Tony Ramos - VP Finance, CAO Vijay Samant - President and CEO Dr. Anza Mammen - Vice President of Clinical Vaccine.

Christopher James - Brinson Patrick Securities Jonathan Eckard - Citi.

Good day and welcome ladies and gentlemen to the Vical Incorporated Financial Results Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode.

At the request of the company, we will open up the conference for questions-and-answers from invited participants after the presentation. I would now like to turn the conference over to Mr. Tony Ramos. Please go ahead..

Hello, everyone. Welcome to our second quarter 2014 financial results conference call. Joining me on the call today is Vical's President and Chief Executive Officer, Mr. Vijay Samant and Vical's Vice President of Clinical Vaccine Dr. Anza Mammen. I will begin with a brief notice concerning projections and forecasts.

This call includes forward-looking statements, including financial expectations and projections of progress in our independent and collaborative research and clinical development programs that are subject to risks and uncertainties that could cause actual results to differ materially from those projected, including the risks set forth in Vical's Annual Report on Form 10-K and Quarterly Reports on 10-Q filed with the Securities and Exchange Commission, as well as the specific risks and uncertainties noted in Vical's news release on its second quarter 2014 financial results.

These forward-looking statements represent the company's judgments and expectations as of today. The company disclaims any intent or obligation to update these forward-looking statements. Now, I would like to introduce Vical's President and Chief Executive Officer, Mr. Vijay Samant..

Thank you, Tony, and thank you to all participants for joining the call. Today, we will discuss the status of clinical trials of partner program ASP0113, formally known as TransVax which is now fully partnered with Astellas, then we will give you an update on our independent development programs of herpes simplex II and therefore we invited Dr.

Anza Mammen who is running the program who is our VP of Clinical Sciences, but before that we’ll begin our call with a review of the financial results by our Chief Accounting Officer, Tony Ramos. Tony, you are on..

Thank you Vijay. We reported financial results this morning for the second quarter of 2014 which reflected advancement in our HSV-2 and CMV product development programs and our expense management efforts. Revenues were $4.5 million for the second quarter of 2014 compared with $1.5 million for the second quarter of 2013.

The increase in revenues was primarily the result of an increase in the development work performed under our contract with Astellas related to the ASP0113 vaccine program. The net loss was $4 million for the second quarter of 2014 compared with $9.9 million for the second quarter of 2013.

The reduction in our net loss compared to the second quarter of 2013 was due primarily to increased revenues from our ASP0113 vaccine program combined with savings realized as a result of our August 2013 restructuring and other actions taken to improve the efficiencies of our operations.

I'm pleased to report that our net cash used for the second quarter of 2014 was $2.6 million compared to $8.1 million for the second quarter of 2013. The cash burn rate for the first half of 2014 was $5.1 million. We ended the second quarter with $51.5 million in cash and investments. I will now turn the call back to Vijay..

Thank you, Tony. I'll begin with the clinical update on ASP0113, this is a therapeutic vaccine to prevent CMV reactivation in HCT transplant subjects and solid organ transplant subjects, that is partnered with Astellas. To our knowledge, this is the first ever CMV vaccine in the pivotal study and we are pleased with the progress so far.

For the Phase 3 trial, Astellas is enrolling HCT patients which are hematopoietic cell transplant patients who are CMV seropositive as they are at high risk for CMV reactivation during their post-transplant recovery period.

We worked with Astellas to design this Phase 3 trial with primary endpoint that has the potential to support full approval in key markets with no post-approval study requirements. The Phase 3 trial incorporates an adaptive design that includes overall mortality as a standalone primary efficacy endpoint or as a part of a composite endpoint.

Full approval requires a clinically meaningful endpoint based on this logic that Phase 3 trial was designed with primary endpoint of overall mortality at one year after transplant. Astellas continues to ramp up this global study which will eventually include approximately 100 clinical sites in North America, Europe and Asia.

And Astellas is also recruiting in Phase 2 trial in solid organ transplants SOT recipients. This is a bigger commercial opportunity than the HCT transplant opportunity. For this Phase 2 trial, Astellas is enrolling patients who are CMV-seronegative, who’ll receive kidney transplant from a CMV-seropositive donor.

