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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Vical Incorporated    VICL

VICAL INCORPORATED

(VICL)
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Vical Incorporated : INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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07/12/2019 | 06:08am EDT

This Quarterly Report on Form 10-Q, or Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including statements regarding our business, our financial position, the research and development of biopharmaceutical products, the funding of our research and development efforts, whether and when the proposed merger with Brickell Biotech, Inc., or the Merger, will be consummated, the potential benefits to be derived from the Merger, financing and development plans of Brickell or the combined company if the Merger is consummated, and other statements describing our goals, expectations, intentions or beliefs. These statements often contain words such as "may," "will," "expect," "anticipate," "intend," "plan," "believe," "estimate" or other words indicating future results, though not all forward-looking statements necessarily contain these identifying words. Such statements reflect our current views and assumptions and are subject to risks and uncertainties, particularly those inherent in the process of developing and commercializing biopharmaceutical products, and whether the conditions to the closing of the Merger will be satisfied. Actual results could differ materially from those projected herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2018 and our preliminary proxy statement filed with the SEC on July 2, 2019, and in our subsequent filings with the SEC, and those identified in Part II, Item 1A of this Report under the caption "Risk Factors". As a result, you are cautioned not to rely on these forward-looking statements. We disclaim any duty to update any forward-looking statement to reflect events or circumstances that occur after the date on which such statement is made.

Overview

Until recently, we were focused on developing our novel antifungal VL-2397, for the treatment of patients with invasive aspergillosis. VL-2397 was being evaluated in a multicenter, open label randomized Phase 2 clinical study, designed to compare the efficacy and safety of VL-2397 to standard treatment for invasive aspergillosis in acute leukemia patients and recipients of allogeneic hematopoietic cell transplant (HCT). In February 2019, we decided to discontinue the Phase 2 clinical trial of VL-2397 in order to conserve our cash resources while we pursue our strategic alternative review process.

On June 2, 2019, we entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, with Brickell Biotech, Inc., a Delaware corporation and clinical-stage medical dermatology company, or Brickell Biotech, and Victory Subsidiary, Inc., a Delaware corporation and wholly owned subsidiary of the Company, or Merger Sub. Upon the terms and subject to satisfaction of the conditions described in the Merger Agreement, including approval of the transaction by the Company's stockholders, Merger Sub will be merged with and into Brickell Biotech, or the Merger, with Brickell Biotech surviving the Merger as a wholly owned subsidiary of the Company

Research, Development and Manufacturing Programs

To date, we have not received revenues from the sale of independently developed pharmaceutical products and have received minimal revenues from the sale of commercially marketed products by our licensees. We have previously earned revenues by performing services under research and development and manufacturing contracts, from grants, and from licensing access to our proprietary technologies. Revenues by source were as follows (in millions):



                                             Three Months Ended          Six Months Ended
                                                  June 30,                   June 30,
 Source                                     2019            2018       2019          2018
 Astellas supply and services contract           -         $   0.7         -       $     1.2
 Other contracts, licenses and royalties         -               -         -             0.3
 Total revenues                            $     -         $   0.7     $   -       $     1.5

In February 2019, we made the decision to discontinue the Phase 2 clinical trial of VL-2397 and, as a result, we restructured our operations to conserve capital. In January 2018, we and Astellas announced that ASP0113 did not meet its primary endpoint in a Phase 3 clinical study in CMV end organ disease, after which Astellas informed us that it was terminating further development.

Critical Accounting Policies and Estimates

The preparation and presentation of financial statements in accordance with accounting principles generally accepted in the United States requires that management make a number of assumptions and informed estimates that affect the reported amounts of assets, liabilities, revenues and expenses in our financial statements and accompanying notes. Management bases its estimates on


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historical information and assumptions believed to be reasonable. Although these estimates are based on management's best knowledge of current events and circumstances that may impact us in the future, they are inherently uncertain and actual results may differ materially from these estimates.

