~~(Former name, former address and former fiscal year, if changed since last report)~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

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

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

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

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

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

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

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

	June 30,			December 31,			June 30,			December 31,
	2018			2017			2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	10,071		$	24,841		$	10,813		$	11,870
Marketable securities, available-for-sale		41,832			35,658			30,907			36,201
Restricted cash		192			192
Deferred contract costs		—			10,502
Receivables and other assets		1,610			5,124			979			1,128
Total current assets		53,705			76,317			42,699			49,199
Long-term investments		2,237			2,209			—			2,386
Property and equipment, net		165			606			2			100
Intangible assets, net		—			703
Other assets		659			659			—			659
Total assets	$	56,766		$	80,494		$	42,701		$	52,344
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	3,161		$	5,217		$	1,159		$	3,551
Deferred revenue		20			11,700			—			30
Total current liabilities		3,181			16,917			1,159			3,581
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued and outstanding		—			—			—			—
Common stock, $0.01 par value, 50,000 shares authorized, 21,815 and 21,802 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively		218			218
Common stock, $0.01 par value, 50,000 shares authorized, 22,841 and 21,817 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively								229			218
Additional paid-in capital		490,185			489,975			490,343			490,337
Accumulated deficit		(436,948	)		(426,738	)		(449,072	)		(442,064	)
Accumulated other comprehensive income		130			122			42			272
Total stockholders' equity		53,585			63,577			41,542			48,763
Total liabilities and stockholders' equity	$	56,766		$	80,494		$	42,701		$	52,344

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenues:
Contract revenue	$	725		$	3,369		$	1,431		$	6,270		$	—		$	725		$	—		$	1,431
License and royalty revenue		10			52			20			356			—			10			—			20
Total revenues		735			3,421			1,451			6,626			—			735			—			1,451
Operating expenses:
Research and development		3,602			3,639			7,266			6,939			759			3,602			4,641			7,266
Manufacturing and production		—			1,602			1,436			2,911			—			—			—			1,436
General and administrative		2,261			1,591			4,378			3,100			2,242			2,261			3,618			4,378
Total operating expenses		5,863			6,832			13,080			12,950			3,001			5,863			8,259			13,080
Loss from operations		(5,128	)		(3,411	)		(11,629	)		(6,324	)		(3,001	)		(5,128	)		(8,259	)		(11,629	)
Other income:
Investment and other income, net		260			91			491			180			571			260			1,251			491
Net loss	$	(4,868	)	$	(3,320	)	$	(11,138	)	$	(6,144	)	$	(2,430	)	$	(4,868	)	$	(7,008	)	$	(11,138	)
Basic and diluted net loss per share	$	(0.22	)	$	(0.30	)	$	(0.51	)	$	(0.55	)	$	(0.11	)	$	(0.22	)	$	(0.31	)	$	(0.51	)
Weighted average shares used in computing basic and diluted net loss per share		21,837			11,139			21,834			11,121			22,825			21,837			22,404			21,834

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Net loss

$
(4,868
)

$
(3,320
)

$
(11,138
)

$
(6,144
)
Other comprehensive gain:

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

Unrealized gain arising during holding period, net of tax benefit of $6 and $17 for three months ended June 30, 2018 and 2017, respectively, and $6 and $38 for six months ended June 30, 2018 and 2017, respectively

73

32

8

68

Other comprehensive gain

73

32

8

68

Total comprehensive loss

$
(4,795
)

$
(3,288
)

$
(11,130
)

$
(6,076
)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net loss	$	(2,430	)	$	(4,868	)	$	(7,008	)	$	(11,138	)
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale and long-term marketable securities:
Unrealized gain arising during holding period, net of tax benefit of $0 and $6 for three months ended June 30, 2019 and 2018, respectively, and $0 and $6 for six months ended June 30, 2019 and 2018, respectively		25			73			143			8
Less: Reclassification adjustment for gains included in net loss		—			—			(373	)		—
Other comprehensive gain (loss)		25			73			(230	)		8
Total comprehensive loss	$	(2,405	)	$	(4,795	)	$	(7,238	)	$	(11,130	)

	Common Stock
	Number of Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders’ Equity
Balance at January 1, 2019		21,817	$	218	$	490,337		$	(442,064	)	$	272		$	48,763
Net loss		—		—		—			(4,578	)		—			(4,578	)
Other comprehensive loss		—		—		—			—			(255	)		(255	)
Issuance of common stock upon exercise of warrants		993		10		—			—			—			10
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes		13		1		—			—			—			1
Non-cash compensation expense related to grant of equity based compensation		—		—		(19	)		—			—			(19	)
Balance at March 31, 2019		22,823	$	229	$	490,318		$	(446,642	)	$	17		$	43,922
Net loss		—		—		—			(2,430	)		—			(2,430	)
Other comprehensive gain		—		—		—			—			25			25
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes		18		—		2			—			—			2
Non-cash compensation expense related to grant of equity based compensation		—		—		23			—			—			23
Balance at June 30, 2019		22,841	$	229	$	490,343		$	(449,072	)	$	42		$	41,542

	Common Stock
	Number of Shares		Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders’ Equity
Balance at January 1, 2018		21,802	$	218	$	489,975	$	(426,738	)	$	122		$	63,577
Net loss		—		—		—		(6,270	)		—			(6,270	)
Retained earnings adjustment upon adoption of ASU 2014-09		—		—		—		928			—			928
Other comprehensive loss		—		—		—		—			(65	)		(65	)
Issuance of common stock		—		—		—		—			—			—
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes		13		—		1		—			—			1
Non-cash compensation expense related to grant of equity based compensation		—		—		47		—			—			47
Balance at March 31, 2018		21,815	$	218	$	490,023	$	(432,080	)	$	57		$	58,218
Net loss		—		—		—		(4,868	)		—			(4,868	)
Other comprehensive gain		—		—		—		—			73			73
Issuance of common stock		—		—		—		—			—			—
Issuance of common stock underlying restricted stock units net of shares withheld to settle withholding taxes		—		—		—		—			—			—
Non-cash compensation expense related to grant of equity based compensation		—		—		162		—			—			162
Balance at June 30, 2018		21,815	$	218	$	490,185	$	(436,948	)	$	130		$	53,585

	Six Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2019			2018
Cash flows from operating activities:
Net loss	$	(11,138	)	$	(6,144	)	$	(7,008	)	$	(11,138	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		49			526			18			119
Accretion of discount on short-term investments								(227	)		(70	)
Write-off of abandoned patents		673			—			—			673
Compensation expense related to stock options and awards		209			428
Gain on sale of property and equipment								(309	)		—
Net gain on sale of long-term investment								(373	)		—
Compensation related to stock options and awards								4			209
Changes in operating assets and liabilities:
Deferred contract costs		—			(2,934	)
Receivables and other assets		3,882			313			808			3,882
Accounts payable and accrued expenses		(2,056	)		(124	)		(2,487	)		(2,058	)
Employee termination benefits accrual								96			2
Deferred revenue		(249	)		4,185			(30	)		(249	)
Deferred rent		—			(223	)
Net cash used in operating activities		(8,630	)		(3,973	)		(9,508	)		(8,630	)
Cash flows from investing activities:
Proceeds from the sale of long-term investment								2,469			—
Maturities of marketable securities		14,719			12,407			12,000			14,719
Purchases of marketable securities		(20,843	)		(9,180	)		(6,419	)		(20,843	)
Sale of property and equipment								388			—
Purchases of property and equipment		(16	)		(19	)		—			(16	)
Net cash (used in) provided by investing activities		(6,140	)		3,208
Net cash provided by (used in) investing activities								8,438			(6,140	)
Cash flows from financing activities:
Net proceeds from issuance of common stock		1			312			13			1
Payment of withholding taxes for net settlement of restricted stock units		(1	)		(2	)		—			(1	)
Net cash provided by financing activities		-			310			13			-
Net decrease in cash, cash equivalents and restricted cash		(14,770	)		(455	)		(1,057	)		(14,770	)
Cash, cash equivalents and restricted cash at beginning of period		25,033			8,380			11,870			25,033
Cash, cash equivalents and restricted cash at end of period	$	10,263		$	7,925		$	10,813		$	10,263

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~~the research and development ~~programs. The Company develops~~of biopharmaceutical products, including those based on its patented DNA delivery technologies for the prevention and treatment of ~~chronic~~serious or life-threatening ~~infectious diseases, including a candidate for treating chronic hepatitis B in preclinical development and an antifungal candidate in clinical development.~~

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. 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.diseases.

The unaudited financial statements at June 30, ~~2018,~~2019, and for the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC, and with accounting principles generally accepted in the United States applicable to interim financial statements. These unaudited financial statements have been prepared on the same basis as the audited financial statements included in the Company’s Annual Report on Form 10-K and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the interim date and results of operations for the interim periods presented. Interim results are not necessarily indicative of results expected for a full year or future periods. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, ~~2017,~~2018, included in its Annual Report on Form 10-K filed with the SEC.

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

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.

~~We recognize~~recognizes revenue when control of ~~our~~its products and services is transferred to ~~our~~its customers in an amount that reflects the consideration ~~we expect~~the Company expects to receive from ~~our~~its customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have

been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. ~~We consider~~The Company considers a performance obligation satisfied once ~~we have~~it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. ~~We recognize~~The Company recognizes revenue for satisfied performance obligations only when ~~we determine~~it determines there are no uncertainties regarding payment terms or transfer of control.

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

Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The weighted average number of shares used to compute diluted loss per share excludes any assumed exercise of stock options and warrants and any assumed issuance of common stock under restricted stock units (RSUs) as the effect would be antidilutive. Common stock equivalents of 6.2 million and 7.2 million for the three ~~and six~~ months ended June 30, 2019 and 2018, respectively, were excluded from the calculation because of their antidilutive effect. ~~There were no common~~Common stock equivalents of 6.6 million and 7.2 million for the ~~three and~~ six months ended June 30, ~~2017.~~2019 and 2018, respectively, were excluded from the calculation because of their antidilutive effect.

