Anthony A. Ramos – Vice President-Finance and Chief Accounting Officer Vijay B. Samant – Chief Executive Officer and President Larry R. Smith - Vice President-Vaccine Research.

Christopher James – Brinson Patrick Securities Corporation Jonathan Eckard – Citigroup.

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 inviting participants after the presentation. I would now turn the conference over to Mr. Tony Ramos. Please go ahead, sir..

Hello, everyone. Welcome to our third 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, Vaccine Research, Dr. Larry Smith. 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 Form 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 third 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 our participants for joining on the call. Today, we’ll discuss the status of clinical trials. We’ll begin with ASP0113, which is formally known as TransVax and it’s a partnered program with Astellas. Then, we’ll give you an update on our independent development program for herpes simplex II or HSV-2.

We’ll begin the call with a review of our financial results by our Chief Accounting Officer, Tony Ramos. Tony, you’re on..

Thank you, Vijay. We reported financial results this morning for the third quarter of 2014, which reflect continued advancement in our HSV-2 program as well as increase in our collaborative efforts related to our CMV program licensed to Astellas.

Revenues were $3.4 million for the third quarter of 2014, compared to $1.5 million for the third 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 ASPO113 vaccine program.

The net loss was $4.4 million for the third quarter of 2014, compared with $9.9 million for the third quarter of 2013.

The reduction in our net loss compared to the third 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 am pleased to report that our net cash used for the third quarter of 2014 was $2.6 million compared to $8.5 million for the third quarter of 2013. Our net cash used for the first nine months of 2014 was $7.6 million. We ended the third quarter with $51.6 million in cash and investments.

We’re updating our 2014 full year cash used guidance to a range of between $10 million and $12 million, down from our previous forecast of between $13 million and $69 million. I’ll now turn the call back to Vijay..

Thank you, Tony. I’ll begin with the clinical update of ASP0113. This is our therapeutic CMV vaccine that is undergoing advanced clinical development with our partner, Astellas Pharma. This vaccine is undergoing testing in both global, pivotal Phase 3 and HCT on a global Phase 2 trial in solid organ transplant patients.

To our knowledge, this is the first ever CMV vaccine in the pivotal Phase 2 study and we are pleased with the progress so far. The Phase 3 HCT trial will enroll a total of 500 recipients; add up to 100 clinical sites in U.S., Europe and Asia, which includes Japan, Korea and Taiwan.

We worked with Astellas to design this Phase 3 trial with the primary endpoint of mortality. This endpoint has the potential to support full approval in key markets with no post-approval study requirements. The enrollment is progressing as expected and Astellas’ anticipation of this trial will be fully enrolled at the end of 2015.

Astellas is also actively recruiting in the Phase 2 trial solid organ transplant recipients. This trial will enroll 140 recipients who will receive kidney transplant. The primary endpoint of this Phase 2 trial will be the incidents of CMV viremia after transplantation. This trial is also progressing as expected.

It’s important to point out that all ongoing CMV vaccine trials are being conducted and funded by Astellas and that all our efforts to support these trials, including manufacturing, regulatory and clinical support activities are also fully funded by Astellas. That’s one of the reasons for our stellar financial performance this quarter.

I would also add that we are in conjunction with Astellas and actively preparing, manufacturing and scale-up activities in anticipation of a commercial launch of ASP0113. This is very exciting time in the Company’s history as we advance to potentially licensing the first CMV vaccine indicated as a product in humans.

In summary, we are extremely pleased to be working with Astellas who is an excellent partner for the CMV vaccine program. They understand the transplant space better than anybody else. We understand the vaccine space and we have the experts in CMV vaccinology.

We’re excited to have an ongoing Phase 3 and Phase 2 trials and transplant recipients underway and we look forward to further developing this important vaccine for transplant patients. Next, I’ll pass the baton to Dr.

Larry Smith, our VP of Vaccine Research, who will give you an update on our exciting HSV-2 clinical program, which is our fully owned independent development program.

Larry?.

Thank you, Vijay. Our HSV-2 vaccine is a therapeutic vaccine. It’s designed to reduce the frequency and magnitude of viral shedding and reduce genital lesion recurrences in HSV-2 positive subjects. Our Phase 1/2 trial continues to progress according to plan. The screening for the trial is now complete.

We completed the dose escalation to the maximum dose. Enrollment of subjects in the third and final cohort is ongoing. So we expect recruitment to be completed in the fourth quarter of this year. Importantly, this trial has been designed with efficacy as the primary endpoint for the final cohort, which will comprise over 140 subjects.

We expect to have top line data available from this trial in mid-2015. There are several important elements that favor the potential success of this vaccine. First, our DNA vaccine platform technology is an excellent approach. We’re listing T-cell responses against HSV-2.

