VICAL INC, 10-K filed on 3/15/2018
Annual Report
v3.8.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2017
Feb. 28, 2018
Jun. 30, 2017
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2017    
Document Fiscal Year Focus 2017    
Document Fiscal Period Focus FY    
Trading Symbol VICL    
Entity Registrant Name VICAL INC    
Entity Central Index Key 0000819050    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   21,812,807  
Entity Public Float     $ 24,080,765
v3.8.0.1
Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2017
Dec. 31, 2016
Current assets:    
Cash and cash equivalents $ 24,841 $ 5,069
Marketable securities, available-for-sale 35,658 30,552
Restricted cash 192 3,311
Deferred contract costs 10,502 5,513
Receivables and other assets 5,124 3,422
Total current assets 76,317 47,867
Long-term investments 2,209 2,046
Property and equipment, net 606 1,173
Intangible assets, net 703 810
Other assets 659 388
Total assets 80,494 52,284
Current liabilities:    
Accounts payable and accrued expenses 5,217 4,127
Deferred revenue 11,700 3,018
Total current liabilities 16,917 7,145
Long-term liabilities:    
Commitments and contingencies (Notes 6 and 7)
Stockholders’ equity:    
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued and outstanding 0 0
Common stock, $0.01 par value, 50,000 shares authorized, 21,802 and 11,052 shares issued and outstanding at December 31, 2017 and 2016, respectively 218 111
Additional paid-in capital 489,975 458,881
Accumulated deficit (426,738) (413,878)
Accumulated other comprehensive income 122 25
Total stockholders’ equity 63,577 45,139
Total liabilities and stockholders’ equity $ 80,494 $ 52,284
v3.8.0.1
Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]    
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 21,802,000 11,052,000
Common stock, shares outstanding 21,802,000 11,052,000
v3.8.0.1
Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Revenues:      
Contract revenue $ 13,401 $ 12,804 $ 18,860
License and royalty revenue 418 1,727 2,090
Total revenues 13,819 14,531 20,950
Operating expenses:      
Research and development 14,391 10,355 11,061
Manufacturing and production 6,479 6,291 10,927
General and administrative 6,335 7,062 8,366
Total operating expenses 27,205 23,708 30,354
Loss from operations (13,386) (9,177) (9,404)
Other income:      
Investment and other income, net 426 204 166
Net loss $ (12,960) $ (8,973) $ (9,238)
Basic and diluted net loss per share $ (1.01) $ (0.90) $ (1.01)
Weighted average shares used in computing basic and diluted net loss per share 12,888 10,019 9,175
v3.8.0.1
Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]      
Net loss $ (12,960) $ (8,973) $ (9,238)
Unrealized gain (loss) on available-for-sale and long-term marketable securities:      
Unrealized gain (loss) arising during holding period, net of tax benefit of $56, $0 and $32 for years ended December 31, 2017, 2016 and 2015, respectively 97 (15) 52
Other comprehensive gain (loss) 97 (15) 52
Total comprehensive loss $ (12,863) $ (8,988) $ (9,186)
v3.8.0.1
Statements of Comprehensive Loss (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]      
Unrealized gain (loss) arising during holding period, tax benefit $ 56 $ 0 $ 32
v3.8.0.1
Statements of Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Income/(Loss) [Member]
Beginning Balance at Dec. 31, 2014 $ 51,922 $ 91 $ 447,510 $ (395,667) $ (12)
Beginning Balance, shares at Dec. 31, 2014   9,033      
Net loss (9,238)     (9,238)  
Other comprehensive income (loss) 52       52
Issuance of common stock 775 $ 1 774    
Issuance of common stock, shares   86      
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes (20)   (20)    
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes, shares   35      
Non-cash compensation expense related to grant of equity based compensation 1,902   1,902    
Ending Balance at Dec. 31, 2015 45,393 $ 92 450,166 (404,905) 40
Ending Balance, shares at Dec. 31, 2015   9,154      
Net loss (8,973)     (8,973)  
Other comprehensive income (loss) (15)       (15)
Issuance of common stock 7,753 $ 18 7,735    
Issuance of common stock, shares   1,841      
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes (9) $ 1 (10)    
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes, shares   57      
Non-cash compensation expense related to grant of equity based compensation 990   990    
Ending Balance at Dec. 31, 2016 $ 45,139 $ 111 458,881 (413,878) 25
Ending Balance, shares at Dec. 31, 2016 11,052 11,052      
Net loss $ (12,960)     (12,960)  
Other comprehensive income (loss) 97   (100) 100 97
Issuance of common stock 17,956 $ 107 17,849    
Issuance of common stock, shares   10,704      
Issuance of pre-funded warrants 12,588   12,588    
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes 1   1    
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes, shares   46      
Non-cash compensation expense related to grant of equity based compensation 756   756    
Ending Balance at Dec. 31, 2017 $ 63,577 $ 218 $ 489,975 $ (426,738) $ 122
Ending Balance, shares at Dec. 31, 2017 21,802 21,802      
v3.8.0.1
Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:      
Net loss $ (12,960) $ (8,973) $ (9,238)
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization 793 1,117 1,159
Write-off of abandoned patents and licensed technology 0 374 230
Gain on sale of property and equipment 0 0 1
Compensation expense related to stock options and awards 756 990 1,902
Purchase of technology license with common stock 0 0 775
Changes in operating assets and liabilities:      
Deferred contract costs 4,989 5,428 (817)
Receivables and other assets 1,973 (840) 995
Accounts payable and accrued expenses 1,313 557 (1,415)
Deferred revenue 8,682 2,768 250
Deferred rent 223 633 432
Net cash used in operating activities (8,601) (8,388) (6,948)
Cash flows from investing activities:      
Maturities of marketable securities 31,429 30,652 20,183
Purchases of marketable securities 36,640 38,069 20,050
Purchases of property and equipment 80 255 72
Proceeds from the sale of property and equipment 0 0 3
Patent and licensed technology expenditures 0 0 53
Net cash (used in) provided by investing activities (5,291) (7,672) 11
Cash flows from financing activities:      
Net proceeds from issuance of common stock and pre-funded warrants 30,549 7,758 3
Payment of withholding taxes for net settlement of restricted stock units 4 14 23
Net cash provided by (used in) financing activities 30,545 7,744 (20)
Net increase (decrease) in cash, cash equivalents and restricted cash 16,653 (8,316) (6,957)
Cash, cash equivalents and restricted cash at beginning of year 8,380 16,696 23,653
Cash, cash equivalents and restricted cash at end of year $ 25,033 $ 8,380 $ 16,696
v3.8.0.1
Organization and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Organization and Summary of Significant Accounting Policies

1. Organization and Summary of Significant Accounting Policies

Organization and Business Activity

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 its research and development programs. The Company researches and develops biopharmaceutical products, including those based on its patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases.

All of the Company’s potential products are in research and development phases. No revenues have been generated from the sale of any such products, nor are any such revenues expected for at least the next several years. The Company earns revenue from research and development agreements with pharmaceutical collaborators and from contract manufacturing agreements. Most of the Company’s product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing. All product candidates that advance to clinical testing will require regulatory approval prior to commercial use, and will require significant costs for commercialization. There can be no assurance that the Company’s research and development efforts, or those of its collaborators, will be successful. The Company expects to continue to incur substantial losses and not generate positive cash flows from operations for at least the next several years. No assurance can be given that the Company can generate sufficient product revenue to become profitable or generate positive cash flows from operations.

Basis of Presentation

These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.

On May 25, 2016, the Company amended its certificate of incorporation to effect a one-for-ten (1:10) reverse stock split.  This reverse stock split became effective as of the close of business on May 26, 2016.  The reverse stock split had no effect on the par value of its common stock and did not reduce the number of authorized shares of common stock but reduced the number of outstanding shares of common stock by the one-for-ten ratio. Accordingly, the outstanding shares, stock award disclosures, net loss per share, and other per share disclosures for all periods presented have been retrospectively adjusted to reflect the impact of this reverse stock split.