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

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

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. The Company adopted the new standard effective January 1, 2018 using the modified retrospective method applied to contracts not completed as of December 31, 2017. 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, the Company concluded that, under ASC 606, the criteria for transfer of control were met prior to January 1, 2018 and as a result, the Company recorded 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 adjustment to beginning retained earnings of $0.9 million. The impact of adoption on the Company’s income statement and balance sheet as of June 30, 2018 and for the six months then ended was as follows (in thousands):

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

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

	Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
	June 30,				June 30,					June 30,				June 30,
	2018		2017		2018			2017		2019		2018		2019			2018
Research and development	$	48	$	56	$	76		$	123	$	6	$	48	$	(44	)	$	76
Manufacturing and production		—		37		(68	)		65		—		—		—			(68	)
General and administrative		114		104		201			240		17		114		48			201
Total stock-based compensation expense	$	162	$	197	$	209		$	428	$	23	$	162	$	4		$	209

There were no stock-based awards granted by the Company during the three and six months ended June 30, 2019. During the six months ended June 30, 2018, ~~and June 30, 2017,~~ the Company granted stock-based awards with a total estimated value of $0.4 million, ~~and $0.7 million, respectively.~~which were equal to 2.5% of the outstanding shares of common stock at the end of the period. At June 30, ~~2018,~~2019, total unrecognized estimated compensation expense related to unvested stock-based awards granted prior to that date was ~~$0.5~~$0.1 million, which is expected to be recognized over a weighted-average period of ~~1.4~~1.3 years. ~~Stock-based awards granted during the six months ended June 30, 2018 and 2017, were equal to 2.5% and 5.1%, respectively, of the outstanding shares of common stock at the end of the applicable period.~~

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

June 30, 2018	Amortized Cost		Unrealized Gain		Unrealized Loss		Market Value
June 30, 2019									Amortized Cost		Unrealized Gain		Unrealized Loss		Market Value
U.S. treasuries	$	41,875	$	—	$	43	$	41,832	$	30,865	$	42	$	—	$	30,907
	$	41,875	$	—	$	43	$	41,832	$	30,865	$	42	$	—	$	30,907

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, 2018

Amortized

Cost

Unrealized

Gain

Unrealized

Loss

Market

Value

U.S. treasuries

36,219

—

36,201

36,219

—

36,201

At June 30, ~~2018,~~2019, none of these securities were scheduled to mature outside of one year. The Company did not realize any gains or losses on sales of available-for-sale securities for the three and six months ended June 30, ~~2018.~~2019. As of June 30, ~~2018,~~2019, none of the securities had been in a continuous material unrealized loss position longer than one year.

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

	June 30,		December 31,		June 30,		December 31,
	2018		2017		2019		2018
Employee compensation	$	1,315	$	2,654	$	335	$	1,768
Post-termination benefit accrual						96		—
Clinical trial accruals		1,315		1,017		111		1,000
Accounts payable		357		1,213		544		412
Employee termination benefits accrual		2		—
Other accrued liabilities		172		333		73		371
Total accounts payable and accrued expenses	$	3,161	$	5,217	$	1,159	$	3,551

At June 30, 2018, receivables and other assets included idle manufacturing equipment with a net book value of $0.3 million that was classified as held for sale. A transaction to sell these assets was completed in July 2018. See Note 13 for additional information.

~~As of~~During the six months ended June 30, ~~2018,~~2019, the Company ~~held an~~sold its auction rate security classified as a long-term investment 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 BBB by Standard and Poor’s as of June 30, 2018. 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 June 30, 2018, the inputs used in the Company’s discounted cash flow analysis assumed an interest rate of 5.73%, an estimated redemption period of five years and a discount rate of 1.00%. Based on the valuation of the security, the Company has recognized cumulative losses of $0.4 million as of June 30, 2018, none of which were realized during the six months ended June 30, 2018. The losses when recognized are includedIncluded in investment and other ~~income. The market value of the security has partially recovered. Included in other comprehensive~~ income ~~are unrealized gains of $22,000 and $74,000~~ for the six months ended June 30, ~~2018 and 2017, respectively. As of June 30, 2018, the Company had recorded cumulative unrealized gains~~2019 is a net gain of $0.4 ~~million. The resulting carrying value of~~million related to the ~~auction rate security at June 30, 2018, was $2.2 million. Any future decline in market value may result in additional losses being recognized.~~sale.

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:

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								Fair Value Measurements
June 30, 2018	Level 1		Level 2		Level 3		Total
June 30, 2019									Level 1		Level 2		Level 3		Total
Money market funds		6,733		—		—		6,733	$	10,178	$	—	$	—	$	10,178
U.S. treasuries		41,832		—		—		41,832		30,907		—		—		30,907
Auction rate securities		—		—		2,237		2,237
	$	48,565	$	—	$	2,237	$	50,802	$	41,085	$	—	$	—	$	41,085

	Fair Value Measurements								Fair Value Measurements
December 31, 2017	Level 1		Level 2		Level 3		Total
Certificates of deposit	$	1,225	$	—	$	—	$	1,225
December 31, 2018									Level 1		Level 2		Level 3		Total
Money market funds		21,760		—		—		21,760	$	11,523	$	—	$	—	$	11,523
U.S. treasuries		34,433		—		—		34,433		36,201		—		—		36,201
Auction rate securities		—		—		2,209		2,209		—		—		2,386		2,386
	$	57,418	$	—	$	2,209	$	59,627	$	47,724	$	—	$	2,386	$	50,110

The ~~Company’s investments~~Company invests in U.S. treasury securities, certificates of deposit and money market funds, which are valued based on publicly available quoted market prices for identical securities as of June 30, ~~2018.~~2019. The Company determines the fair value of corporate bonds and other government-sponsored enterprise related securities with the aid of valuations provided by third parties using proprietary valuation models and analytical tools. These valuation models and analytical tools use market pricing or similar instruments that are both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers. The Company validates the valuations received from its primary pricing vendors for its Level 2 securities by examining the inputs used in that vendor’s pricing process and determines whether they are reasonable and observable. The Company also compares those valuations to recent reported trades for those securities. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had no investments in Level 2 securities. The Company did not transfer any investments between level categories during the six months ended June 30, ~~2018. The valuation of the Company’s investments in auction rate securities, which includes significant unobservable inputs, is more fully described in Note 5.~~2019.

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

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.

In July 2011, the Company entered into license agreements with Astellas Pharma Inc., or Astellas, ~~granting Astellas exclusive, worldwide, royalty-bearing licenses under certain of~~related to the Company's know-how and intellectual property to develop and commercialize certain products containing plasmids encoding certain forms of cytomegalovirus, glycoprotein B and/or phosphoprotein 65, including ASP0113 (TransVax™) but excluding CyMVectin™.

~~In January 2018, Astellas announced the results from a Phase 3 trial of ASP0113~~Company’s CMV program. The license agreement was terminated 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 determined to cease further clinical development of ASP0113 and terminated the license agreement.

February 2018. Under the terms of the agreements, the Company was performing research and development services and manufacturing services which were being paid for by Astellas. During the three and six months ended June 30, 2018, ~~and 2017,~~ the Company recognized $0.7 million and ~~$3.1~~$1.2 million, respectively, of revenue related to these contract services. During the six months ended June 30, 2018 and 2017, the Company recognized $1.2 million and $6.0 million, respectively, of revenue related to these contract services. The Company also recognized $0.2 million in license revenue under the Astellas agreements during the six months ended June 30, 2017.

The Company ~~leases~~occupies approximately ~~68,400~~17,000 square feet of ~~manufacturing,~~ research laboratory and office space at a single site in San Diego, ~~California.~~California under a sublease with Genopis, Inc., or Genopis. In July ~~2016,~~2018, the Company entered into an agreement with Genopis to sell the Company’s idle manufacturing assets for $1.7 million. As part of the agreement, Genopis agreed to sublease 51,400 square feet of the Company’s facility through the remaining term of the Company’s lease, which expired on December 31, 2018. Genopis was ~~extended~~also required to sign a long-term lease with the facility’s landlord beginning on January 1, 2019. Genopis agreed to sublease 17,000 square feet of the facility (consisting of lab and office space) to the Company at no cost for ~~16 months through~~the one-year period ending on December ~~2018.~~ 31, 2019. The fair value of rent of the lab and office space that the Company is occupying at no cost was $0.4 million as of June 30, 2019 and is recorded in receivables and other assets.

As of the date of this filing, the Company has on file a shelf registration statement that allows it to raise up to an additional $40.0 million from the sale of common stock, preferred stock, debt securities and/or ~~warrants.~~warrants, subject to limitations on the amount of securities that it may sell under the registration statement in any 12-month period. Specific terms of any offering under a shelf registration statement and the securities involved would be established at the time of sale.

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

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~~An amendment to the ~~program. The parties also agreed~~agreement was executed in September 2018 that added an additional non-refundable payment from AnGes 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.~~$145,000. The ~~Company is responsible for the conduct of the research activities. The upfront payment received~~HBV program was ~~deferred and recognized as contract revenue as the related research costs are incurred.~~cancelled in 2019. As of June 30, ~~2018,~~2019, the Company had recognized the full ~~$750,000 payment~~$895,000 as contract ~~revenue, with $0.1 million recognized in the three months ended June 30, 2018.~~revenue.

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

In January 2018, the Company and Astellas announced that ASP0113 did not meet its primary endpoint in a Phase 3 clinical study in CMV end organ disease, after which Astellas informed the Company that it was terminating further development. As a result, the Company restructured its operations to conserve capital, which included a staff reduction of 40 employees and the write-off of certain intangible assets. The Company recorded charges for one-time employee termination benefits of $1.1 million and for intangible asset impairments of $0.3 million during the six months ended June 30, 2018. Overhead costs associated with the former manufacturing facility of $0.6 million and $1.0 million ~~have been~~were recognized as general and administrative expense during the three and six months ended June 30, 2018, respectively.

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

							Employee
							Termination		Asset
2019							Benefits		Impairments		Total
Research and development							$	2,018	$	—	$	2,018
General and administrative								70		—		70
	Employee						$	2,088	$	—	$	2,088
	Termination		Asset
	Benefits		Impairments		Total		Employee
							Termination		Asset
2018							Benefits		Impairments		Total
Research and development	$	272	$	267	$	539	$	272	$	267	$	539
Manufacturing and production		735		—		735		735		—		735
General and administrative		117		—		117		117		—		117
	$	1,124	$	267	$	1,391	$	1,124	$	267	$	1,391

The following table sets forth the accrual activity for employee termination benefits for the six months ended June 30, ~~2018~~2019 (in thousands). ~~No additional charges are expected to be incurred.~~


Balance at December 31, 2017	$	—
Balance at December 31, 2018				$	—
Accruals		1,124			2,088
Payments		(1,122	)		(1,992	)
Balance at June 30, 2018	$	2
Balance at June 30, 2019				$	96

~~In January 2018, after the Company announced that ASP0113 did not meet its primary endpoint the Company decided to shut down its manufacturing operations. In July 2018,~~On June 2, 2019, the Company entered into an ~~agreement~~Agreement and Plan of Merger and Reorganization, or the Merger Agreement, with ~~Genopis,~~Brickell Biotech, Inc., a Delaware corporation and clinical-stage medical dermatology company, or Brickell Biotech, and Victory Subsidiary, Inc., a Delaware corporation and wholly owned subsidiary of the Company, or Merger Sub. Upon the terms and subject to satisfaction of the conditions described in the Merger Agreement, including approval of the transaction by the Company’s stockholders, Merger Sub will be merged with and into Brickell Biotech, or the Merger, with Brickell Biotech surviving the Merger as a wholly owned subsidiary of the Company.