And we have incorporated important T-cell antigens in our vaccine, namely envelope glycoprotein D and the core tegument protein encoded by UL46. Both of these hold full-length proteins, which should maximize potential immunologic recognition of each protein.

Secondly, we are using our Vaxfectin adjuvant to potentiate the immune response to these antigens. We believe Vaxfectin is a key component of our vaccine. In addition, we have incorporated robust swabbing periods, 60 days before and 60 days after vaccination. This will allow us to generate a reliable dataset for accessing viral shedding rates.

Viral shedding will be measured by the gold standard PCR assay developed at the University of Washington. One final advantage of our trial design is that we have a substantial number of subjects enrolled in each of our vaccine groups, namely 60 subjects.

This number should permit a reasonably good assessment of the secondary endpoints in our trial, for instance, lesion recurrences. And hopefully will minimize noise that often occurs in trials with fewer subjects per group. This data should then provide insight for our subsequent trial design.

Now, with regard to our next steps, assuming our current Phase 1/2 results favorable shedding data, we intend to work closely with FDA in an End-of-Phase 2 meeting to device the pivotal Phase 3 trial.

We believe this is a logical next step and may allow us to bring this vaccine into market in the shortest time after first showing proof-of-concept for reducing viral shedding. So in summary, our HSV-2 clinical trial is proceeding according to plan. Any additional details for this trial can be found at www.clinicaltrials.gov.

I will now turn the call back to Vijay..

Thank you, Larry. In summary, all our clinical programs continue to advance according to plan. We expect to complete enrollment on our Phase 1/2 trial of vaccine for HSV-2 in the fourth quarter of 2014. With the data release likely to occur by the middle of 2015, just to give a little granularity, the screening is complete.

So there’s no more screening going on. Patients are already doing the shedding study. So I think we’re on a roll here. Astellas expect to complete patient enrollment in Phase 3 trial of ASP0113 in stem cell transplant recipients in the fourth quarter 2015 and the trial to be completed by fourth quarter of 2016.

I’m pleased to let you know that the solid organ transplant recipient is recruiting well, and we expect Astellas to provide an update on the endpoint of the study sometime in the next quarter or so. That concludes my prepared comments for today. 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) Our first question comes from Christopher James with Brinson Patrick Securities..

Hi, good afternoon and thanks for taking my questions and congrats on a good quarter.

I guess starting with the HSV study, can you maybe sort of review with us your partnering strategies post data in mid-2015? And do you plan on starting the Phase 3 or doing another Phase 2 after your End-of-Phase 2 meeting and into as we start in 2015 as well?.

This is our independent development program and our goal is to maintain this program as a Vical asset, but obviously we’re always open to if there are lucrative partnering opportunities. I’m not close to partnering opportunities, but we have spent enormous amounts of time developing this program.

So unless any partnering opportunity is found lucrative then what we can do on our own if we want to develop this program on our own. So let me make that clear up front.

I think in terms of where we go at the end of Phase 2 study would be really dependent on the results of the Phase 2 study and really the end of Phase 2 meaning with the agency in terms of understanding what are the appropriate clinical endpoints besides viral load that the agency would be interested in pursuing, and more importantly what kind of safety database that will require in the study in addition to the patients that are currently enrolled.

Once we get those, the answers, then I think we can rapidly move the clinical study because manufacturing (indiscernible) is not that difficult. And so, really big study. What’s on the critical path really is trying to get that End-of-Phase 2 meeting and getting guidance from the agency.

So it will be premature at this stage for me to tell what the size of the study would be or when we would start the trial until we get the data. So hold your horses. We’re getting there. I think we’re pretty excited how the trial is going. The recruitment has gone well. These are really terrific subjects that we recruit who are dedicated.

Remember, these people are going through 60 days of shedding, okay, I mean measurement. That’s not an easy task and they’ve committed to it. They’ve committed to doing shedding after, I think, the vaccination. So this is a good set of subjects that we are recruiting in the study.

We have good seven centers, which are top HSV-2 centers in the United States with some Vical clinical investigators. And, again, to remind everybody, this technology originated – was jointly developed by us with Dr. Larry Corey’s Lab in University of Washington.

I mentioned that in the script, but just remember the three important points of this vaccine are that we are using full lead gB in our plasmid, okay. And we are using a tegument protein, UL46, which is a core protein, which is an important T-cell antigen. This is a therapeutic vaccine.

We have compounded it with our adjuvant Vaxfectin, which has already been tested in three human studies, but, again, going over the two important points.

The regular shedding, a 60-day shedding period, okay, which is really key to make sure that there’s a lot of noise using a shorter shedding sphere and the numbers in each of the groups compared to groups of 60. This is not a 20, 30-patient study.

