Vical Incorporated : Additional Proxy Soliciting Materials (definitive)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

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VICAL INCORPORATED

(Exact name of Registrant as specified in its charter)

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Vical Incorporated, a Delaware corporation (the "Company" or "Vical"), filed its definitive proxy statement on Schedule 14A (the "Proxy Statement") with the Securities and Exchange Commission (the "SEC") on July 12, 2019, as amended by Amendment No. 1 to the Proxy Statement, filed with the SEC on August 8, 2019, and Amendment No. 2 to the Proxy Statement, filed with the SEC on August 20, 2018, relating to the Agreement and Plan of Merger, dated as of June 2, 2019, by and among the Company, Brickell Biotech, Inc., a Delaware corporation ("Brickell") and Victory Subsidiary, Inc., a Delaware corporation and wholly owned subsidiary of the Company (the "Merger Agreement"), pursuant to which Victory Subsidiary, Inc. will merge with and into Brickell, with Brickell surviving as a wholly owned subsidiary of the Company.

Capitalized terms used but not defined in this Amendment No. 3 (the "Amendment") to the Proxy Statement have the meanings ascribed to them in the Proxy Statement. The information in the Proxy Statement is incorporated into this Amendment by reference to all applicable items in the Proxy Statement, except that such information is hereby amended and supplemented to the extent specifically provided herein. Except as specifically noted herein, the information set forth in the Proxy Statement remains unchanged. All page references are to pages in the Proxy Statement.

Explanatory Note

As previously disclosed in the Proxy Statement, between July 30 and August 12, 2019, four putative lawsuits (captioned Calice v. Vical Incorporated, et al., No. 19-cv-01437 (S.D. Cal. filed July 30, 2019), Sabatini v. Vical Incorporated, et al., No. 19-cv-01457 (D. Del. filed August 2, 2019), Jin v. Vical Incorporated, et al., No. 19-cv-07451 (S.D.N.Y. filed August 9, 2019), and Lanzet v. Vical Incorporated, et al., No. 19-cv-07528 (S.D.N.Y. filed

August 12, 2019)) were filed in federal court against Vical and Vical's board of directors related to the Merger.

While the Company believes that the disclosures set forth in the Proxy Statement comply fully with all applicable law and denies the allegations in the pending actions described above, in order to moot plaintiffs' disclosure claims, avoid nuisance and possible expense and business delays, and provide additional information to its stockholders, the Company has determined voluntarily to supplement certain disclosures in the Proxy Statement related to plaintiffs' claims with the supplemental disclosures set forth below (the "Supplemental Disclosures"). These Supplemental Disclosures should be read in conjunction with the rest of the Proxy Statement, as amended, which we urge you to read in its entirety. Nothing in the Supplemental Disclosures shall be deemed an admission of the legal merit, necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, the Company specifically denies all allegations in the various litigation matters that any additional disclosure was or is required or material.

Supplemental Disclosures to Proxy Statement

The fifth paragraph on Page 69 of the Proxy Statement hereby is amended and restated in its entirety as follows:

"On February 25, 2019, Brickell submitted a preliminary non-binding indication of interest concerning a reverse merger transaction with Vical. The proposal reflected a 60% and 40% ownership split for Brickell and Vical stockholders in the post-closing company based on a $100 million pro forma valuation, a seven-memberpost-closing board of directors (with two Vical directors) and a minimum Vical net cash balance of $35 million at closing, and it also summarized the terms of a

proposed concurrent financing with an affiliate of NovaQuest Capital Management ("NovaQuest") for $25 million of nondilutive at-risk product financing and $5 million in equity. Brickell's belief was that the funding from NovaQuest, along with Vical net cash, would provide sufficient financial resources, through the fourth quarter of 2020 to allow the combined company to focus on the development and potential commercialization of its sofpironium bromide program for the treatment of axillary hyperhidrosis. The proposal also contemplated a seven-member board of directors that would consist of two members from Vical's existing board of directors for the post-closing company. The board tentatively selected Vijay Samant and Gary Lyons as the Vical designees (subject in Mr. Lyons' case to him confirming his availability to take on such position); however, a formal determination would not be made until after the merger agreement was signed."

The first sentence of the second to last full paragraph under the subsection "Background of the Merger" on page 74 of the Proxy Statement hereby is amended and restated in its entirety as follows:

"On August 13 and August 14, 2019, the Vical board discussed the Brickell working capital deficiency."