Concurrent with the execution of the Merger Agreement, Brickell entered into a Funding Agreement, or the Funding Agreement, with NovaQuest Co-Investment Fund X, L.P., or ~~Genopis,~~NovaQuest, pursuant to ~~sell~~which NovaQuest committed to provide up to $25.0 million in near-term research and development funding to Brickell following the ~~Company’s idle manufacturing assets for $1.7 million. As part~~closing of the ~~agreement, Genopis agreed to sublease 51,400 square feet~~Merger, or the Concurrent Financing, with $5.6 million of the ~~Company’s facility through~~commitment expected to be paid promptly following the ~~remaining term~~closing of the ~~Company’s lease, which expires on December 31, 2018. Vical will continue~~Merger and the remaining

portion of the commitment expected to ~~occupy approximately 17,000 square feet~~be paid in quarterly payments equal to 67% of ~~lab~~invoiced research and ~~office space at no cost. Genopis was also required to sign a long-term lease~~development expenses incurred during the subsequent four fiscal quarters.

In connection with the ~~facility’s landlord beginning on January 1, 2019. Genopis agreed to sublease 17,000 square feet~~Concurrent Financing, immediately following the closing of the ~~facility~~Merger, the combined company will issue warrants to NovaQuest, or the NovaQuest Warrants, to purchase shares of Vical common stock. The number of shares of Vical common stock underlying the NovaQuest Warrants will be based on 10% warrant coverage on the $25.0 million NovaQuest funding commitment and the final exchange ratio for the Merger, or the Exchange Ratio, and the exercise price of the NovaQuest Warrants will be determined based on a 10% premium to the ~~Company at no cost~~Brickell price per share of common stock implied value in the Merger, as adjusted for the ~~one-year period ending~~Exchange Ratio.

Immediately following the Merger, the former Brickell securityholders and NovaQuest, collectively, are expected to own, subject to adjustment, approximately 60% of the aggregate number of shares of Vical common stock, and the securityholders of Vical immediately prior to the Merger are expected to own, subject to adjustment, approximately 40% of the aggregate number of shares of Vical common stock (in each case on ~~December 31, 2019. We will complete~~a fully diluted basis using the ~~accounting for~~treasury stock method in instances other than with respect to the ~~agreements with Genopis during~~NovaQuest Warrants and certain equity issuances by Brickell following the ~~third quarter~~signing of ~~our current fiscal year ending December 31, 2018.~~the Merger Agreement and prior to the completion of the Merger).

This Quarterly Report on Form 10-Q, or Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including statements regarding our business, our financial position, the research and development of biopharmaceutical products, the funding of our research and development efforts, whether and when the proposed merger with Brickell Biotech, Inc., or the Merger, will be consummated, the potential benefits to be derived from the Merger, financing and development plans of Brickell or the combined company if the Merger is consummated, and other statements describing our goals, expectations, intentions or beliefs. These statements often contain words such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” or other words indicating future results, though not all forward-looking statements necessarily contain these identifying words. Such statements reflect our current views and assumptions and are subject to risks and uncertainties, particularly those inherent in the process of developing and commercializing biopharmaceutical products, ~~based on our patented DNA delivery~~ and ~~other technologies.~~whether the conditions to the closing of the Merger will be satisfied. Actual results could differ materially from those projected herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018 and our preliminary proxy statement filed with the SEC on July 2, 2019, and in our subsequent filings with the SEC, and those identified in Part II, Item 1A of this Report under the caption “Risk Factors”. As a result, you are cautioned not to rely on these forward-looking statements. We disclaim any duty to update any forward-looking statement to reflect events or circumstances that occur after the date on which such statement is made.

~~We research and develop biopharmaceutical products, including those based~~Until recently, we were focused on our patented DNA delivery technologies, for the prevention and treatment of serious or life-threatening diseases. We currently have two active development programs in the area of infectious disease comprised of:

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

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
Source	2018		2017		2018		2017		2019		2018		2019		2018
Astellas supply and services contract	$	0.7	$	3.1	$	1.2	$	6.0		—	$	0.7		—	$	1.2
Astellas license		—		—		—		0.2
Other contracts, licenses and royalties		—		0.3		0.3		0.4		—		—		—		0.3
Total revenues	$	0.7	$	3.4	$	1.5	$	6.6	$	—	$	0.7	$	—	$	1.5

In February 2019, we made the decision to discontinue the Phase 2 clinical trial of VL-2397 and, as a result, we restructured our operations to conserve capital. In January 2018, we and Astellas announced that ASP0113 did not meet its primary endpoint in a Phase 3 clinical study in CMV end organ disease, after which Astellas informed us that it was terminating further development. ~~As a result, we do not expect additional collaboration or license revenue absent new agreements with third parties.~~

~~Research, development, manufacturing and production costs by major program, as well as other costs, were as follows (in millions):~~

Three Months Ended

Six Months Ended

June 30,

June 30,

Program

2018

2017

2018

2017

CMV

$
—

$
2.4

$
1.5

$
4.5

HSV-2

0.6

2.1

1.3

3.8

VL-2397

2.4

0.4

4.7

0.8

Other research, development, manufacturing and production

0.6

0.3

1.2

0.8

Total research, development, manufacturing and production

$
3.6

$
5.2

$
8.7

$
9.9

These programs will require significant additional funds to advance through development to commercialization. From inception through June 30, 2018, we had spent approximately $15.7 million on our VL-2397 program. The development of our CMV and HSV-2 vaccine programs has been terminated following negative trial results and we do not expect additional material spending on these programs going forward.

Our chronic hepatitis B product candidate is in the research stage. It can take many years to develop product candidates from the initial decision to screen product candidates, perform preclinical and safety studies, and perform clinical trials leading up to possible approval of a product by the FDA or comparable foreign agencies. The outcome of the research is unknown until each stage of the testing is completed, up through and including registration-enabling clinical trials. Accordingly, we are unable to predict which potential product candidates we may proceed with, the time and cost to complete development, and ultimately whether we will have a product approved by the FDA or comparable foreign agencies.

As a result, we expect to incur substantial operating losses for at least the next several years, due primarily to the advancement of our research and development programs, the cost of preclinical studies and clinical trials, spending for outside services, costs related to maintaining our intellectual property portfolio, costs related to our facilities, and possible advancement toward commercialization activities.

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

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

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

We describe our significant accounting policies in Note 1 of the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. We discuss our critical accounting policies and estimates in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

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

Three Months Ended June 30, ~~2018,~~2019, Compared with Three Months Ended June 30, ~~2017~~2018

Total Revenues. Total revenues decreased ~~$2.7 million, or 78.5%,~~ to $0 for the three months ended June 30, 2019, from $0.7 million for the three months ended June 30, ~~2018, from $3.4 million for the three months ended June 30, 2017.~~2018. This decrease was primarily ~~due to a decrease in Astellas contract revenues~~ due to the termination of the ASP0113 program in January 2018.

Research and Development Expenses. Research and development expenses ~~were~~decreased $2.8 million, or 78.9%, to $0.8 million for the three months ended June 30, 2019, from $3.6 million for the three months ended June 30, ~~2018 and June 30, 2017. In 2018, there~~2018. This decrease was ~~an increase in costs associated with the start-up of the VL2397 clinical trial and an increase in patent expense~~primarily due to the ~~write-off~~termination of ~~HSV-2 capitalized patent costs. These increases were offset by~~the VL-2397 in February 2019. As of June 30, 2019 we did not have any active research and development programs.

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

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

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

Total Revenues. Total revenues decreased to $0 for the six months ended June 30, 2019, from $1.5 million for the six months ended June 30, 2018. This decrease was primarily due to the ~~HSV-2 program.~~termination of the ASP0113 program in January 2018.

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

Manufacturing and Production Expenses. Manufacturing and production expenses decreased to $0$0.0 for the ~~three~~six months ended June 30, ~~2018,~~2019 from ~~$1.6~~$1.4 million for the ~~three~~six months ended June 30, ~~2017.~~2018. This decrease was due to the termination of the ASP0113 program in January 2018. The termination resulted in a decrease in manufacturing activity and a headcount reduction. In February 2018, we discontinued all manufacturing and production activities and, as a result, we do not expect to incur any future manufacturing or production ~~expenses.~~expenses unless the Merger is consummated.

General and Administrative Expenses. General and administrative expenses ~~increased $0.7~~decreased $0.8 million, or ~~42.1%~~17.4%, to ~~$2.3~~$3.6 million for the ~~three~~six months ended June 30, ~~2018,~~2019, from ~~$1.6~~$4.4 million for the ~~three~~six months ended June 30, ~~2017.~~2018. This ~~increase~~decrease was primarily due to ~~the allocation of additional overhead to general~~a decrease in wages and ~~administrative expenses~~benefits as a result of ~~the closure of our manufacturing facility.~~lower headcount and lower facility costs.

Investment and Other Income, Net. Investment and other income, net, increased ~~$0.2~~$0.8 million to ~~$0.3 million for the three months ended June 30, 2018, from $0.1 million for the three months ended June 30, 2017 primarily due to increased earnings on investments.~~

~~Six Months Ended June 30, 2018, Compared with Six Months Ended June 30, 2017~~

~~Total Revenues. Total revenues decreased $5.1 million, or 78.1%, to $1.5~~$1.3 million for the six months ended June 30, ~~2018,~~2019, from ~~$6.6 million for the six months ended June 30, 2017. This decrease was primarily due to a decrease in Astellas contract revenues due to the termination of the ASP0113 program in January 2018.~~

~~Research and Development Expenses~~. Research and development expenses increased $0.4 million, or 4.7%, to $7.3 million for the six months ended June 30, 2018, from $6.9 million for the six months ended June 30, 2017. This increase was primarily due to higher patent expense as a result of the write-off of capitalized patent costs associated with the terminated ASP0113 program and the recognition of restructuring costs in January 2018. These increases were partially offset by lower HSV-2 clinical trial costs.

~~Manufacturing and Production Expenses~~. Manufacturing and production expenses decreased $1.5 million, or 50.7%, to $1.4 million for the six months ended June 30, 2018, from $2.9 million for the six months ended June 30, 2017. This decrease was primarily due to a decrease in salaries and benefits and allocated overhead due to the termination of the ASP0113 program and the closure of our manufacturing facility. These decreases were partially offset by a net decrease in deferred costs capitalized during the six months ended June 30, 2018 related to materials manufactured under our supply agreement with Astellas. We have discontinued all manufacturing and production activities and, as a result, we do not expect to incur any future manufacturing or production expenses.

~~General and Administrative Expenses~~. General and administrative expenses increased $1.3 million, or 41.2%, to $4.4 million for the six months ended June 30, 2018, from $3.1 million for the six months ended June 30, 2017. This increase was primarily due to the allocation of additional overhead to general and administrative expenses as a result of the closure of our manufacturing facility.

