Tony Ramos - President and Chief Accounting Officer Vijay Samant - President and Chief Executive Officer Igor Bilinsky - Senior Vice President, Corporate Development Larry Smith - Vice President, Vaccine Research Anza Mammen - Vice President, Clinical Vaccines.

Prakhar Verma - Stifel Reni Benjamin - H.C. Wainwright Debjit Chattopadhyay - ROTH Capital Partners.

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 then all participants are in a listen-only mode. [Operator Instructions] I will now turn the conference over to Mr.

Tony Ramos, Vical’s President and Chief Accounting Officer. Please go ahead, sir..

Hello, everyone. Welcome to our first quarter 2015 financial results conference call. Joining me on the call today is Vical’s President and Chief Executive Officer, Mr. Vijay Samant; Vical’s Senior Vice President, Corporate Development, Dr. Igor Bilinsky; Vical’s Vice President of Vaccine Research, Dr.

Larry Smith; and Vical’s Vice President, Clinical Vaccines, 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 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 first quarter 2015 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 participants for joining the call. First, I am pleased to report that all our independent and partner programs are proceeding according to plan. And as Tony will report, we have continued to manage our financial expense as such that the company is well-positioned to continue our planned development efforts.

On the call today, Dr. Anza Mammen, will give you an update on our herpes simplex Type 2 HSV-2 therapeutic vaccine program, Dr. Larry Smith will discuss the status of our CMV programs partnered with Astellas, and Dr. Igor Bilinsky will provide an update on our new antifungal product candidate, ASP2397, which was recently licensed from Astellas.

We will begin the call first with the financial results from our Chief Accounting Officer, Tony Ramos.

Tony?.

Thank you, Vijay. We reported financial results this morning for the first quarter of 2015, which reflect continued advancement of our HSV-2 program, as well as an increase in our activities to advance our CMV program licensed to Astellas.

Revenues were $4.9 million for the first quarter of 2015 compared with $2.4 million for the first quarter of 2014. The increase in revenues was primarily the result of an increase in vaccine deliveries to be used in clinical trials and process development work under our contract with Astellas related to the ASP0113 vaccine program.

The net loss was $3.9 million for the first quarter of 2015 compared with $3.5 million for the first quarter of 2014. The increase in our net loss compared to the first quarter of 2014 was due primarily to the recognition of expense related to the license of ASP2397 in March of 2015.

Our cash burn for the first quarter of 2015 was $2.9 million compared to $2.5 million for the first quarter of 2014. The cash burn for the first quarter of 2015 was in line with our projected full year cash burn guidance of between $12 million and $15 million. We ended the quarter with $46.3 million in cash and investments.

I will now turn the call over to Dr. Mammen..

Thank you, Tony. Our therapeutic vaccine against general herpes is designed to reduce genital lesions and viral shedding in HSV-2 infected patients. An estimated 400 million people worldwide between the ages of 15 and 49 chronically infected with HSV-2.

This high global burden of HSV-2 underlies our assessment of the sizable commercial opportunity for this potential therapeutic intervention. We continue to make progress on our Phase 1/2 trials evaluating safety, tolerability and efficacy of our therapeutic HSV-2 vaccine and a total of 165 subjects.

As a brief reminder each subject in the efficacy cohort perform 60 days of daily self-swabbing prior two and following three dose vaccination. We will compare the viral shedding rates within each vaccine group to determine the impact of vaccination on shedding.

Furthermore, we will compare the results between our monovalent and bivalent construct and decide the path forward. We look forward to presenting our top line data mid-year. We will report viral shedding rates as the primary endpoint and lesion rate as a secondary endpoint.

Assuming positive results, our goal will be to have an End-of-Phase 2 meeting with the FDA to define the pathway for further development. In summary, our HSV-2 clinical trial was proceeding as planned and we look forward to presenting our top line data midyear. I will turn the call over to Dr. Larry Smith..

Thank you, Anza. ASP0113 is our therapeutic CMV vaccine that is undergoing clinical development with our partner, Astellas. It is designed to prevent CMV infection and associated complications in transplant recipients. This vaccine is undergoing testing in two major clinical trials.

The first one is a global pivotal Phase 3 trial in hematopoietic stem cell transplant recipients. The second one is the global Phase 2 trial in solid organ transplant recipients. The Phase 3 ACT trial will enroll a total of 500 CMV seropositive recipients at approximately 90 clinical sites, North America, Europe, Australia and Asia.

The primary endpoint will include overall mortality at 1 year follow-up. This endpoint has potential to support full approval in key markets with no post-approval trial requirements. The moment of the Phase 3 trial was progressing and Astellas expects the last subject to be enrolled in late 2015.

