UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to                         .

Commission File Number:  000-21088

 

VICAL INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

93-0948554

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

10390 Pacific Center Court

San Diego, California

 

92121

(Address of principal executive offices)

 

(Zip Code)

(858) 646-1100

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Securities Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

VICL

The Nasdaq Capital Market

 

 

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 for 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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

1


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Total shares of common stock outstanding at June 30, 2019: 22,841,278

 

 


2


VICAL INCORPORATED

FORM 10-Q

INDEX

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1. Financial Statements

 

4

 

 

 

 

 

Balance Sheets (unaudited) as of June 30, 2019 and December 31, 2018

 

4

 

 

 

 

 

Statements of Operations (unaudited) for the three and six months ended June 30, 2019 and 2018

 

5

 

 

 

 

 

Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2019 and 2018

 

6

 

 

 

 

 

     Statements of Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2019 and 2018

 

7

 

 

 

 

 

Statements of Cash Flows (unaudited) for the six months ended June 30, 2019 and 2018

 

8

 

 

 

 

 

Notes to Financial Statements (unaudited)

 

9

 

 

 

 

 

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

16

 

 

 

 

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

19

 

 

 

 

 

ITEM 4. Controls and Procedures

 

19

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1A. Risk Factors

 

20

 

 

 

 

 

ITEM 5. Other Information

 

23

 

 

 

 

 

ITEM 6. Exhibits

 

24

 

 

 

 

SIGNATURE

 

25

 

 

3


PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

VICAL INCORPORATED

BALANCE SHEETS

(In thousands, except par value data)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,813

 

 

$

11,870

 

Marketable securities, available-for-sale

 

 

30,907

 

 

 

36,201

 

Receivables and other assets

 

 

979

 

 

 

1,128

 

Total current assets

 

 

42,699

 

 

 

49,199

 

Long-term investments

 

 

 

 

 

2,386

 

Property and equipment, net

 

 

2

 

 

 

100

 

Other assets

 

 

 

 

 

659

 

Total assets

 

$

42,701

 

 

$

52,344

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,159

 

 

$

3,551

 

Deferred revenue

 

 

 

 

 

30

 

Total current liabilities

 

 

1,159

 

 

 

3,581

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 5,000 shares authorized, none issued and outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 50,000 shares authorized, 22,841 and 21,817 shares

   issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

229

 

 

 

218

 

Additional paid-in capital

 

 

490,343

 

 

 

490,337

 

Accumulated deficit

 

 

(449,072

)

 

 

(442,064

)

Accumulated other comprehensive income

 

 

42

 

 

 

272

 

Total stockholders' equity

 

 

41,542

 

 

 

48,763

 

Total liabilities and stockholders' equity

 

$

42,701

 

 

$

52,344

 

 

See accompanying notes to unaudited financial statements

 

 

4


VICAL INCORPORATED

STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

 

 

$

725

 

 

$

 

 

$

1,431

 

License and royalty revenue

 

 

 

 

 

10

 

 

 

 

 

 

20

 

Total revenues

 

 

 

 

 

735

 

 

 

 

 

 

1,451

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

759

 

 

 

3,602

 

 

 

4,641

 

 

 

7,266

 

Manufacturing and production

 

 

 

 

 

 

 

 

 

 

 

1,436

 

General and administrative

 

 

2,242

 

 

 

2,261

 

 

 

3,618

 

 

 

4,378

 

Total operating expenses

 

 

3,001

 

 

 

5,863

 

 

 

8,259

 

 

 

13,080

 

Loss from operations

 

 

(3,001

)

 

 

(5,128

)

 

 

(8,259

)

 

 

(11,629

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income, net

 

 

571

 

 

 

260

 

 

 

1,251

 

 

 

491

 

Net loss

 

$

(2,430

)

 

$

(4,868

)

 

$

(7,008

)

 

$

(11,138

)

Basic and diluted net loss per share

 

$

(0.11

)

 

