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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004.

or

For the transition period from                  to                 .

Commission file number: 000-21088

VICAL INCORPORATED

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (858) 646-1100

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, $0.01 par value

(Title of class)

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  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  x    No  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the last sale price of the registrant’s common stock reported on the National Association of Securities Dealers Automated Quotation National Market System on June 30, 2004, was approximately $135,404,894.

The number of shares of common stock outstanding as of March 1, 2005, was 23,511,399.

Documents Incorporated by Reference:

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VICAL INCORPORATED

FORM 10-K

INDEX

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our business, our financial position, the research and development of biopharmaceutical products based on our patented DNA delivery technologies, and other statements describing our goals, expectations, intentions or beliefs. 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 technologies. Actual results could differ materially from those discussed in this Annual Report on Form 10-K. Factors that could cause or contribute to such differences include, but are not limited to, those identified in the section of Item 1 entitled “Risk Factors” beginning on page 24 of this report, as well as those discussed in our other filings with the Securities and Exchange Commission, or SEC, including our Quarterly Reports on Form 10-Q. As a result, you are cautioned not to unduly 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.

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PART I

Overview

We were incorporated in Delaware in 1987. We research and develop biopharmaceutical products based on our patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases. In addition, we have gained access to enhancing technologies through licensing and collaborative agreements. We believe the following areas of research offer the greatest potential for our product development efforts:

We plan to continue leveraging our patented technologies through licensing and collaborations. We also plan to use our expertise, infrastructure, and financial strength to explore both in-licensing and acquisition opportunities.

We have established relationships through licensing our technologies to a number of commercial entities, including:

We have also licensed complementary technologies from:

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are

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available free of charge on our website at www.vical.com as soon as reasonably practicable after such reports and amendments are electronically filed with or furnished to the SEC.

Our Core Technology

The key discovery leading to our patented core technology was that muscle tissues can take up polynucleotide genetic material, such as DNA or RNA, directly, without the use of viral components or other delivery vehicles, and subsequently express the proteins encoded by the genetic material for periods ranging from weeks to more than a year. We often describe our approach as “DNA delivery technology” because it typically involves designing and constructing closed loops of DNA called plasmids, or pDNAs. These pDNAs contain a DNA segment encoding the protein of interest, as well as short segments of DNA that control protein expression. Plasmids can be manufactured using uniform methods of fermentation and processing. This could result in faster development times than technologies that require development of product-specific manufacturing processes.

Since the initial discovery of our DNA delivery technology, our researchers have improved the design of our plasmids to provide increases in efficiency of gene expression and immunogenicity. In addition, we are developing other formulation and delivery technologies, including the use of lipid molecules, synthetic polymers called poloxamers, and other approaches, to enhance DNA expression or increase the immune response in DNA vaccine applications. We own broad rights in the United States and in other key markets to certain non-viral polynucleotide delivery technologies through our series of patents. Benefits of our DNA delivery technologies may include the following, which may enable us to offer novel treatment alternatives for diseases that are currently poorly addressed:

Business Strategy

There are four basic elements to our business strategy:

Develop Products Independently

We currently focus our resources on the independent development of infectious disease vaccines and cancer therapeutics. We intend to retain significant participation in the commercialization of our proprietary DNA vaccine and cancer products, although we may choose to enlist the support of partners to accelerate product development and commercialization.

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Infectious Disease Vaccines. Vaccines are perceived by government and medical communities as an efficient and cost-effective means of healthcare. According to the CDC, “Vaccines are among the very best protections we have against infectious diseases.” We believe our technologies may lead to the development of novel preventive or therapeutic vaccines for infectious disease targets because:

Cancer Therapies. In the cancer area, we have focused our resources on the development of Allovectin-7^® as a potential treatment for metastatic melanoma, an aggressive form of skin cancer, to best apply the expertise and relationships we have established through prior development and testing in this area. We also are developing gene-based, electroporation, or EP, enhanced delivery of interleukin-2, or IL-2, a potent immunotherapeutic agent, as a potential treatment for solid tumors, with an initial indication in metastatic melanoma. We have no other potential cancer products currently under independent development, but we may continue to explore additional opportunities.

