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, 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, the funding of our research and development efforts, 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 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, 2008, and in our other filings with the SEC, and those identified in Part II, Item 1A entitled "Risk Factors" beginning on page 23 of this Report. 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.

Overview

We research and develop biopharmaceutical products based on our patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases. We believe the following areas of research offer the greatest potential for near-term commercialization for us and our partners:

• Vaccines for use in high-risk populations for infectious disease targets for which there are significant U.S. needs;

• Vaccines for general pediatric, adolescent and adult populations for infectious disease applications;

• Cancer vaccines or immunotherapies which complement our existing programs and core expertise; and

• Gene-based delivery of therapeutic proteins, such as angiogenic growth factors, for treatment of cardiovascular disease.

We currently have five active independent clinical and pre-clinical development programs in the areas of infectious disease and cancer including:

• A Phase 3 clinical trial using our Allovectin-7® immunotherapeutic in patients with metastatic melanoma which is being funded, up to certain limits, by AnGes MG, Inc., or AnGes, through cash payments and equity investments under a research and development agreement;

• A Phase 2 clinical trial using TransVax™, our cytomegalovirus, or CMV, therapeutic DNA vaccine, in patients undergoing hematopoietic cell transplants;

• A completed Phase 1 clinical trial using our H5N1 pandemic influenza DNA vaccine formulated with our proprietary Vaxfectin ® adjuvant;

• A preclinical program using our H1N1 pandemic influenza DNA vaccine formulated with our proprietary Vaxfectin ® adjuvant; and

• A preclinical program using our CyMVectin™ prophylactic vaccine to prevent CMV infection before and during pregnancy to preclude fetal transmission.

We have leveraged our patented technologies through licensing and collaboration arrangements, such as our licensing arrangements with Merck & Co., Inc., or Merck, the sanofi-aventis Group, or sanofi-aventis, AnGes, Aqua Health Ltd. of Canada, or Aqua Health, an affiliate of Novartis Animal Health, and Merial Limited, or Merial, a subsidiary of sanofi-aventis, among other biopharmaceutical companies. Two of the licenses have resulted in the following two approvals in veterinary applications:

• In 2005, the first product for one of our licensees utilizing our patented DNA delivery technology received approval for use in animals. Our licensee Aqua Health received approval from the Canadian Food Inspection Agency to sell a DNA vaccine to protect farm-raised salmon against an infectious disease.

• In 2007, our licensee Merial received conditional approval from the U.S. Department of Agriculture to market a therapeutic DNA vaccine designed to treat melanoma, a serious form of cancer, in dogs. Merial's vaccine is the first vaccine ever approved for therapeutic use.

We believe these approvals are important steps in the validation of our DNA delivery technology. Furthermore, our partner, AnGes, reported submission in March 2008 of a New Drug Application, or NDA, to the Japanese Ministry of Health, Labor and Welfare for Collategene™, its DNA-based therapeutic product encoding the hepatocyte growth factor, or HGF, for indications related to peripheral arterial disease, or PAD, and Buerger's disease. If approved, Collategene™ would represent the first approval of a product based on our DNA delivery technology for use in humans.

In addition, we have licensed complementary technologies from leading research institutions, pharmaceutical companies, and the National Institutes of Health, or NIH. We also have granted non-exclusive, academic licenses to our DNA delivery technology patent estate to 11 leading research institutions including Stanford, Harvard, Yale and the Massachusetts Institute of Technology. The non-exclusive academic licenses allow university researchers to use our technology free of charge for educational and internal, non-commercial research purposes. In exchange, we have the option to exclusively license from the universities potential commercial use of our technology on terms to be negotiated.

Product Development

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, cardiovascular diseases and cancer. Our lead independent development programs focus on metastatic melanoma, CMV, and pandemic influenza. The table below summarizes our independent programs and corporate and government collaborations.