The reverse stock split resulted in a proportionate adjustment to the per share exercise price and the number of shares of common stock issuable upon the exercise of outstanding stock options, the number of shares of common stock issuable upon the vesting of restricted stock units, or RSUs, and the number of shares of common stock eligible for issuance under the Company’s stock incentive plan.  No fractional shares were issued in connection with the reverse stock split.  Each stockholder’s percentage ownership and proportional voting power generally remained unchanged as a result of the reverse stock split.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make informed estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes. Actual results could differ materially from those estimates.

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 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.

Restricted Cash

The Company was required to maintain a letter of credit securing an amount equal to twelve months of the then current monthly installment of base rent for the original term of the lease for its facilities, which ended on August 31, 2017. In July 2016, the term of the lease was extended for 16 months through December 2018.  During the extended term, the Company is required to maintain a letter of credit securing an amount equal to $0.2 million. At December 31, 2017 and 2016, restricted cash of $0.2 million and $3.3 million, respectively, was pledged as collateral for the letter of credit.     

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash equivalents, marketable securities and receivables. The Company invests its excess cash in debt instruments of financial institutions and of corporations with above average credit ratings, in U.S. government obligations, and in money market funds and certificates of deposits at financial institutions.

Property and Equipment

Property and equipment is recorded at cost and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Assets acquired pursuant to capital lease arrangements and leasehold improvements are amortized using the straight-line method over the shorter of the life of the remaining lease term or the remaining useful life of the asset. Manufacturing equipment has estimated useful lives of 5 to 10 years. All other property and equipment have estimated useful lives of 3 to 5 years. Maintenance and repairs of property and equipment are expensed as incurred.

Intangible Assets

Intangible assets include certain costs related to patent applications. The Company capitalizes license fees paid to acquire access to proprietary technology if the technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized using the straight-line method over the estimated useful life of the technology. Certain costs related to patent applications are amortized over the estimated economic lives of the patents, which is generally 20 years and typically commences at the time the patent application is filed. As of December 31, 2017, the weighted average amortization period of capitalized patent costs is approximately 8 years. Amortization expense for licensed technology and capitalized patent cost is included in research and development expenses.

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment at least annually, quarterly for intangible assets, and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the asset over the asset’s estimated fair value and the loss recognized in current earnings. The Company recognized research and development expense of approximately $0.0 million, $0.4 million and $0.2 million for the years ended December 31, 2017, 2016 and 2015, respectively, related to patents for which the value was deemed to be impaired.  

Revenue Recognition

Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Certain of the Company’s revenue is generated through manufacturing contracts and stand-alone license agreements.

Contract Manufacturing Revenue

Revenue associated with contract manufacturing services is recognized once the service has been rendered and/or upon shipment (or passage of title) of the product to the customer.  On occasion, the Company recognizes revenue on a “bill-and-hold” basis. Revenue is recognized for such “bill-and-hold” arrangements in accordance with the authoritative guidance, which requires, among other things, the existence of a valid business purpose for the arrangement, that the “bill-and-hold” arrangement is at the request of the customer, that title and risk of ownership pass to the customer, that the product is complete and ready for shipment, a fixed delivery date that is reasonable and consistent with the customer’s business practices, that the product has been separated from the Company’s inventory, and that no further performance obligations by the Company exist.

Multiple-element arrangements

The Company has entered into multiple-element arrangements. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. The delivered item(s) must have value to the customer on a standalone basis and, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control.

A delivered item is considered a separate unit of accounting when the delivered item has value to the partner on a standalone basis based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of research expertise in this field in the general marketplace. Arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence, or VSOE, of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price exists, the Company uses its best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement. If facts and circumstances dictate that the license has standalone value from the undelivered items, which generally include research and development services and the manufacture of drug products, the license is identified as a separate unit of accounting and the amounts allocated to the license are recognized upon the delivery of the license, assuming the other revenue recognition criteria have been met. However, if the amounts allocated to the license through the relative selling price allocation exceed the upfront license fee, the amount recognized upon the delivery of the license is limited to the upfront fee received. If facts and circumstances dictate that the license does not have standalone value, the transaction price, including any upfront license fee payments received, are allocated to the identified separate units of accounting and recognized as those items are delivered.

The terms of the Company’s partnership agreements provide for milestone payments upon achievement of certain regulatory and commercial events. Under the Milestone Method, the Company recognizes consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the following three criteria: 1) The consideration is commensurate with either the entity’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, 2) The consideration relates solely to past performance, and 3) The consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the Company.

Contract Services, Grant and Royalty Revenue

The Company recognizes revenues from contract services and federal government research grants during the period in which the related expenditures are incurred and related payments for those services are received or collection is reasonably assured. Royalties to be received based on sales of licensed products by the Company’s partners incorporating the Company’s licensed technology are recognized when received.

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.

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. Manufacturing expenses related to manufacturing contracts are deferred and expensed when the related revenue is recognized. Deferred contract costs at December 31, 2017 and 2016 were $10.5 million and $5.5 million, respectively. 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 the assumed issuance of common stock under RSUs, as the effect would be antidilutive. Common stock equivalents of 1.8 million, 7,350 and 33,720 for the years ended December 31, 2017, 2016 and 2015, respectively, were excluded from the calculation because of their antidilutive effect.

Fair Value of Financial Instruments

The carrying amounts of cash, cash equivalents, restricted cash, marketable securities, receivables, accounts payable and accrued expenses at December 31, 2017 and 2016, are considered to approximate fair value because of the short term nature of those items.

Income Taxes

The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefits recorded by the Company as of the date of adoption in 2007. There are no unrecognized tax benefits included in the balance sheets that would, if recognized, affect the effective tax rate.

Deferred income taxes result primarily from temporary differences between financial and tax reporting. Deferred tax assets and liabilities are determined based on the difference between the financial statement bases and the tax bases of assets and liabilities using enacted tax rates. A valuation allowance is established to reduce a deferred tax asset to the amount that is expected more likely than not to be realized.

The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017.   The Act reduces the U.S. federal corporate tax rate from 35% to 21%.  At December 31, 2017, the Company had not completed its accounting for the tax effects of enactment of the Act; however, in certain cases, the Company has made a reasonable estimate of the effects on its existing deferred tax balances.  In other cases, the Company has not been able to make a reasonable estimate and will continue to make and refine calculations as additional analysis is completed. In addition, estimates may also be affected as the Company gains a more thorough understanding of the Act.

Comprehensive Loss

Comprehensive loss consists of net loss and certain changes in equity that are excluded from net loss. Comprehensive loss for the years ended December 31, 2017, 2016 and 2015, has been reflected in the accompanying Statements of Comprehensive Loss. Accumulated other comprehensive income (loss), which is included in stockholders’ equity, represents unrealized gains and losses on marketable securities.

Business Segments

The Company operates in one business segment, which is within the United States, and is dedicated to research and development of DNA delivery technology.

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 expense includes amortization related to stock option awards based on the estimated grant date fair value. The compensation expense related to stock options is recognized ratably over the vesting period of the options. 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. Stock-based compensation expense related to stock options and RSUs for the years ended December 31, 2016 and 2015 includes an estimate of 8.75% for forfeitures. Effective January 1, 2017, the Company adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” which allowed the Company to change its methodology for recording forfeitures from estimated forfeitures to actual forfeitures and recorded an adjustment to beginning retained earnings of $0.1 million. 