Enhance and Expand Our Technologies

We are actively pursuing the refinement of our plasmids and formulations, the evaluation of potential enhancements to our core technologies and the exploration of additional DNA delivery technologies. We are developing future product candidates based on these technologies through preclinical and clinical testing to determine their safety and effectiveness. We also seek to develop additional applications for our technologies by testing new approaches to disease control or prevention. These efforts could lead to further independent product development or additional licensing opportunities. In addition, we continually evaluate compatible technologies or products that may be of potential interest for in-licensing or acquisition. We license intellectual property from companies holding complementary technologies to leverage the potential of our own DNA delivery technologies and to further the discovery of innovative new therapies for internal development.

Expand the Applications of Our Technologies through Strategic Collaborations

We collaborate with major pharmaceutical and biotechnology companies and government agencies, providing us access to complementary technologies or greater resources. These collaborations provide us with mutually beneficial opportunities to expand our product pipeline and serve significant unmet medical needs. We license our intellectual property to other companies to leverage our technologies for applications that may not be appropriate for our independent product development.

Pursue Contract Manufacturing Opportunities

In addition, we pursue contract manufacturing opportunities to leverage our infrastructure and expertise in pDNA manufacturing, to support advancement and application of our technologies by others, and to provide revenues that contribute to our independent research and development efforts. We currently have contract manufacturing agreements with the Dale and Betty Bumpers Vaccine Research Center, or VRC, of the NIH and the International AIDS Vaccine Initiative, or IAVI.

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Product Development

We are focused on the development of biopharmaceutical product candidates based on our patented DNA delivery technologies. We, together with our licensees and collaborators, are currently developing a number of DNA-based vaccines and therapeutics for the prevention or treatment of infectious diseases, cancer, and cardiovascular diseases. Our current independent development focus is on our cancer immunotherapeutics, Allovectin-7^® and IL-2/EP, as well as a novel pDNA vaccine for cytomegalovirus, or CMV. The table below summarizes our independent, collaborative and out-licensed product development programs.

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Cancer Therapies

Cancer is a disease of uncontrolled cell growth. When detected early and still confined to a single location, cancer may be cured by surgery or irradiation. However, neither surgery nor irradiation can cure cancer that has spread throughout the body. Chemotherapy can sometimes effectively treat cancer that has spread throughout the body, however, a number of non-cancerous cells, such as bone marrow cells, are also highly susceptible to chemotherapy. As a result, chemotherapy often has fairly significant side effects. Finally, it is common to see cancer return after apparently successful treatment by each of these means.

Immunotherapy, using the patient’s own immune system, may have advantages over surgery, irradiation, and chemotherapy in the treatment of cancer. Many cancers appear to have developed the ability to “hide” from the immune system. A treatment that can augment the immune response against tumor cells by making the cancer more “visible” to the immune system would likely represent a significant improvement in cancer therapy. Immune-enhancing proteins such as IL-2 and interferon-alpha, or IFN-a, have shown encouraging results. However, these agents often require frequent doses that regularly result in severe side effects.

We have researched delivery enhancements that may complement our core DNA delivery technology. Our current clinical-stage approach consists of injecting directly into lesions certain plasmids, which, upon uptake into cells, direct the production of the encoded immunostimulatory proteins. The plasmids may be complexed with a cationic lipid-based delivery system.

The ease of manufacture, outpatient treatment with minimal discomfort, and the excellent tolerability profile suggest that cancer therapies using non-viral DNA delivery may offer advantages over current modalities of therapy. In addition, cancer therapies using non-viral DNA delivery may offer an added margin of safety compared with viral-based delivery, as no viral DNA/RNA or viral particles are contained in the formulation.

Preclinical studies in animals have demonstrated the safety and potential efficacy of this approach. Subsequently, in human studies, a very low incidence of treatment-related adverse events has been observed. Our Allovectin-7^® and IL-2/EP non-viral cancer immunotherapeutics under development are reviewed below.

