<PAGE>
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 September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21088
VICAL INCORPORATED
--------------------------------------------------------------------------------
(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)
(858) 646-1100
--------------------------------------------------------------------------------
(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.
<TABLE>
<CAPTION>
Class Outstanding At September 30, 2000
----- ---------------------------------
<S> <C>
Common Stock, $.01 par value 20,004,818
</TABLE>
<PAGE>
VICAL INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
COVER PAGE.............................................................................................1
TABLE OF CONTENTS......................................................................................2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of September 30, 2000 and December 31, 1999.................................3
Statements of Operations for the Three Months Ended September 30, 2000 and 1999,
and for the Nine Months Ended September 30, 2000 and 1999.....................................4
Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999................5
Notes to Financial Statements.................................................................6
Forward-Looking Statements....................................................................8
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................................9
ITEM 3.
Quantitative and Qualitative Disclosure About Market Risk.....................................*
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....................................................19
SIGNATURE.............................................................................................20
EXHIBIT LIST..........................................................................................21
</TABLE>
* No information provided due to inapplicability of item.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VICAL INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------------- --------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 19,786,374 $ 11,149,587
Marketable securities - available-for-sale 130,619,852 26,525,181
Receivables and other 3,366,632 3,971,621
-------------------- --------------------
Total current assets 153,772,858 41,646,389
-------------------- --------------------
Investment, at cost 5,000,000 -
Property and Equipment:
Equipment 6,677,662 5,948,458
Leasehold improvements 2,960,699 1,646,023
-------------------- --------------------
9,638,361 7,594,481
Less--accumulated depreciation and amortization (6,348,224) (5,708,349)
-------------------- --------------------
3,290,137 1,886,132
-------------------- --------------------
Patent costs, net of accumulated amortization 1,555,857 1,380,245
Other assets 139,892 146,470
-------------------- --------------------
$ 163,758,744 $ 45,059,236
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 3,082,464 $ 3,839,642
Current portion of capital lease obligations 597,480 627,957
Current portion of notes payable 285,714 106,887
Current portion of deferred revenue 1,566,971 1,076,166
-------------------- --------------------
Total current liabilities 5,532,629 5,650,652
-------------------- --------------------
Long-Term Obligations:
Long-term obligations under capital leases 1,266,371 739,885
Notes payable 619,047 -
Deferred revenue 3,272,728 -
-------------------- --------------------
Total long-term obligations 5,158,146 739,885
-------------------- --------------------
Stockholders' Equity:
Preferred stock, $0.01 par value--5,000,000 shares authorized--
none outstanding - -
Common stock, $0.01 par value--40,000,000 shares authorized-- 200,048 162,011
20,004,818 and 16,201,136 shares issued and outstanding at September 30,
2000 and December 31, 1999, respectively
Additional paid-in capital 203,024,710 83,292,870
Accumulated other comprehensive income (loss) 88,737 (140,801)
Accumulated deficit (50,245,526) (44,645,381)
-------------------- --------------------
Total stockholders' equity 153,067,969 38,668,699
-------------------- --------------------
Total Liabilities and Stockholders' Equity $ 163,758,744 $ 45,059,236
==================== ====================
</TABLE>
See accompanying notes.
3
<PAGE>
VICAL INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
License/royalty revenue $ 723,625 $ 495,024 $ 3,582,730 $ 3,770,731
Contract revenue 705,985 733,817 1,608,919 1,991,750
------------------ ------------------ ------------------- ------------------
1,429,610 1,228,841 5,191,649 5,762,481
------------------ ------------------ ------------------- ------------------
Operating Expenses:
Research and development 4,524,155 3,514,247 13,551,454 10,866,310
General and administrative 1,263,224 1,066,402 3,902,986 3,201,137
------------------ ------------------ ------------------- ------------------
5,787,379 4,580,649 17,454,440 14,067,447
------------------ ------------------ ------------------- ------------------
Loss from operations (4,357,769) (3,351,808) (12,262,791) (8,304,966)
Interest income 2,551,965 548,490 6,801,423 1,687,750
Interest expense 65,265 33,489 138,777 96,827
------------------ ------------------ ------------------- ------------------
Net loss $ (1,871,069) $ (2,836,807) $ (5,600,145) $ (6,714,043)
================== ================== =================== ==================
Net loss per share (basic and diluted) $ (0.09) $ (0.18) $ (0.29) $ (0.42)
================== ================== =================== ==================
Weighted average shares used in computing
net loss per share 19,896,427 16,196,078 19,581,493 16,144,024
================== ================== =================== ==================
</TABLE>
See accompanying notes.
4
<PAGE>
VICAL INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------------------
2000 1999
-------------------- --------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (5,600,145) $ (6,714,043)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 877,330 795,742
Change in operating assets and liabilities:
Receivables and other 604,989 (365,192)
Accounts payable and accrued expenses (757,178) 599,827
Deferred revenue (1,236,467) 460,637
-------------------- --------------------
Net cash used in operating activities (6,111,471) (5,223,029)
-------------------- --------------------
INVESTING ACTIVITIES:
Marketable securities (103,865,133) (1,317,960)
Capital expenditures (1,133,214) (182,509)
Deposits and other 6,535 15,008
Patent expenditures (251,154) (53,800)
-------------------- --------------------
Net cash used in investment activities (105,242,966) (1,539,261)
-------------------- --------------------
FINANCING ACTIVITIES:
Issuance of common stock, net 119,769,877 4,930,347
Payments on notes payable (201,713) (160,329)
Proceeds from notes payable 999,587 -
Principal payments under capital lease obligations (576,527) (388,707)
-------------------- --------------------
Net cash provided from financing activities 119,991,224 4,381,311
-------------------- --------------------
Net increase (decrease) in cash and cash equivalents 8,636,787 (2,380,979)
Cash and cash equivalents at beginning of period 11,149,587 13,567,817
-------------------- --------------------
Cash and cash equivalents at end of period $ 19,786,374 $ 11,186,838
==================== ====================
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Investment in preferred stock of Vascular Genetics Inc. in exchange
for grant of license $ 5,000,000 $ -
==================== ====================
Equipment acquired under capital leases $ 1,072,536 $ 493,254
==================== ====================
</TABLE>
See accompanying notes.
