan that terminate or expire before being exercised or settled will become available for grant under the 2010 Plan. As of September 30, 2012, options to purchase an aggregate of 3,278,222 shares were issued and outstanding.

Opexa accounts for share-based compensation, including options and nonvested shares, according to the provisions of ASC 718, “Share Based Payment.” During the nine months ended September 30, 2012, Opexa recognized option expense of $542,766 which includes the related expense for the options that are expected to vest based on achievement of their related performance conditions (see below). Unamortized stock compensation expense as of September 30, 2012 amounted to $651,689.

Stock Option Activity

A summary of stock option activity for the nine months ended September 30, 2012 is presented below:

	Number of Shares			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contract Term (# years)		Intrinsic Value
Outstanding at January 1, 2012		1,771,705		$	1.93
Granted		1,616,767			0.93
Exercised		-			-
Forfeited and canceled		(110,250	)		3.13

Outstanding at September 30, 2012		3,278,222		$	1.39		7.9	$	145,443

Exercisable at September 30, 2012		1,681,544		$	1.78		6.6	$	136,943

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

During the nine months ended September 30, 2012, options to purchase an aggregate of 375,331 shares were granted to employees, based on 2011 performance objectives, at an exercise price of $0.95. These options have terms of ten years and have a vesting schedule of three years. Fair value of $344,309 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate of 1.98%, (2) expected term of 5.25 years, (3) expected volatility of 183% and (4) zero expected dividends.

During the nine months ended September 30, 2012, options to purchase an aggregate of 1,019,036 shares were granted to senior management, based on the achievement of future performance-based, strategic milestone objectives, at an exercise price of $0.95. These options have terms of ten years and have vesting schedules of three years commencing after the two specific milestone objectives have been individually met. Fair value of $964,715 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate of 1.98%, (2) expected term of ten years, (3) expected volatility of 183% and (4) zero expected dividends.

During the nine months ended September 30, 2012, options to purchase an aggregate of 25,000 shares were granted to recently hired employees at exercise prices ranging from $0.92 to $0.95. These options have terms of ten years and have a vesting schedule of three years commencing after the one-year anniversary of the employee’s date of hire. Fair value of $23,103 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate of 1.40%, (2) expected term of seven years, (3) expected volatility of 183% and (4) zero expected dividends.

During the nine months ended September 30, 2012, an option to purchase an aggregate of 75,000 shares was granted to Opexa’s Acting Chief Financial Officer at an exercise price of $0.51 in connection with his appointment. This option has a term of ten years, with one-third of the shares vesting immediately, one-third of the shares vesting on December 31, 2012 and the remaining one-third of the shares vesting at the earlier of June 30, 2013 or the appointment of a permanent chief financial officer. Fair value of $37,096 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for this option include (1) discount rate of 1.80%, (2) expected term of 5.25 years, (3) expected volatility of 185.45% and (4) zero expected dividends.

During the nine months ended September 30, 2012, options to purchase an aggregate of 122,400 shares were granted to directors for service on Opexa’s Board at an exercise price of $0.94. Options to purchase an aggregate of 40,000 shares have terms of 10 years, with 50% of the shares vesting immediately and 50% vesting in one year from the date of grant. Options to purchase the remaining 82,400 shares will expire on the earlier of 10 years or a change in control of the Company, with 50% of the shares vesting immediately and 50% vesting on December 31, 2012. Fair value of $111,428 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate of 2.03%, (2) expected term of 5.25 years, (3) expected volatility of 186% and (4) zero expected dividends.

Warrant Activity

A summary of warrant activity for the nine months ended September 30, 2012 is presented below:

	Number of Shares			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contract Term (# years)		Intrinsic Value
Outstanding at January 1, 2012		10,430,286		$	1.90
Granted		3,829,689			1.25
Exercised		-			-
Forfeited and canceled		(1,858,336	)		1.53

Outstanding at September 30, 2012		12,401,639		$	1.72		2.4	$	120,912

Exercisable at September 30, 2012		8,571,950		$	1.93		1.3	$	120,912

In connection with Opexa’s July 25, 2012 private offering of the Notes (see Note 6), Opexa issued Series I warrants to purchase an aggregate of 3,829,689 shares of common stock at an exercise price of $1.25 per share, subject to certain limitations and adjustments. These warrants have a term of five years and are initially exercisable on January 25, 2013.