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton valuation model using the assumptions noted in the following table. The expected life of options is based on the Company’s observed historical exercise patterns. The expected volatility of stock options is based upon the historical volatility of the Company’s stock commensurate with the expected life of the option. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

Assumed risk-free interest rate

 

1.86%

 

 

1.44%

 

 

1.34%

 

Assumed volatility

 

72%

 

 

72%

 

 

68%

 

Average expected option life

 

4.5 years

 

 

4.5 years

 

 

4.5 years

 

Expected dividend yield

 

 

 

 

 

 

 

 

 

 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance outlines a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Major provisions include determining which goods and services are distinct and require separate accounting (performance obligations), how variable consideration (which may include change orders and claims) is recognized, whether revenue should be recognized at a point in time or over time and ensuring the time value of money is considered in the transaction price. The guidance allows for either full retrospective or modified retrospective adoption and will become effective for the Company in the first quarter of 2018.

The Company has adopted the new standard effective January 1, 2018 using the modified retrospective method which will result in a cumulative effect adjustment as of the date of adoption.  As it relates to process validation lots and stock piling lots completed but not delivered as of December 31, 2017 at the request of a customer, in applying the modified retrospective method, the Company concluded that the criteria for transfer of control were met prior to January 1, 2018 and as a result, the Company expects to record an adjustment as of January 1, 2018 to recognize previously deferred revenue of $11.4 million and previously deferred contract costs of $10.5 million, with an offset to increase January 1, 2018 beginning retained earnings by $0.9 million.

In February 2016, the FASB issued ASU 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 will require both lessees and lessors to disclose certain key information about lease transactions.  The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is evaluating the effect that the adoption of the new guidance will have on its financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”  The amended guidance simplifies the accounting for share-based payment transactions.  The amended guidance is effective for annual periods beginning after December 15, 2016, with early adoption permitted.  The adoption of this standard in the first quarter of 2017 allowed the Company to change its methodology for recording forfeitures from estimated forfeitures to actual forfeitures and the Company recorded an adjustment to beginning retained earnings of $0.1 million in January 2017.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” that changes the presentation of restricted cash and cash equivalents on the statement of cash flows.  Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  This new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted.  The Company adopted this standard in the third quarter of 2017 on a retrospective basis and has presented the cash flow statement in accordance with the new guidance.  The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures.

v3.8.0.1
Short-Term Marketable Securities
12 Months Ended
Dec. 31, 2017
Investments Debt And Equity Securities [Abstract]  
Short-Term Marketable Securities

2. Short-Term Marketable Securities

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

 

December 31, 2017

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Market

Value

 

U.S. treasuries

 

$

34,462

 

 

$

 

 

$

29

 

 

$

34,433

 

Certificates of deposit

 

 

1,225

 

 

 

 

 

 

 

 

 

1,225

 

 

 

$

35,687

 

 

$

 

 

$

29

 

 

$

35,658

 

 

December 31, 2016

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Market

Value

 

U.S. treasuries

 

$

23,295

 

 

$

 

 

$

18

 

 

$

23,277

 

Certificates of deposit

 

 

7,275

 

 

 

 

 

 

 

 

 

7,275

 

 

 

$

30,570

 

 

$

 

 

$

18

 

 

$

30,552

 

 

At December 31, 2017, none of these securities were scheduled to mature outside of one year. There were no net realized gains (losses) on sales of available-for-sale securities for the years ended December 31, 2017, 2016 and 2015. None of these investments have been in a continuous unrealized loss position for more than 12 months as of December 31, 2017 and 2016.

v3.8.0.1
Long-Term Investments
12 Months Ended
Dec. 31, 2017
Investments All Other Investments [Abstract]  
Long-Term Investments

3. Long-Term Investments

As of December 31, 2017, the Company held an auction rate security with a par value of $2.5 million. This auction rate security has not experienced a successful auction since the liquidity issues experienced in the global credit and capital markets in 2008. As a result the security is classified as a long-term investment as it is scheduled to mature in 2038. The security was rated A- by Standard and Poor’s as of December 31, 2017. The security continues to pay interest according to its stated terms.

The valuation of the Company’s auction rate security is subject to uncertainties that are difficult to predict. The fair value of the security is estimated utilizing a discounted cash flow analysis. The key drivers of the valuation model include the expected term, collateral underlying the security investment, the creditworthiness of the counterparty, the timing of expected future cash flows, discount rates, liquidity and the expected holding period. The security was also compared, when possible, to other observable market data for securities with similar characteristics. As of December 31, 2017, the inputs used in the Company’s discounted cash flow analysis assumed an interest rate of 3.92%, an estimated redemption period of five years and a discount rate of 1.0%.  Based on the valuation of the security, the Company has recognized cumulative losses of $0.4 million as of December 31, 2017, none of which were realized during the year ended December 31, 2017. The losses, when recognized, are included in investment and other income. The market value of the security has partially recovered. Included in other comprehensive (loss) income are unrealized gains (losses) of $108,000, $(6,000) and $48,000 for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, the Company had recorded cumulative unrealized gains of $0.4 million. The resulting carrying value of the auction rate security at December 31, 2017, was $2.2 million. Any future decline in market value may result in additional losses being recognized.

v3.8.0.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value Measurements

4. 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 for which there is little or no market data, which require the reporting entity to develop its own assumptions.

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

 

December 31, 2017

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Certificates of deposit

 

$

1,225

 

 

$

 

 

$

 

 

$

1,225

 

Money market funds

 

 

21,760

 

 

 

 

 

 

 

 

 

21,760

 

U.S. treasuries

 

 

34,433

 

 

 

 

 

 

 

 

 

34,433

 

Auction rate securities

 

 

 

 

 

 

 

 

2,209

 

 

 

2,209

 

 

 

$

57,418

 

 

$

 

 

$

2,209

 

 

$

59,627

 

 

 

 

Fair Value Measurements

 

December 31, 2016

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Certificates of deposit

 

$

7,275

 

 

$

 

 

$

 

 

$

7,275

 

Money market funds

 

 

1,171

 

 

 

 

 

 

 

 

 

1,171

 

U.S. treasuries

 

 

23,277

 

 

 

 

 

 

 

 

 

23,277

 

Auction rate securities

 

 

 

 

 

 

 

 

2,046

 

 

 

2,046

 

 

 

$

31,723

 

 

$

 

 

$

2,046

 

 

$

33,769

 

 

The Company’s investments in U.S. treasury securities, certificates of deposit and money market funds are valued based on publicly available quoted market prices for identical securities as of December 31, 2017. The Company determines the fair value of 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. The Company did not adjust any of the valuations received from these third parties with respect to any of its level 2 securities at December 31, 2017. The valuation of the Company’s investment in auction rate securities is more fully described in Note 3.

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, 2016

 

$

2,046

 

Total net realized gains included in earnings

 

 

 

Total net unrealized gains included in other comprehensive income

 

 

163

 

Net transfers in and/out of Level 3

 

 

 

Balance at December 31, 2017

 

$

2,209

 

Amount of total losses for the period included in net loss attributable to the change in unrealized gains or losses  relating to assets still held at December 31, 2017

 

$

 

 

Total cumulative unrealized losses of $0.3 million relate to Level 3 assets still held as of December 31, 2017, none of which were recognized during the years ended December 31, 2017, 2016 and 2015. The losses, when recognized, are included in investment and other income.

 

v3.8.0.1
Other Balance Sheet Accounts
12 Months Ended
Dec. 31, 2017
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Other Balance Sheet Accounts

5. Other Balance Sheet Accounts

Property and equipment consisted of the following at December 31 (in thousands):

 

 

 

2017

 

 

2016

 

Equipment

 

$

16,908

 

 

$

17,043

 

Leasehold improvements

 

 

8,144

 

 

 

8,144

 

 

 

 

25,052

 

 

 

25,187

 

Less accumulated depreciation and amortization

 

 

(24,446

)

 

 

(24,014

)

 

 

$

606

 

 

$

1,173

 

 

Depreciation and amortization of equipment and leasehold improvements for the years ended December 31, 2017, 2016 and 2015, was $0.6 million, $0.9 million and $0.9 million, respectively.