Allovectin-7^®

Allovectin-7^® is a plasmid/lipid complex containing the DNA sequences encoding HLA-B7 and ß2 microglobulin, which together form a Class I Major Histocompatibility Complex, or MHC-I antigen. Injection of Allovectin-7^® directly into tumor lesions, or intralesional injection, may augment the immune response to both local and metastatic tumors by one or more mechanisms. In HLA-B7 negative patients, a T-cell response may be initiated by the expression of a foreign HLA, similar to that observed in tissue transplant rejections. In HLA-B7 positive patients, enhanced HLA-B7 and ß2 microglobulin surface expression by transfected tumor cells could increase antigen presentation to tumor specific T-cells. In any patient, a pro-inflammatory anti-tumor response may occur following intralesional injection of the pDNA/lipid complex, as demonstrated in preclinical animal tumor models.

In a prior Phase 3 trial, we compared treatment of patients with metastatic melanoma using the low-dose, 10 mcg, Allovectin-7^® immunotherapeutic in combination with the chemotherapy agent dacarbazine against treatment with dacarbazine alone. In connection with this trial, we developed an Endpoint Assessment and Adjudication Charter, or EAAC, which allowed us to determine shortly after completion of the trial that the results would fail to meet the endpoints required to pursue marketing approval. The process used to develop the EAAC is the subject of an article published in February 2005 in the Drug Information Journal, Vol. 39, pp 51-59.

In 2001, we began a high-dose, 2 mg, Phase 2 trial evaluating the Allovectin-7^® immunotherapeutic alone for patients with Stage III or IV metastatic melanoma, who have few other treatment options. Our high-dose

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Phase 2 trial completed enrollment in 2003. During the third quarter of 2004, we completed our data collection and locked the database for the high-dose Phase 2 Allovectin-7^® trial. We presented data from the high-dose study in November 2004 at the annual meeting of the International Society for Biological Therapy of Cancer.

The 127 patients receiving the full 2 mg dose of Allovectin-7^® were evaluated for efficacy, and safety data were evaluated for these 127 patients plus 6 additional patients receiving lower doses in a dose-escalation stage.

Highlights of the data, based on company-audited investigator reports, included:

Based on detailed guidance received from the U.S. Food and Drug Administration, or FDA, in End-of-Phase 2 meetings, we have successfully completed a Special Protocol Assessment, or SPA, with the FDA for a Phase 3 trial of high-dose, 2 mg, Allovectin-7^® for certain patients with metastatic melanoma. The SPA specifies the trial objectives and design, clinical endpoints, and planned analyses expected to be needed for product approval.

The Phase 3, open-label, multi-center trial would require enrollment of approximately 375 patients with recurrent metastatic melanoma. Patients may have been treated with surgery, adjuvant therapy, and/or biotherapy, but cannot have been treated with chemotherapy. The patients would be randomized on a 2:1 basis: approximately 250 patients will be treated with Allovectin-7^® and approximately 125 will be treated with their physician’s choice of either of two chemotherapy agents, dacarbazine or temozolomide. The primary endpoint would be a comparison of objective response rates at 24 weeks or more after randomization. The study would also evaluate safety and tolerability.

Completion of the SPA allows us to advance in our discussions with potential partners and evaluate which, if any, is best positioned to assist with the further development and commercialization of Allovectin-7^®.

IL-2/EP

In October 2004, we exercised an option to establish an exclusive worldwide licensing and supply agreement with Genetronics for the use of its electroporation technology for specified applications. Electroporation involves the application of electrical pulses to targeted tissues to potentially open pores in cell membranes and allow greater transfer of material into the targeted cells. Our initial application is for enhanced delivery of the plasmid encoding human IL-2 directly into solid tumor lesions. Local administration of the plasmid encoding IL-2 directly into a tumor lesion, when administered with local electroporation, may reduce toxicity and result in local, sustained expression of IL-2 sufficient to provide therapeutic benefit. In 2005, we expect to begin Phase 1 safety testing of intralesional administration of IL-2 pDNA followed by local electroporation in certain patients with metastatic melanoma.

Human recombinant IL-2 has been approved by the FDA for treatment of metastatic melanoma and renal cell carcinoma and can elicit durable clinical responses. However, severe toxicity associated with systemic administration limits its use.

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About Metastatic Melanoma

The American Cancer Society estimates that approximately 59,580 new diagnoses of, and 7,770 deaths from, melanoma will occur in 2005 in the United States. Currently, there are no consistently effective therapies for advanced cases of malignant melanoma where the cancer has spread to other parts of the body, or metastasized. Treatment for these patients normally includes a combination of chemotherapy, radiation therapy, and surgery. In patients with advanced metastatic melanoma, median survival typically ranges from six to ten months.