5
<PAGE>
VICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(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. We
are currently focusing our resources on the development of our naked DNA and
related technologies.
BASIS OF PRESENTATION
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. The information at September 30, 2000, and for the
three-month and nine-month periods ended September 30, 2000 and 1999, is
unaudited. In the opinion of management, the information reflects all
adjustments necessary to present fairly the financial position and results of
operations for the interim periods. 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
accounting principles generally accepted in the United States 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 accounting
principles generally accepted in the United States, these financial statements
should be read in conjunction with the audited financial statements for the year
ended December 31, 1999, included in the Vical Incorporated Form 10-K filed with
the Securities and Exchange Commission.
2. NET LOSS PER SHARE
Net loss per share (basic and diluted) for the three-month and
nine-month periods ended September 30, 2000 and 1999, has been computed using
the weighted average number of common shares outstanding during the respective
periods. Diluted loss per share does not include any assumed exercise of stock
options, as the effect would be antidilutive.
3. COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) represents unrealized
gain (loss) on marketable securities. Marketable securities consist of
investments in debt instruments of financial institutions and corporations with
strong credit ratings, and in U.S. government obligations For the three-month
periods ended September 30, 2000 and 1999, other comprehensive income (loss) was
$294,000 and $(24,000), respectively, and total comprehensive loss was
$1,577,000 and $2,860,000, respectively. For the nine-month periods ended
September 30, 2000 and 1999, other comprehensive income (loss) was $230,000 and
$(186,000), respectively, and total comprehensive loss was $5,371,000 and
$6,900,000, respectively.
4. PUBLIC STOCK OFFERING
In January 2000, Vical sold 3,450,000 shares of common stock in a
public offering which raised net proceeds of approximately $117.5 million.
5. LICENSE AGREEMENTS
On June 30, 2000, Vical and Aventis Pharma, the pharmaceutical company
of Aventis S.A., entered into a license agreement granting Aventis Pharma rights
to use Vical's naked DNA gene transfer technology to deliver a growth factor
gene for which Aventis Pharma holds rights. The agreement resulted
6
<PAGE>
in an initial payment to Vical of $1.5 million in July 2000, and could generate
milestone payments and royalties if products advance through commercialization.
On February 24, 2000, Vical and Human Genome Sciences, Inc., or HGS,
signed a reciprocal royalty-bearing license. Under the agreement, Vical has the
option to exclusively license up to three genes from HGS for gene-based product
development. HGS has the option to license Vical's naked DNA gene delivery
technology for use in up to three gene-based products. In addition, Vical
granted an exclusive, royalty-bearing license to Vascular Genetics, Inc., or
VGI, a company in which HGS is a major shareholder, for naked DNA delivery of a
gene with potential use for revascularization. In exchange, Vical received
shares of Preferred Stock Series B of VGI. This investment was recorded at
estimated fair value of $5.0 million on the date of investment and is reflected
as Investment, at cost, in the accompanying balance sheet. The investment is
being accounted for on the cost method. Vical also recorded a liability for
deferred revenue of $5.0 million. This deferred revenue is being recognized
ratably each month through September 30, 2004.
6. COMMITMENTS
Vical expanded its leased space by approximately 5,100 square feet in
one facility effective June 1, 2000, by amending an existing lease agreement.
Total monthly rental on all facilities, including common area maintenance costs,
is approximately $125,000 effective June 1, 2000. This lease amendment increased
our minimum lease commitments by approximately $938,000 through the end of the
lease in November 2004.
At September 30, 2000, Vical had borrowed $1.0 million under the $1.0
million line of credit with a bank to finance certain leasehold improvements. In
November 2000, this line of credit was amended and increased to $2.3 million.
Under the terms of the amended agreement, Vical can use the line until May 1,
2001. Any outstanding borrowings made under the additional $1.3 million credit
line at June 1, 2001, convert to a term loan payable over 42 months at the
bank's prime rate.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
-"Revenue Recognition," or SAB 101. SAB 101 reflects the SEC's views on
revenue recognition. Historically Vical has recognized revenue from initial
technology option and license fees in the period in which the agreement was
signed if there were no significant performance obligations remaining.
Revenue from milestone payments is recognized as revenue when the milestones
are achieved. SAB 101 would require that when there has not been the
culmination of the earnings process, revenue from technology option and
license fees and milestone payments be deferred and recognized over the
period over which the revenue is deemed to be earned. There is a lack of
guidance about applying SAB 101 in the Life Sciences Industry, including what
constitutes the culmination of the earnings process where there are up-front,
milestone and royalty payments. Further, there is significant uncertainty
about the life over which to recognize this revenue, particularly where
royalties continue to be payable until the last related patent expires. There
is no written guidance to determine whether it would be acceptable to
amortize the revenue over the estimated product development period, which is
a shorter period than the estimated life of the patents. Due to the
uncertainties noted above, we have not completed our evaluation of the impact
of SAB 101 on our financial statements, however, the potential impact is
expected to be material to the financial statements. Effective from 1991,
when our first license fee revenues were recognized, to September 30, 2000,
Vical has recognized cumulative license fee revenue representing
nonrefundable up-front and milestone payments of approximately $39 million
which will have to be evaluated for deferral under SAB 101. The amount that
will need to be deferred will depend principally on the estimated life over
which we are allowed to recognize the revenue under SAB 101.
When Vical implements SAB 101 in the fourth quarter of 2000, it will do so by
restating the first quarter 2000 statements. The statement of operations will
reflect a one-time charge to earnings for the cumulative effect of the change
in accounting principle as of January 1, 2000, and license revenues will be
recognized based on SAB 101 effective as of that date. The financial
statements for the second and third quarters of 2000 will also be restated to
apply SAB 101 effective January 1, 2000.