This is so called D+/R- patients are at high risk for CMV infection and disease after transplantation. So we believe the vaccination that ASP0113 may provide protection against CMV in this group. The trial will enroll about 140 SOT recipients.

The primary endpoint of this phase II trial will be the incidents of CMV viremia after transplantation will also be monitoring several secondary endpoints including CMV disease, CMV specific antiviral therapy, graft survival and overall mortality. We will continue to provide updates for this ongoing trial as they become available.

Astellas is also actively recruiting a third clinical trial. This one is a Phase 1 pharmacokinetic and immunogenicity trial in dialysis patients to characterize immune response following vaccination with immune compromise patients.

It's important to point out all three ongoing trials have been conducted and fully funded by Astellas and that all our effort to support these trials including manufacturing, regulatory support, clinical support and other activities are also fully funded by Astellas.

And that's the reason we have maintained a low burn rate this quarter and the prior quarter. In summary, we are extremely pleased to be working with Astellas. They are a terrific partner for the CMV vaccine program. They understand the transplant space. As you know, the leading drug and transplant program is marketed Astellas.

We are expected to have three ongoing trials underway with them and we look forward to further developing this important vaccine for transplant community. Next I’ll have Dr. Anza Mammen, VP of Clinical Vaccines, who is our HSV trial program to give you an update on where this program stands? Anza you are on..

Thank you Vijay. Our HSV-2 vaccine is a therapeutic vaccine design to reduce shedding and reduce severity and recurrence of genital lesions in HSV-2 positive subjects. As previously announced we initiated Phase 1/2 trial in December of 2013.

This trial is a randomized, double-blind, placebo-controlled dose escalation study being conducted at seven sites in the U.S. We are enrolling approximately 150 subjects who are HSV-2 positive and who experience 2 to 9 recurrence of general herpes lesions per year, but who are otherwise normal and healthy.

We’ve completed the dose escalation to the maximum dose. The safety data has been reviewed by Independent Safety Monitoring Board that recommended continuing the trial as planned. Enrollment of patients in a certain clinical cohort is ongoing, we expect recruiting to be completed in the fourth quarter of this year.

A significant number of the patients enrolled in the third cohort are in the pre-vaccine swab collection phase to determine their individual shedding rates prior to dosing. Importantly, this trial has been designed with efficacy as a primary end point for the final cohort. Let me take a few minutes to elaborate on the efficacy component of our trial.

We expected symptomatic subjects with the history of recurrence of general herpes lesion to shed HSV-2 virus from mucosal genital tissue on average 20% of the time based upon the results of an earlier independent study. We intend to measure viral shedding rates for 60 days prior to vaccination and then again for 60 days after the last vaccination.

This before and after shedding data effectively lets each subject serve at their own control, because this is a randomized double blind controlled trial, we have an opportunity to demonstrate proof-of-concept for efficacy against a biologic endpoint which is surrogate for genital herpes lesion recurrence.

In summary, our HSV-2 clinical trial is proceeding according to plan. Additional details for this trial can be found at www.clinicaltrials.gov..

Thank you, Anza. So in summary in 2014 we expect to see continued advancement of our ongoing clinical programs as I told you the HSV-2 program recruiting is well, we expect enrollment on that trial to be completed by the end of this year and have results sometime in the middle of next year.

Our partner Astellas as I said is conducting three trials in this, for this important last big remaining target in the infectious disease area which is CMV, primarily in reactivation of CMV transplant patients we have Phase 3 trial ASP0113 in stem cell transplants recipients and we expect trial to complete enrollment by the end of 2015.

And the Phase 2 trial in solid organ transplants recipients will enroll sometime at the early 2017 it's a longer out. This concludes my prepared comments for day. Operator, we are now ready to open the call to questions from our invited participants..

Thank you, Mr. Samant. The question-and-answer session will begin at this time. (Operator Instructions). The first question comes from Christopher James of Brinson Patrick Securities. Please go ahead..

Hi good afternoon and thanks for taking my questions and congratulations on your good progress.

Regarding CMV the adaptive trial design in Phase III with the endpoints for the first time (inaudible) seeing mortality what are your expectations around timing for the decision around the composite endpoint and will that require a formal meeting with the FDA?.