FDA-approved drugs for treatment of metastatic melanoma include: hydroxyurea, which is no longer commonly used as a single agent; dacarbazine, and IL-2. The toxicity associated with FDA-approved treatments such as dacarbazine or IL-2 is often significant, resulting in serious or life-threatening side effects in many of the patients treated. Patients with metastatic melanoma often are treated with non-approved drugs such as IFN-a, which is approved for adjuvant therapy to surgery, or temozolomide, which is approved for certain types of brain cancer.

Out-licensing of Cancer Targets

Details of our collaborations regarding cancer targets can be found in “Collaboration and Licensing Agreements—Corporate Collaborators—Out-licensing.”

DNA Vaccines for Infectious Diseases

DNA vaccines use portions of the genetic code of a pathogen to cause the host to produce proteins of the pathogen that may induce an immune response. This method potentially offers superior safety, ease and reliability of manufacturing, as well as convenient storage and handling characteristics, compared with conventional vaccines that use live, weakened, or dead pathogens to produce an immune response. DNA vaccines have the potential to induce potent T-cell responses against target pathogens as well as to trigger production of antibodies. Over the past decade, many scientific publications have documented the effectiveness of DNA vaccines in contributing to immune responses in dozens of species, including fish, nonhuman primates and humans.

Vaccines are generally recognized as the most cost-effective approach for infectious disease healthcare. However, the technical limitations of conventional vaccine approaches have constrained the development of effective vaccines for many diseases. Development of vaccines based on conventional methods requires significant infrastructure in research and manufacturing. In addition, the safety risks associated with conventional vaccines may offset the potential benefits. We believe our potential vaccine products should be simpler to manufacture than vaccines made using chemical conjugation of polysaccharides and protein carriers or protein purification and refolding techniques involving mammalian, avian or insect cell, or egg-based, culture procedures and live viruses. In addition, our DNA delivery technologies may accelerate certain aspects of vaccine product development such as nonclinical evaluation and manufacturing.

In the broader vaccine marketplace, it is important to note a changing dynamic. Traditionally, vaccines have been predominantly focused on the pediatric market, intended to protect children from diseases that could cause them serious harm. Today, there is a growing interest in vaccines against diseases that may affect adolescents and adults, which include both sexually transmitted diseases and infections that strike opportunistically, such as during pregnancy or in immunocompromised individuals, including the geriatric population. We believe our technologies, because of their safety and development timeline advantages, could be ideally suited for the development of this new generation of vaccines.

The selection of targets for our infectious disease programs is driven by three key criteria: the complexity of the product development program, competition, and commercial opportunities.

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Cytomegalovirus Vaccine

In 2003, we announced our first independent product development program focused on infectious diseases, a DNA-based immunotherapeutic vaccine against cytomegalovirus, or CMV. Currently, there is no approved vaccine for CMV.

The Institute of Medicine, or IOM, of the National Academy of Sciences estimated the cost of treating the consequences of CMV infection in the United States at more than $4 billion per year in a 1999 report, and placed a CMV vaccine in its first priority category on the basis of cost-effectiveness. Our initial focus is on the transplantation indication, and should allow proof-of-concept that could then lead to the opportunity to develop a CMV vaccine for other groups such as immunocompromised individuals and at-risk women of reproductive age.

Our CMV immunotherapeutic vaccine product development program is based on:

In pursuing a CMV immunotherapeutic vaccine product, we have designed two candidate formulations: a two-component, or bivalent, and a three-component, or trivalent, version of the product, to induce both cellular and antibody immune responses against the target pathogen without the safety concerns that live-attenuated virus vaccines pose for immunocompromised patients. The bivalent vaccine candidate uses plasmid DNA encoding two highly immunogenic proteins of the CMV virus, phosphoprotein 65, or pp65, and glycoprotein B, or gB. The trivalent vaccine candidate also includes a third plasmid encoding the highly immunogenic CMV immediate early 1, or IE1, gene product. In laboratory animal testing, both formulated plasmid DNA vaccine candidates demonstrated potent and specific immune responses against the encoded CMV immunogens. Data from preclinical testing of the CMV vaccines were published in January 2005 in Human Vaccines, Vol. 1, pp 19-26. Having established the safety and immunogenicity of both vaccine candidates in laboratory animals, we are now evaluating the safety and immunogenicity of both vaccine formulation candidates in humans. Results from these initial clinical trials will allow us to decide which candidate configuration to advance to a Phase 2 proof-of-concept study.