Intangible assets consisted of the following at December 31 (in thousands):

 

 

 

2017

 

 

2016

 

Patent application costs

 

$

1,500

 

 

$

1,500

 

Accumulated amortization patent costs

 

 

(797

)

 

 

(690

)

 

 

$

703

 

 

$

810

 

 

Amortization of licensed technology rights and patent application costs for the years ended December 31, 2017, 2016 and 2015, was $0.1 million, $0.1 million and $0.2 million, respectively. Estimated annual amortization for these assets is $0.1 million for each of the years in the period from 2018 to 2022, and $0.2 million being recognized thereafter.

Accounts payable and accrued expenses consisted of the following at December 31 (in thousands):

 

 

 

2017

 

 

2016

 

Employee compensation

 

$

2,654

 

 

$

2,518

 

Clinical trial accruals

 

 

1,017

 

 

 

446

 

Accounts payable

 

 

1,213

 

 

 

326

 

Deferred rent

 

 

-

 

 

 

223

 

Other accrued liabilities

 

 

333

 

 

 

614

 

 

 

$

5,217

 

 

$

4,127

 

 

v3.8.0.1
Significant Contract, License and Royalty Agreements
12 Months Ended
Dec. 31, 2017
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Significant Contract, License and Royalty Agreements

6. Significant Contract, License and Royalty Agreements

Contracts

IPPOX

In April 2015, the Company entered into a $4.1 million contract with the IPPOX Foundation to manufacture HIV-antigen plasmid DNA as a component of vaccine regimens to be evaluated in clinical trials for the prevention of HIV infection. IPPOX is a Swiss non-profit foundation that participates in the conduct of HIV vaccine clinical trials under the auspices of the Pox-Protein Public-Private Partnership, or P5, funded by the Bill & Melinda Gates Foundation and the U.S. National Institute of Allergy and Infectious Diseases, or NIAID.  These plasmids were shipped and the related revenue of $4.1 million was recognized in December 2015. This contract builds upon the Company’s 2010 agreement with IPPOX to manufacture plasmid DNA for HIV vaccine clinical trials.

Astellas

In July 2011, the Company entered into license agreements with Astellas, granting Astellas exclusive, worldwide, royalty-bearing licenses under certain of the Company’s know-how and intellectual property to develop and commercialize certain products containing plasmids encoding certain forms of glycoprotein B and/or phosphoprotein 65.   Under the terms of the license agreements, Astellas paid a nonrefundable upfront license fee of $25.0 million. In 2012, the Company received a $10.0 million milestone payment upon finalization of the trial design for a Phase 3 registration trial of ASP0113 in hematopoietic stem cell transplant recipients.

The Company identified the deliverables at the inception of the agreements. The Company has determined that the license and related know-how, the development and regulatory services and the drug product supply individually represent separate units of accounting, because each deliverable has standalone value. The best estimated selling prices for these units of accounting was determined based on market conditions, the terms of comparable collaborative arrangements for similar technology in the pharmaceutical and biotechnology industry and entity-specific factors, such as the terms of the Company’s previous collaborative agreements, the Company’s pricing practices and pricing objectives and the nature of the research and development services to be performed for the partner. The arrangement consideration was allocated to the deliverables based on the relative selling price method.

The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable; therefore, the amount allocated to the licenses was limited to the extent of cash received. As a result, during the years ended December 31, 2017, 2016 and 2015, the Company recognized $0.3 million, $1.5 million and $1.8 million, respectively, related to the license fee and know-how. The Company will recognize the amounts allocated to research and development services as revenues under the agreements as the related services are delivered and as reimbursements are received. During the years ended December 31, 2017, 2016 and 2015, the Company recognized $12.9 million, $10.1 million and $8.7 million, respectively, of revenue related to contract services delivered. The Company will recognize as revenue the amounts allocated to the sales of drug product when the sale of that drug product has met all required specifications and the related title and risk of loss and damages have passed to Astellas. During the years ended December 31, 2017, 2016 and 2015, the Company recognized $0.0 million, $2.4 million and $6.0 million, respectively, of revenue related to drug product delivered.

In January 2018, Astellas announced the results from a Phase 3 trial of ASP0113 in approximately 515 CMV seropositive subjects undergoing HCT procedures. Top-line results from the Phase 3 study demonstrated that the trial did not meet its primary endpoint in CMV end organ disease. Based on these results, Astellas has informed us that they do not plan to pursue further clinical development of ASP0113 and has terminated the license agreement.

In-licensing Agreements

Astellas

In March 2015, the Company entered into a license agreement with Astellas which grants to the Company exclusive worldwide license to develop and commercialize a novel antifungal, VL-2397.  As consideration for the rights under the license, the Company issued 86,121 shares of our common stock to Astellas and made an up-front payment of $250,000 in cash. The License Agreement provides for potential development, regulatory and sales milestone payments totaling up to $99.0 million, the vast majority of which are payable upon achievement of commercial and sales milestones, and single-digit royalties on net sales of commercial products. The Company is responsible for the worldwide development, manufacturing and commercialization of licensed products, at the Company’s cost, and we are required to use commercially reasonable efforts with respect to such development and commercialization activities.

The license agreement, unless terminated earlier, will continue until expiration of Vical’s royalty obligations with respect to licensed products. Either party may terminate the license agreement earlier if the other party materially breaches the agreement and does not cure the breach within a specified notice period, or upon the other party’s insolvency.  Astellas may terminate the license agreement earlier if Vical or any of its affiliates or sublicensees oppose or challenge any of the licensed patents. Vical may terminate the license agreement on a country-by-country basis for reasonable scientific, regulatory, commercial, financial, ethical or other reasons.

CytRx

In 2001, the Company entered into an exclusive agreement with CytRx which grants to the Company the rights to use or sublicense CytRx’s poloxamer technology to enhance viral or non-viral delivery of polynucleotides in all preventive and therapeutic human and animal health applications, including CMV. The agreement excludes applications for four infectious disease vaccine targets that had been licensed to Merck and prostate-specific membrane antigen. In addition, the agreement permits the Company’s use of CytRx’s technology to enhance the delivery of proteins in prime-boost vaccine applications that involve the use of polynucleotides. As part of the agreement, the Company made a $3.8 million up-front payment and agreed to make potential future milestone and royalty payments. The license fee is fully amortized as of December 31, 2013. The Company paid CytRx $0.1 million under the agreement for each of the years ended December 31, 2017, 2016 and 2015.

Milestone Payments

The Company may be required to make future payments to its licensors based on the achievement of milestones set forth in various in-licensing agreements. In most cases, these milestone payments are based on the achievement of development or regulatory milestones, including the exercise of options to obtain licenses related to specific disease targets, commencement of various phases of clinical trials, filing of product license applications, approval of product licenses from the FDA or a foreign regulatory agency, and the first commercial sale of a related product. Payment for the achievement of milestones under the Company’s in-license agreements is highly speculative and subject to a number of contingencies.

The aggregate amount of additional milestone payments that the Company could be required to pay under its active in-license agreements in place at December 31, 2017, is approximately $99.0 million. These amounts assume that all remaining milestones associated with the milestone payments are met. In the event that product license approval for any of the related products is obtained, the Company may be required to make royalty payments in addition to these milestone payments. Although the Company believes that some of the milestones contained in its in-license agreements may be achieved, it is highly unlikely that a significant number of them will be achieved. Because the milestones are contingent the Company is not in a position to reasonably estimate how much, if any, of the potential milestone payments will ultimately be paid. Additionally, under the in-license agreements, many of the milestone events are related to progress in clinical trials which the Company estimates will take several years to achieve.

v3.8.0.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2017
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

7. Commitments and Contingencies

Facility Leases

The Company is currently leasing its facility which has approximately 68,400 square feet of manufacturing, research laboratory and office space. In July 2016, the term of the lease was extended for 16 months through December 2018. The Company has the option to renew the lease for three additional five-year periods beyond its expiration.