~~Investment and Other Income, Net. Investment and other income, net, increased $0.3 million to~~ $0.5 million for the six months ended June 30, 2018 ~~from $0.2~~primarily due to the reversal of previously recognized losses on long-term investments sold in March 2019 and a $0.3 million ~~for~~gain realized on the sale of assets during the six months ended June 30, ~~2017 primarily due to increased earnings on investments.~~2019.

Since our inception, we have financed our operations primarily through private placements and public offerings of equity securities, and revenues from our operations. Cash, cash equivalents, marketable securities and long-term investments ~~including restricted cash,~~ totaled ~~$54.3~~$41.7 million at June 30, ~~2018,~~2019, compared with ~~$62.9~~$50.5 million at December 31, ~~2017.~~2018. The decrease in our cash, cash equivalents and marketable securities for the six months ended June 30, ~~2018,~~2019, was primarily the result of the use of cash to fund our operations.

Net cash used in operating activities was ~~$8.6~~$9.5 million and ~~$4.0~~$8.6 million for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The increase in net cash used in operating activities for the six months ended June 30, ~~2018,~~2019, compared with the prior year period, was primarily the result of ~~the payment of employee termination benefits and~~ a decrease in cash receipts from Astellas due to the termination of the ASP0113 program.

Net cash provided by (used in) ~~provided by~~ investing activities was ~~$(6.1)~~$8.4 million and ~~$3.2~~$(6.1) million for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The increase in net cash ~~used in~~provided by investing activities for the six months ended June 30, ~~2018,~~2019, compared with the prior year period, was primarily the result of ~~an increase~~a decrease of $11.7 million in net purchases of marketable ~~securities.~~securities and an increase in proceeds received from the sale of long-term investments.

Net cash provided by financing activities was ~~$0.0 million~~$13,000 and ~~$0.3 million~~$0 for the six months ended June 30, 2019 and 2018, ~~and 2017,~~ respectively. The decrease in net cash provided by financing activities for the six months ended June 30, 2018, compared with the prior year period, was the result of the sale of $0.3 million of the Company’s common stock during the six months ended June 30, 2017.

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

In the long-term, we expect to incur substantial additional research and development expenses and general and administrative expenses, including increases in costs related to personnel, preclinical and clinical testing, outside services, intellectual property and possible commercialization. Our future capital requirements will depend on many factors, including continued scientific progress in our research and development programs, the scope and results of preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting, enforcing and defending patent claims, the impact of competing technological and market developments, the cost of manufacturing scale-up and validation, and possible commercialization activities and arrangements. We may seek additional funding through research and development relationships with suitable potential corporate collaborators. We may also seek additional funding through public or private financings. For example, in November 2017,

~~we sold 9,194,286 shares of our common stock and pre-funded warrants to purchase 7,234,285 shares of our common stock in a public offering for gross proceeds of approximately $28.7 million.~~

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

Despite our current shelf registration statement, additional financing through these or other means may not be available on favorable terms or at all. If additional financing is not available, we anticipate that our available cash and existing sources of funding will be adequate to satisfy our cash needs at least through December 31, ~~2019.~~2020.

We may be required to make future payments to our 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 our in-license agreements is highly speculative and subject to a number of contingencies.

The aggregate amount of additional milestone payments that we could be required to pay under our active in-license agreements in place at June 30, 2018, 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, we may be required to make royalty payments in addition to these milestone payments. Although we believe that some of the milestones contained in our in-license agreements may be achieved, it is highly unlikely that a significant number of them will be achieved. Because the milestones are contingent, we are not in a position to reasonably estimate how much, if any, of the potential milestone payments will ultimately be paid, or when. Additionally, under the in-license agreements, many of the milestone events are related to progress in clinical trials which will take several years to achieve.

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

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

severance ~~for the other executives~~ consists of a lump sum payment equal to 18 months of base salary at the then-current rate, the payment of health insurance premiums for 12 months, plus a payment equal to the executive’s cash bonus in the previous year. In addition, all outstanding unvested stock awards will vest immediately. The severance for the remaining executive consists of a lump-sum payment equal to six months of base salary at the then-current rate, including the payment of health insurance premiums for six months, plus a bonus payment of $75,000. The maximum payments due under these ~~employment~~ agreements would have been ~~$3.8~~$2.4 million if each such ~~officer~~employee was terminated at June 30, ~~2018.~~2019.

As of June 30, ~~2018,~~2019, we did not have any off-balance sheet arrangements.

We are subject to interest rate risk. Our investment portfolio is maintained in accordance with our investment policy which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. Our investment portfolio consists of cash equivalents ~~both restricted~~ and ~~non-restricted,~~ marketable ~~securities and long-term investments.~~securities. The average maturity of our investments ~~excluding our auction rate securities,~~ is approximately ~~four~~three months. Our investments are classified as available-for-sale securities.

To assess our interest rate risk, we performed a sensitivity analysis projecting an ending fair value of our cash equivalents and ~~current~~ marketable securities using the following assumptions: a ~~four-month~~three-month average maturity and a 150-basis-point increase in interest rates. This pro forma fair value would have been ~~$0.3~~$0.2 million lower than the reported fair value of our investments at June 30, ~~2018.~~2019.

Our investment securities consist of ~~auction rate securities, corporate debt securities and~~ government agency securities. As of June 30, 2018, our long-term investments included a (at par value) $2.5 million auction rate security secured by municipal bonds. At June 30, 2018, the auction rate security we held maintained a Standard and Poor’s credit rating of BBB. Our auction rate security is a debt instrument with a long-term maturity and with an interest rate that is reset in short intervals through auctions. The conditions in the global credit markets have prevented some investors from liquidating their holdings of auction rate securities because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities. If there is insufficient demand for the securities at the time of an auction, the auction may not be completed and the interest rates may be reset to predetermined higher rates. When auctions for these securities fail, the investments may not be readily convertible to cash until a future auction of these investments is successful or they are redeemed or mature.

Since February 2008, there has been insufficient demand at auction for our auction rate security held at June 30, 2018. As a result, this security is currently not liquid, and we could be required to hold it until it is redeemed by the issuer or to maturity. As of June 30, 2018, we had recognized $0.4 million of losses related to the auction rate security by adjusting its carrying value. The market value of the security has partially recovered from the lows that created the losses. As of June 30, 2018, we had recorded cumulative unrealized gains of $0.4 million. Any future decline in market value may result in additional losses being recognized.

The valuation of our 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 or other type of valuation model as of June 30, 2018. The key drivers of the valuation model include the expected term, collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, discount rates, and the expected holding period. The security was also compared, when possible, to other observable market data for securities with similar characteristics.

In the event we need to access the funds that are not currently liquid, we will not be able to do so without the possible loss of principal, until a future auction for this investment is successful or it is redeemed by the issuer or it matures. If we are unable to sell the security in the market or it is not redeemed, then we may be required to hold it until 2038 when it matures. We do not anticipate a need to access these funds for operational purposes for the foreseeable future. We will continue to monitor and evaluate the investment on an ongoing basis for impairment. Based on our ability to access our cash and other short-term investments, our expected operating cash flows, and our other sources of cash, we do not anticipate that the potential illiquidity of this investment will affect our ability to execute our current business plan.

Under the supervision and with the participation of our management, including our principal executive and financial officer, we conducted an evaluation of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Exchange Act as of the end of the period covered by this Report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level as of June 30, ~~2018.~~2019.

Management has determined that there were no significant changes in our internal control over financial reporting that occurred during the three months ended June 30, ~~2018,~~2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

You should consider carefully the following information about the risks described below, together with ~~all of~~ the other information ~~included~~contained in this Quarterly Report and in our other public filings in evaluating our business. The risk factors set forth below did not appear as separate risk factors, or contain changes to the similarly titled risk factors, included in “Item 1A. Risk Factors” set forth in the Vical 10-Q, as filed with the SEC ~~before deciding whether to invest in or continue to hold our common stock. The risks described below are all material risks currently known, expected or reasonably foreseeable by us.~~on May 2, 2019. If any of ~~these~~the following risks actually occur, our business, financial condition, results of operations, ~~or cash flow could~~and future growth prospects would likely be ~~seriously harmed. This could cause~~materially and adversely affected. In these circumstances, the ~~trading~~market price of our common stock would likely decline.

Risks Related to ~~decline, resulting in a loss of all or part of your investment.~~the Merger

If the Merger with Brickell is not consummated, Vical’s business could suffer materially and Vical’s stock price could decline.

The ~~risk factors set forth below~~consummation of the Merger with ~~an asterisk (*) next~~Brickell is subject to the ~~title are new risk factors or risk factors containing changes, including material changes, from the risk factors previously disclosed in Item 1A~~satisfaction of ~~our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.~~

~~(*)None of our product candidates has been approved for sale, and we have~~ a ~~limited~~ number of ~~product candidates~~closing conditions, including the receipt of Vical stockholder approvals, Vical’s successful application for initial listing with Nasdaq, the occurrence of the special meeting of Vical’s stockholders, the satisfaction of the Vical net cash condition and other closing conditions. Vical and Brickell are targeting a closing of the Merger in ~~development.~~ the third quarter of 2019.

If ~~we do~~the Merger is not ~~develop commercially successful products, we~~consummated, Vical may be ~~forced~~subject to ~~curtail or cease operations.~~

~~All~~a number of ~~our product candidates are either~~material risks, and its business and stock price could be adversely affected, as follows:

In addition, if the Merger Agreement is terminated and Vical’s board of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many yearsdirectors determines to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. We and our licensees have in the past suffered significant setbacks in advanced clinical trials due to lack of efficacy, notwithstanding promising results in earlier trials. For example, in 2013 we ceased development of Allovectin^®, an investigational intratumoral cancer immunotherapy, following negative results from a Phase 3 trial. In June 2015 and in June 2018, we announced that our HSV-2 product candidate did not meet the primary endpoint in a Phase 1/2 and a Phase 2 clinical study, respectively. In September 2016, we and Astellas announced that ASP0113 did not meet its primary endpoint in a Phase 2 clinical study in kidney transplant patients and in January 2018, we and Astellas announced that ASP0113 did not meet its primary endpoint in a Phase 3 clinical study in CMV end organ disease, after which Astellas informed us thatseek another business combination, it ~~was terminating further development. Most product candidates that commence clinical trials are never approved as products.~~

~~There are a number of factors that could cause a clinical study to fail or be delayed, including:~~

~~If initiation~~Officers and directors of Vical participate in arrangements that provide them with interests in the Merger that are different from Vical’s stockholders, including, among others, to the extent applicable, their continued service as a director of the combined company, severance benefits and continued indemnification. These interests, among others, may influence the officers and directors of Vical to support or ~~completion~~approve the Merger

Vical’s severance agreements with Vical’s executive officers and certain other employees require Vical to pay severance benefits to any of ~~our clinical studies~~those persons who are terminated under specified circumstances, including in connection with a change of control of Vical, which could harm Vical’s financial condition or ~~those~~results.

