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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21088
VICAL INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 93-0948554
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9373 Towne Centre Dr., Suite 100, San Diego, California 92121
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(Address of principal executive offices) (Zip code)
(619) 453-9900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
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 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 X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 1997
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Common Stock, $.01 par value 15,437,473
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VICAL INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
COVER PAGE.....................................................................................1
TABLE OF CONTENTS..............................................................................2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of March 31, 1997, and December 31, 1996............................3
Statements of Operations for the Three Months Ended March 31, 1997
and 1996..............................................................................4
Statements of Cash Flows for the Three Months Ended March 31, 1997
and 1996..............................................................................5
Notes to Financial Statements.........................................................6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................................*
ITEM 2. Changes in Securities........................................................*
ITEM 3. Defaults upon Senior Securities..............................................*
ITEM 4. Submission of Matters to a Vote of Security Holders..........................*
ITEM 5. Other Information............................................................*
ITEM 6. Exhibits and Reports on Form 8-K.............................................11
SIGNATURE......................................................................................12
EXHIBIT LIST...................................................................................13
</TABLE>
* No information provided due to inapplicability of item.
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VICAL INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,650,717 $ 12,609,277
Marketable securities - available-for-sale 34,367,457 34,237,314
Receivables and other 2,158,338 1,925,995
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Total current assets 46,176,512 48,772,586
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Property and Equipment:
Equipment 4,779,147 4,635,432
Leasehold improvements 1,518,982 1,235,199
------------ ------------
6,298,129 5,870,631
Less-accumulated depreciation and amortization (3,816,979) (3,607,724)
------------ ------------
2,481,150 2,262,907
------------ ------------
Patent Costs 1,124,075 1,091,687
Deposits and Other Assets 108,795 312,900
============ ============
$ 49,890,532 $ 52,440,080
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 545,843 $ 810,384
Current portion of capital lease obligations 466,457 455,681
Deferred revenue 913,043 1,191,304
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Total current liabilities 1,925,343 2,457,369
------------ ------------
Long-Term Obligations:
Long-term obligations under capital leases 963,509 976,164
Notes payable 641,320 641,320
------------ ------------
Total long-term obligations 1,604,829 1,617,484
------------ ------------
Stockholders' Equity:
Common stock, $.01 par value--40,000,000 shares authorized--
15,437,473 and 15,396,582 shares issued and outstanding
at March 31, 1997, and December 31, 1996, respectively 154,375 153,966
Additional paid-in capital 73,018,840 72,904,472
Unrealized gain (loss) on marketable securities (166,221) (48,785)
Accumulated deficit (26,646,634) (24,644,426)
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Total stockholders' equity 46,360,360 48,365,227
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Total Liabilities and Stockholders' Equity $ 49,890,532 $ 52,440,080
============ ============
</TABLE>
See accompanying notes.
3
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VICAL INCORPORATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------------
1997 1996
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<S> <C> <C>
Revenues:
Contract revenue $ 801,575 $ 283,200
License/royalty revenue 324,880 237,287
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1,126,455 520,487
Expenses:
Research and development 2,794,434 2,380,418
General and administrative 896,590 730,302
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3,691,024 3,110,720
---------------- ----------------
Loss from operations (2,564,569) (2,590,233)
Interest income 610,077 699,016
Interest expense 47,716 14,019
---------------- ----------------
Net loss $ (2,002,208) $ (1,905,236)
================ ================
Net loss per share (Note 2) $ (.13) $ (.12)
================ ================
Weighted average shares used in computing net
loss per share (Note 2) 15,422,895 15,373,021
================ ================
</TABLE>
See accompanying notes.
4
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VICAL INCORPORATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,002,208) $ (1,905,236)
Adjustments to reconcile net loss to net cash provided from
(used in) operating activities:
Depreciation and amortization 218,140 104,811
Compensation expense related to stock purchases -- 55,635
Change in operating assets and liabilities:
Receivables and other (232,343) (199,681)
Accounts payable and accrued expenses (264,541) 13,464
Deferred revenue (278,261) (237,500)
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Net cash provided from (used in) operating activities (2,559,213) (2,168,507)
------------ ------------
INVESTING ACTIVITIES:
Marketable securities (247,579) (595,128)
Capital expenditures (311,891) (48,561)
Deposits and other assets 204,105 (195,192)
Patent expenditures (40,911) (86,413)
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Net cash provided from (used in) investment activities (396,276) (925,294)
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FINANCING ACTIVITIES:
Principal payments under capital lease obligations (117,848) (90,548)
Issuance of common stock, net 114,777 101,038
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Net cash provided from (used in) financing activities (3,071) 10,490
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,958,560) (3,083,311)
Cash and cash equivalents at beginning of period 12,609,277 7,174,128
------------ ------------
Cash and cash equivalents at end of period $ 9,650,717 $ 4,090,817
============ ============
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Equipment acquired under capital leases $ 115,969 $ 26,166
============ ============
</TABLE>
See accompanying notes.