Astellas is also actively recruiting a Phase 2 trial in SOT recipients. The trial is enrolling subjects at approximately 80 SOT centers in North America, Europe and Australia.

This trial is a randomized double-blind placebo-controlled study that will enroll 140 CMV seronegative patients who will receive a kidney transplant from the CMV seropositive donor. This group namely the donor positive recipient negative are at the highest risk for developing CMV viremia and CMV disease post-transplantation.

But typically, about 50% of recipients in this risk group will develop CMV viremia and about 35% will develop CMV disease during the first 1 year after transplantation. The standard of care for this group is typically 100 days of Valganciclovir prophylaxis post-transplantation.

So in the current Phase 2 study, all subjects will be receiving 100 days of Valganciclovir and will be randomized one-to-one to also receive five doses of either ASP0113 vaccine or placebo after transplantation. The primary endpoint of the Phase 2 study is incidence of CMV viremia.

We are encouraged by the rate of subject recruitment exceeding our expectations in the Phase 2 study. Astellas now expects the trial would be fully enrolled by mid-2015, which is almost 1 year ahead of schedule. For further details regarding both of these trials, they are available at clinicaltrials.gov.

So it’s important to point out that these two CMV vaccine trials are being conducted and fully funded by Astellas. Our support of these trials including manufacturing, regulatory and clinical support is fully reimbursed by Astellas.

So let me add that we together with Astellas are gearing up manufacturing in anticipation of commercial launch of ASP0113. If clinical development is successful, Vical will be responsible for producing bulk drug commercial supplies at our manufacturing facility in San Diego.

This is an exciting time as we advance towards potential approval of the first CMV vaccine for human use. In summary, we are very pleased with our working relationship with Astellas. They have significant commercial experience in the transplantation field and are an excellent partner for our CMV vaccine program.

Lastly, I wanted to provide a brief update on the status of our CyMVectin program. CyMVectin is our prophylactic DNA vaccine designed to prevent CMV infection in women of childbearing potential. This vaccine is comprised of our glycoprotein B, gB, encoding plasmid 120 with Vaxfectin.

We have recently announced new preclinical data in collaboration with Doctors Michael McVoy and Stuart Adler of Virginia Commonwealth University.

The studies found that vaccines encoding gB provided both fiberblast and epithelial entry neutralizing titers that were comparable to those absorbing serum from chemos with naturally acquired CMV infections. So the data suggest that CyMVectin has the potential to induce neutralizing antibodies against a broad range of cells.

We are exploring opportunities to conduct an investigator sponsored Phase 1 trial to determine the antibody responses and normal healthy subjects who are a CMV seronegative. So with that, I will turn the call over to Dr. Igor Bilinsky..

Thank you, Larry. Good morning everyone. I would like to give a brief update on our ASP2397 program. We are taking advantage of an exciting opportunity to expand our infection disease pipeline and build on our relationship with Astellas by in-licensing from them a novel potent antifungal agent ASP2397.

Astellas, as you know, is already our partner for the CMV program in transplantations and has now become a shareholder in Vical. We also see this in-licensing deal as a confirmation of Astellas’ confidence in Vical’s product development capabilities. ASP2397 leverages our expertise and therapeutic focus within the infectious disease area.

It offers a new mechanism of action to potentially treat invasive fungal infections, such as invasive aspergillosis, which are major causes of morbidity and mortality in immunocompromised patients.

For example, in allogeneic stem cell transplant recipients, invasive Aspergillosis, even though if diagnosed and treated is associated with overall mortality of approximately 50%. ASP2397 is a great fit with the ASP0113 therapeutic CMV vaccine program in our pipeline.

Both invasive fungal infections and CMV infection affect primarily immunocompromised patients, such as transplant recipients. And both products, if approved, would be prescribed in a hospital setting and could be promoted with a small hospital based sales force.

As you may recall, Vical has an option to co-promote the therapeutic CMV vaccine with Astellas in the U.S. ASP2397 is an exciting compound discovered by Astellas from leaf litter fungus collected from the Malaysian national forest. ASP2397 has four key differentiating attributes based on the preclinical data.

First, it has a noble mechanism of action with the potential to be complementary or synergistic with the existing classes of antifungals. It has shown a broad spectrum of activity against Aspergillus species in preclinical models and in addition has shown activity against some of the other fungal species that are extremely hard to treat.

And despite the high unmet medical need, there has been only one new class of antifungals developed in the past 30 years. Secondly, ASP2397 demonstrate its rapid fungal cell kill activity in preclinical models, which was faster than marketed antifungals. Third, it demonstrated activity against azole-resistant or drug-resistant fungal species.