We announced the initiation of a Phase 1 clinical trial with our bivalent CMV immunotherapeutic vaccine in March 2004. We reported initial safety data from the trial at the Interscience Conference on Antimicrobial Agents and Chemotherapy, or ICAAC, in November 2004. These data showed the bivalent vaccine to be safe and well-tolerated. We announced the initiation of a Phase 1 clinical trial with our trivalent CMV immunotherapeutic vaccine in September 2004.

Subjects in both trials were monitored primarily for safety, with secondary endpoints of immunogenicity. Enrollment in both trials is complete. We expect safety and immunogenicity data from both trials to be presented in April 2005 at the 10th International Cytomegalovirus/Betaherpesvirus Workshop, and to support the selection of a single vaccine formulation to advance into Phase 2 testing in transplant patients.

In addition, we have been awarded approximately $1.0 million for research and development related to our CMV vaccine program under two grants from the National Institute of Allergy and Infectious Diseases, or NIAID. In 2004, we recognized approximately $0.7 million in revenues from these grants. In March 2005, we were awarded an additional three-year, $3.1 million grant by the NIAID. The grant will partially fund the ongoing development of our CMV immunotherapeutic vaccine.

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About CMV

CMV is a herpes virus, part of the family of viruses that cause genital herpes, cold sores or fever blisters, chicken pox and infectious mononucleosis. Although the body rarely rids itself of CMV, a healthy immune system usually is able to keep the virus in check. As a result, CMV disease rarely occurs in healthy individuals, and reactivation typically occurs only when the immune system is compromised by other disease or drugs. People at greatest risk include bone marrow and solid organ transplant patients who take immunosuppressive drugs, AIDS patients and other immunocompromised individuals, and fetuses and newborns of mothers who become infected during pregnancy.

CMV infection affects an estimated 30% to 60% of bone marrow transplant or organ transplant recipients, causing transplant rejection, serious illness and even death if untreated. Transplant patients who develop CMV disease use significantly more healthcare resources, including longer hospitalization, than asymptomatic or uninfected transplant patients. Anti-CMV immune globulin and relatively toxic antiviral drug therapy are used to control the disease, but do not prevent or eliminate the infection. As a result, many patients require long-term maintenance therapy, and reactivation of the disease often occurs if drug therapy is discontinued or if drug resistance develops. The treatment itself can be costly and, in some forms, inconvenient. Treatment is not effective for all patients and side effects may be severe, including damage to the bone marrow or kidneys.

The CDC estimates that, in the United States, CMV infects more than half of all adults by age 40, and as many as 85% of all adults at some point in their lives. An estimated 25,000 patients receive solid organ transplants in the United States annually, and another 4,000 receive bone marrow transplants, with similar numbers in the European market. Approximately one in a hundred infants in the United States is born with CMV infection, leading to severe consequences in about 3,600 infants and death in about 400 infants per year. Congenital CMV infection is the leading infectious cause of deafness, learning disabilities, and mental retardation in children. Nearly 3,000 immunocompromised patients suffer from CMV infection in the United States each year, causing severe consequences in more than half of the cases and death in more than 150 cases.

Anthrax Vaccine

Also in 2003, we announced our second independent infectious disease DNA vaccine development program, a third-generation anthrax vaccine designed to provide broader protection against weaponized forms of anthrax than any of the other anthrax vaccines either on the market or in development. Where the others target the single anthrax protein called Protective Antigen, or PA, our bivalent vaccine also targets the anthrax protein called Lethal Factor, or LF.

Preclinical data from the anthrax vaccine program, published in September 2004 in the Proceedings of the National Academy of Sciences, Vol. 101, pp 13601-13606, demonstrated complete protection of rabbits against a lethal aerosolized spore inhalation challenge administered up to 7.5 months after vaccination. In addition, post-challenge immune response data from the rabbit study suggest that the vaccine-generated antibodies may inhibit germination of anthrax spores, potentially providing sterile immunity.