7
<PAGE>
FORWARD-LOOKING STATEMENTS
The statements incorporated by reference or contained in this report
discuss our future expectations, contain projections of our results of
operations or financial condition, and include other "forward-looking"
information within the meaning of Section 27A of the Securities Act of 1933, as
amended. Our actual results may differ materially from those expressed in
forward-looking statements made or incorporated by reference in this report.
Forward-looking statements that express our beliefs, plans, objectives,
assumptions or future events or performance may involve estimates, assumptions,
risks and uncertainties. Therefore, our actual results and performance may
differ materially from those expressed in the forward-looking statements.
Forward-looking statements often, although not always, include words or phrases
such as the following:
- "will likely result,"
- "are expected to,"
- "will continue,"
- "is anticipated,"
- "estimate,"
- "intends,"
- "plans,"
- "projection," and
- "outlook."
You should not unduly rely on forward-looking statements contained or
incorporated by reference in this report. Actual results or outcomes may differ
materially from those predicted in our forward-looking statements due to the
risks and uncertainties inherent in our business, including risks and
uncertainties in:
- clinical trial results,
- obtaining and maintaining regulatory approval,
- market acceptance of and continuing demand for our products,
- the attainment of patent protection for any of these products,
- the impact of competitive products, pricing and reimbursement
policies,
- our ability to obtain additional financing to support our
operations,
- the continuation of our corporate collaborations, and
- changing market conditions and other risks detailed below.
You should read and interpret any forward-looking statements together
with the following documents:
- our Annual Report on Form 10-K,
- the risk factors contained in this report under the caption
"Risk Factors," and
- our other filings with the Securities and Exchange Commission.
Any forward-looking statement speaks only as of the date on which that
statement is made. We will not update any forward-looking statement to reflect
events or circumstances that occur after the date on which such statement is
made.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We were incorporated in April 1987 and have devoted substantially all
of our resources since that time to our research and development programs. To
date, we have not received revenues from the sale of products. We expect to
incur substantial operating losses for at least the next few years, due
primarily to the expansion of our research and development programs and the cost
of preclinical studies and clinical trials. Losses may fluctuate from quarter to
quarter as a result of differences in the timing of expenses incurred and the
revenues received from collaborative agreements. Such fluctuations may be
significant. As of September 30, 2000, our accumulated deficit was approximately
$50.2 million.
We develop biopharmaceutical products based on our patented naked DNA
gene transfer technologies for the prevention and treatment of life-threatening
diseases. We currently focus our development on innovative cancer therapies to
induce an immune response against cancer cells without causing serious side
effects. We have retained all rights to our internally developed cancer product
candidates.
We enter into collaborations with major pharmaceutical companies to
leverage our technologies primarily for non-cancer applications such as vaccines
for infectious diseases and optimized delivery of therapeutic proteins. We have
established relationships, through the license of our technology, with numerous
corporate partners.
Vical has formulated Allovectin-7-Registered Trademark-, a complex
containing the gene encoding a particular human histocompatibility antigen,
HLA-B7, and a lipid material to facilitate gene uptake. After direct injection
of Allovectin-7-Registered Trademark- into a tumor, we believe that the HLA-B7
gene will cause the tumor cells to produce the HLA-B7 antigen. This gene
expression may then trigger a potent cellular immune response against the tumor
cells. The treatment may also trigger an immune response against additional
tumor cells, both locally and systemically, by exposing other features of the
tumor cells to the immune system. Allovectin-7-Registered Trademark- is in Phase
III and Phase II registration trials for patients with advanced metastatic
malignant melanoma, an aggressive form of skin cancer. Recruitment of patients
in the Phase III trial is progressing toward possible completion in the first
half of 2001. Allovectin-7-Registered Trademark- is also in Phase II clinical
testing for patients with cancer of the head and neck. Based on recently
reported data, Vical is planning a new Phase II study in patients with
earlier-stage head and neck cancer.
Vical is developing its second gene-based product candidate,
Leuvectin-TM-, also intended for direct injection into tumor lesions of cancer
patients. Leuvectin-TM- contains a gene that encodes the potent immunostimulator
IL-2 and a lipid material to facilitate gene uptake. We expect that
Leuvectin-TM-, when injected into tumors, will cause the malignant cells to
produce and secrete IL-2 in the vicinity of the tumor, stimulating the patient's
immune system to attack and destroy tumor cells. Because Leuvectin-TM- is
designed to deliver IL-2 only at the site of tumor lesions, we believe that it
may provide efficacy similar to systemic IL-2 therapy with fewer side effects.
Leuvectin-TM- is in Phase II clinical trials for patients with advanced
metastatic kidney cancer and for high-risk patients with locally confined
prostate cancer.
VAXID, a cancer vaccine intended to prevent recurrence of low-grade,
non-Hodgkin's B-cell lymphoma, is in a Phase I/II clinical trial in a
collaboration with Stanford University Medical Center. We are supporting
clinical testing of a cancer vaccine for the treatment of advanced metastatic
melanoma in a collaboration with the National Cancer Institute, or NCI.
We are developing our cancer product candidates independently, while
developing vaccine product candidates for infectious diseases primarily in
collaboration with corporate partners Merck and Aventis Pasteur. We have a
license agreement allowing Centocor to use our naked DNA technology to
develop and market three specific gene-based vaccines for the potential
treatment of certain types of cancer. We have an agreement with Boston
Scientific for the use of our technology in catheter-based intravascular gene
delivery. We have an agreement with Aventis Pharma to use our gene delivery
technology to deliver neurological proteins for neurodegenerative diseases.
We have agreements with Pfizer for use of our technology for DNA-based
delivery of therapeutic proteins in animal health
9
<PAGE>
applications and with Merial for use of our technology for DNA vaccines in
animal infectious disease targets.