Our critical accounting policies are those that affect our financial statements materially and involve a significant level of judgment by management. Our critical accounting policies regarding revenue recognition are in the following areas: license and royalty agreements, manufacturing contracts, contract services and grant revenues. Our critical accounting policies also include recognition of research and development expenses and the valuation of long-lived and intangible assets.

We describe our significant accounting policies in Note 1 of the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. We discuss our critical accounting policies and estimates in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recent Accounting Pronouncements

For information on the recent accounting pronouncements which may impact our business, see Note 1 of the Notes to Financial Statements included in this Report.

Results of Operations

Three Months Ended June 30, 2019, Compared with Three Months Ended June 30, 2018

Total Revenues. Total revenues decreased to $0 for the three months ended June 30, 2019, from $0.7 million for the three months ended June 30, 2018. This decrease was primarily due to the termination of the ASP0113 program in January 2018.

Research and Development Expenses. Research and development expenses decreased $2.8 million, or 78.9%, to $0.8 million for the three months ended June 30, 2019, from $3.6 million for the three months ended June 30, 2018. This decrease was primarily due to the termination of the VL-2397 in February 2019. As of June 30, 2019 we did not have any active research and development programs.

Manufacturing and Production Expenses. In February 2018, we discontinued all manufacturing and production activities and, as a result, we did not incur any manufacturing and production expenses in either period.

General and Administrative Expenses. General and administrative expenses decreased $0.1 million, or 0.8%, to $2.2 million for the three months ended June 30, 2019, from $2.3 million for the three months ended June 30, 2018. This decrease was primarily due to a decrease in wages and benefits as a result of lower headcount and lower facility costs.

Investment and Other Income, Net. Investment and other income, net, increased $0.3 million to $0.6 million for the three months ended June 30, 2019, from $0.3 million for the three months ended June 30, 2018 primarily due to a $0.3 million gain realized on the sale of assets during the three months ended June 30. 2019.

Six Months Ended June 30, 2019, Compared with Six Months Ended June 30, 2018

Total Revenues. Total revenues decreased to $0 for the six months ended June 30, 2019, from $1.5 million for the six months ended June 30, 2018. This decrease was primarily due to the termination of the ASP0113 program in January 2018.

Research and Development Expenses. Research and development expenses decreased $2.6 million, or 36.1%, to $4.6 million for the six months ended June 30, 2019, from $7.2 million for the six months ended June 30, 2018. This decrease was primarily due to the termination of the VL-2397 program in February 2019 and the termination of the ASP0113 program in January 2018. As of June 30, 2019 we did not have any active research and development programs.

Manufacturing and Production Expenses. Manufacturing and production expenses decreased to $0.0 for the six months ended June 30, 2019 from $1.4 million for the six months ended June 30, 2018. This decrease was due to the termination of the ASP0113 program in January 2018. The termination resulted in a decrease in manufacturing activity and a headcount reduction. In February 2018, we discontinued all manufacturing and production activities and, as a result, we do not expect to incur any future manufacturing or production expenses unless the Merger is consummated.


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General and Administrative Expenses. General and administrative expenses decreased $0.8 million, or 17.4%, to $3.6 million for the six months ended June 30, 2019, from $4.4 million for the six months ended June 30, 2018. This decrease was primarily due to a decrease in wages and benefits as a result of lower headcount and lower facility costs.

Investment and Other Income, Net. Investment and other income, net, increased $0.8 million to $1.3 million for the six months ended June 30, 2019, from $0.5 million for the six months ended June 30, 2018 primarily due to the reversal of previously recognized losses on long-term investments sold in March 2019 and a $0.3 million gain realized on the sale of assets during the six months ended June 30, 2019.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through private placements and public offerings of equity securities, and revenues from our operations. Cash, cash equivalents, marketable securities and long-term investments totaled $41.7 million at June 30, 2019, compared with $50.5 million at December 31, 2018. The decrease in our cash, cash equivalents and marketable securities for the six months ended June 30, 2019, was primarily the result of the use of cash to fund our operations.