Product Concept                  Intended Use                  Development Status1    Lead Developer
Independent Programs
Allovectin-7® cancer             First-line treatment for      Phase 3                Vical
immunotherapeutic                metastatic melanoma

TransVax™ therapeutic vaccine    Prevent viral reactivation    Phase 2 - enrollment   Vical
for cytomegalovirus              and disease after             complete
                                 transplant

Prophylactic vaccine for H5N1    Protect against infection,    Phase 1 completed      Vical
pandemic influenza virus         disease, and/or viral
                                 shedding

Prophylactic vaccine for H1N1    Protect against infection,    Preclinical            Vical
pandemic influenza virus         disease, and/or viral
                                 shedding

CyMVectin™ prophylactic          Prevent infection before      Preclinical            Vical
vaccine for cytomegalovirus      and during pregnancy to
                                 preclude fetal transmission

Therapeutic vaccine for herpes   Prevent recurring flare-ups   Research               Vical
simplex type 2 virus             to reduce viral shedding
                                 and transmission
Corporate Collaborations
Collategene™ angiogenic          Induce local growth of        NDA filed in Japan,    AnGes
therapy encoding Hepatocyte      blood vessels to restore      Phase 2 completed
Growth Factor                    blood flow to limbs           in the
                                 affected by ischemia          United States

Angiogenic therapy encoding      Induce local growth of        Phase 3 - enrollment   Sanofi-aventis
Fibroblast Growth Factor 1       blood vessels to restore      complete
                                 blood flow to limbs
                                 affected by ischemia

Angiogenic therapy encoding      Induce local growth of        Phase 1 completed in   AnGes
Hepatocyte Growth Factor         blood vessels to restore      the United States
                                 blood flow to heart
                                 affected by ischemia

Therapeutic vaccine encoding     Treat breast, colorectal,     Phase 1                Merck
carcinoembryonic antigen and     ovarian or non-small cell
human epidermal growth           lung cancer
factor receptor 2

Therapeutic vaccine encoding     Treat non-small cell lung,    Phase 1                Merck
human telomerase reverse         breast or prostate cancer,
transcriptase                    melanoma, or carcinomas of
                                 the upper GI tract, colon,
                                 kidney, or bladder

Prophylactic and/or              Prevent and/or treat          Research               Merck
therapeutic                      infection, disease,
hepatitis C vaccine              and/or viral shedding

Apex-IHN® prophylactic vaccine   Protect farm-raised salmon    Marketed in Canada     Aqua Health
for infectious hematopoietic     from infection and disease                           (Novartis)
necrosis virus                   when exposed to infected
                                 wild salmon

Therapeutic cancer vaccine       Adjunct treatment to          Conditional approval   Merial
encoding human tyrosinase        increase survival time of     in the
                                 dogs with oral melanoma       United States
Government Collaborations
Prophylactic and/or              Prevent and/or treat          Phase 2                NIH
therapeutic                      infection, disease,
HIV vaccine                      and/or viral shedding

1 "Research" indicates exploration and/or evaluation of a potential product candidate in a nonclinical laboratory setting. "Preclinical" indicates that a specific product candidate in a nonclinical setting has shown functional activity that is relevant to a targeted medical need, and is undergoing toxicology testing in preparation for filing an Investigational New Drug, or IND, application. "Phase 1" clinical trials are typically conducted with a small number of patients or healthy subjects to evaluate safety, determine a safe dosage range, identify side effects, and, if possible, gain early evidence of effectiveness. "Phase 2" clinical trials are conducted with a larger group of patients to evaluate effectiveness of an investigational drug for a defined patient population, and to determine common short-term side effects and risks associated with the drug. "Phase 3" clinical trials involve large scale, multi-center, comparative trials that are conducted with patients afflicted with a target disease to evaluate the overall benefit-risk relationship of the investigational drug and to provide an adequate basis for product labeling.

Recent Events

The following events have recently occurred with respect to our business:

Significant Progress in our Influenza Program

• We were awarded a contract by the U.S. Navy for $1.25 million to support large-scale cGMP vaccine manufacturing and related clinical and regulatory preparations for a Phase 1 clinical trial of our vaccine against H1N1 pandemic influenza (swine flu). The trial will be conducted in collaboration with the U.S. Naval Medical Research Center.

• Our DNA vaccine against H1N1 pandemic influenza (swine flu) demonstrated robust immune responses in 100% of vaccinated animals (mice and rabbits) against virus strains isolated from recent outbreaks in three distinct geographic regions - California, Texas and Mexico.

• We were issued U.S. Patent No. 7,582,613 covering Vaxfectin®-formulated DNA vaccines for influenza. The patent provides broad coverage for any circulating or potential influenza viruses, including both seasonal and pandemic strains.

Continued Progress in our Partnership Programs

• Our licensee, sanofi-aventis, has completed enrollment in a multinational 500-patient pivotal Phase 3 clinical trial of its angiogenesis therapy for peripheral arterial disease. Sanofi-aventis expects final data from this trial in late 2010.