In February 2000, Vical and HGS signed a reciprocal royalty-bearing
license. Under the agreement, Vical has the option to license exclusively up to
three genes from HGS for gene-based product development. HGS has the option to
license Vical's patented naked DNA gene delivery technology for use in up to
three gene-based products. In addition, we granted an exclusive, royalty-bearing
license to VGI, a company in which HGS is a major shareholder, for naked DNA
delivery of Vascular Endothelial Growth Factor-2, a protein with potential use
for revascularization.
Effective June 30, 2000, Alain B. Schreiber, M.D., President and CEO,
and member of the Board of Directors, left the company to pursue a career in the
investment community. The Board of Directors has commenced a search for a
replacement. During the transition, R. Gordon Douglas, M.D., Chairman of the
Board of Vical, is assuming a more active role in managing the strategic
direction of the company. Deirdre Y. Gillespie, M.D., formerly Executive Vice
President and Chief Business Officer, was elected Chief Operating Officer and
assumed additional operating responsibilities.
In May 2000, an independent Drug Safety Review Board recommended that
current Phase II and Phase III registration trials targeting metastatic melanoma
should progress as planned, based on a review of safety and preliminary efficacy
data collected to date.
On June 30, 2000, Vical and Aventis Pharma, the pharmaceutical company
of Aventis S.A., entered into a license agreement granting Aventis Pharma rights
to use Vical's naked DNA gene transfer technology to deliver a growth factor
gene for which Aventis Pharma holds rights. The agreement resulted in an initial
payment to Vical of $1.5 million in July 2000, and could generate milestone
payments plus royalties if products advance through commercialization.
In June 2000, Vical and the Office of Naval Research amended their
existing agreement for the development of a potential naked DNA vaccine to
prevent malaria. The amendment increased the total contract amount from
$2,813,000 to $5,465,000 through December 31, 2000.
We have licensed our naked DNA vaccination technology to Merck for a
total of seven preventive vaccine targets:
- hepatitis B virus, HBV,
- hepatitis C virus, HCV,
- human immunodeficiency virus, HIV,
- human papilloma virus, HPV,
- herpes simplex virus, HSV,
- influenza virus, and
- tuberculosis, TB.
In addition, Merck also has a license covering three therapeutic
vaccine targets, HBV, HIV and HPV.
Researchers at Merck and Harvard University/Beth Israel Deaconess
Medical Center reported in the October 20, 2000, issue of SCIENCE successful
testing in monkeys of an HIV vaccine under Merck's license of Vical's patented
DNA vaccine technology. The vaccine, given alone or in combination with a
booster (interleukin-2), protected the monkeys against a virulent strain of
SHIV, a combination of simian (monkey) and human immunodeficiency virus. Seven
of the eight test monkeys receiving a placebo vaccine developed AIDS, and four
died. All eight monkeys receiving the booster vaccine, and two of the four
monkeys receiving the DNA vaccine alone, remained healthy. None of these 12
monkeys died during the 140-day observation period.
Merck is now developing vaccines based on Vical's naked DNA vaccine
technology to prevent and treat HIV infections. Merck is testing naked DNA
vaccines for HIV in two human trials, one for
10
<PAGE>
uninfected volunteers and one for volunteers already infected with HIV and
receiving highly active anti-retroviral therapy. The human testing began in
December 1999.
We also have a license and option agreement with Aventis Pasteur for a
total of six preventive vaccine targets:
- cytomegalovirus, CMV,
- HELICOBACTER PYLORI,
- Lyme disease,
- malaria,
- respiratory syncytial virus, RSV, and
- varicella zoster virus, VZV.
Vical is collaborating with Aventis Pasteur and the U.S. Naval Medical
Research Center, or NMRC, to develop a DNA vaccine against malaria. In August
2000, we initiated a Phase II clinical trial to test the safety and efficacy of
a naked DNA vaccine to prevent infection by the malaria parasite.
Vical's product candidates or those of our collaborators may not prove
to be safe and effective in clinical trials and no commercially successful
products may ultimately be developed by Vical or our collaborators.
RESULTS OF OPERATIONS
Revenues of $1,430,000 were recorded for the quarter ended September
30, 2000. License revenue of $724,000 primarily represented recognition of
deferred license fees of $473,000 from Merial and Vascular Genetics Inc., and
royalty and other revenue of $251,000. Contract and grant revenue of $706,000
included revenues from a contract with the Office of Naval Research for the
development work on a potential naked DNA vaccine to prevent malaria, revenue
from contracts and grants with NIH, and revenue from Pfizer. The total contract
amount under the agreement between Vical and the Office of Naval Research is
$5,465,000 through December 31, 2000. Through September 30, 2000, Vical had
recognized revenue of $3,048,000 of the total contract amount.
Revenues of $1,229,000 were recorded for the quarter ended September
30, 1999. License revenue of $495,000 primarily represented recognition of
deferred license fees of $275,000 from Merial, and royalty and other revenue of
$220,000. Contract revenue recognized was $734,000, and was primarily from the
contract with the Office of Naval Research.
Revenues for the nine months ended September 30, 2000, were $5,192,000.
In addition to the revenue recognized in the third quarter of 2000, license
revenue for the nine months ended September 30, 2000, included $1,500,000 of
license fees accrued for a June 2000 license agreement with Aventis Pharma,
recognition of deferred license fees of $839,000 from Merial and Vascular
Genetics Inc., and royalty and other revenue of $520,000. Contract and grant
revenue recognized for the nine months ended September 30, 2000, in addition to
the amounts recognized in the third quarter of 2000, included $903,000 of
revenues from the contract with the Office of Naval Research, revenue from
contracts and grants with NIH, and revenue from Pfizer and other agreements.
Revenues for the nine months ended September 30, 1999, were $5,762,000.
In addition to the revenue recognized in the third quarter of 1999, revenue for
the nine months ended September 30, 1999, included $1,000,000 of option and
license fees, and $1,200,000 of equity premium under January 1999 agreements
with Pfizer Inc., recognition of deferred license fees of $525,000 from Merial,
royalty and other revenue of $551,000 and contract revenue of $1,258,000
primarily from the Office of Naval Research.