This preclinical research has been supported, in part, by a $1.0 million, one-year Small Business Technology Transfer Research, or STTR, grant from the NIAID, as announced in 2002. In 2003, we were awarded a three-year, Phase II Small Business Innovation Research, or SBIR, grant from the NIAID of $5.7 million, which was subsequently increased to $5.8 million, for additional non-clinical development of our anthrax vaccine candidate. We recognized revenues under these grants of $2.0 million, $1.9 million and $0.5 million in 2004, 2003 and 2002, respectively. In July 2004, we began a Phase 1 clinical trial of our anthrax vaccine candidate at two NIAID-funded Vaccine and Treatment Evaluation Units.

In November 2004, VaxGen Inc., or VaxGen, a U.S. vaccine developer, was awarded a three-year procurement contract under the Project BioShield Act of 2004 to supply 75 million doses of a second-generation anthrax vaccine based on recombinant protein. In January 2005, the FDA granted an Emergency Use

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Authorization for the currently approved first-generation anthrax vaccine to be used as protection against inhalation anthrax for certain individuals at heightened risk of exposure due to attack with anthrax.

Based on the award of the procurement contract for a second-generation anthrax vaccine, the grant of Emergency Use Authorization for the first-generation anthrax vaccine, and our discussions with government agencies, it appears that funding needed to support further clinical development of our third-generation anthrax vaccine will not be available in the forseeable future. Therefore, except for the ongoing non-clinical development supported by the SBIR grant, we do not intend to pursue further development of our anthrax vaccine candidate at this time.

NIH Vaccine Research Center

In 2002, we entered into a subcontract agreement, which was subsequently amended, to manufacture HIV, Ebola, West Nile Virus and severe acute respiratory syndrome, or SARS, DNA vaccines for the VRC. In 2003, we entered into a separate subcontract agreement to manufacture bulk DNA vaccines for the VRC, which are produced in a 500-liter fermenter and related purification equipment that were installed as Government Furnished Equipment, or GFE. Under Federal Acquisition Regulations, or FARs, the government has the right to terminate these agreements for convenience. These subcontracts are issued and managed on behalf of the VRC by SAIC-Frederick, Inc. under the umbrella of a federally funded contract with the NIH. We recognized revenues under these agreements of $8.4 million, $2.9 million and $1.0 million in 2004, 2003 and 2002, respectively.

Using clinical supplies provided under these agreements, the VRC began testing in healthy human subjects of an investigational DNA vaccine against HIV in 2002, and of an investigational DNA vaccine against Ebola in 2003. Enrollment in these trials has been completed. Using clinical supplies provided under these agreements, the VRC began testing in healthy human subjects of an investigational DNA vaccine against SARS in December 2004. We also have shipped initial clinical supplies of the West Nile Virus vaccine, which we expect will advance into human testing in early 2005.

In 2003, we secured a license from the NIH for technology used in its Ebola vaccine. Also in 2003, we obtained an option to secure exclusive commercialization rights for a West Nile Virus vaccine being developed in collaboration with the VRC under a Cooperative Research and Development Agreement, or CRADA. In January 2004, we secured a license from the CDC for technology used in a similar DNA vaccine, which was shown in independent tests at the CDC to protect horses from West Nile Virus after a single injection. In February 2005, we signed a letter of intent to enter into a CRADA with the VRC for the development of a therapeutic DNA vaccine against HIV. R. Gordon Douglas, M.D., Chairman of our Board of Directors, is the Director of Strategic Planning at the VRC.

International AIDS Vaccine Initiative

In 2002, we entered into an automatically renewing one-year agreement with the IAVI, a not-for-profit entity, to provide clinical trial supplies. In 2003, the IAVI began testing in healthy human subjects of an investigational DNA vaccine against HIV, using clinical supplies provided by us. We recognized revenues under this agreement of $0.9 million and $0.2 million in 2003 and 2002, respectively. Revenue recognized in 2004 was immaterial. Dr. Douglas, our Chairman, served on the Board of Directors of the IAVI through June 2003. Our President and Chief Executive Officer, Vijay B. Samant, serves on the Project Management Subcommittee of the IAVI.