$

(0.22

)

 

$

(0.31

)

 

$

(0.51

)

Weighted average shares used in computing basic and diluted net

   loss per share

 

 

22,825

 

 

 

21,837

 

 

 

22,404

 

 

 

21,834

 

 

See accompanying notes to unaudited financial statements

 

 

5


VICAL INCORPORATED

STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(2,430

)

 

$

(4,868

)

 

$

(7,008

)

 

$

(11,138

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale and long-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain arising during holding period, net of tax benefit of $0 and $6 for three months ended June 30, 2019 and 2018, respectively, and $0 and $6 for six months ended June 30, 2019 and 2018, respectively

 

 

25

 

 

 

73

 

 

 

143

 

 

 

8

 

Less:  Reclassification adjustment for gains included in net loss

 

 

 

 

 

 

 

 

(373

)

 

 

 

Other comprehensive gain (loss)

 

 

25

 

 

 

73

 

 

 

(230

)

 

 

8

 

Total comprehensive loss

 

$

(2,405

)

 

$

(4,795

)

 

$

(7,238

)

 

$

(11,130

)

 

See accompanying notes to unaudited financial statements

 


6


VICAL INCORPORATED

STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Accumulated Other

Comprehensive

Income/(Loss)

 

 

Total

Stockholders’

Equity

 

Balance at January 1, 2019

 

 

21,817

 

 

$

218

 

 

$

490,337

 

 

$

(442,064

)

 

$

272

 

 

$

48,763

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,578

)

 

 

 

 

 

(4,578

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(255

)

 

 

(255

)

Issuance of common stock upon exercise of warrants

 

 

993

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

Issuance of common stock underlying restricted

   stock units net of shares withheld to settle

   withholding taxes

 

 

13

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Non-cash compensation expense related to grant of equity based compensation

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

 

 

 

(19

)

Balance at March 31, 2019

 

 

22,823

 

 

$

229

 

 

$

490,318

 

 

$

(446,642

)

 

$

17

 

 

$

43,922

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,430

)

 

 

 

 

 

(2,430

)

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

25

 

Issuance of common stock underlying restricted

   stock units net of shares withheld to settle

   withholding taxes

 

 

18

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Non-cash compensation expense related to grant of equity based compensation

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

23

 

Balance at June 30, 2019

 

 

22,841

 

 

$

229

 

 

$

490,343

 

 

$

(449,072

)

 

$

42

 

 

$

41,542

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Accumulated Other

Comprehensive

Income/(Loss)

 

 

Total

Stockholders’

Equity

 

Balance at January 1, 2018

 

 

21,802

 

 

$

218

 

 

$

489,975

 

 

$

(426,738

)

 

$

122

 

 

$

63,577

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,270

)

 

 

 

 

 

(6,270

)

Retained earnings adjustment upon adoption of ASU 2014-09

 

 

 

 

 

 

 

 

 

 

 

928

 

 

 

 

 

 

928

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65

)

 

 

(65

)

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock underlying restricted

   stock units net of shares withheld to settle

   withholding taxes

 

 

13

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Non-cash compensation expense related to grant

   of equity based compensation

 

 

 

 

 

 

 

 

47

 

 

 

 

 

 

 

 

 

47

 

Balance at March 31, 2018

 

 

21,815

 

 

$

218

 

 

$

490,023

 

 

$

(432,080

)

 

$

57

 

 

$

58,218

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,868

)

 

 

 

 

 

(4,868

)

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

73

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock underlying restricted

   stock units net of shares withheld to settle

   withholding taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash compensation expense related to grant

   of equity based compensation

 

 

 

 

 

 

 

 

162

 

 

 

 

 

 

 

 

 

162

 

Balance at June 30, 2018

 

 

21,815

 

 

$

218

 

 

$

490,185

 

 

$

(436,948

)

 

$

130

 

 

$

53,585

 

 

See accompanying notes to unaudited financial statements

7


VICAL INCORPORATED

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,008

)