Our total operating expenses for the quarter ended September 30, 2000,
were $5,787,000 compared with $4,581,000 for the third quarter of 1999. Total
operating expenses for the nine months ended September 30, 2000 and 1999, were
$17,454,000 and $14,067,000, respectively. Research and development expenses
increased to $4,524,000 for the three months ended September 30, 2000, from
$3,514,000 for the same period in 1999. For the nine months ended September 30,
2000, research and
11
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development expenses were $13,551,000 compared with $10,866,000 for the same
period in 1999. The increase in research and development expenses generally was
due to increased preclinical and clinical trial costs, and personnel-related
costs.
General and administrative expenses increased to $1,263,000 for the
three months ended September 30, 2000, from $1,066,000 for the same period in
1999. General and administrative expenses for the nine months ended September
30, 2000, were $3,903,000 compared with $3,201,000 for the same period in 1999.
The increase for the third quarter of 2000 is attributable primarily to
increased professional fees related to corporate communications, recruiting and
other costs related to the vacant CEO position, and business development
activities. The increase for the nine months ended September 30, 2000, is
attributable primarily to the foregoing factors plus increased personnel-related
costs in support of the expanded research and development activities.
Investment income for the three-month and nine-month periods ended
September 30, 2000, was $2,552,000 and $6,801,000, respectively. Investment
income for the three-month and nine-month periods ended September 30, 1999, was
$548,000 and $1,688,000, respectively. The increase is a result of higher
investment balances due to the January 2000 sale of 3,450,000 shares of Vical
common stock in a public offering which raised net proceeds of approximately
$117,500,000.
The net loss was $0.09 per share for the three months ended September
30, 2000, and $0.18 for the three months ended September 30, 1999. For the nine
months ended September 30, 2000, the net loss was $0.29 per share compared with
a net loss of $0.42 per share for the same period in the prior year. We expect
to incur losses throughout the remainder of 2000 and to report a net loss for
the year ending December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Vical has financed its operations primarily
through private placements of preferred and common stock, four public offerings
of common stock and revenues from collaborative agreements. In January 2000,
Vical sold 3,450,000 shares of common stock in a public offering which raised
net proceeds of approximately $117.5 million. The net proceeds were invested in
marketable securities and cash equivalents during the first quarter of 2000. As
of September 30, 2000, we had working capital of approximately $148.2 million
compared with $36.0 million at December 31, 1999. Cash and marketable securities
totaled approximately $150.4 million at September 30, 2000, compared with $37.7
million at December 31, 1999. We have an unsecured line of credit agreement with
a bank to provide financing for leasehold improvements. Under the terms of the
agreement, Vical had borrowed up to the credit limit of $1.0 million at
September 30, 2000. In November 2000, this line of credit was amended and
increased to $2.3 million. Under the terms of the amended agreement, Vical can
use the credit line until May 1, 2001. Any outstanding borrowings made under the
additional $1.3 million credit line at June 1, 2001, convert to a term loan
payable over 42 months at the bank's prime rate.
We expect to incur substantial additional research and development
expenses and general and administrative expenses, including continued increases
in personnel costs, costs related to preclinical testing and clinical trials,
outside services and facilities. Our future capital requirements will depend on
many factors, including continued scientific progress in our 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, prosecuting and enforcing patent claims, competing
technological and market developments, the cost of manufacturing scale-up, and
commercialization activities and arrangements. We intend to seek additional
funding through research and development relationships with suitable potential
corporate collaborators. We may also seek additional funding through public or
private financings. We cannot assure that additional financing will be available
on favorable terms or 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 at least 2002.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 -
"Revenue Recognition," or SAB 101. SAB 101 reflects the SEC's views on revenue
recognition. Historically Vical has recognized
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revenue from initial technology option and license fees in the period in which
the agreement was signed if there were no significant performance obligations
remaining. Revenue from milestone payments is recognized as revenue when the
milestones are achieved. SAB 101 would require that when there has not been the
culmination of the earnings process, revenue from technology option and license
fees and milestone payments be deferred and recognized over the period over
which the revenue is deemed to be earned. There is a lack of guidance about
applying SAB 101 in the Life Sciences Industry, including what constitutes the
culmination of the earnings process where there are up-front, milestone and
royalty payments. Further, there is significant uncertainty about the life over
which to recognize this revenue, particularly where royalties continue to be
payable until the last related patent expires. There is no written guidance to
determine whether it would be acceptable to amortize the revenue over the
estimated product development period, which is a shorter period than the
estimated life of the patents. Due to the uncertainties noted above, we have not
completed our evaluation of the impact of SAB 101 on our financial statements,
however, the potential impact is expected to be material to the financial
statements. Effective from 1991, when our first license fee revenues were
recognized, to September 30, 2000, Vical has recognized cumulative license fee
revenue representing nonrefundable up-front and milestone payments of
approximately $39 million which will have to be evaluated for deferral under SAB
101. The amount that will need to be deferred will depend principally on the
estimated life over which we are allowed to recognize the revenue under SAB 101.
When the company implements SAB 101 in the fourth quarter of 2000, it will do
so by restating the first quarter 2000 statements. The statement of
operations will reflect a one-time charge to earnings for the cumulative
effect of the change in accounting principle as of January 1, 2000, and
license revenues will be recognized based on SAB 101 effective as of that
date. The financial statements for the second and third quarters of 2000 will
also be restated to apply SAB 101 effective January 1, 2000.
RISK FACTORS
You should carefully consider the risks described below, together with
all of the other information included in this report, before deciding whether to
invest in our common stock. If any of the following risks actually occurs, our
business, financial condition or results of operations could be harmed. In this
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.
NONE OF OUR PRODUCTS HAVE BEEN APPROVED FOR SALE. IF WE DO NOT DEVELOP
COMMERCIALLY SUCCESSFUL PRODUCTS, WE MAY BE FORCED TO CURTAIL OR CEASE
OPERATIONS.