Vical’s executive officers and certain other employees are parties to severance agreements that contain change of ~~our collaborators are delayed, our development costs may increase,~~control and severance provisions providing for severance and other benefits and acceleration of vesting of stock options in the ~~approval process for our product candidates would~~event of a termination of employment under specified circumstances. Based on the terms of their respective severance agreements, Vical’s executive officers will be ~~delayed, any periods during which we may have~~entitled to receive an aggregate of approximately $2.3 million in severance benefits due to the ~~exclusive right~~terminations of their employment upon a change of control in connection with the consummation of the Merger. The payment of these severance benefits could harm Vical’s financial condition and results and reduce the cash available to ~~commercialize our product candidates~~the combined company following the Merger.

The Merger may be ~~reduced~~completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and ~~our competitors may have more time to bring products to market or establish market positions.~~other causes.

In ~~addition,~~general, either party can refuse to complete the Merger if there is a material adverse change affecting the other party following June 2, 2019, the date of the Merger Agreement. However, some types of changes do not permit either party to refuse to complete the Merger, even if clinical trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as sufficient to demonstrate that a product is safe and efficacious, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of the approved labeling, or result in significant negative consequences following marketing approval, if any.

There is risk that our product candidates may induce AEs, many of which may be unknown at this time. If an unacceptable frequency and/or severity of AEs are reported in clinical studies for our product candidates, our ability to obtain regulatory approval for may be negatively impacted. Even if we receive regulatory approval, AEs associated with any approved products could have significant negative consequences, including:

Any of these events could prevent us from achieving or maintaining regulatory approvals or market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.

(*)Our revenues have depended on the development and commercialization of products in collaboration with others to whom we have licensed our technologies. If we are unable to find additional collaborators or licensees, or if future collaborators or licensees do not successfully develop and commercialize products covered by such arrangements, we may not be able to derive

~~collaboration and licensing revenues, we may lose opportunities to validate our DNA delivery technologies, or we may be forced to curtail our development and commercialization efforts in these areas.~~

We have licensed, and may continue to license, our technologies to corporate collaborators and licensees for the research, development and commercialization of specified product candidates. Our revenues have partially depended upon the ability of these collaborators and licensees to successfully develop and commercialize products covered by these arrangements. For example, we previously entered into license agreements with Astellas related to ASP0113, an investigational CMV therapeutic vaccine, and these agreements were subsequently terminated following negative results from a Phase 3 clinical trial. Prior to the termination, the revenue received by us under this collaboration accounted for a significant amount of our revenue generated over the past three years. During the years ended December 31, 2017, 2016 and 2015, we recognized $0.3 million, $1.5 million and $1.8 million, respectively, of revenue related to license fees, and $13.5 million, $12.5 million and $14.7 million, respectively, of revenue related to contract services and product supply. During the six months ended June 30, 2018 and 2017, we recognized $1.2 million and $6.3 million, respectively, of revenue from Astellas. If we are unable to enter into new collaboration or licensing arrangements with third parties, we will not receive additional revenues from these sources and our financial results will be negatively impacted. The development and commercialization efforts of our collaborators and licensees are subject to the same risks and uncertainties described above with respect to our independently developed product candidates.

Some collaborators or licensees may not succeed in their product development efforts. It is possible that our collaborators or licensees may be unable to obtain regulatory approval of product candidates using our technologies or successfully market and commercialize any such products for which regulatory approval is obtained. Other collaborators or licensees may not devote sufficient time or resources to the programs covered by these arrangements, and we may have limited or no control over the time or resources allocated by these collaborators or licensees to these programs. The occurrence of any of these events may cause us to derive little or no revenue from these arrangements, lose opportunities to validate our DNA delivery technologies, or force us to curtail or cease our development and commercialization efforts in these areas.

Our collaborators and licensees may breach or terminate their agreements with us, including some that may terminate their agreements without cause at any time subject to certain prior written notice requirements, and we may be unsuccessful in entering into and maintaining other collaborative arrangements for the development and commercialization of products using our technologies. If we are unable to maintain existing collaboration arrangements or enter into new ones, our ability to generate licensing, milestone or royalty revenues would be materially impaired.

Some of our independent product candidates and some of those under development by our sublicensees incorporate technologies we have licensed from others. If we are unable to retain rights to use these technologies, we or our sublicensees may not be able to market products incorporating these technologies on a commercially feasible basis, if at all.

We have licensed certain technologies from corporate collaborators and research institutions, and sublicensed certain of such technologies to others, for use in the research, development and commercialization of product candidates. Our product development efforts and those of our sublicensees partially depend upon continued access to these technologies. For example, we or our licensors may breach or terminate our agreements, or disagree on interpretations of those agreements, which could prevent continued access to these technologies. If we were unable to resolve such matters on satisfactory terms, or at all, we or our sublicensees may be unable to develop and commercialize our products, and we may be forced to curtail or cease operations.

We licensed rights to patents and know-how for VL-2397 from Astellas pursuant to an in-license agreement that contains obligations to pay Astellas regulatory and sales milestone payments relating to VL-2397, as well as royalties on net sales of VL-2397. If we fail to make a required payment to Astellas or otherwise materially breach our in-license agreement with Astellas and do not cure the failure within the required time period, Astellas may be able to terminate the license to the VL-2397 patents and know-how, whichchanges would have a material adverse effect on ~~our business, financial condition and results of operations.~~

~~(*)We~~Vical or Brickell, to the extent they resulted from the following (unless, in some cases, they have a ~~history~~disproportionate effect on Vical or Brickell, as the case may be):

•any change in, or any compliance with or action taken for the purpose of complying with, any law or GAAP;

•the taking of any action required to ~~continue~~be taken by the Merger Agreement;

•with respect to ~~incur net losses~~Vical, any change in the stock price or trading volume of Vical’s common stock;

•with respect to Vical, any failure to meet analysts’ financial or industry expectations or projections; and we

•with respect to Vical, the announcement of the Merger Agreement or the pendency of the Merger.

If adverse changes occur but Vical and Brickell must still complete the Merger, the combined company’s stock price may suffer.

The market price of the combined company’s common stock may decline as a result of the Merger.

The market price of the combined company’s common stock may decline as a result of the Merger for a number of reasons, including if:

To date, we have not sold, or received approval to sell, any pharmaceutical products. We do not expect to sell any pharmaceutical products for at least the next several years. Our net losses were approximately $13.0 million, $9.0 million and $9.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of June 30, 2018, we had incurred cumulative net losses totaling approximately $436.9 million. Moreover, we expect that our net losses will continue and may increase for the foreseeable future. We may not be able to achieve projected results if we generate lower revenues or receive lower investment income than expected, or we incur greater expenses than expected, or all of the above. Over the past several years our revenues have been largely dependent on manufacturing and research services performed under our license agreement with Astellas. In February 2018, Astellas exercised its rights to terminate the ASP0113 license agreements, and we will therefore not receive any further payments

under these agreements. We may never generate sufficient product revenue to become profitable. We also expect to have quarter-to-quarter fluctuations in revenues, expenses, and losses, some of which could be significant.

~~(*)We may need additional capital in the future. If additional capital is not available, we may have to curtail or cease operations.~~

We may need to raise more money to continue the research and development necessary to bring our products to market and to establish marketing and additional manufacturing capabilities. We may seek additional funds through public and private stock offerings, government contracts and grants, arrangements with corporate collaborators, borrowings under lines of credit or other sources. We currently have on filerealize a ~~shelf registration statement that allows us to raise up to an aggregate of $40.0 million~~benefit from the ~~sale of common stock, preferred stock, debt securities and/or warrants, subject to limitations on~~Merger commensurate with the ~~amount of securities we may sell under~~ownership dilution they will experience in connection with the registration statement in any 12-month period. However, we may not be able to raise additional funds on favorable terms, or at all. Conditions in the credit markets and the financial services industry may make equity and debt financing more difficult to obtain, and may negatively impact our ability to complete financing transactions. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants, such as limitations on our ability to incur additional indebtedness and other operating restrictions that could adversely impact our ability to conduct our business.Merger.

If we are unable to obtain additional funds, we may have to scale back our development of new products, reduce our workforce or license to others products or technologies that we otherwise would seek to commercialize ourselves. The amount of money we may need would depend on many factors, including:

(*)If we do not realize the expected benefits and successfully manage the transition from the restructuring that we announced in January 2018, our operations and financial condition may be negatively impacted.

In January 2018, we implemented a restructuring designed to conserve capital and focus our efforts on our VL-2397 antifungal drug product candidate and VCL-HB01 vaccine candidate. In addition, in July 2018, we entered into an agreement with Genopis, Inc., or Genopis, to sell our idle manufacturing assets and sublease our manufacturing facilities space. If we arecombined company is unable to realize the ~~expected operational efficiencies and cost savings from our restructuring and sale of our manufacturing assets, our operating results~~strategic and financial ~~condition would be adversely affected. We cannot guarantee that we~~benefits currently anticipated from the Merger, Vical’s stockholders will ~~not~~ have ~~to undertake additional restructuring activities or that~~experienced substantial dilution of their ownership interest without receiving any ~~of our restructuring efforts~~commensurate benefit. Significant management attention and resources will be ~~successful.~~required to integrate the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and stock price following the Merger. Even if

the combined company is able to ~~effectively manage our~~integrate the business operations and facilities in order to advance our drug development programs and support our collaboration arrangements. Following our January 2018 restructuring and July 2018 sale of our manufacturing assets, it is possible that our infrastructure may be inadequate to support our future efforts and business strategy or to maintain effective operational, financial and management controls and reporting systems and procedures. If we cannot successfully, ~~manage the transition of our restructured operations, we may be unsuccessful in executing our business strategy.~~

~~(*)We are reviewing strategic alternatives and~~ there can be no assurance that we will be successful in identifying or completing any strategic transaction, that any such strategic transaction will result in additional value for our stockholders or that the process will not have an adverse impact on our business.

~~We recently announced that our board of directors plans to conduct a review of strategic alternatives~~ ~~and that we had retained MTS Health Partners, L.P. as our financial advisor to assist in the review process~~. These alternatives could include, but are not limited to, merger or acquisition transactions, issuing or transferring shares or our common stock, or the license, purchase or sale of specific assets, in addition to other potential actions aimed at increasing stockholder value. There can be no assurance that the review of strategic alternativesthis integration will result in the ~~identification or consummation~~realization of ~~any transaction. Our board~~the full benefits of ~~directors may also determine~~synergies, innovation and operational efficiencies that ~~our most effective strategy is to continue to execute on our current development strategy. The process of reviewing strategic alternatives~~ may be ~~time consuming~~possible from this integration and ~~disruptive to our business operations~~that these benefits will be achieved within a reasonable period of time.