 

$

(11,138

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

18

 

 

 

119

 

Accretion of discount on short-term investments

 

 

(227

)

 

 

(70

)

Write-off of abandoned patents

 

 

 

 

 

673

 

Gain on sale of property and equipment

 

 

(309

)

 

 

 

Net gain on sale of long-term investment

 

 

(373

)

 

 

 

Compensation related to stock options and awards

 

 

4

 

 

 

209

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables and other assets

 

 

808

 

 

 

3,882

 

Accounts payable and accrued expenses

 

 

(2,487

)

 

 

(2,058

)

Employee termination benefits accrual

 

 

96

 

 

 

2

 

Deferred revenue

 

 

(30

)

 

 

(249

)

Net cash used in operating activities

 

 

(9,508

)

 

 

(8,630

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from the sale of long-term investment

 

 

2,469

 

 

 

 

Maturities of marketable securities

 

 

12,000

 

 

 

14,719

 

Purchases of marketable securities

 

 

(6,419

)

 

 

(20,843

)

Sale of property and equipment

 

 

388

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(16

)

Net cash provided by (used in) investing activities

 

 

8,438

 

 

 

(6,140

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from issuance of common stock

 

 

13

 

 

 

1

 

Payment of withholding taxes for net settlement of restricted stock units

 

 

 

 

 

(1

)

Net cash provided by financing activities

 

 

13

 

 

 

-

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(1,057

)

 

 

(14,770

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

11,870

 

 

 

25,033

 

Cash, cash equivalents and restricted cash at end of period

 

$

10,813

 

 

$

10,263

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited financial statements

 

 

8


VICAL INCORPORATED

NOTES TO FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

 

1.

BASIS OF PRESENTATION

Vical Incorporated, or the Company, a Delaware corporation, was incorporated in April 1987 and has devoted substantially all of its resources since that time to the research and development of biopharmaceutical products, including those based on its patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases.

The unaudited financial statements at June 30, 2019, and for the three and six months ended June 30, 2019 and 2018, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC, and with accounting principles generally accepted in the United States applicable to interim financial statements. These unaudited financial statements have been prepared on the same basis as the audited financial statements included in the Company’s Annual Report on Form 10-K and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the interim date and results of operations for the interim periods presented. Interim results are not necessarily indicative of results expected for a full year or future periods. The preparation of financial statements 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 materially from those estimates. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2018, included in its Annual Report on Form 10-K filed with the SEC. 

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist of cash and highly liquid securities with original maturities at the date of acquisition of ninety days or less and that can be liquidated without prior notice or penalty. Investments with an original maturity of more than ninety days are considered marketable securities and have been classified by management as available-for-sale. These investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current balance sheet date which reflects management’s intention to use the proceeds from sales of these securities to fund its operations, as necessary. Such investments are carried at fair value, with unrealized gains and losses included as a separate component of stockholders’ equity. Realized gains and losses from the sale of available-for-sale securities or the amounts, net of tax, reclassified out of accumulated other comprehensive income (loss), if any, are determined on a specific identification basis.

Revenue Recognition

The Company recognizes revenue when control of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. The Company recognizes revenue for satisfied performance obligations only when it determines there are no uncertainties regarding payment terms or transfer of control.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs include salaries and personnel-related costs, supplies and materials, outside services, costs of conducting preclinical and clinical trials, facilities costs and amortization of intangible assets. The Company accounts for its clinical trial costs by estimating the total cost to treat a patient in each clinical trial, and accruing this total cost for the patient over the estimated treatment period, which corresponds with the period over which the services are performed, beginning when the patient enrolls in the clinical trial. This estimated cost includes payments to the site conducting the trial, and patient-related lab and other costs related to the conduct of the trial. Cost per patient varies based on the type of clinical trial, the site of the clinical trial, the method of administration of the treatment, and the number of treatments that a patient receives. Treatment periods vary depending on the clinical trial. The Company makes revisions to the clinical trial cost estimates in the current period, as clinical trials progress.