Very little data exists regarding the safety and efficacy of DNA
therapeutics. All of our potential products are either in research or
development. We must conduct a substantial amount of additional research and
development before any U.S. or foreign regulatory authority will approve any of
our products. Results of our research and development activities may indicate
that our potential products are unsafe or ineffective. In this case, regulatory
authorities will not approve them. Even if approved, our products may not be
commercially successful. If we fail to develop and commercialize our products,
we will not be successful.
WE HAVE A HISTORY OF NET LOSSES. WE EXPECT TO CONTINUE TO INCUR NET
LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We have not sold any products and do not expect to sell any products
for the next few years. For the period from our inception to September 30, 2000,
we have incurred cumulative net losses totaling approximately $50.2 million.
Moreover, our negative cash flow and losses from operations will continue and
increase for the foreseeable future. We may never generate sufficient product
revenue to become profitable. We also expect to have quarter-to-quarter
fluctuations in revenues, expenses and losses, some of which could be
significant.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE. IF ADDITIONAL CAPITAL IS
NOT AVAILABLE, WE MAY HAVE TO CURTAIL OR CEASE OPERATIONS.
We may need to raise more money to continue the research and
development necessary to bring our products to market and to establish
manufacturing and marketing capabilities. We may seek additional funds through
public and private stock offerings, arrangements with corporate partners,
borrowings under lease lines of credit or other sources. In the event that we
need more money, but are
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unable to raise more money we may have to reduce our capital expenditures, scale
back our development of new products, reduce our workforce and license to others
products or technologies that we otherwise would seek to commercialize
ourselves. The amount of money we may need will depend on many factors,
including:
- the progress of our research and development programs,
- the scope and results of our preclinical studies and clinical
trials,
- the time and costs involved in:
- obtaining necessary regulatory approvals,
- filing, prosecuting and enforcing patent claims,
- scaling up our manufacturing capabilities, and
- the commercial arrangements we may establish.
THE REGULATORY APPROVAL PROCESS IS EXPENSIVE, TIME CONSUMING AND
UNCERTAIN, WHICH MAY PREVENT US FROM OBTAINING REQUIRED APPROVALS FOR
THE COMMERCIALIZATION OF OUR PRODUCTS.
Testing of the potential drugs we develop is regulated by numerous
governmental authorities in the United States and other countries. The
regulations are evolving and uncertain. The regulatory process can take many
years and require us to expend substantial resources. For example:
- the U.S. Food and Drug Administration, the FDA, has not
established guidelines concerning the scope of clinical trials
required for DNA therapeutics,
- the FDA has not indicated how many patients it will require to
be enrolled in clinical trials to establish the safety and
efficacy of DNA therapeutics, and
- current regulations are subject to substantial review by
various governmental agencies.
Therefore, U.S. or foreign regulations could prevent or delay
regulatory approval of our products or limit our ability to develop and
commercialize our products. Delays could:
- impose costly procedures on our activities,
- diminish any competitive advantages that we attain, and
- negatively affect our ability to receive royalties.
We believe that the FDA and comparable foreign regulatory bodies will
regulate separately each product containing a particular gene depending on its
intended use. Presently, to commercialize any product we must sponsor and file a
regulatory application for each proposed use. We then must conduct clinical
studies to demonstrate the safety and efficacy of the product necessary to
obtain FDA approval. The results obtained so far in our clinical trials may not
be replicated in our on-going or future trials. This may prevent any of our
potential products from receiving FDA approval.
We use recombinant DNA molecules in our product candidates, and
therefore we also must comply with guidelines instituted by the National
Institutes of Health, the NIH, and its Recombinant DNA Advisory Committee.
The NIH could restrict or delay the development of our products.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY, OR WITH RESPECT TO OUR
POTENTIAL PRODUCTS, MAY NEGATIVELY IMPACT REGULATORY APPROVAL OR PUBLIC
PERCEPTION OF OUR PRODUCTS.
The death of a patient undergoing a viral-based gene therapy at the
University of Pennsylvania in an investigator-sponsored trial has been widely
publicized. This death and other adverse events in the field of gene therapy
could result in greater governmental regulation of gene therapies, including our
non-viral naked DNA technology, and potential regulatory delays relating to the
testing or approval of our potential products. In addition, the field of gene
therapy is under increased scrutiny, which may affect our product development
efforts or clinical trials.
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For example, one patient who had undergone treatment with
Allovectin-7-Registered Trademark- for advanced metastatic melanoma died more
than two months later of progressive disease and numerous other factors, after
receiving multiple other cancer therapies. The death was originally reported as
unrelated to the treatment. Following an autopsy, the death was reclassified as
"probably related" to the treatment because the possibility could not be ruled
out. We do not believe Allovectin-7-Registered Trademark- was a significant
factor in the patient's death.
The commercial success of our potential products will depend in part on
public acceptance of the use of gene therapies for the prevention or treatment
of human diseases. Public attitudes may be influenced by claims that gene
therapies are unsafe and our naked DNA therapeutics may not gain the acceptance
of the public or the medical community. Negative public reaction to adverse
events in our trials or gene therapy in general could result in greater
government regulation and stricter labeling requirements of gene therapies,
including our naked DNA therapeutics, and could cause a decrease in the demand
for any products we may develop.
OUR PATENTS AND PROPRIETARY RIGHTS MAY NOT PROVIDE US WITH ANY BENEFIT
AND THE PATENTS OF OTHERS MAY PREVENT US FROM COMMERCIALIZING OUR
PRODUCTS.
Patents may not issue from any of our current applications. Moreover,
if patents do issue, governmental authorities may not allow claims sufficient to
protect our technology. Finally, others may challenge or seek to circumvent or
invalidate patents that are issued to us or to licensors of our technology. In
that event, the rights granted under patents may be inadequate to protect our
proprietary technology or to provide any commercial advantage.