The lease related to the facility is treated as an operating lease. The minimum annual rent on the facility is subject to increases specified in the lease. The Company is also required to pay taxes, insurance and operating costs under the facility lease. The Company recognizes level monthly rent for its facility lease over the entire lease period. The monthly rent is calculated by adding the total rent payments over the entire lease period and then dividing the result by the total term of the lease. The $0.4 million difference between the base rent paid and the rent expensed through December 31, 2017 is recorded as prepaid rent in the balance sheet. Rent expense for the years ended December 31, 2017, 2016 and 2015 was $2.4 million, $2.6 million, and $2.8 million, respectively.

At December 31, 2017, future minimum rental payments due under the Company’s facilities lease were as follows (in thousands):

 

Year ending December 31,

 

 

 

 

2018

 

$

2,411

 

2019

 

 

 

2020

 

 

 

2021

 

 

 

2022

 

 

 

Thereafter

 

 

 

Total lease payments

 

$

2,411

 

 

Other 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.

v3.8.0.1
Stockholders' Equity
12 Months Ended
Dec. 31, 2017
Equity [Abstract]  
Stockholders' Equity

8. 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 $95.7 million from the sale of common stock, preferred stock, debt securities and/or warrants. Specific terms of any offering under the shelf registration statements 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.  Net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, totaled $26.4 million.  The pre-funded warrants have an exercise price of $0.01 per share and are immediately exercisable and may be exercised at any time.  

In October 2016, the Company entered into an At-The-Market Issuance Sales Agreement, or the ATM Agreement, with IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.), or BP, under which the Company may issue and sell up to $10.0 million of shares of its common stock from time to time. As of December 31, 2017, there was $5.7 million of our common stock available to be sold under the ATM Agreement.  Under the ATM Agreement, the Company may deliver placement notices that will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, any limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the ATM Agreement, BP may sell the shares only by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including without limitation sales made directly through the Nasdaq Capital Market, on any other existing trading market for our common stock or to or through a market maker. BP will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares in accordance with the terms of the ATM Agreement and any applicable placement notice. The ATM Agreement may be terminated by the Company upon prior notice to BP or by BP upon prior notice to us, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse effect on the Company. The Company has no obligation to sell any shares under the ATM Agreement, and both the Company and BP may at any time suspend the sale of shares under the ATM Agreement. For the twelve months ended December 31, 2017, we sold 1,509,370 shares under the ATM Agreement and received gross proceeds of $4.3 million.

On August 1, 2016, the Company entered into a stock purchase agreement with AnGes, Inc., or AnGes, an existing stockholder, to purchase 1,841,420 shares of the Company’s common stock in a private placement. The shares were sold at a price of $4.24 per share. Gross proceeds totaled approximately $7.8 million.   The private placement closed on August 2, 2016.  The shares are subject to a two-year lock-up period during which they may not be sold and AnGes has agreed to not increase its ownership position beyond 19.9% and to refrain from taking certain other actions with respect to the Company’s stock, subject to certain conditions. AnGes is entitled to have a representative attend meetings of the Company’s Board of Directors in a non-voting capacity and may in the future be entitled to have a representative appointed to the Company’s Board of Directors, subject to certain conditions. AnGes has also agreed to vote its shares in accordance with the recommendations of the Company’s Board of Directors for so long as it continues to hold a specified percentage of the Company’s outstanding common stock. The Company also agreed under certain circumstances in the future to register the private placement shares for resale by AnGes.

In March 2015, the Company entered into license and stock purchase agreements with Astellas, granting the Company an exclusive worldwide license to develop and commercialize a novel antifungal, VL-2397, formally known as ASP2397.  VL-2397 is a potential therapeutic for invasive fungal infections, including invasive aspergillosis.  Astellas received 86,121 shares of unregistered Company common stock and $250,000 in cash.  The $250,000 cash payment and the fair value of the common stock issued of $775,094 were included in research and development expenses during the year ended December 31, 2015.

v3.8.0.1
Stock Based Compensation
12 Months Ended
Dec. 31, 2017
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock Based Compensation

9. Stock Based Compensation

The Company has a stock-based compensation plan which is described below. Total stock-based compensation expense of $0.8 million, $1.0 million and $1.9 million was recognized for the years ended December 31, 2017, 2016 and 2015, respectively. Total stock-based compensation expense was allocated to research and development, manufacturing and production and general and administrative expense as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Research and development

 

$

239

 

 

$

290

 

 

$

392

 

Manufacturing and production

 

 

124

 

 

 

111

 

 

 

159

 

General and administrative

 

 

393

 

 

 

589

 

 

 

1,351

 

Total stock-based compensation expense

 

$

756

 

 

$

990

 

 

$

1,902

 

Cash received from RSU grants

 

$

 

 

$

1

 

 

$

3

 

 

Stock Incentive Plan

The Company has a stock incentive plan, under which 2,870,000 shares of common stock, subject to adjustment as provided in the plan, are reserved for issuance to employees, non-employee directors and consultants of the Company. As of December 31, 2017 there were 2,442,613 shares reserved for future issuance under the plan. The plan provides for the grant of incentive and nonstatutory stock options and the direct award or sale of shares, including restricted stock. The exercise price of stock options must equal at least the fair market value of the underlying common stock on the date of grant. The maximum term of options granted under the plan is ten years. Except for annual grants to non-employee directors which vest at the next annual meeting, options generally vest 25% on the first anniversary of the date of grant, with the balance vesting quarterly over the remaining three years. The plan also limits the number of options that may be granted to any plan participant in a single calendar year to 1,300,000 shares.

The Company has granted RSUs to executive officers, other executives, and employees under the stock incentive plan. In 2015, the Company granted RSUs covering an aggregate of 78,843 shares of common stock. There were no RSUs granted in 2017 or 2016. These RSUs generally vest 25% on the first anniversary date of the grant, with the remaining rights vesting quarterly over the remaining three years and, once vested, allow the participants to acquire the underlying shares of common stock at par value. The participants are not entitled to sell or transfer any unvested RSUs and are not entitled to vote or receive dividends on any shares of common stock covered by the RSUs prior to the acquisition of such shares. Granted but unvested RSUs are forfeited at termination of employment. Compensation expense related to the RSUs for the years ended December 31, 2017, 2016, and 2015 was approximately $0.1 million, $0.3 million and $0.8 million, respectively.

The following table summarizes stock option transactions under the Company’s stock incentive plans for the years ended December 31, 2017, 2016 and 2015:

 

 

 

Shares

 

 

Weighted Average

Exercise Price

 

Outstanding December 31, 2014

 

 

859,443

 

 

$

26.58

 

Granted

 

 

235,675

 

 

$

10.06

 

Exercised

 

 

 

 

$

 

Forfeited

 

 

(149,534

)

 

$

21.51

 

Outstanding December 31, 2015

 

 

945,584

 

 

$

23.27

 

Granted

 

 

339,975

 

 

$

3.51

 

Exercised

 

 

 

 

$

 

Forfeited

 

 

(82,758

)

 

$

24.37

 

Outstanding December 31, 2016

 

 

1,202,801

 

 

$

17.61

 

Granted

 

 

590,200

 

 

$

2.30

 

Exercised

 

 

 

 

$

 

Forfeited

 

 

(68,330

)

 

$

22.17

 

Outstanding December 31, 2017

 

 

1,724,671

 

 

$

12.19

 

Vested and unvested options expected to vest as of

   December 31, 2017

 

 

1,724,671

 

 

$

12.19

 

 

The number of underlying shares and weighted average exercise price of options exercisable at December 31, 2017, 2016 and 2015, were 1,005,400 shares at $18.72, 808,639 shares at $23.43, and 688,468 shares at $26.81, respectively. The weighted average remaining contractual term of options outstanding and options exercisable at December 31, 2017, was 6.7 years and 5.3 years, respectively. The weighted average remaining contractual term of vested and unvested options expected to vest at December 31, 2017, was 6.7 years. The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2017 was $0.0 million and $0.0 million, respectively. As of December 31, 2017, the total unrecognized compensation cost related to unvested options was $0.4 million, which is expected to be recognized over a weighted-average period of 1.34 years.