Other Infectious Diseases

To supplement our independent vaccine development programs, we have licensed our technologies to Merck for the development of vaccines against certain infectious disease targets. We also have provided contract regulatory support for the VRC and the IAVI. Details on these and other relationships can be found in “Collaboration and Licensing Agreements—Corporate Collaborators—Out-licensing,” and “—Research Institutions.”

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Cardiovascular Programs

Our core DNA delivery technology may allow the targeted delivery of certain proteins with potential therapeutic value in the emerging field of angiogenesis, the goal of which is inducing the growth of new blood vessels to replace those blocked by disease. Angiogenesis has been shown to occur by the exogenous administration of angiogenic growth factors. We believe that the localized and sustained expression of these growth factors from plasmids will be both safe and effective. Although several attempts by others to intermittently deliver recombinant specific angiogenic growth factors directly have been unsuccessful, we believe our approach to deliver locally DNA segments that encode the desired growth factors is promising. Local delivery of angiogenic growth factor genes using our core technology is in human trials. See “—Collaboration and Licensing Agreements—Corporate Collaborators—Out-licensing.”

Veterinary Applications

Prior to its development for human therapy, our DNA delivery technologies were extensively tested in animals. Research scientists have published numerous papers detailing favorable results in many species and covering a broad range of disease indications. Animal health encompasses two distinct market segments: livestock, or animals bred and raised for food or other products, and, companion animals, or pets. Serving the animal health markets requires specialized manufacturing facilities and distribution channels beyond our current capacity, and therefore we have licensed certain rights to utilize our DNA delivery technologies for development and commercialization of specific vaccine candidates to Merial and Aqua Health. See “—Collaboration and Licensing Agreements—Corporate Collaborators—Out-licensing.”

Collaboration and Licensing Agreements

We have entered into various arrangements with corporate, academic, and government collaborators, licensors, licensees, and others. In addition to the agreements summarized below, we conduct ongoing discussions with potential collaborators, licensors and licensees.

Corporate Collaborators—Out-licensing

Merck. In 1991, we and Merck entered into an agreement, which was subsequently amended, providing Merck with certain exclusive rights to develop and commercialize vaccines using our core DNA delivery technology for certain human diseases. Under the agreement, as amended, Merck licensed preventive and therapeutic human infectious disease vaccines using our core DNA delivery technology. In 2003, under the most recent amendment to the agreement, Merck obtained options for rights to use our core DNA delivery technology for three cancer targets. In addition, Merck returned rights to us for certain preventive vaccines. Merck has retained rights to use the technology for HIV, hepatitis C virus, and hepatitis B virus.

Merck is currently testing single-gene DNA vaccines for HIV, including a vaccine based on our technology and a vaccine using an adenoviral vector, in uninfected human subjects and in human subjects already infected with HIV and receiving highly active anti-retroviral therapy. Merck has provided data from the HIV vaccine program in scientific publications and presentations. These data indicate that DNA vaccination alone can provide sustained partial protection in monkeys against lethal challenge with the monkey equivalent of HIV, DNA vaccination alone induces a dose-related immune response, and a prime-boost regimen with formulated DNA vaccination followed by vaccination with an adenoviral vector vaccine can induce a potent immune response.

In January 2005, Merck announced the initiation of a Phase 2 study of its adenoviral vector HIV vaccine. Merck continues to evaluate the potential for use of all of its HIV vaccine candidates, including those based on our core DNA delivery technology, and expects to make further decisions regarding these programs after all of the data from ongoing Phase 1 trials are evaluated.

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Merck is obligated to pay fees if certain research milestones are achieved, and royalties on net sales if any covered products are developed and commercialized. For some indications, we may have an opportunity to co-promote product sales. In addition, exercise of the option for each cancer target under the 2003 amendment would result in a license fee payment to us, and further development may lead to milestone and royalty payments to us. No revenues were recognized under the Merck agreement in 2004, 2003 or 2002. Merck has the right to terminate this agreement without cause upon 90 days prior written notice.