9


Manufacturing and Production Costs

Manufacturing and production costs include expenses related to manufacturing contracts and expenses for the production of plasmid DNA for use in the Company’s research and development efforts. Production expenses related to the Company’s research and development efforts are expensed as incurred.

Net Loss Per Share

Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The weighted average number of shares used to compute diluted loss per share excludes any assumed exercise of stock options and warrants and any assumed issuance of common stock under restricted stock units (RSUs) as the effect would be antidilutive. Common stock equivalents of 6.2 million and 7.2 million for the three months ended June 30, 2019 and 2018, respectively, were excluded from the calculation because of their antidilutive effect.  Common stock equivalents of 6.6 million and 7.2 million for the six months ended June 30, 2019 and 2018, respectively, were excluded from the calculation because of their antidilutive effect.              

Stock-Based Compensation

The Company records its compensation expense associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the option. In addition, the Company records expense related to RSUs granted based on the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term of those awards. Forfeitures of stock options and RSUs are recognized as they occur.  

Stock-based compensation expense for a stock-based award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

Recent Accounting Pronouncements

    In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).”  The new standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months and requires both lessees and lessors to disclose certain key information about lease transactions.  The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company adopted this standard during the first quarter of 2019.  The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures.

 

 

2.

STOCK-BASED COMPENSATION

Total stock-based compensation expense was allocated to research and development, manufacturing and production and general and administrative expense as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Research and development

 

$

6

 

 

$

48

 

 

$

(44

)

 

$

76

 

Manufacturing and production

 

 

 

 

 

 

 

 

 

 

 

(68

)

General and administrative

 

 

17

 

 

 

114

 

 

 

48

 

 

 

201

 

Total stock-based compensation expense

 

$

23

 

 

$

162

 

 

$

4

 

 

$

209

 

 

There were no stock-based awards granted by the Company during the three and six months ended June 30, 2019.  During the six months ended June 30, 2018, the Company granted stock-based awards with a total estimated value of $0.4 million, which were equal to 2.5% of the outstanding shares of common stock at the end of the period. At June 30, 2019, total unrecognized estimated compensation expense related to unvested stock-based awards granted prior to that date was $0.1 million, which is expected to be recognized over a weighted-average period of 1.3 years.   

 

 

10


3.

MARKETABLE SECURITIES, AVAILABLE FOR SALE

The following is a summary of available-for-sale marketable securities (in thousands):

 

June 30, 2019

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Market

Value

 

U.S. treasuries

 

$

30,865

 

 

$

42

 

 

$

 

 

$

30,907

 

 

 

$

30,865

 

 

$

42

 

 

$

 

 

$

30,907

 

 

December 31, 2018

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Market

Value

 

U.S. treasuries

 

$

36,219

 

 

$

 

 

$

18

 

 

$

36,201

 

 

 

$

36,219

 

 

$

 

 

$

18

 

 

$

36,201

 

 

At June 30, 2019, none of these securities were scheduled to mature outside of one year. The Company did not realize any gains or losses on sales of available-for-sale securities for the three and six months ended June 30, 2019. As of June 30, 2019, none of the securities had been in a continuous material unrealized loss position longer than one year.

 

 

4.

OTHER BALANCE SHEET ACCOUNTS

Accounts payable and accrued expenses consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Employee compensation

 

$

335

 

 

$

1,768

 

Post-termination benefit accrual

 

 

96

 

 

 

 

Clinical trial accruals

 

 

111

 

 

 

1,000

 

Accounts payable

 

 

544

 

 

 

412

 

Other accrued liabilities

 

 

73

 

 

 

371

 

Total accounts payable and accrued expenses

 

$

1,159

 

 

$

3,551

 

 

 

5.