5
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VICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(unaudited)
1. Organization and Basis of Presentation
Organization
Vical was incorporated in April 1987 and has devoted substantially all
of its resources since that time to its research and development
programs. The Company is currently focusing its resources on the
development of its direct gene transfer and related technologies.
Basis of Presentation
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. The information at March 31, 1997, for the
three month period ended March 31, 1997, and for the three month period
ended March 31, 1996, is unaudited. In the opinion of management, the
information reflects all adjustments necessary to make the results of
operations for the interim periods a fair statement of such operations.
All such adjustments are of a normal recurring nature. Interim results
are not necessarily indicative of results for a full year. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. For a presentation including all disclosures
required by generally accepted accounting principles, these financial
statements should be read in conjunction with the audited financial
statements for the year ended December 31, 1996, included in the Vical
Incorporated Form 10-K filed with the Securities and Exchange
Commission.
2. Net Loss Per Share
Net loss per share for the three month periods ended March 31, 1997 and
1996, is computed using the weighted average number of common shares
outstanding during the period. Common equivalent shares are excluded as
the effect would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." The Company will be required to adopt these new rules effective
December 15, 1997. Management does not anticipate any impact resulting
from the adoption of this new standard upon current or previously
reported earnings per share.
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3. Notes Payable
In June 1996, the Company obtained a loan and security agreement with a
bank for the borrowing of up to $2,500,000. Borrowings under the line
of credit were secured by substantially all assets of the Company, and
the Company was required to comply with certain financial covenants. In
March 1997, the outstanding borrowings converted to a term loan bearing
interest at the bank's prime rate (8.25% at March 31, 1997) plus .5%,
or the Company may alternatively choose to have its outstanding balance
bear interest at the LIBOR rate plus 3.25%. The term loan has a three
year amortization period. At March 31, 1997, the loan balance was
$641,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
OVERVIEW
Vical was incorporated in April 1987 and has devoted substantially all of its
resources since that time to its research and development programs. The Company
is focusing its resources on the development of its direct gene transfer and
related technologies. To date, the Company has not received revenues from the
sale of products. The Company expects to incur substantial operating losses for
at least the next several years, due primarily to expansion of its research and
development programs and the cost of preclinical studies and clinical trials. As
of March 31, 1997, the Company's accumulated deficit was approximately $26.6
million.
In September 1995, the Company commenced Phase II clinical trials of
Allovectin-7 at ten teaching oncology centers in five tumor types: melanoma,
colorectal carcinoma, renal cell carcinoma, breast carcinoma and non-Hodgkin's
lymphoma. Treatment of more than 100 patients was completed in early 1997, and
initial results are expected to be presented in the first half of 1997. In
October 1996, Vical commenced additional multi-center Phase II clinical testing
of Allovectin-7 in approximately 40 advanced melanoma patients. In addition,
Allovectin-7 is being evaluated, either alone or in combination with approved
cancer therapeutic agents, in several other Phase I/II clinical trials. If
appropriate rates and durations of clinical response are observed in these Phase
II clinical trials, the data could potentially lead to the design and initiation
of pivotal Phase II/III clinical trials to support product license approval
submissions.
In April 1995, the Company initiated Phase I/II clinical testing of its second
gene therapy product candidate, Leuvectin, at two clinical centers. Leuvectin is
a gene-based product candidate intended for direct injection into tumor lesions
of cancer patients. Upon completion of the trials in February 1996, the Company
concluded that the gene transfer was effective in the majority of patients, the
treatment appeared to be safe and well-tolerated, and measurable tumor shrinkage
was observed in 5 of 23 patients with various types of advanced malignancies. In
October 1996, the Company initiated additional multi-center Phase I/II clinical
testing of higher doses of Leuvectin in approximately 45 patients with advanced
melanoma, renal cell carcinoma, and soft-tissue sarcoma. Accrual and treatment
of patients in the additional trials were ongoing at March 31, 1997.
In September 1996, Vical entered into a collaboration with Dr. Ronald Levy of
Stanford University Medical Center to develop a naked DNA anti-idiotype vaccine,
Vaxid, against low-grade non-Hodgkin's B-cell lymphoma. The Company believes
that immunization of post-chemotherapy patients with Vaxid could result in the
elimination of residual disease and the prevention of the relapse of disease.
Vaxid is currently under preclinical development and may enter clinical trials
in the second half of 1997.
There can be no assurance that the Company's product candidates will prove to be
safe and effective in clinical trials or that any commercially successful
products will ultimately be developed by the Company.