• We received a $2.5 million cash payment from AnGes related to continued progress in our ongoing Allovectin-7 ® Phase 3 metastatic melanoma trial. Through a series of cash payments and equity investments under a previously announced collaborative agreement, we have now received the full $22.6 million committed by AnGes.

• We entered into an exclusive agreement with Teva Pharmaceutical Industries Ltd. for sales and marketing of Allovectin-7 ® in Israel. Teva has agreed to pay us upfront and milestone payments in exchange for the rights to an exclusive license in Israel.

Continued Progress in our CMV Program

• Our TransVax™ therapeutic DNA CMV vaccine provided promising results compared with placebo across a broad range of clinical efficacy endpoints at the four-month interim analysis in an ongoing Phase 2 trial. T-cell responses to both CMV antigens encoded by our vaccine, noted in our four-month interim analysis, were sustained through a seven-month analysis.

Other Significant Events

• We received gross proceeds of approximately $10.0 million from the sale of our common stock in a registered direct offering. We sold an aggregate of 2,754,821 shares of our common stock for a purchase price of $3.63 per share. Net proceeds from the offering, after deducting related expenses, totaled $9.9 million.

• We presented encouraging results from animal studies of a peptide-based cancer vaccine formulated with our Vaxfectin ® adjuvant. The data demonstrated the adjuvant's ability to enhance immune responses of cancer antigen-based vaccines in addition to a broad variety of DNA- and protein-based vaccines against infectious diseases. The Vaxfectin®-adjuvanted cancer peptide also demonstrated a significant reduction of lung tumors and increased survival in preclinical studies.

Research, Development and Manufacturing Programs

To date, we have not received revenues from the sale of our independently developed pharmaceutical products and have received minimal revenues from the sale of commercially marketed products by our licensees. We earn revenues by performing services under research and development and manufacturing contracts, from grants and from licensing access to our proprietary technologies. Since our inception, we estimate that we have received approximately $157.0 million in revenues from these sources. Revenues by source were as follows (in millions):

                                            Three Months Ended        Nine Months Ended
                                              September 30,             September 30,
 Source                                     2009         2008         2009         2008
 Navy dengue manufacturing contract       $     1.3    $      -    $      1.3    $      -
 Navy H1N1 contract                             0.2           -           0.2           -
 RapidResponse™ DNA manufacturing grant         0.3          0.4          0.8          1.1
 Other contracts and grants                     0.2          0.3          0.4          0.5

 Total contract and grant revenues              2.0          0.7          2.7          1.6

 AnGes licenses                                 1.7           -           5.3          3.1
 Merck license                                   -            -           1.5           -
 Other royalties and licenses                   0.2          0.1          0.6          0.6

 Total royalty and license revenues             1.9          0.1          7.4          3.7

 Total revenues                           $     3.9    $     0.8   $     10.1    $     5.3

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

                                                       Three Months Ended        Nine Months Ended
                                                         September 30,             September 30,
Program                                                2009         2008          2009        2008
Allovectin-7®                                        $     5.2    $     4.4    $     15.5    $  13.3
CMV                                                        1.0          1.6           4.0        4.2
Pandemic influenza                                         0.4          1.0           0.9        4.0
Other research, development, manufacturing and
production                                                 2.6          1.9           5.3        6.6

Total research, development, manufacturing and
production                                           $     9.2    $     8.9    $     25.7    $  28.1

Since our inception, we estimate that we have spent approximately $375 million on research, development, manufacturing and production. Our current independent development focus is on our cancer immunotherapeutic Allovectin-7®, novel DNA vaccines for CMV and pandemic influenza, and other clinical and preclinical targets.

We are conducting a Phase 3 clinical trial using Allovectin-7® in patients with recurrent metastatic melanoma which has been funded, up to certain limits, by AnGes through cash payments and equity investments under a research and development agreement. We are also in the early stages of clinical development of our vaccine candidates for CMV and our vaccine candidates for pandemic influenza and these programs will require significant additional funding to advance through development to commercialization. From inception, we have spent approximately $111 million on our Allovectin-7®program, $49 million on our CMV programs, and $22 million on our pandemic influenza programs.

We have other product candidates in the preclinical and 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 the registration 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 due to manufacturing activities, costs related to our facilities, and possible advancement toward commercialization activities.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires that management make a number of assumptions and 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, actual results may differ 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, and grant revenues. Our critical accounting policies also include recognition of research and development expenses and the valuation of long-lived and intangible assets.

Revenue Recognition

Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or determinable; and
(4) collectability is reasonably assured.