Subsequent Events

Note 10. Subsequent Events

On November 2, 2012, Opexa entered into a $15,000,000 purchase agreement and a registration rights agreement, and on November 5, 2012, Opexa entered into a $1,500,000 purchase agreement, each with Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant to which Opexa has the right to sell to Lincoln Park an aggregate of up to $16,500,000 in shares of its common stock, subject to certain conditions and limitations.

Under the terms and subject to the conditions of the purchase agreements, Lincoln Park is obligated to purchase up to an aggregate of $16,500,000 in shares of common stock (subject to certain limitations) from time to time over a 30-month period (which, as it relates to the $15,000,000 purchase agreement, commences on the date that a registration statement is declared effective by the SEC and a final prospectus in connection therewith is filed). Opexa may direct Lincoln Park, at its sole discretion and subject to certain conditions, to purchase up to 100,000 shares of common stock in regular purchases, increasing to amounts of up to 300,000 shares depending upon the closing sale price of the Company’s common stock. In addition, Opexa may direct Lincoln Park to purchase additional amounts as accelerated purchases if on the date of a regular purchase the closing sale price of the Company’s common stock equals or exceeds $0.75 per share. The purchase price of shares of common stock related to the future funding will be based on the prevailing market prices of such shares at the time of sales (or over a period of up to 12 business days leading up to such time), but in no event will shares be sold to Lincoln Park on a day the common stock closing price is less than the floor price of $0.45, subject to adjustment. As of November 8, 2012, Opexa had sold 100,000 shares to Lincoln Park under the $1,500,000 purchase agreement for gross proceeds of $50,000.

The purchase agreements also limit Opexa’s sales of shares of common stock to Lincoln Park to the lesser of (i) the maximum number of shares of common stock issuable under applicable rules of the NASDAQ Capital Market, unless shareholder approval to exceed that maximum is obtained or the average price of all applicable sales of common stock exceed a “base price” (or $0.7739, representing Opexa’s closing consolidated bid price on November 2, 2012 plus an incremental amount to account for the issuance of commitment shares) such that the sales to Lincoln Park are considered to be at least “at market” under applicable NASDAQ rules, (ii) no more than the number of shares that would result in the beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of more than a stated percentage of the then outstanding shares of common stock (i.e., 4.99% under the $1,500,000 purchase agreement, and 9.99% under the $15,000,000 purchase agreement) and (iii) with respect to the $1,500,000 purchase agreement only, the maximum number of shares of common stock that Opexa may issue without exceeding the ceiling set forth in General Instruction I.B.6. of Form S-3 and the applicable interpretive guidance of the SEC (i.e., an amount based on one-third of the market value of our outstanding common stock held by non-affiliates), noting that shares Opexa may sell under its at-the-market offering program effectively reduce such ceiling.

As consideration for its commitment to purchase shares of common stock pursuant to the purchase agreements, Opexa issued to Lincoln Park 226,027 shares of common stock and agreed to issue up to an aggregate of an additional 452,055 shares of common stock on a pro rata basis when and if Lincoln Park purchases shares of common stock under the purchase agreements.

Fair Value of Financial Instruments (Tables)

Derivative Financial Liabilities Measured and Recorded at Fair Value on Consolidated Balance Sheets on Recurring Basis

The following table presents the derivative financial instruments, Opexa’s only financial liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of September 30, 2012:

		September 30, 2012		Level 1		Level 2		Level 3
Warrant derivative liabilities	$	2,451,524	$	-	$	-	$	2,451,524
Total	$	2,451,524	$	-	$	-	$	2,451,524

Changes in Fair Value of Derivative Financial Instruments Measured at Fair Value on Recurring Basis using Significant Unobservable Inputs

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:

Balance at December 31, 2011	$	-
Fair value of warrant derivative liabilities at issuance	$	2,314,635
Unrealized derivative losses included in other income (expense)	$	136,889
Balance at September 30, 2012	$	2,451,524

Variables used in Lattice Option Pricing Model for Derivative Liabilities

The variables used in the Lattice option pricing model for the derivative liabilities during the nine months ended September 30, 2012 include:

	July 25, 2012	September 30, 2012
Market value of common stock on measurement date	$0.64	$0.68
Projected exercise price	$1.25	$1.13
Risk free interest rate	0.56%	0.56%
Warrant lives in years	5	4.88
Expected volatility	193%	193%
Expected dividend yields	0%	0%
Offering price range	$0.64-$1.64	$0.68-$1.68

Stock Options and Warrants (Tables)

Stock Option Activity

A summary of stock option activity for the nine months ended September 30, 2012 is presented below:

	Number of Shares			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contract Term (# years)		Intrinsic Value
Outstanding at January 1, 2012		1,771,705		$	1.93
Granted		1,616,767			0.93
Exercised		-			-
Forfeited and canceled		(110,250	)		3.13

Outstanding at September 30, 2012		3,278,222		$	1.39		7.9	$	145,443

Exercisable at September 30, 2012		1,681,544		$	1.78		6.6	$	136,943

Warrant Activity

A summary of warrant activity for the nine months ended September 30, 2012 is presented below:

	Number of Shares			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contract Term (# years)		Intrinsic Value
Outstanding at January 1, 2012		10,430,286		$	1.90
Granted		3,829,689			1.25
Exercised		-			-
Forfeited and canceled		(1,858,336	)		1.53

Outstanding at September 30, 2012		12,401,639		$	1.72		2.4	$	120,912

Exercisable at September 30, 2012		8,571,950		$	1.93		1.3	$	120,912

Basis of Presentation and Principles of Consolidation - Additional Information (Detail)

9 Months Ended

Sep. 30, 2012

Going Concern [Line Items]

Description of substantial doubt about entity's ability to continue as going concern

The Company does not currently generate commercial revenues and its burn rate during the nine months ended September 30, 2012, inclusive of the cost of preparations to commence the Phase IIb clinical study, was approximately $885,000 per month, thereby creating substantial doubt about the Company’s ability to continue as a going concern.

Cash and Cash Equivalents - Additional Information (Detail) (USD $)

9 Months Ended

Sep. 30, 2012

Dec. 31, 2011

Sep. 30, 2011

Dec. 31, 2010

Cash and Cash Equivalents [Line Items]

Cash and cash equivalents

$ 2,237,618

$ 7,109,215

$ 8,639,856

$ 3,812,535

Cash and cash equivalents, money market accounts

2,000,000

Percentage of interest recognized from money market fund

0.01%

Interest income from money market fund

$ 256

Other Current Assets - Additional Information (Detail) (USD $)

Sep. 30, 2012

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Line Items]

Prepaid reagents and supplies

$ 719,879

Implementation cost

$ 47,657

Restricted Cash - Additional Information (Detail) (USD $)

Sep. 30, 2012

Jul. 25, 2012

Restricted Cash and Cash Equivalents Items [Line Items]

Convertible secured promissory notes issued

$ 4,085,000

Restricted cash

$ 1,000,000

Deferred Financing Cost - Additional Information (Detail) (USD $)

3 Months Ended

9 Months Ended

116 Months Ended

Sep. 30, 2012

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Line Items]

Deferred financing costs

$ 245,408

Deferred financing costs, current

$ 24,710

$ 549,088

Convertible Secured Promissory Notes - Additional Information (Detail) (USD $)

1 Months Ended

3 Months Ended

9 Months Ended

116 Months Ended

1 Months Ended

Jul. 25, 2012

Sep. 30, 2012

Jul. 25, 2012

Warrant redemption per share at the option of the company

Jul. 25, 2012

Minimum

Jul. 25, 2012

Related Party Transactions

Sep. 30, 2012

Related Party Transactions

Dec. 31, 2011

Related Party Transactions

Jul. 25, 2012

Conversion of Series A Convertible Preferred Stock into common stock

Jul. 25, 2012

Conversion of Notes into Series A Preferred Stock

Jul. 25, 2012

Product Financing Arrangement

Partial fund

Minimum

Jul. 25, 2012

Product Financing Arrangement

Additional capital

Minimum

Debt Instrument [Line Items]