This Form 10-Q contains, in addition to historical information, forward-looking
statements. When used in this discussion, the words "expects," "anticipated" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, including whether the
Company's product candidates will be shown to be safe or efficacious in clinical
trials, whether the Company's corporate collaborations are successful, and
whether the Company's product candidates will ultimately be successfully
developed or receive necessary regulatory approvals, which could cause actual
results to differ materially from those projected. These forward-looking
statements speak only as of the date hereof. The Company undertakes no
obligation to update these forward-looking
8
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statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
Revenues of $1,126,000 were recorded for the quarter ended March 31, 1997,
consisting of license revenue of $178,000 primarily derived from the Pasteur
Merieux Connaught ("PMC") and Rhone Merieux agreements, contract revenue from
PMC and a Department of Defense grant totaling $802,000, and royalties amounting
to $147,000. Included in contract revenue was an accrual of $475,000
representing an amount due from PMC for reimbursement of costs associated with
the development of a DNA-based malaria vaccine. Pursuant to a Research Services
Agreement (the "Agreement") entered into between the Company and PMC during
March 1997, PMC agreed to reimburse the Company for past and ongoing development
costs. Development is being conducted under a Cooperative Research and
Development Agreement ("CRADA") with the Naval Medical Research Institute. Vical
has licensed the right to commercialize any vaccine product that emerges from
research under the CRADA to PMC, subject to the right of the U.S. government to
use any such vaccine for government purposes only. The Company had revenues of
$520,000 for the quarter ended March 31, 1996, including ongoing amortization of
license, contract, and royalty revenue.
The Company's total operating expenses for the quarter ended March 31, 1997,
were $3,691,000 compared with $3,111,000 for the first quarter of 1996.
Research and development expenses increased to $2,794,000 for the three months
ended March 31, 1997, from $2,380,000 for the same period in 1996. This increase
in research and development expenses was generally due to expansion of the
Company's research and development activities and preclinical and clinical
efforts that resulted in facilities expansion, staffing increases, and increased
expenditures on laboratory supplies.
General and administrative expenses increased to $897,000 for the three months
ended March 31, 1997, from $730,000 for the same period in 1996. The increase is
attributable to increasing operational expenses within the administrative area
in support of the Company's expanding research and development activities.
Investment income decreased to $610,000 for the quarter ended March 31, 1997,
from $699,000 for the same quarter of 1996, as a result of lower cash balances.
Net loss per share for the three months ended March 31, 1997, was $.13 per share
compared with a net loss per share of $.12 for the same quarter of 1996. The
Company expects to incur losses throughout the remainder of 1997 and to report a
net loss per share for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Vical has financed its operations primarily through private
placements of preferred stock, three public offerings of common stock, and
revenues from collaborative agreements. As of March 31, 1997, the Company had
working capital of approximately $44.3 million compared with $46.3 million at
December 31, 1996. Cash and marketable securities totaled approximately $44.0
million at March 31, 1997, compared with $46.8 million at December 31, 1996.
The Company expects to incur substantial additional research and development
expense including continued increases in personnel costs and costs related to
preclinical testing and clinical trials. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in its research and development programs, the scope and results of
preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing,
9
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prosecuting and enforcing patent claims, competing technological and market
developments, the cost of manufacturing and scale-up, and commercialization
activities and arrangements. The Company intends to seek additional funding
through research and development relationships with suitable potential corporate
collaborators or through public or private financing. There can be no assurance
that additional funding will be available on favorable terms, if at all.
If additional funding is not available, Vical anticipates that its available
cash and existing sources of funding will be adequate to satisfy its operating
needs through 1998.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
Exhibit 27 Financial Data Schedule
2. Reports on Form 8-K
None
11
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VICAL INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Vical Incorporated
Date: May 7, 1997 By: s/Martha J. Demski
------------------
Martha J. Demski
Vice President and
Chief Financial Officer
(on behalf of the registrant and
as the registrant's Principal
Financial and Accounting
Officer)
12
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C> <C>
1. Exhibit 27 Financial Data Schedule
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,651
<SECURITIES> 34,367
<RECEIVABLES> 2,158
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,176
<PP&E> 6,298
<DEPRECIATION> (3,817)
<TOTAL-ASSETS> 49,891
<CURRENT-LIABILITIES> 1,926
<BONDS> 1,605
0
0
<COMMON> 154
<OTHER-SE> 46,206
<TOTAL-LIABILITY-AND-EQUITY> 49,891
<SALES> 0
<TOTAL-REVENUES> 1,737
<CGS> 0
<TOTAL-COSTS> 2,794
<OTHER-EXPENSES> 897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> (2,002)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,002)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,002)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
