Revenue

Revenue from license fees and milestone payments for Q1 2009 was $213,000, compared to $193,000 for the same period in 2008. The increase in revenue under license fees and milestone payments for the three month period ended March 31, 2009, as against comparable period in 2008, was mainly due to revenue recognized from various smaller license agreements.

Revenue recorded under collaborative research and development arrangements for Q1 2009 was $54,000, compared to $460,000 for the same period in 2008. The decrease in revenue was primarily due to a decrease in Merck collaborative research billings from $235,000 in the three months ended March 31, 2008, to $54,000 in the three months ended March 31, 2009, as well as no billings to Wyeth related to our collaborative agreement, as compared to $225,000 in Wyeth billings for the three months ended March 31, 2008. Revenues from collaborative research and development arrangements are expected to decline in 2009 as compared to 2008, as Wyeth continues to evaluate internal strategic options prior to initiating further development of electroporation-based infectious disease programs. Under our research and collaboration agreement with Merck, we have provided the majority of the required device development for use in their clinical trials and we believe that development activities for Merck will be limited until trial results are obtained.

Grant and miscellaneous revenue for Q1 2009, was $102,000, compared to no grant and miscellaneous revenue for the same period in 2008. The increase in grant and miscellaneous revenue for the three months ended March 31, 2009, as against comparable period in 2008, was due to revenue recognized from a Department of Defense (US Army) grant we received on September 26, 2008. This grant has a total value of $933,000, will fund research and development of DNA-based vaccines delivered via our proprietary electroporation system and will run through May 2010. This project is focused on identifying DNA vaccine candidates with the potential to provide rapid, robust immunity to protect against biowarfare and bioterror attacks.

Operating Expenses

Research and development expenses for Q1 2009, was $964,000, compared to $1.6 million for the same period in 2008. The decrease in research and development expenses for the three months ended March 31, 2009, as against comparable period in 2008, was primarily due to lower personnel costs due to lower employee headcount during the period as well as a decrease in clinical trial expenses as there were minimal costs incurred related to closing down the SECTA clinical programs.

General and administrative expenses, which include business development expenses, for Q1 2009, was $3.0 million, compared to $2.4 million for the same period in 2008. The increase in general and administrative expenses for the three months ended March 31, 2009, as against comparable period in 2008, was primarily due to extraordinary legal and related fees associated with the pending merger and other corporate matters. We expect these legal fees to decrease to a significant extent in quarters following the merger, should it be approved and consummated. These increases were offset by a decrease in outside consulting services related to partnering our SECTA therapy program and other corporate advisory services as well as lower personnel costs and employee stock-based compensation .

Capital Resources

The company ended the first quarter 2009 with cash and cash equivalents of $11.7 million and a negative working capital of $2.6 million, as compared to $14.1 million in cash and cash equivalents and $554,000 in working capital as of December 31, 2008. The decrease in working capital during the three months ended March 31, 2009, was due to expenditures related to our research and development activities, as well as various general and administrative expenses related to legal, consultants, accounting and audit, and corporate development.

Further, working capital was negatively impacted by the reclassification of our auction rate securities (ARS) and related ARS Rights to long-term assets, while our line of credit of $12.1 million, which we anticipate will be paid in full upon the redemption of our ARS by UBS as soon as June 2010, is classified as a current liability.

Inovio is focused on the development of next-generation vaccines to prevent or treat cancers and chronic infectious diseases.