The combined company will incur significant transaction costs as a result of the Merger, including investment banking, legal and ~~if we are unable to effectively manage~~accounting fees. In addition, the ~~process, our business,~~combined company will incur significant consolidation and integration expenses which cannot be accurately estimated at this time. Actual transaction costs may substantially exceed estimates and may have an adverse effect on the combined company’s financial condition and results of operations could be adversely affected. We could incur substantial expenses associated with identifying, evaluating and negotiating potential strategic alternatives. There can be no assurance that any potential transaction oroperating results.

~~other~~ ~~strategic alternative, if consummated, will provide greater value to our stockholders than that reflected in~~During the current price of our common stock. Until the review process is concluded, perceived uncertainties related to our future may result in the loss of potential business opportunities and volatility in the market price of our common stock and may make it more difficult for us to attract and retain qualified personnel and business partners.

The regulatory approval process is expensive, time consuming and uncertain, which may prevent us and our collaborators and licensees from obtaining required approvals for the commercialization of our products.

Our product candidates under development and those of our collaborators and licensees are subject to extensive and rigorous regulations by numerous governmental authorities in the United States and other countries. The regulatory approval process takes many years and will require us to expend substantial resources.

U.S. or foreign regulations evolve and could prevent or delay regulatory approval of our products or limit our and our collaborators and licensees’ ability to develop and commercialize our products. Delays could:

We have no experience in submitting a BLA or an NDA to the FDA. Because these applications must be submitted to and approved by the FDA before any of our product candidates may be commercialized, our lack of experience may impede our ability to obtain FDA approval in a timely manner, if at all, which in turn would delay or prevent us from commercializing those products. Similarly, our lack of experience with respect to obtaining regulatory approvals in countries other than the United States may impede our ability to commercialize our products in those countries.

The FDA and comparable foreign regulatory bodies will regulate separately each product containing a particular gene depending on its intended use. Presently, to commercialize any product we and our collaborators and licensees must file a regulatory application for each proposed use. We and our collaborators and licensees must conduct clinical studies to demonstrate the safety and efficacypendency of the ~~product necessary to obtain FDA or foreign regulatory authority approval. The results obtained so far in our clinical trials~~Merger, Vical and ~~those of our collaborators and licensees may not be replicated in ongoing or future trials, or the results may~~Brickell will be subject to ~~varying interpretation on whether they~~contractual limitations set forth in the Merger Agreement that restrict the parties’ ability to enter into business combination transactions with another party.

Covenants in the Merger Agreement impede the ability of Vical or Brickell to make acquisitions or complete other transactions that are ~~sufficient~~not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to ~~support approval~~their competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of Vical’s common stock, a tender offer for ~~commercialization. This may prevent any of our product candidates from receiving approval for commercial sale.~~

~~If any of our product candidates receive regulatory approval, the FDA~~Vical’s common stock, a Merger or other ~~foreign regulatory agencies~~business combination outside the ordinary course of business. Any such transactions could be favorable to such party’s stockholders.

Because the lack of a public market for Brickell’s common stock makes it difficult to evaluate the fairness of the Merger, Brickell’s stockholders may ~~still impose significant restrictions on~~receive consideration in the ~~indicated uses~~Merger that is greater than or ~~marketing~~less than the fair market value of ~~our product candidates or impose ongoing requirements for potentially costly post-approval studies. In addition, regulatory agencies subject~~Brickell’s common stock.

The outstanding share capital of Brickell is privately held and is not traded in any public market. The lack of a ~~product, its manufacturer and~~public market makes it difficult to determine the ~~manufacturer’s facilities~~fair market value of Brickell. It is possible that the value of Vical’s common stock to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product or a product class, including AEs of unanticipated severity or frequency, or problemsbe issued in connection with the ~~facility where~~Merger will be greater than the ~~product is manufactured, a regulatory agency~~fair market value of Brickell.

Because the Merger will result in an ownership change under Section 382 of the Internal Revenue Code (the “Code”) for Vical, Vical’s pre-Merger net operating loss carryforwards and certain other tax attributes will be subject to limitations. The net operating loss carryforwards and other tax attributes of Brickell and of the combined company may ~~impose restrictions on that product or product class, our collaborators and licensees or us, including requiring withdrawal of a product from the market. Our product candidates will~~ also be subject to ~~ongoing FDA~~limitations as a result of ownership changes.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s net operating loss carryforwards and certain other ~~foreign regulatory agency requirements~~tax attributes arising before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Merger will result in an ownership change for Vical and, accordingly, Vical’s net operating loss carryforwards and certain other tax attributes will be subject to limitations (or disallowance) on their use after the ~~labeling, packaging, storage, advertising, promotion, record-keeping and submission~~Merger. Brickell’s net operating loss carryforwards may also be subject to limitation as a result of safety and other post-market information on the product. If we or our collaborators and licensees fail to maintain regulatory compliance after receiving marketing approval, we or our collaborators and licensees may be unable to market our products and our business could suffer.

~~Adverse events~~ prior shifts in equity ownership and/or the ~~perception of adverse events in the field of gene therapy, or with respect to our product candidates, may negatively impact regulatory approval or public perception of our products.~~

The commercial success of some of our product candidates will depend in part on public acceptance of the use of gene therapy for preventing or treating human diseases. Serious AEs, including patient deaths, have occurred in clinical trials utilizing viral delivery systems to deliver therapeutic genes to the patient’s targeted cells. Although none of our current products or studies utilize viral delivery systems, these AEs, as well as any other AEs in the field of gene therapy that may occurMerger. Additional ownership changes in the future may negatively influence public perception of gene therapy in general. If public perception is influenced by claims that gene therapy is unsafe, our product candidates may not be accepted by the general public or the medical community.

Future AEs in gene therapy or the biotechnology industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approval of our potential products. Any increased scrutiny could delay or

increase the costs of our product development efforts or clinical trials. In addition, any AEs that may occur in our clinical trials and any resulting publicity may cause regulatory delays or otherwise affect our product development efforts or clinical trials.

Some of our potential products may be administered to patients who are suffering from, or are vulnerable to, serious diseases or other conditions which can themselves be life-threatening and often result in the death of the patient. Patient deaths in our clinical trials, even if caused by pre-existing diseases or conditions, could negatively affect the perception of our product candidates. In addition, although we do not believe our vaccine candidates could cause the diseases they are designed to protect against, a temporal relationship between vaccination and disease onset could be perceived as causal. Some of our products are designed to stimulate immune responses, and those responses, if particularly strong or uncontrolled, could result in ~~local or systemic AEs, including latent AEs.~~

~~(*)Our patents and proprietary rights may not provide us with any benefit~~additional limitations on Vical’s, Brickell’s and the ~~patents of others may prevent us from commercializing our products.~~

~~As of June 30, 2018, we were~~combined company’s net operating loss carryforwards. Consequently, even if the assignee or co-assignee of 45 issued U.S. and foreign patents. We maintain our issued patents by paying maintenance fees to the patent office in each country when due. Where appropriate, we participate in legal proceedings to vigorously defend against the revocation or withdrawal of our patents. The scope and nature of these proceedings generally differ depending on the country in which they are initiated. If we are not successful in defending our patents, we may lose all or part of our proprietary rights related to those patents in these geographic regions.

As of June 30, 2018, we were also prosecuting one pending patent application in the United States and one in Canada that cover various aspects of our proprietary technologies, not including patent applications for which we are a co-assignee and that are being prosecuted by our partners.

We may not receive any patents from our current patent applications. Issued patents provide exclusivity for only a limited time period, after which they no longer serve to protect proprietary technologies or to provide any commercial advantage. Moreover, if patents are issued to us, governmental authorities may not allow claims sufficient to protect our technologies and products. Others may also challenge or seek to circumvent or invalidate our patents. In that event, the rights granted under our patents may be inadequate to protect our proprietary technologies or to provide any commercial advantage.

~~An inability to obtain, enforce, and defend patents covering our proprietary technologies would materially and adversely affect our business prospects and financial condition.~~

Some components of our gene-based product candidates are, or may become, patented by others. As a result, we may be required to obtain licenses to conduct research, to manufacture, or to market such products. Licenses may not be available on commercially reasonable terms, or at all, which may impede our ability to commercialize our products.

~~The legal proceedings to obtain and defend patents, and litigation of third-party claims of intellectual property infringement, could require us to spend money and could impair our operations.~~

Our and our collaborators’ success will depend in part on our, or our collaborators’, ability to obtain patent protection for our products and processes, both in the United States and in other countries. The patent positions of biotechnology and pharmaceutical companies, however, can be highly uncertain and involve complex legal and factual questions. Therefore,combined company achieves profitability, it ~~is difficult to predict the breadth of claims allowed in the biotechnology and pharmaceutical fields.~~

We also rely on confidentiality agreements with our corporate collaborators, employees, consultants and certain contractors to protect our proprietary technologies. However, these agreements may be breached and we may not have adequate remedies for such breaches. In addition, our trade secrets may otherwise become known or independently discovered by our competitors.

Protecting intellectual property rights can be very expensive. Litigation may be necessary to enforce patents issued to us or to determine the scope and validity of third-party proprietary rights. If we or, as applicable, our commercialization partners, including Astellas pursuant to its first right to enforce patents licensed to it under our license agreements, choose to go to court to stop someone else from using our inventions, that individual or company has the right to ask the court to rule that the underlying patents are invalid and/or should not be enforced against that third party. Moreover, if a competitor were to file a patent application claiming technology also invented by us or our collaborators or licensees, we would have to participate in an interference proceeding before the U.S. Patent and Trademark Office to determine the priority of the invention. We or our collaborators or licensees may be drawn into interferences with third parties or may have to provoke interferences ourselves to unblock third-party patent rights to allow us or our collaborators or licensees to commercialize products based on our technologies. Litigation could result in substantial costs and the diversion of

management’s efforts regardless of the results of the litigation. An unfavorable result in litigation could subject us to significant liabilities to third parties, require disputed rights to be licensed or require us to cease using some technologies.

Our products and processes may infringe, or be found to infringe, patents not owned or controlled by us. Patents held by others may require us to alter our products or processes, obtain licenses, or stop activities. If relevant claims of third-party patents are upheld as valid and enforceable, we or our collaborators or licensees could be prevented from practicing the subject matter claimed in the patents, or may be required to obtain licenses or redesign our products or processes to avoid infringement. In addition, we or our collaborators or licensees could be required to pay money damages. A number of genetic sequences or proteins encoded by genetic sequences that we are investigating are, or may become, patented by others. As a result, we or our collaborators or licensees may have to obtain licenses to test, use or market these products. Our business will suffer if we or our collaborators or licensees are not able to obtain licenses at all or on terms commercially reasonable to us or them and we or they are not able to redesign our products or processes to avoid infringement.

We have incurred costs in several legal proceedings involving our intellectual property rights in Europe, Japan and Canada. We may continue to incur costs to defend and prosecute patents and patent applications in these and other regions.