Subclause (iii) on page 81 of the Proxy Statement hereby is amended and restated in its entirety as follows:

"(iii) reviewed certain internal financial analyses prepared by and provided to us by the management of Vical relating to Vical's liquidation value of $1.26 per share as of June 2019 and assuming a liquidation date of July 31, 2019, and Brickell's business (the "Projections"), and utilized per instruction of Vical;"

The first paragraph under the subheading "Liquidation Analysis" on page 84 of the Proxy Statement is hereby amended and restated in its entirety as follows:

"As noted above, at the direction of Vical's management and with the Vical board of directors' consent, MTS Securities assumed that the only material asset of Vical was its cash and that Vical does not currently, and does not intend in the future to, conduct any activity that may result in the generation of revenue. Accordingly, MTS Securities considered an appropriate measure of the implied equity value of Vical common stock to be the amount of cash available for distribution to Vical stockholders in an orderly liquidation of Vical. Based on information provided by Vical's management (net cash of $43.0 million as of April 30, 2019; estimated employee-relatedwind-down costs of $3.6 million; estimated non-employee related wind-down costs of $1.0 million; estimated liquidation costs of $1.8 million; fully diluted shares outstanding using the treasury stock method of 29.0 million, which includes 6.2 million of prefunded warrants with an exercise price of $0.01; and an estimated liquidation date of July 31, 2019) MTS Securities calculated the per share equity value of Vical to be $1.26, as of July 31, 2019. The analysis assumed cash distributions net of known liabilities and, to be conservative, without retaining any funds in reserve for unknown or contingent liabilities. The analysis did not include a valuation of Vical's intellectual property that is not directly responsible for enabling a clinical stage product as there is no generally accepted standard valuation methodology or common market value for such assets."

The first paragraph under the subheading "Discounted Cash Flow Analysis" on page 85 of the Proxy Statement hereby is amended and restated in its entirety as follows:

"MTS Securities reviewed and analyzed the unadjusted and adjusted Vical management's Brickell projections, and the unlevered free cash flows (defined as probability of success adjusted operating income less income tax expense, less capital expenditures, plus depreciation and amortization, less changes in working capital; for detailed projections, please see the section titled "Certain Vical Management Unaudited Prospective Financial Information") that Vical's management expects Brickell will generate during the period beginning on August 15, 2019 and ending on December 31, 2034. To be conservative, the analysis did not include Brickell's estimated NOL balance (which was $36.5 million federal and $30.9 million state as of December 31, 2018) at transaction closing and did not include a terminal value, either of which would have resulted in a higher value for Brickell than that implied by the analysis. The unlevered free cash flows (excluding NOLs) were then discounted to present values using a range of discount rates, reflecting calculated estimates of Brickell's weighted average cost of capital ("WACC"), based upon MTS Securities' analysis of the cost of capital for both of Brickell's comparable company universes, as described in more detail under "The Merger-Opinionof MTS Securities, LLC-BrickellValuation Analysis-PublicTrading Comparable Companies Analysis" below."

The first paragraph under the subheading "Public Trading Comparable Companies Analysis" on page 85 of the Proxy Statement hereby is amended and restated in its entirety as follows:

"MTS Securities reviewed and compared the projected operating performance of Brickell with publicly available information concerning other publicly traded companies and reviewed the current market price of certain publicly traded securities of such other companies. MTS Securities utilized two sets of comparable companies: (i) selected mid to late stage 505(b)(2) and new chemical entity ("NCE") dermatology companies, for which MTS did not use peak sales projections to derive valuation multiples; and (ii) specialty NCE development stage companies with Phase 2 data, for which MTS derived peak sales multiples based on un-adjusted peak sales consensus equity research estimates as of May 31, 2019 when available. The companies included in each set are as follows:"

The bullet point lists under the subheading "Public Trading Comparable Companies Analysis" beginning on page 85 of the Proxy Statement hereby are amended and restated in their entirety as follows:

"

Selected Mid to Late Stage 505(b)(2) and NCE Dermatology Companies:

Company		Enterprise Value
		(millions)
•  Dermira, Inc.		$	452
•  Krystal Biotech, Inc.		$	355
•  Cassiopea S.p.A.		$	426
•  Biofrontera AG		$	360
•  Aclaris Therapeutics, Inc.		$	96
•  Trevi Therapeutics, Inc.		$	106
•  Verrica Pharmaceuticals Inc.		$	100
•  Menlo Therapeutics Inc.		$	45
•  Foamix Pharmaceuticals Ltd.		$	52
•  Novan, Inc.		$	57
•  Sienna Biopharmaceuticals, Inc.		$	9

Selected Specialty NCE Development Stage Companies with Phase 2 data:

Company		Enterprise Value
		(millions)	EV/Peak Sales
•  Aurinia Pharmaceuticals Inc.		$	468			0.33x
•  Resverlogix Corp.		$	700			0.70x
•  Milestone Pharmaceuticals Inc.		$	380			N/A
•  resTORbio, Inc.		$	115			0.10x
•  Minerva Neurosciences, Inc.		$	125			0.28x
•  Trevi Therapeutics		$	106			N/A
•  Menlo Therapeutics Inc.		$	45			0.04x
•  Quantum Genomics Société Anonyme		$	95			0.12x
•  Innovate Biopharmaceuticals, Inc.		$	38			0.14x
•  Sienna Biopharmaceuticals, Inc.		$	9			0.19x

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