And fourth, this compound appears to have low propensity for P450, drug-drug interruptions, which are a major drawback for many of the currently available antifungals. Vical has formed an advisory board to guide for the development of this compound, including both key opinion leaders from Academia and antifungal experts with big pharma background.

The initial members of the advisory board are Dr. John Perfect, who is Chief of Division on Infectious Diseases at Duke University Medical Center, Dr. Dennis Schmatz, who lead development of Cancidas, caspofungin at Merck and Cancidas is currently the number two systemic antifungal base sales with 2014 revenues of approximately $700 million, and Dr.

Michael Hodges, who lead development of Vfend or voriconazole with Pfizer and Vfend is currently the number one systemic antifungal base sales with 2014 global revenues of approximately $750 million.

We intend to develop ASP2397 as a potential frontline targeted therapy for invasive aspergillosis infection or other invasive fungal infections, as well as an empirical or preemptive treatment of invasive fungal infections as part of combination regimens. Most of the IND enabling studies have already been completed by Astellas.

We are preparing to enter the clinic in the first half of 2016. The objective of the Phase 1 study will be to assess safety, tolerability and pharmacokinetics of ASP2397. As you maybe aware, antifungal activity in animal models typically translates well to humans if appropriate drug levels can be achieved.

So, in Phase 1, we plan to demonstrate the blood levels of ASP2397 as that requires for efficacy seen in animal models can be achieved in humans.

And so, we intend to work with the FDA to identify the optimal development path for this program, taking advantage of the growing legislative support for the development of anti-infectives, including the gains as of 2012 and potential pending legislation in Congress such as the act.

The objective will be to design focused, smaller efficacy clinical trials and bring this promising novel antifungal to patients as soon as possible. I would like to turn the call now back to Tony..

Thank you, Igor. In April, we announced that we had entered into a $4 million contract with the IPPOX Foundation to manufacture an HIV DNA vaccine as a component of vaccine regimens to be evaluated in clinical trials for the prevention of HIV infection.

IPPOX is a Swiss non-profit foundation conducting HIV vaccine trials under the auspices of the Pox Protein Public Private Partnership, or the P5. The P5 seeks to advance and potentially license HIV vaccine candidates that have the potential to achieve a broad public health impact.

The P5 receives the core funding from the Bill and Melinda Gates Foundation and NIH. The new contract builds upon Vical’s 2010 agreement with IPPOX to manufacture vaccine for HIV vaccine clinical trials.

Additionally, Vical signed a memorandum of understanding with the Gates Foundation to cooperate on HIV vaccine projects established under the P5 partnership.

The vaccine manufactured by Vical is expected to be used as a primary component of a prime boost vaccine regimen that will be evaluated in additional Phase 1 studies and potentially in a Phase 2b clinical trial to follow. We expect material deliveries begin under this agreement in the fourth quarter of 2015. I will now turn the call back to Vijay..

Thank you, Tony. In summary, all our clinical programs continue to advance according to plan. We remain on target to announce the proof-of-concept efficacy data from our Phase 1/2 trial for our HSV-2 therapeutic vaccine midyear.

Astellas expects to complete patients enrollment in its Phase 3 trial of ASP0113 in stem cell transplant recipients late this year. ASP0113 in [indiscernible] and transplant recipients is nearing full enrollment, almost 1 year ahead of schedule. Astellas expects the last subject to be enrolled in the second quarter of 2015.

We expect the data to be announced in the second half of 2016. We are making rapid progress towards filing an IND for ASP2397, our antifungal, which we recently licensed from Astellas. We expect to start the Phase 1 in the first half of 2016.

And finally, we are pleased to provide vaccine support of the Pox Protein Private Public Partnership and their goal to advance and potentially license HIV vaccine candidates. This concludes our prepared comments for today. Operator, we are now ready to open the call for questions from our invited participants. Thank you..

Thank you, Mr. Samant. [Operator Instructions] Our first question will come from Stephen Willey with Stifel..

This is Prakhar on for Steve today. Thanks for taking my question.

So I guess I was wondering if you need to have six months sharing data before you can talk to FDA, before you can conduct end of Phase 2 meeting to see how doable the responses are?.

Well, Larry you want to answer that question?.

No. Actually, we do not. We have the primarily efficacy endpoint is really designed for the first post-vaccine swapping period compared to the pre-vaccine swapping. So no, we do not..

And so I mean you would conduct the meeting with FDA in second half, by the end of this year?.

That’s the goal. Yes..

Okay.