~~Competition and technological change may make our product candidates and technologies less attractive or obsolete.~~

We compete with companies, including major pharmaceutical and biotechnology firms that are pursuing other forms of treatment or prevention for diseases that we target. We also may experience competition from companies that have acquired or may acquire technologies from universities and other research institutions. As these companies develop their technologies, they may develop proprietary positions which may prevent us from successfully commercializing products.

Some of our competitors are established companies with greater financial and other resources than we have. Other companies may succeed in developing products and obtaining regulatory approval from the FDA or comparable foreign agencies faster than we do, or in developing products that are more effective than ours. Research and development by others may seek to render our technologies or products obsolete or noncompetitive or result in treatments or cures superior to any therapeutics developed by us.

The internet site ClinicalTrials.gov provides public access to information on clinical trials and their results for a wide range of diseases and conditions. Future disclosures of such confidential commercial information may result in loss of advantage of competitive secrets.

~~If we lose our key personnel or are unable to attract and retain additional personnel, we~~ may not be able to ~~achieve our business objectives.~~

~~We are highly dependent on our principal scientific, manufacturing, clinical, regulatory and management personnel, including Vijay B. Samant, our President and Chief Executive Officer. The loss~~utilize a material portion of the services of these individuals might significantly delay or prevent the achievement of our objectives. For example, due to the loss of various scientific, clinical and regulatory personnel as a result of our January 2018 restructuring, we may be less effective in advancing our product candidates. We do not maintain “key person” life insurance on any of our personnel. We depend on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We face competition for qualified individuals from other companies, academic institutions, government entities and other organizations in attracting and retaining personnel. To pursue our product development plans, we may need to hire additional management personnel and additional scientific personnel to perform research and development, as well as additional personnel with expertise in clinical trials, government regulation and manufacturing. However, due to the reasons noted above, we may not be successful in hiring or retaining qualified personnel and therefore we may not be able to achieve our business objectives.

~~(*)We currently depend on third parties to conduct our clinical trials and manufacture our product candidates.~~

We rely on third parties, including clinical research organizations, medical institutions and contract laboratories, to perform critical services for us in connection with our clinical trials. These third parties are responsible for many aspects of the trials, including finding and enrolling subjects for testing and administering the trials. Although we rely on these third parties to conduct our clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with its protocol and applicable regulations, including good clinical practices established by the FDA and foreign regulatory authorities, which govern the conduct, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that trial subjects are adequately informed of the potential risks associated with participating in clinical trials. Our reliance on third parties does not relieve us of the responsibility to ensure these requirements are met. These third parties may not comply with all regulatory and contractual requirements or may not otherwise perform their services in a timely or acceptable manner, and we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or

terminated. In addition, if such third parties fail to perform their obligations in compliance with our clinical trial protocols or applicable good clinical practice regulations, our clinical trials may not meet regulatory requirements or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials. These risks also apply to the development activities of our collaborators and licensees, and we do not control our collaborators’ and licensees’ research and development, clinical trials or regulatory activities.

We also depend on collaborators, licensees or other third parties to manufacture our product candidates, and this reliance has increased following the sale of our manufacturing assets in July 2018. There are a limited number of third parties that could manufacture our product candidates. We may be unable to enter into any arrangement for the manufacture of our product candidates, and any arrangement we secure may not meet our requirements for manufacturing quality or quantity. Our dependence on third parties for the manufacture of our product candidates may also reduce our profit margins and our ability to develop and deliver products in a timely manner.

~~We have no marketing or sales experience, and if we are unable to develop our own sales and marketing capability, we may not be successful in commercializing our products.~~

Our current strategy is to market our proprietary products directly in the United States, but we currently do not possess pharmaceutical marketing or sales capabilities. To market and sell our proprietary products, we will need to develop a sales force and a marketing group with relevant pharmaceutical industry experience, or make appropriate arrangements with strategic partners to market and sell these products. Developing a marketing and sales force is expensive and time-consuming and could delay any product launch. If we are unable to successfully employ qualified marketing and sales personnel or develop other sales and marketing capabilities, we may not be able to generate sufficient product revenue to become profitable.

If we fail to comply with federal and state healthcare laws, including fraud and abuse, transparency, and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute any product for which we obtain marketing approval. Such laws include:

Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional integrity obligations, such as additional reporting and/or oversight requirements if we become subject to a corporate integrity agreement or similar agreement with a governmental authority, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.

~~Healthcare reform and restrictions on reimbursement may limit our returns on potential products.~~

~~Our ability to earn sufficient returns on our products will depend in part on how much, if any, reimbursement for our products and related treatments will be available from:~~

Such third-party payers decide which drugs and treatments they will cover and the amount of reimbursement, and no uniform policy exists. Therefore, coverage and reimbursement for products can differ significantly from payer to payer. Further, the coverage determination process is a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payer separately. Patients rely on third-party payers to reimburse all or part of the cost associated with treatment. If we fail to obtain adequate reimbursement, we could be prevented from successfully commercializing our potential products.

There are ongoing efforts by governmental and third-party payers to contain or reduce the costs of healthcare through various reform measures. For example, in the United States, the Federal government passed comprehensive healthcare reform legislation, the ACA, in 2010. With respect to pharmaceutical products, the ACA, among other things, expanded and increased industry rebates for drugs covered by Medicaid and made changes to the coverage requirements under Medicare Part D, Medicare’s prescription drug benefits program. Since its enactment there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of any certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law, including the repeal, effective January 1, 2019, of the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain fees mandated by the ACA, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Moreover, the Bipartisan Budget Act of 2018, among other things, amends the ACA, effective January 1, 2019, to increase from 50% to 70% the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to

as the “donut hole”. Congress may consider other legislation to repeal or repeal and replace elements of the ACA. We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.

In addition, drug pricing by pharmaceutical companies has recently come under increased scrutiny. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the out-of-pocket cost of prescription drugs, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement methodologies. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains additional drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our current product candidates and those for which we may receive regulatory approval in the future.

Further, third-party payers are increasingly challenging the price of medical products and services. If purchasers or users of our products are not able to obtain adequate reimbursement for the cost of using our products, they may forego or reduce their use. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, and whether adequate third-party coverage will be available.

~~(*)Our internal computer systems, or those used by our contractors or consultants, may fail or suffer security breaches.~~

We are dependent upon our own or third-party information technology systems, infrastructure and data, including mobile technologies, to operate our business. The multitude and complexity of our computer systems may make them vulnerable to service interruption or destruction, malicious intrusion, or random attack. Likewise, data privacy or security breaches by employees or others may pose a risk that sensitive data, including our clinical trial data, intellectual property, trade secrets or personal information of our employees, patients, customers or other business partners may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity. Cyber-attacks could include the deployment of harmful malware, denial-of-service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. Third party sites that take part in clinical trials we or our collaborators sponsor face similar risks and any security breach of their systems could adversely affect us. A security breach or privacy violation that leads to disclosure or modification of or prevents access to patient information, including personally identifiable information or protected health information, could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to litigation or other liability under laws and regulations that protect personal data, any of which could disrupt our business and/or result in increased costs or loss of revenue. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have invested, and continue to invest, in the protection of our data and information technology infrastructure, there can be no assurance that our efforts will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.

~~We use hazardous materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.~~

Our research and development processes involve the controlled storage, use and disposal of hazardous materials and biological materials. Our hazardous materials include certain compressed gases, flammable liquids, acids and bases, and other toxic compounds. We are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Although we believe that our safety procedures for handling and disposing of these hazardous materials comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result. We could incur significant costs to comply with current or future environmental laws and regulations.

We face an inherent business risk of exposure to product liability and other claims in the event that our technologies or products are alleged to have caused harm. We also have potential liability for products manufactured by us on a contract basis for third parties. Although we currently maintain product liability insurance in the amount of $10 million in the aggregate plus additional coverage specific to the foreign countries where our clinical trials are being conducted, this insurance coverage may not be sufficient, and we may not be able to obtain sufficient coverage in the future at a reasonable cost. Our inability to obtain product liability insurance at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of any products developed by us or our collaborators, or our ability to manufacture products for third parties. If we are sued for any injury caused by our technologies or products, or by third-party products that we manufacture, our liability could exceed our insurance coverage and total assets.

~~The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.~~

On December 22, 2017, President Trump signed into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination ofcombined company’s net operating loss ~~carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S.~~carryforwards and other tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

~~(*)Our stock price could continue to be highly volatile and you may not be able to resell your shares at or above the price you pay for them.~~

The market price of our common stock, like that of many other life sciences companies, has been and is likely to continue to be highly volatile. From January 1, 2015, to June 30, 2018, our stock price has ranged from $1.02 to $15.50. The following factors, among others, could have a significant impact on the market price of our common stock:

~~We are at risk of future securities class action litigation due to our past and expected stock price volatility.~~

In the past, stockholders have brought securities class action litigation against a company following a decline in the market price of its securities. This risk is especially acute for us because life science companies have experienced greater than average stock price volatility in recent years and, as a result, have been subject to, on average, a greater number of securities class action claims than companies in other industries. Even if such claims are not successful, any litigation could result in substantial costs and divert our management’s attention and resources,attributes, which could have a material adverse effect on ~~our business, operating~~cash flow and results of operations.

The Exchange Ratio is not adjustable based on the market price of Vical common stock so the Merger consideration at the closing of the Merger may have a greater or ~~financial condition.~~lesser value than at the time the Merger Agreement was signed.

~~Anti-takeover provisions~~At the effective time of the Merger, outstanding shares of Brickell capital stock will be converted into shares of Vical common stock. Applying the Exchange Ratio, the former Brickell securityholders and NovaQuest, collectively, are expected to own, subject to adjustment, approximately 60% of the aggregate number of shares of Vical common stock, and the securityholders of Vical as of immediately prior to the Merger are expected to own, subject to adjustment, approximately 40% of the aggregate number of shares of Vical common stock (in each case on a fully diluted basis using the treasury stock method in ~~our charter documents~~instances other than with respect to the NovaQuest Warrants and ~~under Delaware law~~certain equity issuances by Brickell following the signing of the Merger Agreement and prior to the completion of the Merger). The exchange ratio formula is based on a $60.0 million valuation of Brickell and a $40.0 million valuation of Vical and is subject to adjustment based on the Vical net cash and Brickell net working capital balances prior to the completion of the Merger.