The weighted average grant-date fair value of options granted during the years ended December 31, 2017, 2016 and 2015, was $1.21, $1.85 and $5.08 per share, respectively. There were no options exercised during the years ended December 31, 2017, 2016 or 2015.  At December 31, 2017, there were 668,927 shares available for grant under the Company’s stock incentive plans.

A summary of the outstanding RSUs as of December 31, 2017, and changes during the year then ended is presented below:

 

 

 

Shares

 

 

Weighted Average

Grant-Date Fair

Value per Share

 

Unvested at December 31, 2016

 

 

44,506

 

 

$

11.38

 

Granted

 

 

 

 

$

 

Vested

 

 

(23,302

)

 

$

11.23

 

Cancelled

 

 

 

 

$

 

Unvested at December 31, 2017

 

 

21,204

 

 

$

10.43

 

 

The aggregate grant-date fair value of RSUs granted during the year ended December 31, 2015 was $0.8 million. There were no RSUs granted in 2017 or 2016.  As of December 31, 2017, the total unrecognized compensation cost related to unvested RSUs was $33,000, which is expected to be recognized over a weighted average period of 1.02 years. The aggregate grant-date fair value of shares subject to RSUs vested during the years ended December 31, 2017, 2016 and 2015, was $0.3 million, $0.8 million and $1.0 million, respectively. As of December 31, 2017, there were 27,810 shares of common stock underlying RSUs that were fully vested but the issuance of such shares has been deferred.

v3.8.0.1
Related Party Transaction
12 Months Ended
Dec. 31, 2017
Related Party Transactions [Abstract]  
Related Party Transaction

10. 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. In exchange for the payment, AnGes received an option to negotiate exclusive rights in Japan related to the program. The parties also agreed to share the costs of prosecuting and maintaining intellectual property rights arising from the research program after such costs reach a specified limit. The decision to sell, license or sublicense rights is a contingent event within the Company’s control.  There are no guarantees for any outcomes of the research activities, no purchase obligations required by the Company and no debt or equity arrangements connected with the research activities.  There are no other written or oral side agreements between the Company and AnGes that indicate that the funding of the research activities will be repaid.  The Company is responsible for the conduct of the research activities. The upfront payment received was deferred and will be recognized as contract revenue as the related research costs are incurred. The deferred revenue is classified as a current liability. During the year ended December 31, 2017 the Company recognized $0.5 million of contract revenue related to this collaboration agreement.

v3.8.0.1
Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

11. Income Taxes

At December 31, 2017, the Company had deferred tax assets of $83.6 million. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation allowance has been established to offset the net deferred tax asset. Pursuant to Sections 382 and 383 of the Internal Revenue Code, or IRC, annual use of the Company’s net operating loss and credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company determined that such an ownership change occurred on December 29, 2006, as defined in the provisions of Section 382 of the IRC as a result of various stock issuances used to finance the Company’s operations. Such ownership change resulted in annual limitations on the utilization of tax attributes, including net operating loss carryforwards and tax credits. The Company estimates that $101.2 million of its net operating loss carryforwards were effectively eliminated under Section 382 for federal tax purposes. A portion of the remaining net operating losses limited by Section 382 become available each year. The Company also estimates that $12.2 million of its research and development credits and other tax credits were effectively eliminated under Section 383 for federal purposes.  The company’s Section 382 analysis was completed through December 31, 2011. The Company has not, however, conducted a Section 382 study for any periods subsequent to December 31, 2011, and as such, the Company cannot provide any assurance that a change in ownership within the meaning of the IRC has not occurred since that date. There is a risk that additional changes in ownership could have occurred since that date. If a change in ownership were to have occurred, additional net operating loss and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.

Deferred income taxes result primarily from temporary differences between financial and tax reporting.  Deferred tax assets and liabilities are determined based on the difference between the financial statement bases and the tax bases of assets and liabilities using enacted tax rates.  A valuation allowance is established to reduce deferred tax assets to the amount that is expected more likely than not to be realized.

         

 

Significant components of the Company’s deferred tax assets as of December 31, 2017 and 2016 are listed below. A valuation allowance of $83.6 million and $114.8 million at December 31, 2017 and 2016, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain.

Amounts for the years ended December 31 were as follows (in thousands):

 

Deferred Tax Assets

 

2017

 

 

2016

 

Net operating losses

 

$

59,756

 

 

$

86,071

 

Credit carryovers

 

 

10,527

 

 

 

9,952

 

Depreciation and amortization

 

 

10,893

 

 

 

15,278

 

Deferred revenue

 

 

634

 

 

 

 

Accruals and reserves

 

 

450

 

 

 

701

 

Capital loss carryover

 

 

 

 

 

85

 

Other

 

 

1,350

 

 

 

2,677

 

Total deferred tax assets

 

 

83,610

 

 

 

114,764

 

Less valuation allowance

 

 

(83,610

)

 

 

(114,764

)

Net deferred tax assets

 

$

 

 

$

 

As part of the revaluation of the amounts disclosed within the financial statements related to the deferred tax assets in 2017 resulting from the Tax Cuts and Jobs Act (the “Act”) and in preparing the 2017 financial statement footnote disclosures, the Company determined that the December 31, 2016 deferred tax asset for net operating losses did not reflect the impact of the uncertain tax position recorded related to the Company’s orphan drug credits and was understated by $2.02 million with the valuation allowance also understated by the same amount.  Accordingly, the 2016 amounts have been changed for the purposes of presentation within the above table. These changes in the disclosed deferred tax assets and valuation allowance did not impact the balance sheets or the statements of stockholders' equity, operations, comprehensive loss or cash flows as the Company is in a net loss position with a full valuation allowance on its deferred tax assets and were not considered to be material to the previously issued financial statements.

The reconciliation between the provision for income taxes and income taxes computed using the U.S. federal statutory corporate tax rate were as follows for the years ended December 31 (in thousands):

 

 

 

2017

 

 

2016

 

 

2015

 

Computed “expected” tax benefit

 

$

(4,425

)

 

$

(3,051

)

 

$

(3,152

)

State income taxes, net of federal benefit

 

 

(268

)

 

 

(534

)

 

 

 

Tax effect of:

 

 

 

 

 

 

 

 

 

 

 

 

Change in valuation allowance

 

 

(31,665

)

 

 

(6,030

)

 

 

(4,069

)

Impact of Tax Cuts and Jobs Act

 

 

34,439

 

 

 

 

 

 

 

Rate change

 

 

 

 

 

 

 

 

3,524

 

Expiration of prior year credits and net operating losses

 

 

1,256

 

 

 

692

 

 

 

786

 

Stock compensation

 

 

458

 

 

 

491

 

 

 

376

 

Uncertain tax positions

 

 

276

 

 

 

9,010

 

 

 

3,074

 

Other

 

 

(71

)

 

 

(578

)

 

 

(539

)

Provision for income taxes

 

$

 

 

$

 

 

$

 

 

As of December 31, 2017 and 2016, the Company had available federal net operating loss carryforwards of approximately $318.9 million and $316.0 million, respectively, which expire from 2018 through 2037. In addition, the Company had federal research and development credit and orphan drug credit carryforwards of $26.3 million and $26.3 million as of December 31, 2017 and 2016, respectively, to reduce future federal income taxes, if any. These carryforwards expire from 2018 through 2033 and are subject to review and possible adjustment by the Internal Revenue Service. The Company also has available California state net operating loss carryforwards of approximately $254.6 million and $269.6 million as of December 31, 2017 and 2016, respectively, which expire from 2028 to 2036. In addition, the Company had California research and development credits of approximately $8.8 million as of December 31, 2017 and 2016 to reduce future California income tax, if any. The California research and development credits do not expire.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”).  ASU 2016-09 simplifies how several aspects of share-based payments are accounted for and presented in the financial statements.  ASU 2016-09 is effective for public companies for annual reporting periods beginning after December 15, 2016.  Upon adoption of this ASU as of January 1, 2017, unrecognized excess tax benefits of approximately $0.6 million were recognized with the impact recorded to retained earnings including a corresponding change to the valuation allowance.