Convertible secured promissory notes issued

$ 4,085,000

$ 630,000

Debt Instrument, Maturity Date

Jul. 25, 2014

Debt instrument interest payment date description

Interest is payable semi-annually on June 30 and December 31 in either cash or registered shares of common stock, at Opexa's election.

Convertible debt instrument, effective interest rate

12.00%

Convertible debt, conversion price

$ 100.00

Convertible secured promissory notes, conversion description

Opexa can redeem the warrants at $0.01 per share if its common stock closes at or above $2.50 per share for 20 consecutive trading days. In the event Opexa issues shares of common stock or common stock equivalents at a price less than the then current warrant exercise price, then the warrant exercise price will be reduced to the price at which Opexa issues such shares, subject to a warrant exercise floor price of $0.64 per share. If an adjustment to the warrant exercise price would otherwise go below the warrant exercise price floor, but for the floor limit, the number of warrant shares for which the warrant is exercisable may be increased by a factor equal to the warrant exercise price floor dividend by the lower price, subject to an aggregate increase cap of 50% of the original number of warrant shares.

Additionally, Opexa can elect to convert the Series A convertible preferred stock into common stock if Opexa’s common stock closes at or above $4.00 per share for 20 consecutive trading days. If, as of December 31, 2012, Opexa has not entered into a strategic agreement with a partner or potential partner pursuant to which Opexa has or will receive at least $5 million in funding for use toward the clinical development of Tcelna or in return for granting a license, other rights, or an option to license or otherwise acquire rights with respect to Tcelna, the then applicable Series A convertible preferred stock conversion price will be adjusted in the event of the closing of the first down-round financing following July 25, 2012 for the issuance of common stock or common stock equivalents, to the price per share at which Opexa sells securities in such financing, subject to a floor of $0.780625.

Additionally, Opexa can elect to convert the Notes into Series A convertible preferred stock if (i) Opexa’s common stock closes at or above $2.50 per share for 20 consecutive trading days or (ii) Opexa achieves certain additional funding milestones to continue its clinical trial program. These milestones include (x) executing a strategic agreement with a partner or potential partner by which Opexa will receive a minimum of $5 million to partially fund, or an option to partner with Opexa for, its Phase II clinical trial for Tcelna in patients with SPMS and (y) receiving a minimum of $25 million in additional capital (including the Note offering proceeds) from any partner, potential partner or any other source.

Minimum common stock price required for 20 consecutive trading days to elect to convert

$ 4.00

$ 2.50

Milestone to receive under agreement

5,000,000

25,000,000

Series A Convertible Preferred Stock, dividend rate

8.00%

Dividend payment description

The Series A convertible preferred stock accrues dividends at the rate of 8% per annum, which are cumulative and payable semi-annually on June 30 and December 31 in either cash or registered shares of common stock at Opexa’s election

Series A Convertible Preferred Stock, Liquidation Preference

$ 100.00

Conversion of preferred stock into common stock, price per share

$ 0.80

Restricted cash

1,000,000

Debt Instrument, Beneficial Conversion Feature

1,497,634

230,969

Warrants issued

3,829,689

Warrants exercise price

$ 1.25

$ 0.64

Warrants term

5 years

Discount on warrant

2,314,635

5,974,372

Debt Instrument, Beneficial Conversion Feature

1,497,634

3,303,153

Amortized debt discount

34,600

6,787,298

Gain (loss) on derivative instruments

(136,889)

1,251,959

Convertible debt, unamortized discount

$ 3,777,668

$ 582,602

$ 0

Related Party Transactions - Additional Information (Detail) (USD $)