LONG-TERM INVESTMENTS

During the six months ended June 30, 2019, the Company sold its auction rate security classified as a long-term investment with a par value of $2.5 million.   Included in investment and other income for the six months ended June 30, 2019 is a net gain of $0.4 million related to the sale.

         

6.

FAIR VALUE MEASUREMENTS

The Company measures fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1: Observable inputs such as quoted prices in active markets;

 

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.   

11


Cash equivalents, marketable securities and long-term investments measured at fair value are classified in the table below in one of the three categories described above (in thousands):

 

 

 

Fair Value Measurements

 

June 30, 2019

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds

 

$

10,178

 

 

$

 

 

$

 

 

$

10,178

 

U.S. treasuries

 

 

30,907

 

 

 

 

 

 

 

 

 

30,907

 

 

 

$

41,085

 

 

$

 

 

$

 

 

$

41,085

 

 

 

 

Fair Value Measurements

 

December 31, 2018

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds

 

$

11,523

 

 

$

 

 

$

 

 

$

11,523

 

U.S. treasuries

 

 

36,201

 

 

 

 

 

 

 

 

 

36,201

 

Auction rate securities

 

 

 

 

 

 

 

 

2,386

 

 

 

2,386

 

 

 

$

47,724

 

 

$

 

 

$

2,386

 

 

$

50,110

 

 

The Company invests in U.S. treasury securities, certificates of deposit and money market funds, which are valued based on publicly available quoted market prices for identical securities as of June 30, 2019. The Company determines the fair value of corporate bonds and other government-sponsored enterprise related securities with the aid of valuations provided by third parties using proprietary valuation models and analytical tools. These valuation models and analytical tools use market pricing or similar instruments that are both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers. The Company validates the valuations received from its primary pricing vendors for its Level 2 securities by examining the inputs used in that vendor’s pricing process and determines whether they are reasonable and observable. The Company also compares those valuations to recent reported trades for those securities. As of June 30, 2019 and December 31, 2018, the Company had no investments in Level 2 securities. The Company did not transfer any investments between level categories during the six months ended June 30, 2019.

Activity for assets measured at fair value using significant unobservable inputs (Level 3) is presented in the table below (in thousands):

 

Balance at December 31, 2018

 

$

2,386

 

Change in fair market value included in other comprehensive loss

 

 

83

 

Sale of Level 3 security

 

 

(2,469

)

Balance at June 30, 2019

 

$

 

Total gains or losses for the period included in net loss attributable to the change in

   unrealized gains or losses relating to assets still held at the reporting date

 

$

 

 

 

7.

COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company may become a party to additional lawsuits involving various matters. The Company is unaware of any such lawsuits presently pending against it which, individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations.

The Company prosecutes its intellectual property vigorously to obtain the broadest valid scope for its patents. Due to uncertainty of the ultimate outcome of these matters, the impact on future operating results or the Company’s financial condition is not subject to reasonable estimates.

 

 

8.

ASTELLAS OUT-LICENSE AGREEMENTS

In July 2011, the Company entered into license agreements with Astellas Pharma Inc., or Astellas, related to the Company’s CMV program. The license agreement was terminated in February 2018. Under the terms of the agreements, the Company was performing research and development services and manufacturing services which were being paid for by Astellas. During the three and six months ended June 30, 2018, the Company recognized $0.7 million and $1.2 million, respectively, of revenue related to these contract services.

 

12


      

 

 

9.

FACILITY LEASE

The Company occupies approximately 17,000 square feet of research laboratory and office space at a single site in San Diego, California under a sublease with Genopis, Inc., or Genopis.   In July 2018, the Company entered into an agreement with Genopis to sell the Company’s idle manufacturing assets for $1.7 million. As part of the agreement, Genopis agreed to sublease 51,400 square feet of the Company’s facility through the remaining term of the Company’s lease, which expired on December 31, 2018.  Genopis was also required to sign a long-term lease with the facility’s landlord beginning on January 1, 2019. Genopis agreed to sublease 17,000 square feet of the facility (consisting of lab and office space) to the Company at no cost for the one-year period ending on December 31, 2019.  The fair value of rent of the lab and office space that the Company is occupying at no cost was $0.4 million as of June 30, 2019 and is recorded in receivables and other assets.

