Item 1.01     Entry into a Material Definitive Agreement.

          On May 25, 2006, Vical Incorporated entered into a Research and Development Agreement (the “R&D Agreement”) with AnGes MG Inc. for the development of Vical’s Allovectin-7^® cancer immunotherapeutic.  Under the R&D Agreement, AnGes will fund a Phase 3 pivotal trial to be conducted by Vical in the United States in accordance with a Special Protocol Assessment, which Vical successfully completed in 2005 with the U.S. Food and Drug Administration (“FDA”). 

          The term of the research project is expected to begin on April 1, 2006 and continue until the filing of the first Biologic License Application with the FDA related to an Allovectin-7^® product in melanoma.  During the project term, Vical will receive project funding from AnGes in scheduled increments and times and in the form of both research and development payments and equity investments.  The total amount of funding Vical is to receive from AnGes for the project is anticipated to be $22.6 million.  If the project costs exceed that amount, Vical and AnGes have agreed to share the excess costs up to certain limits. 

          Under the R&D Agreement, Vical has granted to AnGes exclusive marketing rights for Allovectin-7^® in specified countries in Asia and AnGes has agreed to pursue regulatory approvals in those countries, subject to receipt by Vical of regulatory approval in the United States.  Vical has also granted AnGes certain royalty-bearing licenses to its technology and know-how.

          If a product is approved for sale, Vical is eligible to receive royalties and up to $77.5 in total sales milestones based on net sales in the countries in Asia where AnGes has exclusive marketing rights.  Vical, in turn, is obligated to pay to AnGes tiered royalties on sales in the United States, including a minimum royalty, and fixed royalties in all other territories in which Vical sells the product.  

          The term of the R&D Agreement will continue until the expiration of Vical’s and AnGes’ obligations to pay royalties, unless the agreement is terminated by Vical or AnGes on an earlier date.  Under the terms of the R&D Agreement, either Vical or AnGes may terminate the agreement if the other party has breached a material provision and not cured the breach after receiving notice, if specified adverse events occur during the project, or if the other party enters bankruptcy.  Also, AnGes may terminate the R&D Agreement if its cash and cash equivalents fall and remain below a specified level. 

          In connection with the equity investments contemplated by the R&D Agreement, Vical and AnGes also entered into a Stock Purchase Agreement on May 25, 2006.  Pursuant to the Stock Purchase Agreement, AnGes has agreed to purchase up to an aggregate of $10,850,000 of Vical’s common stock in two closings.  In the first closing, which will occur on or about May 30, 2006, AnGes will purchase $6,900,000 worth of Vical’s common stock at a per share price of $6.50.  At the second closing, subject to certain conditions set forth in the Stock Purchase Agreement, AnGes will purchase an additional $3,950,000 worth of Vical’s common stock at a per share price equal to the volume weighted average price of Vical’s common stock for the 30 trading days ending on the second trading day before the second closing, as reported on the Nasdaq National Market.  However, if the total number of shares of Vical’s common stock issued under the Stock Purchase Agreement would exceed 19.99 percent of Vical’s outstanding common stock as of the date of the second closing, Vical has agreed to seek stockholder approval for the issuance of the full amount of shares contemplated by the Stock Purchase Agreement.  If Vical is unable to obtain such stockholder approval, AnGes will not be obligated to purchase the portion of the shares that would exceed the 19.99 percent limit.

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