Sanofi-Aventis. In December 2004, Sanofi-Synthélabo merged with Aventis to form the Sanofi-Aventis Group, and Aventis Pasteur was subsequently renamed Sanofi Pasteur. In October 2004, Gencell, a wholly-owned subsidiary of Aventis Pharma, was renamed Centelion.

In 2001 and 2002, we merged and amended previous agreements into a new, restructured agreement granting Sanofi Pasteur rights to use our core DNA delivery technology for specific oncology applications. In exchange, Sanofi Pasteur gave up previously licensed rights to develop and commercialize certain infectious disease DNA vaccines.

In 1999, Centelion began testing the DNA delivery of a gene encoding FGF-1, an angiogenic growth factor, in patients with peripheral vascular disease, a severe condition caused by blockage of arteries feeding the foot and lower leg. In 2000, Centelion licensed the rights to our core DNA delivery technology for cardiovascular applications using FGF-1. Published interim results from an open-label Phase 1 clinical trial indicated that the FGF-1 plasmid-based therapeutic was well-tolerated, with no serious adverse events considered related to the treatment. Interim results reported in this same publication demonstrated reduction in pain and evidence of newly visible blood vessels three months after treatment. Centelion is currently conducting double-blind, placebo-controlled Phase 2 trials of its FGF-1 plasmid-based therapeutic in the United States and Europe.

The restructured agreement with Sanofi Pasteur and the agreement with Centelion specify that we will receive milestone payments plus royalties if products advance through commercialization. We recognized revenues of $1.2 million in 2004. under the Sanofi-Aventis agreements. Revenue recognized in 2003 and 2002 was immaterial. Sanofi Pasteur has the right to terminate our restructured agreement without cause upon six months prior written notice. Centelion has the right to terminate our agreement without cause upon 60 days prior written notice.

Merial. We entered into a corporate collaboration in 1995 relating to DNA vaccines in the animal health area with Merial, a joint venture between Sanofi-Aventis and Merck. Merial has options to take exclusive licenses to certain of our core DNA delivery technologies to develop and commercialize DNA vaccines to prevent infectious diseases in livestock and companion animals. In 2004, we granted an exclusive license to Merial for use of our core DNA delivery technology in a vaccine to protect certain companion animals against a particular type of cancer. Under the new agreement, Merial is responsible for research and development activities. If Merial is successful in developing and marketing this product, milestone payments and royalties on sales of the resulting product would be due to us.

We recognized revenues of $0.3 million and $1.5 million in 2004 and 2002, respectively, under the Merial agreements. No revenue was recognized in 2003. Merial has the right to terminate these agreements without cause upon 30 days prior written notice.

Human Genome Sciences, Inc. In 2000, we signed an agreement with Human Genome Sciences, Inc. granting reciprocal options to royalty-bearing licenses for up to three gene-based products each. These options expired unexercised in September 2004.

Corautus. In 2000, Vascular Genetics Inc., or VGI, a predecessor company to Corautus, licensed the rights to our core DNA delivery technology for cardiovascular applications using vascular endothelial growth factor 2, or VEGF-2. In September 2004, Corautus initiated a Phase 2b clinical trial to evaluate the safety and

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efficacy of pDNA-based delivery of VEGF-2 to promote the localized growth of blood vessels as a treatment for severe cardiovascular disease. In March 2005, Corautus announced the publication of two-year follow-up results of an earlier Phase 1 study demonstrating prolonged clinical benefit with no directly related complications in patients with severe angina treated with the pDNA encoding VEGF-2.

In exchange for the rights to our technology, we received shares of VGI stock with an estimated fair value of $5.0 million on the date of investment in 2000, and rights to future royalty payments on resulting product sales. We classified the shares as an investment and recorded the $5.0 million value as deferred license revenues, of which we recognized $0.8 million, $1.1 million and $1.1 million in 2004, 2003 and 2002, respectively. In 2002, upon announcement of a planned merger of VGI with GenStar Therapeutics Corporation, we recognized a loss of $4.2 million on our investment in VGI. In 2003, following the merger which resulted in the formation of Corautus, we received shares of Corautus in exchange for our shares of VGI and recognized an additional loss of $0.5 million on our investment in Corautus. We subsequently reclassified our investment as marketable securities available for sale. During 2004, we sold our Corautus shares and recognized a $0.9 million gain.