 

 

10.

STOCKHOLDERS’ EQUITY      

As of the date of this filing, the Company has on file a shelf registration statement that allows it to raise up to an additional $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 it may sell under the registration statement in any 12-month period. Specific terms of any offering under a shelf registration statement and the securities involved would be established at the time of sale.

In November 2017, the Company sold 9,194,286 shares of its common stock in a public offering at a price of $1.75 per share, including an overallotment of 2,142,857 shares issued at a price of $1.75 per share, and pre-funded warrants to purchase 7,234,285 shares of common stock at a purchase price of $1.74 per share. The pre-funded warrants have an exercise price of $0.01 per share and may be exercised at any time.  In March 2019, 993,211 warrants were exercised. As of June 30, 2019, warrants to purchase 6,241,074 shares of common stock were outstanding.

 

 

11.

RELATED PARTY TRANSACTION

On April 4, 2017, the Company entered into a research collaboration agreement with AnGes. As of the date of the transaction, AnGes held 18.6% of the outstanding stock of the Company. Pursuant to the collaboration agreement, AnGes agreed to make a non-refundable payment to the Company of $750,000 and the Company agreed to conduct certain research activities related to a development program targeting chronic hepatitis B. An amendment to the agreement was executed in September 2018 that added an additional non-refundable payment from AnGes to the Company of $145,000.  The HBV program was cancelled in 2019. As of June 30, 2019, the Company had recognized the full $895,000 as contract revenue.

 

 


13


 

12.

RESTRUCTURING COSTS

In February 2019, the Company made the decision to discontinue the Phase 2 clinical trial of VL-2397.  As a result, the Company restructured its operations to conserve capital and recorded restructuring charges of $0.6 million and $2.1 million during the three and six months ended June 30, 2019, respectively.

In January 2018, the Company 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 the Company that it was terminating further development.  As a result, the Company restructured its operations to conserve capital, which included a staff reduction of 40 employees and the write-off of certain intangible assets. The Company recorded charges for one-time employee termination benefits of $1.1 million and for intangible asset impairments of $0.3 million during the six months ended June 30, 2018.  Overhead costs associated with the former manufacturing facility of $0.6 million and $1.0 million were recognized as general and administrative expense during the three and six months ended June 30, 2018, respectively.

The following table summarizes the restructuring charges (in thousands) recorded for the six months ended June 30, 2019 and 2018:

 

 

 

Employee

 

 

 

 

 

 

 

 

 

 

 

Termination

 

 

Asset

 

 

 

 

 

2019

 

Benefits

 

 

Impairments

 

 

Total

 

Research and development

 

$

2,018

 

 

$

 

 

$

2,018

 

General and administrative

 

 

70

 

 

 

 

 

 

70

 

 

 

$

2,088

 

 

$

 

 

$

2,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

 

 

 

 

 

 

 

 

 

 

 

Termination

 

 

Asset

 

 

 

 

 

2018

 

Benefits

 

 

Impairments

 

 

Total

 

Research and development

 

$

272

 

 

$

267

 

 

$

539

 

Manufacturing and production

 

 

735

 

 

 

 

 

 

735

 

General and administrative

 

 

117

 

 

 

 

 

 

117

 

 

 

$

1,124

 

 

$

267

 

 

$

1,391

 

 

 

The following table sets forth the accrual activity for employee termination benefits for the six months ended June 30, 2019 (in thousands).

 

 

 

 

 

 

Balance at December 31, 2018

 

$

 

     Accruals

 

 

2,088

 

     Payments

 

 

(1,992

)

Balance at June 30, 2019

 

$

96

 

 

 

 

13.

MERGER AGREEMENT

On June 2, 2019, the Company 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, o