And can you also remind us about any milestone payments that are remaining from Astellas in the near-term?.

Igor, you want to take that?.

Thanks for the question. So the total Astellas, we are eligible for up to $130 million in milestones, we have received $35 million to-date. The remaining $95 million are all development and regulatory milestones. And so they will all be due up to approval point, but we have not disclosed the exact timing of these milestones..

Substantial amount of milestone remains to come..

Okay, alright. Thank you..

Thank you. Our next question will come from Reni Benjamin with H.C. Wainwright..

Hi, good afternoon guys. Thanks for taking the questions. Just maybe the first question regarding the HSV program, I think you mentioned in the prepared remarks that you are evaluating both the monovalent and bivalent constructs.

And I am probably just not remembering, but what was the rationale for both and is it – is the trial designed to statistically show a difference or is it just more kind of qualitative?.

Larry, you want to answer that?.

Sure. So the monovalent has gD alone and the bivalent has gD and UL46. So we wanted to compare these two different vaccine compositions and see which one may actually be better than the other and the study is powered to tell that difference. And we would like to then select one of those two and move forward with that..

I was just going to ask, so is it in preclinical model that you saw increased, let’s say immunological function or T cells with let’s say the bivalent or both humoral as well as the T cell component of the immune system or what did one provide over the other?.

That’s an excellent question, by the way. If you see our preclinical data, by the way, Larry is publishing, we should send a copy of that to Reni. Both the gD and the gD plus UL46 combination has actually performed pretty much identically, okay in terms of the efficacy in the guinea pig models.

And so when two constructs work the same way and they were T cell and humoral responses in both of them, so UL46 provides access to a core protein, which the GD doesn’t provide in the school of thought that you need additional T cell activity.

That’s why we wanted to make sure we don’t lose out and try both these constructs in humans before deciding what the choice would be. If you had just gone on preclinical data, choosing GD was very easy, because that makes it very easy in terms of developments it’s only a single plasma to make..

Got it. Okay. And just kind of keeping in line with assumptions, can you just remind us what are the assumptions for the CMV vaccine in the hematopoietic simple transplant study, that’s ongoing as well as the SOT study that’s ongoing, based on the number of patients, right, you are expecting a particular benefit.

Can you give us a sense as to what kind of benefit you are looking for?.

Larry, you want to take that?.

Yes, we are looking for – so overall mortality is the endpoint in the Phase 3 CT study. And our Phase 2 – in our Phase 2, we have over 40% reduction in the overall mortality. So, we would like to see something that’s a significant reduction and the study has powered them to show a significant reduction in the vaccine group compared to placebo.

In the case of SOT, which is a Phase 2, our input there is viremia and again, we expect we expect around 50% of the subjects to have viremia and we are looking for a significant increase from that. The study is powered at 70 subjects or 140 in total to show a significant increase – decrease in viremia..

So, they are sufficiently powered based on our Phase 2 data on HCT and the prevalence of reactivation. In SOT patients, the activation level is 50% and the CMV enrollment business is approximately 35%, right? So, it’s a pretty serious, those numbers are pretty high and the 70 patients in each group would give us sufficient power to detect that.

And CMV volume has a pretty good clinical surrogate in that particular group as opposed to the HCT group that really – mortality is really the meaningful clinical endpoint. .

Excellent. And just one last question, Vijay, I think I have asked this before, but I will try my best again and rephrase it, so it sounds new, but the ongoing Phase 3 study, if I remember right, there is a component, an expansion component based on the first 100 patients. And I would have thought that we would have already passed that point.

I may be incorrect, because I don’t know if the enrollment kind of curves are, but could you share us some sort of light? Are we sort of past the point of no return and no change or are we in that ballpark right now and there still could be a change?.

So, I know you. That’s an excellent question and I will try to do my best to answer that question. First of all, it’s a blinded patient study. The first 100 portion in this adaptive trial design is really kind of a look-see approach, where you actually at the end of 100 patients and 1 year follow-up.

So, remember that, 100 patients and 1 year follow-up, you look at the data in an un-blinded fashion and see, hey, are you in the right direction Are the mortality going in the right direction? If not, do you need to adjust with another composite endpoint, so that’s really the goal and the 400 patients after that, which continue to recruit are really the efficacy portion of the trial.

So, if we change the endpoint at the end of 100 patients and again, so just think of sequence of events, right? You got to finish the 100 patients then you need to have to 1 year follow-up. After 1 year of follow-up, you need to analyze the data, get your experts.

And let’s assume that you indeed come up with a change then you need to go back to the agency and make sure you have a dialogue with the agency and make sure they are on board with this. All this takes time. I am not telling you that we are on that pathway, but if that occurs, obviously, we will publicly announce that such an endpoint has changed.