Contract Manufacturing Revenue. Our contract manufacturing arrangements typically require the delivery of multiple lots of clinical vaccines. We analyze our multiple element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting. The evaluation is performed at the inception of the arrangement. The delivered item(s) is considered a separate unit of accounting if all of the following criteria are met: (1) the delivered item(s) have standalone value to the customer; (2) there is objective and reliable evidence of the fair value of the undelivered item(s); and (3) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If the delivered item does not have standalone value or we do not have objective or reliable evidence of the fair value of the undelivered component, the amount of revenue allocable to the delivered item is deferred.

License and Royalty Revenue. Our license and royalty revenues are generated through agreements with strategic partners. Nonrefundable, up-front license fees and milestone payments with standalone value that are not dependent on any future performance by us under the arrangements are recognized as revenue upon the earlier of when payments are received or collection is assured, but are deferred if we have continuing performance obligations. If we have continuing involvement through contractual obligations under such agreement, such up-front fees are deferred and recognized over the period for which we continue to have a performance obligation, unless all of the following criteria exist: (1) the delivered item(s) have standalone value to the customer; (2) there is objective and reliable evidence of the fair value of the undelivered item(s); and (3) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If the delivered item does not have standalone value or we do not have objective or reliable evidence of the fair value of the undelivered component, the amount of revenue allocable to the delivered item is deferred.

We recognize royalty revenues from licensed products when earned in accordance with the terms of the license agreements. Net sales figures used for calculating royalties include deductions for costs of returns, cash discounts, and freight and warehousing, which may vary over the course of the license agreement. Payments received related to milestones are recognized as revenue upon the achievement of the milestones as specified in the underlying agreements, which represent the culmination of the earnings process.

Government Research Grant Revenue. We recognize revenues from federal government research grants during the period in which the related expenditures are incurred.

Research and Development Expenses

Research and development expenses consist of expenses incurred in performing research and development activities including salaries and benefits, facilities and other overhead expenses, clinical trials, contract services and other outside expenses. Research and development expenses are charged to operations as they are incurred.

We assess our obligations to make milestone payments that may become due for licensed or acquired technology to determine whether the payments should be expensed or capitalized. We charge milestone payments to research and development expense when:

• The technology is in the early stage of development and has no alternative uses;

• There is substantial uncertainty of the technology or product being successful;

• There will be difficulty in completing the remaining development; and

• There is substantial cost to complete the work.

Capitalization and Valuation of Long-Lived and Intangible Assets

Intangible assets with finite useful lives consist of capitalized legal costs incurred in connection with patents, patent applications pending and technology license agreements. Payments to acquire a license to use a proprietary technology are capitalized if the technology is expected to have alternative future use in multiple research and development projects. We amortize costs of approved patents, patent applications pending and license agreements over their estimated useful lives, or terms of the agreements, whichever are shorter.

For patents pending, we amortize the costs over the shorter of a period of twenty years from the date of filing the application or, if licensed, the term of the license agreement. We re-assess the useful lives of patents when they are issued, or whenever events or changes in circumstances indicate the useful lives may have changed. For patents and patent applications pending that we abandon, we charge the remaining unamortized accumulated costs to expense.

Intangible assets and long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the review indicates that intangible assets or long-lived assets are not recoverable, their carrying amount would be reduced to fair value. Factors we consider important that could trigger an impairment review include the following:

• A significant change in the manner of our use of the acquired asset or the strategy for our overall business; and/or

• A significant negative industry or economic trend.

In the event we determine that the carrying value of intangible assets or long-lived assets is not recoverable based upon the existence of one or more of the above indicators of impairment, we may be required to record impairment charges for these assets. As of September 30, 2009, our largest group of intangible assets with finite lives includes patents and patents pending for our DNA delivery technology, consisting of intangible assets with a net carrying value of approximately $3.0 million.

Recent Accounting Pronouncements

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.

Results of Operations

Three Months Ended September 30, 2009, Compared with Three Months Ended September 30, 2008

Total Revenues. Total revenues increased $3.1 million, or 362.4%, to $3.9 million for the three months ended September 30, 2009, from $0.8 million for the three months ended September 30, 2008. Our license and royalty revenue increased by $1.8 million which was primarily the result of a $1.7 million increase in revenue related to our Allovectin-7® license agreement with AnGes. Our contract and grant revenue increased by $1.3 million which was primarily the result of the recognition of revenue related to the delivery of a dengue vaccine to the Navy.

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