So we should get pretty robust answers and if we need to get the robust answers that we want to then End-of-Phase 2 meeting with the agency should be reasonably easy, okay. With that, I’ll pause and let you ask any other questions you have..

Sure. That was really helpful. And I recall you mentioning the studies’ power to see a 30% reduction in viral shedding. I guess, maybe sort of help us understand what that actually means clinically with respect to recurrence of lesions and transmission, particularly maybe in the perinatal shedding..

Larry, you want to take that?.

Sure. So, there’s definitely a correlation between shedding and lesion. So what we’re doing is looking for at least a 30% reduction in shedding as of surrogate and what would ultimately be reduced lesion recurrences and then ultimately reduce shedding and transmission as well.

However – right now we’re not powered to show transmission reductions, but ultimately a reduced shedding should result in reduced transmission. So that’s true with the antiviral too. When they reduce shedding, they’ve shown the reduced transmission, but we would ultimately have to show that in the trial.

Right now we’re looking for a reduced shedding rate and then ultimately a reduced lesion rate as well..

Yes. The secondary endpoint is lesion reduction rate and hopefully we’ll see some correlation between load viral shedding and lesion reduction rate, okay, on a one-on-one basis. So that all remains to be seen as we unblind the data.

And, again, those are – you’re asking a terrific question, because those are the questions that will be discussed with the agency as we come up with an important clinically meaningful endpoint for the Phase 3 study..

Okay. That’s helpful. Thanks. And then over to the CMV vaccine. Just a quick question on the kidney transplant recipient study.

When could we see some data from that study, some of the PK immunogenicities data and dialysis patients?.

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:.

Okay. Sounds good. Thanks. I’m going to jump back in the queue..

We’ll next go to Jonathan Eckard with Citi. .

Thanks for taking my questions. First on the HSV program. I know you’re doing 60 days of shedding after injection, which is robust. What other durability aspects does this Phase 2 capture? Are you going to be measuring shedding again six or 12 months? I’m just trying to figure out.

What kind of information on durability do you really need to take to the FDA before discussing a Phase 3 program? And then I have another question on some of the pipeline..

Well, I’ll ask Larry answer the question, but there are a lot of requirements of the agency in terms of durability. I think the important thing is that you can impact shedding pre- and post-vaccination.

Having said that, Larry, what’s the second shedding point that we have in the trial that we’re going to do?.

We do have a second 60-day post-vaccine swabbing that we’re collecting around nine months or so into the study to look for durability. But our primary efficiency endpoint is powered based upon the pre-vaccine swabbing and the first post-vaccine swabbing. So, the second one is just designed for us to get some more information about the durability..

And it could be supportive data as we go, see the agency and defining the endpoints with Phase 3 study..

So, you would probably want to wait till you get that nine-month data and so you have that meeting with the FDA?.

No. No, we will go forward to the agency with the pre- and post-shedding data and we always have the ability – and engage the agency to a discussion. And we always have the ability to submit that additional data when it becomes old.

But I think we need to go and open the dialogue with them as soon as we get the data to get their view points because they may want to put an expert panel together, okay, because this is the first time a therapeutic study with vaccination and HSV-2 has been done. So we want to make sure they get adequate time to look at our first set of data.

There will be lot of going back and forth after that End-of-Phase 2 meeting. But we are not going to wait for the second set of shedding data to have the End-of-Phase 2 meeting. So that’s not in our primary endpoint..

Okay. And then on the rest of the platform of pipeline that there is a couple of companies out there that are suggesting that the clinical and regulatory pass for the prophylactic CMV has become more clear. I’m not sure if there’s any development on your side of your view about that.

And if there has been developments on that, how active are you in trying to optimize or leverage your prophylactic CMV program?.

Well, I don’t know we were really big pioneering companies, which participate in the workshop that the agency had put together where – and there was Merck, Pfizer GSK and Sanofi and us. We are the only small company who was invited to the table, which was, I think a full day workshop, which [Phil Collins] (ph) conducted along with Stanley Plotkin.

And it’s clear that the agency wants in the – they cannot avoid a self-transplant study. Viral load is not sufficient as the endpoint and they want a meaningful clinical endpoint and that’s why in our extended discussion with our partner, Astellas Pharma, we have come over this endpoint of mortality.

However, in SOT viral reactivation is a meaningful clinical endpoint, okay. I don’t think the position on that has changed.

So the agency clearly says that if you want to work in a CMV prophylactic study of any kind, sure you can use a viral load endpoint and sure you can get accelerated approval, but you need to do a large documentary in the phase of the study.