So, if nothing else changed, that means the endpoints where it is. If there is a change, we will announce it, but that’s the only thing I can communicate or I am permitted to say from my big brother, Astellas, here..

Right.

And then within 6 months, as far as Astellas is concerned, the entire trial will be enrolled, correct?.

That’s their current projection..

Excellent. Thank you very much. Good luck going forward..

Thank you..

Thank you. [Operator Instructions] And we will go to Debjit Chattopadhyay with ROTH Capital Partners..

Hey, good morning gentlemen. Thanks for taking the questions here. Just following up on Reni’s questions on the hematopoietic stem cell Phase 3 study going on right now, just a little to review, it seems to be pointing to the survival benefit or the advantage.

It’s primarily in patients – patients who would – the survival that – the lower survival rates that we see is typically in patients who are either getting a mismatch [indiscernible] transplant or patients who are getting a very severe immunosuppressive regimen or patients who are getting a transplant of a donor negative, CMV negative donor.

So how does that correlate to the design of your Phase 3 study in terms of patient enrollments?.

First of all, the patient enrollment, we – first of all, we have very close HLA matches we have 5, 6 out of 7 or 5 over 7?.

In the Phase 2, it’s 5 out of 6..

Five out of six, so there are no mismatches, okay. We make sure that end of mortality is not really an important element of it, okay? I think the immunosuppression, your second question was some of the mortality is related to immunosuppression.

I mean immunosuppression is uniform across all patients, whether they are CMV positive nor a donor or CMV negative donors. And we, in the Phase 2 trial, didn’t see any differences between the status of the donor.

Really, the status of the recipient, which is really the key cause of reactivation and really the underlying cost based on the Michael Boeckh paper where irrespective of what the donor’s status was, if the CMV recipient was CMV positive, there is a higher evidence of mortality in that patient group.

Larry, what, almost 30%, right? Did that answer your question Debjit?.

Yes.

It sort of, because I mean, so the survival of – the poor survival that we see is a combination of all these three ingredients put together, so it’s not...?.

But except that we don’t have actually a mismatch, we have a very close HLA match, okay. And it’s really based on all the work that Michael Boeckh has done from University of Washington. In this particular group, the CMV positive status of the recipient is primarily a majority of the contributing action. Obviously, these are basic patients.

But all those conditions are exaggerated by the presence of CMV positivity..

Okay.

And then onto the HSV program, is there a particular level of viral load that you expect to reduce during the shedding period, for example 10 to the power of four HSV DNA copies, at which point, the probability of transmission decreases significantly?.

First of all, when we -- the HSV positivity is not measured by the number of DNA copies, but it is measured at the lower level of detection, which is, what150 copies. So if you decide more than 150 copies by PCR same at individual HSV positive. It’s dependent of the magnitude and that’s how the HSV positive days are calculated.

So you basically take the first 60 days. In the 60 swabs that you get, each swab you have PC on, let’s assume get – with that patient to get 30 positive days. Post-vaccination again, you get 60 swabs and again, you run PCR if you get 10 positive days, that you will reduce from 30 positive days to 10 positive days.

That’s almost trough our data, 60% reduction and that would be important. That’s how the reduction is calculated, not on the absolute number. Okay,.

Yes. This was the reason I was asking that if between symptomatic and asymptomatic patients, it’s the number of DNA copies which basically point to who is potentially a transmitter. Alright, so if you reduce it to that sort of number, then we probably get transmission decreases pretty significantly.

But I think that’s the end goal, right to reduce the – not just – because the vital – the reduction on viral shedding and everything else should correlate clinically to reduction on transmission..

Go ahead Anza..

I mean, at this point, we don’t know what the level of viral load correlates with transmission. And I think, really the overall costs of our immediate program is to design and license the vaccine to reduce the symptomatic aspect of this disease. Transmission would be potentially the second leg to this.

But right now our focus in this present clinical trial is really focused on showing a reduction in symptoms?.

That’s really the $50,000, $64,000 question. There really is not a clear understanding of viral load that individuals were shedding versus transmission, because there are multiplicity that comes into effect. It also becomes into the recipient, the recipient’s immune system.

So, we really have no correlate of viral load, but really, our goal here right now is to look at symptomatic, such as lesion rate recurrence, those are – that’s really the goal of this study, because that’s what the patients want, that’s what our initial market research has shown..

Great, thank you so much..

Thanks, Debjit..

Thank you. There are no – if there are no further questions, I would like to turn the conference back over to Mr. Samant..

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

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