Any changes in the market price of Vical common stock before the completion of the Merger will not affect the number of shares Brickell stockholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the

Merger the market price of Vical common stock declines from the market price on the date of the Merger Agreement, then Brickell securityholders could ~~make an acquisition~~receive Merger consideration with substantially lower value. Similarly, if before the completion of ~~us, which may be beneficial to our stockholders,~~the Merger the market price of Vical common stock increases from the market price on the date of the Merger Agreement, then Brickell securityholders could receive Merger consideration with substantially more ~~difficult and may prevent attempts by our stockholders to replace or remove our current management.~~

~~Our certificate~~value for their shares of ~~incorporation and bylaws~~Brickell capital stock than the parties had negotiated for in the establishment of the Exchange Ratio. The Merger Agreement does not include ~~anti-takeover provisions, such~~a price-based termination right. Because the Exchange Ratio does not adjust as a ~~classified~~result of changes in the value of Vical common stock, for each one percentage point that the market value of Vical common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total Merger consideration issued to Brickell securityholders.

The opinion received by Vical’s board of directors from MTS Securities has not been, and is not expected to be, updated to reflect changes in circumstances that may have occurred since the date of the opinion.

Vical retained MTS Securities as a ~~prohibition on stockholder actions by written consent,~~financial advisor in connection with the ~~authority~~Merger. On June 2, 2019, MTS Securities, an affiliate of ~~our~~MTS, delivered its opinion to the board of directors of Vical that, as of June 2, 2019, and subject to ~~issue preferred~~the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth in such written opinion, the Exchange Ratio is fair, from a financial point of view, to the holders of Vical common stock. The opinion addresses solely the fairness, from a financial point of view and as of the date of such opinion, of the Exchange Ratio to the holders of Vical common stock ~~without stockholder approval,~~ and ~~supermajority voting requirements for specified actions. In addition, because we are incorporated~~does not address any other terms in ~~Delaware, we are governed~~the Merger Agreement, or any other agreement contemplated by the ~~provisions of Section 203~~Merger Agreement or relating to the Merger or any other aspect or implication of the ~~Delaware General Corporation Law, which~~Merger, including, without limitation, the form or structure of the Merger or the fairness of the Merger or the Exchange Ratio to any other securityholders or creditors or any other constituency of Vical. MTS Securities did not consider any potential legislative or regulatory changes currently being considered by the SEC, or any other governmental or regulatory bodies, or any changes in accounting methods or generally prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years. These provisions may delay or prevent an acquisition of us, even if the acquisitionaccepted accounting principles that may be ~~considered beneficial~~adopted by ~~some stockholders. In addition, they~~the SEC or the Financial Accounting Standards Board. It should be understood that, although subsequent developments may ~~discourage~~affect the conclusion reached in the opinion, MTS Securities does not have any obligation to update, revise or ~~prevent any attempts by our stockholders to replace~~reaffirm such opinion and has not done so.

Vical and Brickell may become involved in securities litigation or ~~remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.~~

~~In addition,~~stockholder derivative litigation in ~~August 2016, we completed a private placement of 1,841,420 shares of common stock to AnGes. In~~ connection with the ~~private placement, AnGes agreed~~Merger, and this could divert the attention of Vical and Brickell management and harm the combined company’s business, and insurance coverage may not be sufficient to ~~vote~~cover all related costs and damages.

Securities litigation or stockholder derivative litigation frequently follows the announcement of ~~its shares in accordance with the recommendations of our board of directors on any matter brought before our stockholders for a vote, subject to~~ certain limitations. This voting provision may also discourage or prevent attempts by other stockholders to replace members of our board of directors or engage in acquisition activities that our board of directors does not determine to be in the best interests of our stockholders.

~~(*)The issuance of preferred stock could adversely affect our common stockholders.~~

~~We currently have on file a shelf registration statement that allows us to raise up to an aggregate of $40.0 million from~~significant business transactions, such as the sale of ~~common stock, preferred stock, debt securities and/~~a business division or ~~warrants~~announcement of a business combination transaction. Vical and ~~our restated certificate~~Brickell may become involved in this type of ~~incorporation authorizes us to issue up to 5,000,000 shares~~litigation in connection with the Merger, and the combined company may become involved in this type of ~~preferred stock. The issuance of preferred stock~~litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the ~~voting power~~business of ~~holders~~Vical, Brickell and the combined company, and insurance coverage may not be sufficient to cover all related costs and damages.

We will hold our 2019 Annual Meeting of Stockholders, or the 2019 Annual Meeting, more than 30 days after the one-year anniversary of the 2018 Annual Meeting of Stockholders, which was held on May 23, 2018. Any proposal submitted by a stockholder intended to be presented for consideration at the 2019 Annual Meeting must be delivered to or mailed and received, according to our Amended and Restated Bylaws, by our corporate secretary at our principal executive offices, not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the 2019 Annual Meeting was mailed or such public disclosure was made. Any proposal submitted outside this timeframe will not be considered timely and such business will be excluded from consideration at the 2019 Annual Meeting. The notice to be delivered to our corporate secretary must be in writing and must comply with the provisions of our ~~common stock,~~Amended and ~~reduce~~Restated Bylaws. For stockholders who wish to submit a proposal for consideration of inclusion in the ~~likelihood that~~2019 proxy statement and presentation at the 2019 Annual Meeting pursuant to Rule 14a-8 under the Exchange Act, such proposal must be received by our ~~common stockholders will receive dividend payments~~corporate secretary at our principal executive offices no later than a reasonable time before we begin to print and ~~payments upon liquidation. The issuance of preferred stock could also decrease~~mail the ~~market price of our common stock, or have terms~~proxy materials for the 2019 Annual Meeting, and ~~conditions that could discourage a takeover or other transaction that might involve a premium price for our shares or that our stockholders might believe to be~~otherwise must comply with the Securities and Exchange Commission requirements in ~~their best interests.~~Proxy Rule 14a-8.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Delaware~~		~~93-0948554~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~		~~(I.R.S. Employer~~ ~~Identification No.)~~

~~10390 Pacific Center Court~~ ~~San Diego, California~~		~~92121~~
~~(Address of principal executive offices)~~		~~(Zip Code)~~

~~PART I. FINANCIAL INFORMATION~~

	~~ITEM 1. Financial Statements~~	3

	~~Balance Sheets (unaudited) as of June 30, 2018 and December 31, 2017~~	3

	~~Statements of Operations (unaudited) for the three and six months ended June 30, 2018 and 2017~~	4

	~~Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2018 and 2017~~	5

	~~Statements of Cash Flows (unaudited) for the six months ended June 30, 2018 and 2017~~	6

	~~Notes to Financial Statements (unaudited)~~	7

	~~ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~	14

	~~ITEM 3. Quantitative and Qualitative Disclosures About Market Risk~~	19

	~~ITEM 4. Controls and Procedures~~	19

~~PART II. OTHER INFORMATION~~

	~~ITEM 1A. Risk Factors~~	20

	~~ITEM 6. Exhibits~~	32

~~SIGNATURE~~		33

Delaware		93-0948554
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

10390 Pacific Center Court San Diego, California		92121
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	VICL	The Nasdaq Capital Market

PART I. FINANCIAL INFORMATION

	ITEM 1. Financial Statements	4

	Balance Sheets (unaudited) as of June 30, 2019 and December 31, 2018	4

	Statements of Operations (unaudited) for the three and six months ended June 30, 2019 and 2018	5

	Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2019 and 2018	6

	Statements of Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2019 and 2018	7

	Statements of Cash Flows (unaudited) for the six months ended June 30, 2019 and 2018	8

	Notes to Financial Statements (unaudited)	9

	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16

	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	19

	ITEM 4. Controls and Procedures	19

PART II. OTHER INFORMATION

	ITEM 1A. Risk Factors	20

	ITEM 5. Other Information	23

	ITEM 6. Exhibits	24

SIGNATURE		25

~~Large accelerated filer~~	☐	~~Accelerated filer~~	☐

~~Non-accelerated filer~~	☐	~~Smaller reporting company~~	☒
~~Emerging growth company~~	☐

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

Income Statement	As Reported			Balances Without Adoption of ASC 606			Effect of Change Increase/(Decrease)
Revenues
Contract revenue	$	1,431		$	1,431		$	-
Operating expenses
Manufacturing and production		1,436			1,436			-
Net loss		(11,138	)		(11,138	)		-

Balance Sheet	As Reported			Balances Without Adoption of ASC 606			Effect of Change Increase/(Decrease)
Assets
Deferred contract costs	$	—		$	10,502		$	(10,502	)
Liabilities
Deferred revenue		20			11,450			(11,430	)
Equity
Accumulated deficit		(436,948	)		(437,876	)		928

Balance at December 31, 2017	$	2,209
Total unrealized gains, excluding tax impact, included in other comprehensive loss		28
Balance at June 30, 2018	$	2,237
Total gains or losses for the period included in net loss attributable to the change in unrealized gains or losses relating to assets still held at the reporting date	$	—

Balance at December 31, 2018	$	2,386
Change in fair market value included in other comprehensive loss		83
Sale of Level 3 security		(2,469	)
Balance at June 30, 2019	$	—
Total gains or losses for the period included in net loss attributable to the change in unrealized gains or losses relating to assets still held at the reporting date	$	—

~~Product/Concept~~	~~Intended Use~~	~~Development Status~~¹
~~VL-2397 antifungal~~	~~Treatment of invasive fungal infections~~	~~Phase 2~~
~~VR-CHB-01 chronic hepatitis B~~	~~Eradication of persistent HBV infection~~	~~Preclinical~~

Exhibit Number		Description of Document

~~3.1(1)~~2.1(1)		Agreement and Plan of Merger and Reorganization, dated June 2, 2019, by and among the Company, Brickell Biotech, Inc. and Victory Subsidiary, Inc.
3.1(2)		Restated Certificate of Incorporation. (P)
~~3.2(2)~~3.2(3)		Amended and Restated Bylaws.
~~3.3(3)~~3.3(4)		Certificate of Amendment to Restated Certificate of Incorporation.
~~3.4(4)~~3.4(5)		Certificate of Amendment to Restated Certificate of Incorporation.
~~3.5(5)~~3.5(6)		Certificate of Amendment to Restated Certificate of Incorporation.
~~3.6(6)~~3.6(7)		Certificate of Amendment to Restated Certificate of Incorporation.
~~4.1(1)~~4.1(2)		Specimen Common Stock Certificate. (P)
~~10.1(7)~~10.1(8)		~~Amended~~Form of Support Agreement, dated June 2, 2019, by and ~~Restated Stock Incentive Plan~~between the Company and each of ~~Vical Incorporated.~~the parties named in each agreement therein.
10.2(9)		Form of Lock-Up Agreement, dated June 2, 2019, by each of the parties named in each agreement therein.
10.3		Separation Agreement, dated May 21, 2019, by and between the Company and Larry R. Smith, Ph.D.
31.1		Certification of Vijay B. Samant, Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Anthony A. Ramos, Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Vijay B. Samant, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Anthony A. Ramos, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

	Vical Incorporated

Date: ~~August 7, 2018~~July 12, 2019	By:	/s/ ANTHONY A. RAMOS
		Anthony A. Ramos
		Vice President, Chief Financial Officer (on behalf of the registrant and as the registrant’s Principal Financial and Accounting Officer)