Fresh Tracks Therapeutics(FRTX) - 2018 Q4 - Annual Report

PART I Business Vical discontinued its VL-2397 Phase 2 trial in February 2019 to conserve cash, initiating a strategic review to maximize stockholder value - In February 2019, Vical discontinued the Phase 2 clinical trial of its novel antifungal VL-2397 to conserve cash while pursuing a strategic alternative review process[14] - The Board of Directors is conducting a review of strategic alternatives, including potential mergers, acquisitions, or asset sales, to maximize stockholder value[15][16] - VL-2397, licensed from Astellas, is a potential new class of antifungal for invasive aspergillosis and has received Qualified Infectious Disease Product (QIDP), Orphan Drug, and Fast Track designations from the FDA[19][20][49] - The company has an in-licensing agreement with Astellas for VL-2397, which includes potential future milestone payments up to $99.0 million and tiered single-digit royalties[26][28] - As of December 31, 2018, the company had 30 full-time employees, but a staff reduction was planned for February 2019 due to the discontinuation of the VL-2397 trial[61][62] Risk Factors The company faces significant risks from its uncertain strategic review, potential dissolution, historical losses, capital needs, clinical trial failures, and intense competition - The ongoing review of strategic alternatives may not result in a consummated transaction, and the process itself could be time-consuming, disruptive, and costly[71] - If a strategic transaction is not completed, the board may decide to dissolve and liquidate the company, which could result in stockholders losing all or a significant portion of their investment[72] - The company has a history of net losses, totaling $442.1 million cumulatively as of December 31, 2018, and expects losses to continue for the foreseeable future[91] - Vical may require additional capital to fund operations; if not available on favorable terms, the company may have to curtail or cease operations[93] - The company faces competition from established pharmaceutical and biotechnology firms with substantially greater financial, scientific, and marketing resources[36][113] - The company's ability to generate revenue is at risk due to healthcare reform, increased scrutiny on drug pricing, and uncertainty regarding reimbursement from government and third-party payers[123][124][125] Unresolved Staff Comments This section is not applicable to the company - Not applicable[139] Properties The company occupies approximately 17,000 square feet of research laboratory and office space in San Diego, California, under a sublease agreement with Genopis, Inc. that ends on December 31, 2019 - Vical occupies approximately 17,000 square feet of research and office space in San Diego, CA[140] - The property is occupied through a sublease with Genopis, Inc., which is set to end on December 31, 2019[140] Legal Proceedings The company actively prosecutes its intellectual property but is unaware of any pending lawsuits that are deemed material to its financial condition or results of operations - The company is not aware of any pending lawsuits that are considered material to its financial condition or operational results[142] Mine Safety Disclosures This section is not applicable to the company - Not applicable[143] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Vical's common stock is traded on the Nasdaq Capital Market under the symbol VICL, with 21,820,195 shares outstanding as of January 31, 2019, and no repurchases in Q4 2018 - The company's common stock is listed on the Nasdaq Capital Market with the ticker symbol VICL[146] - As of January 31, 2019, there were 21,820,195 shares of common stock outstanding[146] - No shares of common stock were repurchased in the fourth quarter of 2018[146] Selected Financial Data Selected financial data reveals a sharp decline in 2018 revenues to $1.6 million and an increased net loss to $16.3 million, with total assets decreasing to $52.3 million Selected Financial Data (2016-2018) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Statement of Operations Data: | (in thousands, except per share amounts) | | | | Total revenues | $1.6 million | $13.8 million | $14.5 million | | Total operating expenses | $21.3 million | $27.2 million | $23.7 million | | Loss from operations | ($19.6 million) | ($13.4 million) | ($9.2 million) | | Net loss | ($16.3 million) | ($13.0 million) | ($9.0 million) | | Net loss per share (basic and diluted) | ($0.7) | ($1.0) | ($0.9) | | Balance Sheet Data (at end of period): | | | | | Cash, cash equivalents, marketable securities | $50.5 million | $62.9 million | $41.0 million | | Total assets | $52.3 million | $80.5 million | $52.3 million | | Total stockholders' equity | $48.8 million | $63.6 million | $45.1 million | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the VL-2397 trial discontinuation and strategic review, noting a revenue drop to $1.6 million, widened net loss, and $50.5 million in cash to fund operations through 2020 Revenues by Source (2016-2018, in millions) | Source | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Astellas contract | $1.2 | $12.9 | $12.5 | | Other contracts | $0.4 | $0.5 | $0.3 | | Astellas license | $— | $0.3 | $1.5 | | Other royalties and licenses | $— | $0.1 | $0.2 | | Total revenues | $1.6 | $13.8 | $14.5 | Research, Development, Manufacturing and Production Costs by Program (2016-2018, in millions) | Program | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | CMV | $1.5 | $9.4 | $9.2 | | HSV-2 | $1.6 | $5.3 | $3.6 | | VL-2397 | $8.5 | $4.3 | $3.4 | | Other | $2.2 | $1.9 | $0.4 | | Total | $13.8 | $20.9 | $16.6 | - Total revenues decreased by 88.3% in 2018, primarily due to the termination of the ASP0113 program with Astellas[165] - Cash, cash equivalents, and investments totaled $50.5 million at December 31, 2018, a decrease from $63.0 million at year-end 2017, mainly due to cash used for operations[177] - The company anticipates that available cash will be adequate to satisfy cash needs at least through December 31, 2020[184] - Potential future milestone payments under active in-license agreements could total approximately $99.0 million, contingent on development, regulatory, and commercial achievements[187] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on its investment portfolio, with a $0.3 million sensitivity to rate changes, and holds an illiquid $2.5 million auction rate security - The company is subject to interest rate risk; a hypothetical 150-basis-point increase in interest rates would decrease the fair value of its investments by $0.3 million[191] - The company holds a $2.5 million par value auction rate security that has been illiquid since 2008 due to failed auctions. It is classified as a long-term investment maturing in 2038[192][193] - As of December 31, 2018, the company had recognized $0.4 million of losses on the auction rate security by adjusting its carrying value, but had also recorded cumulative unrealized gains of $0.6 million as its market value partially recovered[194] Financial Statements and Supplementary Data This section presents the company's audited financial statements for the fiscal year ended December 31, 2018, including the independent auditor's report, balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with accompanying notes Balance Sheets The balance sheet shows total assets decreased to $52.3 million in 2018, driven by reduced cash and liabilities, with total stockholders' equity at $48.8 million Balance Sheet Summary (in thousands) | | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $11.9 million | $24.8 million | | Marketable securities | $36.2 million | $35.7 million | | Total current assets | $49.2 million | $76.3 million | | Total assets | $52.3 million | $80.5 million | | Liabilities & Equity | | | | Total current liabilities | $3.6 million | $16.9 million | | Total stockholders' equity | $48.8 million | $63.6 million | | Total liabilities and stockholders' equity | $52.3 million | $80.5 million | Statements of Operations Total revenues sharply declined to $1.6 million in 2018, resulting in a wider operating loss of $19.6 million and a net loss of $16.3 million Statement of Operations Summary (in thousands) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total revenues | $1.6 million | $13.8 million | $14.5 million | | Research and development | $12.3 million | $14.4 million | $10.4 million | | Manufacturing and production | $1.4 million | $6.5 million | $6.3 million | | General and administrative | $7.5 million | $6.3 million | $7.1 million | | Total operating expenses | $21.3 million | $27.2 million | $23.7 million | | Loss from operations | ($19.6 million) | ($13.4 million) | ($9.2 million) | | Net loss | ($16.3 million) | ($13.0 million) | ($9.0 million) | | Basic and diluted net loss per share | ($0.7) | ($1.0) | ($0.9) | Statements of Cash Flows Net cash used in operations increased to $14.4 million in 2018, with no financing cash, leading to a $13.2 million decrease in cash and equivalents Cash Flow Summary (in thousands) | | 2018 | 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | ($14.4 million) | ($8.6 million) | | Net cash provided by (used in) investing activities | $1.3 million | ($5.3 million) | | Net cash provided by financing activities | $— | $30.5 million | | Net (decrease) increase in cash | ($13.2 million) | $16.7 million | | Cash, cash equivalents and restricted cash at end of year | $11.9 million | $25.0 million | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This section is not applicable to the company - Not applicable[300] Controls and Procedures Management concluded its disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[301] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018[302] Other Information There is no other information to report in this section - None[306] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[308] Executive Compensation Information for this item is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[309] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[310] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[311] Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[312] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K - This item lists the financial statements and exhibits filed with the Form 10-K[315][317] - Financial statement schedules have been omitted because they are not applicable or the required information is included in the financial statements or notes[316]