Our core DNA delivery technology is covered by a patent issued in
Europe which is being opposed by several companies under European patent
procedures. If we are not successful in this opposition proceeding we may lose
part or all of our proprietary protection on our potential products in Europe.
Others may have or may receive patents which contain claims applicable
to our products. These patents may impede our ability to commercialize products.
THE LEGAL PROCEEDINGS TO OBTAIN PATENTS AND LITIGATION OF THIRD-PARTY
CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT COULD REQUIRE US TO SPEND
MONEY AND COULD IMPAIR OUR OPERATIONS.
Our success will depend in part on our ability to obtain patent
protection for our products and processes both in the United States and in other
countries. The patent positions of biotechnology and pharmaceutical companies,
however, can be highly uncertain and involve complex legal and factual
questions. Therefore, it is difficult to predict the breadth of claims allowed
in the biotechnology and pharmaceutical fields.
We also rely on protecting our proprietary technology in part through
confidentiality agreements with our corporate collaborators, employees,
consultants and certain contractors. These agreements may be breached and we may
not have adequate remedies for any breach. In addition, our trade secrets may
otherwise become known or independently discovered by our competitors.
Protecting intellectual property rights can be very expensive.
Litigation may be necessary to enforce a patent issued to us or to determine the
scope and validity of third-party proprietary rights. Moreover, if a competitor
were to file a patent application claiming technology also invented by us, we
would have to participate in an interference proceeding before the U.S. Patent
and Trademark Office or in a foreign counterpart to determine the priority of
the invention. We may be drawn into interferences with third parties or may have
to provoke interferences ourselves to unblock third party patent rights so as to
allow us or our licensees to commercialize products based on our technology.
Litigation could result in substantial costs and the diversion of management's
efforts regardless of the results of the litigation. An unfavorable result in
litigation could subject us to significant liabilities to third parties, require
disputed rights to be licensed or require us to cease using some technology.
Our products and processes may infringe, or be found to infringe on,
patents not owned or controlled by us. We do not know whether any patents held
by others will require us to alter our products
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or processes, obtain licenses, or stop activities. If relevant claims of
third-party patents are upheld as valid and enforceable, we could be prevented
from practicing the subject matter claimed in the patents, or may be required to
obtain licenses or redesign our products or processes to avoid infringement. A
number of genetic sequences or proteins encoded by genetic sequences that we are
investigating are, or may become, patented by others. As a result, we may have
to obtain licenses to test, use or market these products. Our business will
suffer if we are not able to obtain licenses at all or on terms commercially
reasonable to us and we may not be able to redesign our products or processes to
avoid infringement.
COMPETITION AND TECHNOLOGICAL CHANGE MAY MAKE OUR POTENTIAL PRODUCTS
AND TECHNOLOGIES LESS ATTRACTIVE OR OBSOLETE.
We compete with companies, including major pharmaceutical and
biotechnology firms, that are pursuing other forms of treatment or prevention
for the diseases we target. We also may experience competition from companies
that have acquired or may acquire technology from universities and other
research institutions. As these companies develop their technologies, they may
develop proprietary positions which may prevent us from successfully
commercializing products.
Some of our competitors are established companies with greater
financial and other resources than we have. Other companies may succeed in
developing products earlier than we do, obtaining FDA approval for products more
rapidly than we do, or developing products that are more effective than those we
propose to develop. While we will seek to expand our technological capabilities
to remain competitive, research and development by others will seek to render
our technology or products obsolete or noncompetitive or result in treatments or
cures superior to any therapy developed by us. Additionally, consumers may not
prefer therapies developed by us over existing or newly developed therapies.
THE METHOD OF ADMINISTRATION OF SOME OF OUR POTENTIAL PRODUCTS CAN
CAUSE ADVERSE EVENTS IN PATIENTS, INCLUDING DEATH.
Some of our potential products are designed to be injected directly
into malignant tumors. There are medical risks inherent in direct tumor
injections. For example, in clinical trials of our potential products, attending
physicians have punctured patients' lungs in less than one percent of
procedures, requiring hospitalization. In addition, a physician administering
our product in an investigator-sponsored clinical trial inadvertently damaged
tissue near the heart of a patient which may have precipitated the patient's
death. These events are reported as adverse events in our clinical trials and
illustrate the medical risks related to direct injection of tumors. These risks
may adversely impact market acceptance of some of our products.
COMMERCIALIZATION OF SOME OF OUR POTENTIAL PRODUCTS DEPENDS ON
COLLABORATIONS WITH OTHERS. IF OUR COLLABORATORS ARE NOT SUCCESSFUL OR
IF WE ARE UNABLE TO FIND COLLABORATORS IN THE FUTURE, WE MAY NOT BE
ABLE TO DEVELOP THESE PRODUCTS.
Our strategy for the research, development and commercialization of
some of our product candidates requires us to enter into contractual
arrangements with corporate collaborators, licensors, licensees and others. Our
success depends upon the performance by these collaborators of their
responsibilities under these arrangements. Some collaborators may not perform
their obligations as we expect or we may not derive any revenue from these
arrangements.
We have collaborative agreements with several pharmaceutical companies.
We do not know whether these companies will successfully develop and market any
products under their respective agreements. Moreover, some of our collaborators
are also researching competing technologies to treat the diseases targeted by
our collaborative programs. We may be unsuccessful in entering into other
collaborative arrangements to develop and commercialize our products.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN
ADDITIONAL PERSONNEL, WE MAY NOT BE ABLE TO PURSUE COLLABORATIONS OR
DEVELOP OUR OWN PRODUCTS.
We are highly dependent on the principal scientific, manufacturing,
marketing and management personnel, the loss of whose services might
significantly delay or prevent the achievement of our objectives. We face
competition from other companies, academic institutions, government entities and
other organizations in attracting and retaining personnel.