Excellent question, just to kind of elaborate the question it’s an adaptive trial design, 500 patients in the study. The first 100 patients will the adaptive portion and the efficacy portion will be the 400 patients.

Astellas does not actually define when the efficacy or analysis of the post adaptive portion would be done but the fact that the trial is going to recruit by the end of 2015 it has to be done before that, simply because if you are going to change an endpoint after adaptive trial design analysis; first of all, you are absolutely right it’s going to require interaction with the FDA; and b, need to get that all complete and the endpoint finalized by the efficacy portion of the study before the last patient is recruited.

So we are seeing the patient that currently is recruited by the fourth quarter of 2015 all this needs to be done including the interaction of the FDA. So though the timing is not there you can use your logic it’s not a long term game plan, it’s got to be done quickly to get this done.

And remember again in the adaptive portion you will simply be looking or controlling the trend that we saw in the Phase 2 study, because you are not wowed at 100 patients to see a statistical difference in mortality between both arms..

Great, thanks for excellent clarification there. Could you remind us what are the baseline mortality rates that seems the seropositive patients.

And do you put any virals have any impact on mortality there?.

If you look at the published data and this comes from I think it's Michael (inaudible) and I can send you the article, if you compare CMV positive and CMV negative patients, there is almost a 30% higher mortality rate, 20% to 30% higher mortality rate in CMV positive patients.

And why it occurs and when the compounding factors are not fully understood, but the logic simply is that if you get CMV reactivation and your immune system is directed to what’s controlling the CMV. And then you are logically subject to other opportunistic infections including (inaudible) diseases and others.

And that's probably the casualty, why there is such high mortality CMV positive. Despite the use of antivirals in both groups of it..

Got it. Okay. And then moving onto HSV, the primary end point in Phase 2 viral shedding and I noticed the general reason rate as a secondary end point. Could you -- is there a possibility of showing any efficacy on leasing rate and what would that potentially mean for Phase 3. I'm assuming that's kind of the Phase 3 end point..

Anthony you want to answer it..

I think with the way the trial was designed right now, we are focusing on the viral shedding. I think FDA is going to expect us essentially to have a more than just a target endpoint. But we feel that future trials will probably focus on lesion recurrences more as a….

Study currently is followed for shedding rate and so this will be more of a baseline data collection that will allow us to design the Phase 3 study..

Got it.

And then can you remind us of your partnership strategy around the agency program and what would drive the partnership versus moving it forward alone?.

Well I think first of all, this is absolutely fully owned program Vical, the overall of the intellectual properties are (inaudible) we also did all the preclinical studies and know on our own.

This is a program that we are not going to easily partner unless the economics are really --create value for the shareholders because this is the program something that we can bring to the market on our own trial size even Phase 3, our expectations are going to be reasonable.

So we -- our intentions are to go alone but you never say never in this business. .

Great, thanks for taking my questions. I'll jump back in the queue..

We'll take our next question from Jonathan Eckard of Citi..

Hello, thanks for taking the questions. So on HSV-2, if I could start there, there has been some data recently from some other HSV-2 vaccines regarding shedding as well as symptom reduction whether it’d be symptom days or whatever.

I was just wondering -- and the reaction has been fairly mixed, possibly due to the confusion of what the clinical meaningfulness of these particular endpoints are.

Can you remind, do you see any information broadly coming out that could help tie what the clinical meaningfulness of these endpoints are and is Vical’s trial doing measurements of these different endpoints any differently than the existing agents that could provide some differentiated kind of clarity on how your drug works versus some of the other agents and developers? And then I have follow-up question..

So, Jonathan excellent question.

Without getting into the company specifics, all I can tell you is that the data that we’ve seen recently that has come out, first of all, is a pretty mixed data because there has been compounding factors that the viral shedding is not effective at a lower dose and high dose; well, it works at an intermediate dose that are three different adjuvant levels, it works at certain adjuvant levels.

So there is a lot of compounding permutation variables if you’ve seen in the data that recently came out. We also saw that the viral shedding after one year is reverted to baseline. So the viral shedding which is the surrogate marker of effective vaccine to some reason has reverted back to baseline. So now the correlation with that becomes effective.