The Act was enacted on December 22, 2017.   The Act reduces the U.S. federal corporate tax rate from 35% to 21%.  At December 31, 2017, the Company had not completed its accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, the Company has made a reasonable estimate of the effects on its existing deferred tax balances. In other cases, the Company has not been able to make a reasonable estimate and will continue to make and refine calculations as additional analysis is completed. In addition, estimates may also be affected as the Company gains a more thorough understanding of the Act.         

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.  However, the Company is still analyzing certain aspects of the Act and refining its calculations which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.  The provisional amount recorded related to the remeasurement of the Company’s deferred tax balance was $34.4 million, which was fully offset by valuation allowance.

The Company recognizes liabilities for uncertain tax positions based on a two-step process.  The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.  The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.  While the Company believes that it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes.

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

 

 

 

2017

 

 

2016

 

 

2015

 

Beginning balance

 

$

17,561

 

 

$

4,340

 

 

$

582

 

Increases (decreases) related to prior year tax positions

 

 

(140

)

 

 

12,348

 

 

 

3,758

 

Increases related to current year tax positions

 

 

415

 

 

 

873

 

 

 

 

Ending balance

 

$

17,836

 

 

$

17,561

 

 

$

4,340

 

 

As of December 31, 2017 and 2016, the Company had gross unrecognized tax benefits of $17.8 million and $17.6 million, respectively, none of which would affect the effective tax rate.  The Company does not anticipate any significant decreases in its unrecognized tax benefits over the next 12 months.  The Company’s policy is to recognize the interest expense and/or penalties related to income tax matters as a component of income tax expense.  The Company had no accrual for interest or penalties on its balance sheets at December 31, 2017 or December 31, 2016, and has not recognized interest and/or penalties in its statements of operations for any of the years ended December 31, 2017, 2016 or 2015.

The Company is subject to taxation in the United States and California. The Company’s tax years for 1998 and forward are subject to examination by the United States and California tax authorities due to the carryforward of unutilized net operating losses and R&D credits.

 

 

v3.8.0.1
Employee Benefit Plan
12 Months Ended
Dec. 31, 2017
Compensation And Retirement Disclosure [Abstract]  
Employee Benefit Plan

12. Employee Benefit Plan

The Company has a defined contribution savings plan under section 401(k) of the IRC. The plan covers substantially all employees. The Company matches employee contributions made to the plan according to a specified formula. The Company’s matching contributions totaled approximately $0.2 million for the year ended 2017, and approximately $0.1 for each the years ended 2016 and 2015.

 

v3.8.0.1
Summary of (Unaudited) Quarterly Financial Information
12 Months Ended
Dec. 31, 2017
Quarterly Financial Information Disclosure [Abstract]  
Summary of (Unaudited) Quarterly Financial Information

13. Summary of (Unaudited) Quarterly Financial Information

The following is a summary of the Company’s (unaudited) quarterly results of operations for the years ended December 31 (in thousands, except per share amounts):

 

2017:

 

March 31,

 

 

June 30,

 

 

Sept. 30,

 

 

Dec. 31,

 

Total revenues

 

$

3,205

 

 

$

3,421

 

 

$

3,240

 

 

$

3,953

 

Total operating expenses

 

 

6,118

 

 

 

6,832

 

 

 

6,421

 

 

 

7,834

 

Net loss

 

 

(2,824

)

 

 

(3,320

)

 

 

(3,088

)

 

 

(3,728

)

Basic and diluted net loss per share (1)

 

 

(0.25

)

 

 

(0.30

)

 

 

(0.27

)

 

 

(0.21

)

 

2016:

 

March 31,

 

 

June 30,

 

 

Sept. 30,

 

 

Dec. 31,

 

Total revenues

 

$

4,604

 

 

$

4,122

 

 

$

2,642

 

 

$

3,163

 

Total operating expenses

 

 

7,114

 

 

 

5,443

 

 

 

5,213

 

 

 

5,938

 

Net income (loss)

 

 

(2,423

)

 

 

(1,255

)

 

 

(2,523

)

 

 

(2,772

)

Basic and diluted net loss per share (1)

 

 

(0.26

)

 

 

(0.14

)

 

 

(0.24

)

 

 

(0.25

)

 

(1)

Net income (loss) per share is computed independently for each quarter and the full year based upon respective shares outstanding. Therefore, the sum of the quarterly loss per share amounts may not equal the annual amounts reported.

 

 

v3.8.0.1
Subsequent Event
12 Months Ended
Dec. 31, 2017
Subsequent Events [Abstract]  
Subsequent Event

14. Subsequent Event

 

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 will record charges for employee termination benefits of $1.1 million and for intangible asset impairments of $0.3 million during the three months ended March 31, 2018.  The Company is still evaluating the impact of the restructuring on the valuation of its fixed assets.

v3.8.0.1
Organization and Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Organization and Business Activity

Organization and Business Activity

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 its research and development programs. The Company researches and develops biopharmaceutical products, including those based on its patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases.

All of the Company’s potential products are in research and development phases. No revenues have been generated from the sale of any such products, nor are any such revenues expected for at least the next several years. The Company earns revenue from research and development agreements with pharmaceutical collaborators and from contract manufacturing agreements. Most of the Company’s product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing. All product candidates that advance to clinical testing will require regulatory approval prior to commercial use, and will require significant costs for commercialization. There can be no assurance that the Company’s research and development efforts, or those of its collaborators, will be successful. The Company expects to continue to incur substantial losses and not generate positive cash flows from operations for at least the next several years. No assurance can be given that the Company can generate sufficient product revenue to become profitable or generate positive cash flows from operations.

Basis of Presentation

Basis of Presentation

These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.

On May 25, 2016, the Company amended its certificate of incorporation to effect a one-for-ten (1:10) reverse stock split.  This reverse stock split became effective as of the close of business on May 26, 2016.  The reverse stock split had no effect on the par value of its common stock and did not reduce the number of authorized shares of common stock but reduced the number of outstanding shares of common stock by the one-for-ten ratio. Accordingly, the outstanding shares, stock award disclosures, net loss per share, and other per share disclosures for all periods presented have been retrospectively adjusted to reflect the impact of this reverse stock split.

The reverse stock split resulted in a proportionate adjustment to the per share exercise price and the number of shares of common stock issuable upon the exercise of outstanding stock options, the number of shares of common stock issuable upon the vesting of restricted stock units, or RSUs, and the number of shares of common stock eligible for issuance under the Company’s stock incentive plan.  No fractional shares were issued in connection with the reverse stock split.  Each stockholder’s percentage ownership and proportional voting power generally remained unchanged as a result of the reverse stock split.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make informed estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes. Actual results could differ materially from those estimates.

Cash, Cash Equivalents and Marketable Securities

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 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.