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Effective June 30, 2000, Alain B. Schreiber, M.D., President and CEO,
and member of the Board of Directors, left the company to pursue a career in the
investment community. The Board of Directors has commenced a search for a
replacement. During the transition, R. Gordon Douglas, M.D., Chairman of the
Board of Vical, is assuming a more active role in managing the strategic
direction of the company. Deirdre Y. Gillespie, M.D., formerly Executive Vice
President and Chief Business Officer, was elected Chief Operating Officer and
assumed additional operating responsibilities.
WE MAY NOT BE ABLE TO MANUFACTURE PRODUCTS ON A COMMERCIAL SCALE.
We have limited experience in manufacturing our product candidates in
commercial quantities. We may be dependent initially on corporate partners,
licensees or others to manufacture our products commercially. We also will be
required to comply with extensive regulations applicable to manufacturing
facilities. We may be unable to enter into any arrangement for the manufacture
of our products.
WE HAVE NO MARKETING OR SALES EXPERIENCE, AND IF WE ARE UNABLE TO
DEVELOP OUR OWN SALES AND MARKETING CAPABILITY, WE MAY NOT BE
SUCCESSFUL IN COMMERCIALIZING OUR PRODUCTS.
Our current strategy is to market our proprietary cancer products
directly in the United States, but we currently do not possess pharmaceutical
marketing or sales capabilities. In order to market and sell our proprietary
cancer products, we will need to develop a sales force and a marketing group
with relevant pharmaceutical experience, or make appropriate arrangements with
strategic partners to market and sell these products. Developing a marketing and
sales force is expensive and time consuming and could delay any product launch.
Our inability to successfully employ qualified marketing and sales personnel and
develop our sales and marketing capabilities will harm our business.
HEALTH CARE REFORM AND RESTRICTIONS ON REIMBURSEMENT MAY LIMIT OUR
RETURNS ON POTENTIAL PRODUCTS.
Our ability to earn sufficient returns on our products will depend in
part on the extent to which reimbursement for our products and related
treatments will be available from:
- government health administration authorities,
- private health coverage insurers,
- managed care organizations, and
- other organizations.
If we fail to obtain appropriate reimbursement, it could prevent us
from successfully commercializing our potential products.
There are efforts by governmental and third party payors to contain or
reduce the costs of health care through various means. We expect that there will
continue to be a number of legislative proposals to implement government
controls. The announcement of proposals or reforms could impair our ability to
raise capital. The adoption of proposals or reforms could impair our business.
Additionally, third party payors are increasingly challenging the price
of medical products and services. If purchasers or users of our products are not
able to obtain adequate reimbursement for the cost of using our products, they
may forego or reduce their use. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and whether
adequate third party coverage will be available.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO
IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD BE TIME
CONSUMING AND COSTLY.
Our research and development processes involve the controlled storage,
use and disposal of hazardous materials, biological hazardous materials and
radioactive compounds. We are subject to federal, state and local regulations
governing the use, manufacture, storage, handling and disposal of materials and
waste products. Although we believe that our safety procedures for handling and
disposing of these hazardous materials comply with the standards prescribed by
law and regulation, the risk of
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accidental contamination or injury from hazardous materials cannot be completely
eliminated. In the event of an accident, we could be held liable for any damages
that result, and any liability could exceed the limits or fall outside the
coverage of our insurance. We may not be able to maintain insurance on
acceptable terms, or at all. We could be required to incur significant costs to
comply with current or future environmental laws and regulations.
WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE.
We face an inherent business risk of exposure to product liability and
other claims in the event that our technologies or products are alleged to have
caused harm. These risks are inherent in the development of chemical and
pharmaceutical products. Although we currently maintain product liability
insurance, we may not have sufficient insurance coverage and we may not be able
to obtain sufficient coverage at a reasonable cost. Our inability to obtain
product liability insurance at an acceptable cost or to otherwise protect
against potential product liability claims could prevent or inhibit the
commercialization of any products developed by us or our collaborators. We also
have liability for products manufactured by us on a contract basis for third
parties. If we are sued for any injury caused by our technology or products, our
liability could exceed our total assets.
OUR STOCK PRICE COULD CONTINUE TO BE HIGHLY VOLATILE AND YOU MAY NOT BE
ABLE TO RESELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAID FOR THEM.
The market price of our common stock, like that of many other life
sciences companies, has been highly volatile and is likely to continue to be
highly volatile. The following factors, among others, could have a significant
impact on the market price of our common stock:
- the results of our preclinical studies and clinical trials or
those of our collaborators or competitors or for DNA
therapeutics in general,
- evidence of the safety or efficacy of our potential products
or the products of our competitors,
- the announcement by us or our competitors of technological
innovations or new products,
- governmental regulatory actions,
- changes or announcements in reimbursement policies,
- developments with our collaborators,
- developments concerning our patent or other proprietary rights
or those of our competitors, including litigation,
- concern as to the safety of our potential products,
- period-to-period fluctuations in our operating results,
- market conditions for life science stocks in general, and
- changes in estimates of our performance by securities
analysts.
OUR ANTI-TAKEOVER PROVISIONS COULD DISCOURAGE POTENTIAL TAKEOVER
ATTEMPTS AND MAKE ATTEMPTS BY STOCKHOLDERS TO CHANGE MANAGEMENT MORE
DIFFICULT.
The approval of two-thirds of our voting stock is required to approve
some transactions and to take some stockholder actions, including the calling of
a special meeting of stockholders and the amendment of any of the anti-takeover
provisions contained in our certificate of incorporation. Further, pursuant to
the terms of our stockholder rights plan adopted in March 1995, we have
distributed a dividend of one right for each outstanding share of common stock.
These rights will cause substantial dilution to the ownership of a person or
group that attempts to acquire us on terms not approved by our Board of
Directors and may have the effect of deterring hostile takeover attempts.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT 27 Financial Data Schedule
(b) Reports on Form 8-K
None
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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: November 13, 2000 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)
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<S> <C>
1. EXHIBIT 27 Financial Data Schedule
</TABLE>
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