1 Months Ended

3 Months Ended

Jul. 25, 2012

Sep. 30, 2012

Dec. 31, 2011

Aug. 15, 2012

Chief Financial Officer

Jul. 25, 2012

Related Party Transactions

Sep. 30, 2012

Related Party Transactions

Related Party Transaction [Line Items]

Convertible secured promissory notes issued

$ 4,085,000

$ 630,000

Number of common stock to be issued upon exercise of warrant

3,829,689

590,625

Fair value of the warrants liability

356,969

Debt Instrument, Beneficial Conversion Feature

1,497,634

230,969

Debt discount associated with the Notes issued

587,939

Related party note amortized

5,336

Annual compensation

100,000

Accounts payable-related parties

$ 8,333

$ 15,000

Derivative Financial Liabilities Measured and Recorded at Fair Value on Consolidated Balance Sheets on Recurring Basis (Detail) (USD $)

Sep. 30, 2012

Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]

Warrant derivative liabilities

$ 2,451,524

Total

2,451,524

Level 3

Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]

Warrant derivative liabilities

2,451,524

Total

$ 2,451,524

Changes in Fair Value of Derivative Financial Instruments Measured at Fair Value on Recurring Basis using Significant Unobservable Inputs (Detail) (USD $)

9 Months Ended

Sep. 30, 2012

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]

Unrealized derivative losses included in other income (expense)

$ 136,889

Balance, end of period

2,451,524

Warrant

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]

Fair value of derivative liabilities at issuance

$ 2,314,635

Variables used in Lattice Option Pricing Model for Derivative Liabilities (Detail)

1 Months Ended

9 Months Ended

Jul. 25, 2012

Sep. 30, 2012

Fair Value Measurements [Line Items]

Market value of common stock on measurement date

$ 0.64

$ 0.68

Projected exercise price

$ 1.25

$ 1.13

Risk free interest rate

0.56%

Warrant lives in years

5 years

4 years 10 months 17 days

Expected volatility

193.00%

Expected dividend yields

0.00%

Minimum

Fair Value Measurements [Line Items]

Offering price range

$ 0.64

$ 0.68

Maximum

Fair Value Measurements [Line Items]

Offering price range

$ 1.64

$ 1.68

Stock Options and Warrants - Additional Information (Detail) (USD $)

1 Months Ended

9 Months Ended

116 Months Ended

Jul. 25, 2012

Sep. 30, 2012

Sep. 30, 2011

Sep. 30, 2012

Dec. 31, 2011

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Share based compensation, common stock shares issued and outstanding

3,278,222

1,771,705

Option expense

$ 542,766

$ 385,811

$ 16,117,973

Unamortized stock compensation expense

651,689

Number of Shares, Granted

1,616,767

Weighted average exercise price, Granted

$ 0.93

Warrants issued to purchase common stock

3,829,689

Warrants exercise price

$ 1.25

Warrants term

5 years

Warrants exercisable date

Jan. 25, 2013

Minimum

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Warrants exercise price

$ 0.64

2010 Plan

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock based compensation, common stock shares authorized

2,500,000

Share based compensation, common stock shares issued and outstanding

3,278,222

Stock Options

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Option expense

$ 542,766

Stock option, term

10 years

Employee Options

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option, term

10 years

Number of Shares, Granted

375,331

Weighted average exercise price, Granted

$ 0.95

Vesting period

3 years

Fair value of stock granted during period

$ 344,309

Discount rate

1.98%

Stock option expected term

5 years 3 months

Volatility rate

183.00%

Expected dividends

0.00%

Senior management

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option, term

10 years

Number of Shares, Granted

1,019,036

Weighted average exercise price, Granted

$ 0.95

Vesting period

3 years

Fair value of stock granted during period

$ 964,715

Discount rate

1.98%

Stock option expected term

10 years

Volatility rate

183.00%

Expected dividends

0.00%

Recently Hired Employees

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option, term

10 years

Number of Shares, Granted

25,000

Vesting period

3 years

Fair value of stock granted during period

$ 23,103

Discount rate

1.40%

Stock option expected term

7 years

Volatility rate

183.00%

Expected dividends

0.00%

Recently Hired Employees |
Minimum

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Weighted average exercise price, Granted