Restricted Cash

Restricted Cash

The Company was required to maintain a letter of credit securing an amount equal to twelve months of the then current monthly installment of base rent for the original term of the lease for its facilities, which ended on August 31, 2017. In July 2016, the term of the lease was extended for 16 months through December 2018.  During the extended term, the Company is required to maintain a letter of credit securing an amount equal to $0.2 million. At December 31, 2017 and 2016, restricted cash of $0.2 million and $3.3 million, respectively, was pledged as collateral for the letter of credit.     

Concentrations of Credit Risk

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash equivalents, marketable securities and receivables. The Company invests its excess cash in debt instruments of financial institutions and of corporations with above average credit ratings, in U.S. government obligations, and in money market funds and certificates of deposits at financial institutions.

Property and Equipment

Property and Equipment

Property and equipment is recorded at cost and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Assets acquired pursuant to capital lease arrangements and leasehold improvements are amortized using the straight-line method over the shorter of the life of the remaining lease term or the remaining useful life of the asset. Manufacturing equipment has estimated useful lives of 5 to 10 years. All other property and equipment have estimated useful lives of 3 to 5 years. Maintenance and repairs of property and equipment are expensed as incurred.

Intangible Assets

Intangible Assets

Intangible assets include certain costs related to patent applications. The Company capitalizes license fees paid to acquire access to proprietary technology if the technology is expected to have alternative future use in multiple research and development projects. The cost of licensed technology rights is amortized using the straight-line method over the estimated useful life of the technology. Certain costs related to patent applications are amortized over the estimated economic lives of the patents, which is generally 20 years and typically commences at the time the patent application is filed. As of December 31, 2017, the weighted average amortization period of capitalized patent costs is approximately 8 years. Amortization expense for licensed technology and capitalized patent cost is included in research and development expenses.

Impairment of Long-lived Assets

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment at least annually, quarterly for intangible assets, and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the asset over the asset’s estimated fair value and the loss recognized in current earnings. The Company recognized research and development expense of approximately $0.0 million, $0.4 million and $0.2 million for the years ended December 31, 2017, 2016 and 2015, respectively, related to patents for which the value was deemed to be impaired.  

Revenue Recognition

Revenue Recognition

Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Certain of the Company’s revenue is generated through manufacturing contracts and stand-alone license agreements.

Contract Manufacturing Revenue

Contract Manufacturing Revenue

Revenue associated with contract manufacturing services is recognized once the service has been rendered and/or upon shipment (or passage of title) of the product to the customer.  On occasion, the Company recognizes revenue on a “bill-and-hold” basis. Revenue is recognized for such “bill-and-hold” arrangements in accordance with the authoritative guidance, which requires, among other things, the existence of a valid business purpose for the arrangement, that the “bill-and-hold” arrangement is at the request of the customer, that title and risk of ownership pass to the customer, that the product is complete and ready for shipment, a fixed delivery date that is reasonable and consistent with the customer’s business practices, that the product has been separated from the Company’s inventory, and that no further performance obligations by the Company exist.

Multiple-element arrangements

Multiple-element arrangements

The Company has entered into multiple-element arrangements. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. The delivered item(s) must have value to the customer on a standalone basis and, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control.

A delivered item is considered a separate unit of accounting when the delivered item has value to the partner on a standalone basis based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of research expertise in this field in the general marketplace. Arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence, or VSOE, of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price exists, the Company uses its best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement. If facts and circumstances dictate that the license has standalone value from the undelivered items, which generally include research and development services and the manufacture of drug products, the license is identified as a separate unit of accounting and the amounts allocated to the license are recognized upon the delivery of the license, assuming the other revenue recognition criteria have been met. However, if the amounts allocated to the license through the relative selling price allocation exceed the upfront license fee, the amount recognized upon the delivery of the license is limited to the upfront fee received. If facts and circumstances dictate that the license does not have standalone value, the transaction price, including any upfront license fee payments received, are allocated to the identified separate units of accounting and recognized as those items are delivered.

The terms of the Company’s partnership agreements provide for milestone payments upon achievement of certain regulatory and commercial events. Under the Milestone Method, the Company recognizes consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the following three criteria: 1) The consideration is commensurate with either the entity’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, 2) The consideration relates solely to past performance, and 3) The consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the Company.

Contract Services, Grant and Royalty Revenue

Contract Services, Grant and Royalty Revenue

The Company recognizes revenues from contract services and federal government research grants during the period in which the related expenditures are incurred and related payments for those services are received or collection is reasonably assured. Royalties to be received based on sales of licensed products by the Company’s partners incorporating the Company’s licensed technology are recognized when received.

Research and Development Costs

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.

Manufacturing and Production Costs

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. Manufacturing expenses related to manufacturing contracts are deferred and expensed when the related revenue is recognized. Deferred contract costs at December 31, 2017 and 2016 were $10.5 million and $5.5 million, respectively. Production expenses related to the Company’s research and development efforts are expensed as incurred.

Net Loss Per Share

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 the assumed issuance of common stock under RSUs, as the effect would be antidilutive. Common stock equivalents of 1.8 million, 7,350 and 33,720 for the years ended December 31, 2017, 2016 and 2015, respectively, were excluded from the calculation because of their antidilutive effect.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of cash, cash equivalents, restricted cash, marketable securities, receivables, accounts payable and accrued expenses at December 31, 2017 and 2016, are considered to approximate fair value because of the short term nature of those items.

Income Taxes

Income Taxes

The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefits recorded by the Company as of the date of adoption in 2007. There are no unrecognized tax benefits included in the balance sheets that would, if recognized, affect the effective tax rate.

Deferred income taxes result primarily from temporary differences between financial and tax reporting. Deferred tax assets and liabilities are determined based on the difference between the financial statement bases and the tax bases of assets and liabilities using enacted tax rates. A valuation allowance is established to reduce a deferred tax asset to the amount that is expected more likely than not to be realized.

The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017.   The Act reduces the U.S. federal corporate tax rate from 35% to 21%.  At December 31, 2017, the Company had not completed its accounting for the tax effects of enactment of the Act; however, in certain cases, the Company has made a reasonable estimate of the effects on its existing deferred tax balances.  In other cases, the Company has not been able to make a reasonable estimate and will continue to make and refine calculations as additional analysis is completed. In addition, estimates may also be affected as the Company gains a more thorough understanding of the Act.

Comprehensive Loss

Comprehensive Loss

Comprehensive loss consists of net loss and certain changes in equity that are excluded from net loss. Comprehensive loss for the years ended December 31, 2017, 2016 and 2015, has been reflected in the accompanying Statements of Comprehensive Loss. Accumulated other comprehensive income (loss), which is included in stockholders’ equity, represents unrealized gains and losses on marketable securities.

Business Segments

Business Segments

The Company operates in one business segment, which is within the United States, and is dedicated to research and development of DNA delivery technology.

Stock-Based Compensation

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 expense includes amortization related to stock option awards based on the estimated grant date fair value. The compensation expense related to stock options is recognized ratably over the vesting period of the options. 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. Stock-based compensation expense related to stock options and RSUs for the years ended December 31, 2016 and 2015 includes an estimate of 8.75% for forfeitures. Effective January 1, 2017, the Company adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” which allowed the Company to change its methodology for recording forfeitures from estimated forfeitures to actual forfeitures and recorded an adjustment to beginning retained earnings of $0.1 million. 

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton valuation model using the assumptions noted in the following table. The expected life of options is based on the Company’s observed historical exercise patterns. The expected volatility of stock options is based upon the historical volatility of the Company’s stock commensurate with the expected life of the option. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

Assumed risk-free interest rate

 

1.86%

 

 

1.44%

 

 

1.34%

 

Assumed volatility

 

72%

 

 

72%

 

 

68%