Net cash used in operating activities was $9.5 million and $8.6 million for the six months ended June 30, 2019 and 2018, respectively. The increase in net cash used in operating activities for the six months ended June 30, 2019, compared with the prior year period, was primarily the result of a decrease in cash receipts from Astellas due to the termination of the ASP0113 program.

Net cash provided by (used in) investing activities was $8.4 million and $(6.1) million for the six months ended June 30, 2019 and 2018, respectively. The increase in net cash provided by investing activities for the six months ended June 30, 2019, compared with the prior year period, was primarily the result of a decrease of $11.7 million in net purchases of marketable securities and an increase in proceeds received from the sale of long-term investments.

Net cash provided by financing activities was $13,000 and $0 for the six months ended June 30, 2019 and 2018, respectively.

A discussion of our exposure to interest rate risk is included in Part I, Item 3 of this Report under the heading "Quantitative and Qualitative Disclosures About Market Risk."

We currently have on file an effective shelf registration statement that allows us to raise up to $40.0 million from the sale of common stock, preferred stock, debt securities and/or warrants, subject to limitations on the amount of securities that we may sell under the registration statement in any 12-month period.

Despite our current shelf registration statement, additional financing through these or other means may not be available on favorable terms or at all. If additional financing is not available, we anticipate that our available cash and existing sources of funding will be adequate to satisfy our cash needs at least through December 31, 2020.

Contractual Obligations

Under the indemnification agreements with our officers and directors, we have agreed to indemnify those individuals for any expenses and liabilities in the event of a threatened, pending or actual investigation, lawsuit, or criminal or investigative proceeding.

We have an employment agreement that contains severance arrangements with our chief executive officer, or CEO, and severance agreements with two of our other employees. Under the agreement with our CEO, we are obligated to pay severance if we terminate the CEO's employment without "cause," or if the CEO resigns for "good reason," as defined in the agreement, within the periods set forth therein. The severance for the CEO consists of continued base salary payments at the then-current rate, including the payment of health insurance premiums for 18 months, plus a payment equal to one and one-half times the CEO's cash bonus in the previous year. In addition, the CEO receives accelerated vesting on all his unvested stock awards as if he had remained employed by us for 18 months from the date of termination. In the event that the termination occurs within 24 months of a "change in control," as defined in the agreement, the severance for the CEO consists of a lump sum payment equal to 24 months of base salary at the then-current rate, the payment of health insurance premiums for 18 months, plus a payment equal to one and one-half times the CEO's cash bonus in the previous year. In addition, all outstanding unvested stock awards will vest immediately. Under the agreements with our other two executives, we are obligated to pay severance if we terminate the executive's employment without "cause," or if the executive resigns for "good reason," as defined in the agreements, within the periods set forth therein. The severance for one of these executives consists of a lump-sum payment equal to 12 months of base salary at the then-current rate, including the payment of health insurance premiums for 12 months, plus a payment equal to the executive's cash bonus in the previous year. In addition, the executive receives accelerated vesting on all his unvested stock awards as if he had remained employed by us for 12 months from the date of termination. In the event that the termination occurs within 12 months of a "change in control," as defined in the agreements, the


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severance consists of a lump sum payment equal to 18 months of base salary at the then-current rate, the payment of health insurance premiums for 12 months, plus a payment equal to the executive's cash bonus in the previous year. In addition, all outstanding unvested stock awards will vest immediately. The severance for the remaining executive consists of a lump-sum payment equal to six months of base salary at the then-current rate, including the payment of health insurance premiums for six months, plus a bonus payment of $75,000. The maximum payments due under these agreements would have been $2.4 million if each such employee was terminated at June 30, 2019.

Off-Balance Sheet Arrangements

As of June 30, 2019, we did not have any off-balance sheet arrangements.

© Edgar Online, source Glimpses

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