$ 0.92

Recently Hired Employees |
Maximum

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Weighted average exercise price, Granted

$ 0.95

Chief Financial Officer

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option, term

10 years

Number of Shares, Granted

75,000

Weighted average exercise price, Granted

$ 0.51

Fair value of stock granted during period

$ 37,096

Discount rate

1.80%

Stock option expected term

5 years 3 months

Volatility rate

185.45%

Expected dividends

0.00%

Shares immediately vesting, percent

33.00%

Shares vesting till year end, percent

33.00%

Shares vesting next year, percent

33.00%

Director

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Number of Shares, Granted

122,400

Weighted average exercise price, Granted

$ 0.94

Fair value of stock granted during period

$ 111,428

Discount rate

2.03%

Stock option expected term

5 years 3 months

Volatility rate

186.00%

Expected dividends

0.00%

Director |
Scenario One

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option, term

10 years

Number of Shares, Granted

40,000

Stock options vesting percentage, immediately from date of grant

50.00%

Stock options vesting percentage, remaining of period

50.00%

Director |
Scenario Two

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option, term

10 years

Number of Shares, Granted

82,400

Stock options vesting percentage, immediately from date of grant

50.00%

Stock options vesting percentage, remaining of period

50.00%

Stock Option Activity (Detail) (USD $)

9 Months Ended

Sep. 30, 2012

Number of Shares

Number of Shares, Outstanding at beginning of period

1,771,705

Number of Shares, Granted

1,616,767

Number of Shares, Exercised

Number of Shares, Forfeited and canceled

(110,250)

Number of Shares, Outstanding at end of period

3,278,222

Number of Shares, Exercisable at end of period

1,681,544

Weighted average exercise price

Weighted average exercise price, Outstanding at beginning of period

$ 1.93

Weighted average exercise price, Granted

$ 0.93

Weighted average exercise price, Exercised

Weighted average exercise price, Forfeited and canceled

$ 3.13

Weighted average exercise price, Outstanding at end of period

$ 1.39

Weighted average exercise price, Exercisable at end of period

$ 1.78

Weighted average remaining contract term

Weighted average remaining contract term, Outstanding at end of period

7 years 10 months 24 days

Weighted average remaining contract term, Exercisable at end of period

6 years 7 months 6 days

Intrinsic Value

Intrinsic Value, Outstanding at end of period

$ 145,443

Intrinsic Value, Exercisable at end of period

$ 136,943

Warrant Activity (Detail) (Warrant, USD $)

9 Months Ended

Sep. 30, 2012

Warrant

Number of Shares

Number of Shares, Outstanding at beginning of period

10,430,286

Number of Shares, Granted

3,829,689

Number of Shares, Exercised

Number of Shares, Forfeited and canceled

(1,858,336)

Number of Shares, Outstanding at end of period

12,401,639

Number of Shares, Exercisable at end of period

8,571,950

Weighted average exercise price

Weighted average exercise price, Outstanding at beginning of period

$ 1.90

Weighted average exercise price, Granted

$ 1.25

Weighted average exercise price, Exercised

Weighted average exercise price, Forfeited and canceled

$ 1.53

Weighted average exercise price, Outstanding at end of period

$ 1.72

Weighted average exercise price, Exercisable at end of period

$ 1.93

Weighted average remaining contract term

Weighted average remaining contract term, Outstanding at end of period

2 years 4 months 24 days

Weighted average remaining contract term, Exercisable at end of period

1 year 3 months 18 days

Intrinsic Value

Intrinsic Value, Outstanding at end of period

$ 120,912

Intrinsic Value, Exercisable at end of the period

$ 120,912

Subsequent Events - Additional Information (Detail) (USD $)

1 Months Ended

9 Months Ended

1 Months Ended

Sep. 30, 2012

Dec. 31, 2011

Nov. 2, 2012

Subsequent Event

Minimum

Nov. 2, 2012

Subsequent Event

Purchase Agreement

Nov. 5, 2012

Subsequent Event