We hope that we will be able to show sustained control of viral shedding over a longer period of time in our clinical trial. As you know we are also measuring shedding for 60 days as opposed to other people measuring it for 14 days or 28 days, I don’t know what the exact numbers are but much smaller timeframe.

So when you measure something at 60 days, you take a lot of noise out of that. You’ll get a much more vigorous baseline data; you also get a most vigorous post vaccination data. So, those are the two things that are going to differentiate our trial. And as you’ve seen, our ability to mount this on responses is very good.

If you even look at our H5, avian flu influenza vaccine in humans, we showed pretty sustained T-cell responses and antibody responses almost six months after vaccination, whereas you saw conventional vaccines and I think (inaudible) has published their data on it, it kind of veins out after a while.

So there is some core intricacies of DNA technology that allow you to do that were T-cell component or the T-cell responses are very strong, particularly with the adjuvant, if you're using Vaxfectin and the swabs.

So we expect, we believe based on opinion leaders like Larry Corey and other that while shedding indeed is a surrogate endpoint if all clinical efficacy, I mean (inaudible) will also have to show that the correlation in between that endpoint and reduction in lesions, the recurrence of lesions is going to be important because just using a surrogate marker for such an important disease target is not going to be enough.

So A, we're going to have to show efficacy with clinical meaningfully endpoint and B also we need to show that the correlation between shedding and that clinical meaningful endpoint and we believe that if the trial progress well, and our pre-clinical data holds off we will be deeply able to show that.

So I think the data that you referred to is mixed data and it compounds that because you're showing that viral shedding is reverting back to baseline but you'll see some efficacy in one of the arm. So we are also very surprised that we thought the data will correlate very well viral shedding but it does not..

Okay. And I guess the other question more broad question is that. Could you outline with your perspective what the key near and mid-term catalysts are for the company.

And maybe also in that provide how high of a priority is it to conduct some (inaudible) type of activities that could potentially provide some clarity into the clinical value of some of the company’s platform technologies?.

I think excellent question, I think really the near term activity as far as the completion of our HSV plan about the year end, which is very important milestone.

And B, then announcement of the data sometime in the middle of the year which will show that our vaccine was well defined, our trial was well executed and that I think the efficacy stands we should be able to go into Phase III very rapidly, unlike some of our other competitors in this field who are doing additional studies of dose ranging.

I think we have reached our final dose and if that dose works the only thing that prevents us from going into Phase III is negotiation with the agency and the safety endpoint. So we are behind by about six or nine months we should be able to usually catch up and even be strong some of the competition that we have in the field.

So HSV-2 is our primary focus right now we are working very hard on it.

Our support for Astellas ASP0113 is reflected in our financial statements, because we have put a lot of efforts almost 70% of the company is working to support the Astellas program with its manufacturing, validation, process validation, regulatory support worldwide and Astellas itself is spending a lot of money in both of those programs of the solid organ transplant study as well as the 500 patient HCT study.

I think the enrollment of that study by the end of the fourth quarter 2015 is very important milestone because once that’s done then all you have to do is follow up. As I told you this is a pivotal study so we don’t require another study.

So if that data leads us positive it’s going to be important milestone it’s not near term, it’s a little further away. So those are two clinical area milestone that we are working now.

On the technology front, as we have said we are working on the license of Vaxfectin with a couple of companies, it takes long time for somebody to use our adjuvant in comparison with their own mouse trap and evaluation of their data versus our data.

But we are hopeful that this will lead to a deal on that important adjuvant, as you know we already done two deals on this one, but this reminds proven the second was 5X.

And hey we are looking very actively as most companies are looking, since we have capabilities both in manufacturing and infectious disease research as well as conducting clinical trials. So we filed about 10 INDs in the last seven years okay, successful with the agency.

To look for an opportunity for an asset that will further expand our pipeline, we need to find the diamond of the rough and we're looking at something very carefully and very hard and hopefully we'll be successful in the coming months..

Great. Thank you very much..

There are no further questions. I would now like to turn the call back over to Mr. Samant..

Well, thank you very much for all of you in participating this call. We look forward to continued progress in our development programs and to meeting with some of you at our upcoming conferences. Again thank you very much and have a good day..

Ladies and gentlemen, this concludes our conference for today. You may now disconnect..