We and our partner, Astellas, have taken a stand and we believe and have confidence in our vaccine that we’re going to go and do a pivotal study. And this is the only study we’re going to do with mortality endpoint. So we haven’t seen a change in the landscape of any nature at the stage of that..

What I was more referring to was the program in women of childbearing age..

Thanks for clarifying the question. And I’ll make a comment and have Larry jump in. I think the whole workshop was primarily really focused on that and one of the reasons is because Sanofi conducted a study, which is a very large study.

Larry, how big was that study that they conducted in females of childbearing age?.

Big..

Two groups – a very large study and in that study, though they got good neutralizing antibody respond, the efficacy was marginal, okay, and this was really [squally] (ph) of the disease study, long-term fall up in females of childbearing age who are vaccinated.

I think the new school of thought that has come on, and Larry, you want to comment on in terms of the neutralizing antibody to the….

Sure. The study that Vijay is referring to is a recombinant protein, including glycoprotein B from CMV. And in that study they were looking from internal infection and they found about 50% efficacy against maternal infection using this vaccine.

But the neutralizing antibodies that are listed with that vaccine block the entry of CMV into a certain cell type in the fibroblast. However, the types of antibodies are induced by that become to protein or not – the neutralizing antibodies are block entry of CMV into epithelial cells. A different pathway is involved.

So what you really need is an immunogen that’s going to elicit those antibodies that can block epithelial entry. And so, one of the things that we have found recently with our glycoprotein B when administered in a DNA vaccine is when we’ve injected that into rabbits we get very good epithelial neutralizing antibodies to CMV, very good.

So there could be something very important about it the way that this protein is expressed in its annual state by a plasma DNA vaccine that somebody may not be able to stimulate that, but use of a preformed recombinant gB protein..

And this has been demonstrated in animal models and we are looking for opportunities to work with clinical investigators who are leading experts in this field to see whether we can do a human study. And I’m not saying we are doing a human study. We’re looking for opportunities.

If we can demonstrate that indeed we can generate with this constant that we are neutralizing antibodies to be epithelial entry point. That could be an important marker that will allow the agency to consider us doing a small Phase 2 proof-of-concept study.

So a lot of work is being done behind the scenes, but I’m not ready to make any commitments on this stage. And we are very actively engaged with the (indiscernible) and the agency on this, okay..

All right. Thank you very much..

(Operator Instructions) Next we’ll go to Steven Willey with Stifel..

Hi, this is [Justin Callister] (ph) on for Steven. I was hoping that we could have you talk for a bit about the HSV market opportunity itself, if you could share some of the discussions in market research that you have done in HSV.

Specifically in regards to what data points do you think are most compelling to convince a physician to actually administer the therapy? And kind of like what the threshold is that you bank for basically for a physician over that to actively prescribe there? Thank you. .

It’s a terrific question. First of all, the opportunity for HSV-2 is huge, okay. I mean, one out of five or one out of six people in the United States is positive to HSV-2. So you can calculate the numbers in terms of just the shear magnitude of the opportunity.

More importantly, 60% to 70% of the people who are HSV-2 positive are asymptomatic, but they continue to shed. And one of biggest concerns of the patients that we are recruiting in, having spoken to all the (indiscernible) and including some patient interaction is they’re absolutely petrified of our shedding.

Shedding is a much more important market to them and they do not want to transmit the disease to the discondant partners or anybody else. The reduction in shedding is a very important goal for them. The current therapy in antivirals such as Valtrex and others – first of all, the compliance is pretty poor. Even people would take it chronically.

We’ll still get odd breaks. It’s not really clear what impact Valtrex has on shedding. It does have some impact on reduction in legions. So the current therapies are not amenable for achieving that goal of what patients want is reducing shedding. So that’s from the patient side.

From the physician side, hey, you want to reduce shedding and you also want to reduce transmission. And if you can give symptomatic relief in terms of reducing the number of recurrences that you get here, now you got a triple bogey. You got everything lining up.

The market here, even if you do use – take the symptomatic people, which is 30% of the numbers it’s billions of dollars, okay, at a very moderate pricing and nothing has happened in this field, Larry, for what 20 years now that there is no new therapeutic of drug has come out.

And this is a perfect approach where a therapeutic vaccine can invoke T-cell responses and control the HSV application and reduce both these symptomatic issues and asymptomatic issues and that’s the goal. So the markets in the billions of dollars, we have done some preliminary market research and work on that field continues, okay.

But I think if we can demonstrate shedding and in our Phase 3 study, show some important clinical markers, which the agency wants, which obviously will be different by what the physicians want, because the agency always consults the KOLs, we’re on the right track to achieve what we started with..

Okay, great. Thanks..

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

Well, thank you all for participating. And we look forward to continued progress in our development programs and to meeting with some of you at our upcoming conferences. Thank you again..