Tony Ramos - VP-Finance and CAO Vijay Samant - CEO and President Larry Smith - VP-Vaccine Research Anza Mammen - VP-Clinical Vaccines Andrew Hopkins - Corporate Development and Project Management.

Mark Breidenbach - HC Wainwright.

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.

At the request of the Company, we will open the conference up for questions and answers from invited participants after the presentation. And I will now turn the conference over to Mr. Tony Ramos, Vical’s Vice President and Chief Accounting Officer. Please go ahead, sir..

Hello, everyone. Welcome to our third 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 Vice President of Vaccine Research, Dr. Larry Smith; Vical’s Vice President, Clinical Vaccines, Dr.

Anza Mammen; and Vical’s Direct, Corporate Development and Project Management, Andrew Hopkins. 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.

These statements 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 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 our participants for joining the call this morning. As Tony will report, we have continued to carefully manage our cash balances so the Company’s growth position to continue our plan development efforts. On the call today, Dr.

Larry Smith will discuss the status of our CMV program including our collaboration with Astellas. Dr. Anza Mammen will give you an update on our ongoing HSV-2 therapeutic vaccine program and finally Andrew Hopkins will provide an update on our exciting and new product candidate VL2397.

We’ll begin the call today with a review of financial results by Tony Ramos.

Tony?.

Thank you, Vijay. As reported in our financial results this morning, for the third quarter of 2015, our revenues increased 46% compared to the third quarter of 2014, and we’re able to generate a positive cash flow. The increase in our revenues is directly related to the increase in activities provided to Astellas and supporting of the ASP0113 program.

We generated a positive cash flow during the third quarter of 2015 of $200,000 compared to a cash burn of $2.6 million for the third quarter of 2014.

The reduction in our cash burn rate was primarily due to the increase in revenue related to the ASP0113 program, milestone payments we received under our contract manufacturing agreement with IPPOX for the HIV vaccine program, and our continued efforts to manage our expenses.

We began the year with $49.1 million in cash, and year-to-date we’ve only burned about $5.2 million, leaving us with the cash balance of $43.9 million in cash as of September 30, 2015.

We are pleased to update our 2015 full year cash burn guidance to a range of between of $7 million and $9 million, which is an improvement from our previously updated forecast of between $9 million and $12 million, and about 40% below our original cash burn forecast of $12 million to $15 million.

We currently anticipate that are available cash and investments are adequate to fund our activities into 2017. I will now turn the call over to Dr. Larry Smith..

Thank you, Tony. ASP0113 is our therapeutic CMV vaccine candidate partnered with Astellas. It’s designed to prevent cytomegalovirus disease and associated complications in transplant recipient. The vaccine is going to go in testing in two major clinical trials.

The first one is a global registrational Phase 3 trial in hematopoietic stem cell transplant recipient. The second one is a global Phase 2 trial in solid organ transplant recipient. With regards to the Phase 2 SOT trial, we announced in May that the trial is fully enrolled, nearly one year ahead of schedule.

A total of 150 kidney transplant recipients were enrolled at approximately 80 centers in the United States, Europe and Australia. As a reminder, this is a randomized double blind placebo control study and CMV seronegative recipient who received the kidney from a CMV seropositive donor.

This group is at the highest risk for developing CMV viremia, which typically occurs in about 50% of subjects. This group also has the substantial risk for developing CMV disease, which typically occurs at about 35% of subjects within the first one year after transplantation.

The primary endpoint of this trial is the incidents of CMV viremia and the study has already shown approximately 50% reduction in CMV viremia at one year after transplantation. I am pleased to announce that Astellas has now confirmed their expectation, but the top line data will be released in the third quarter of 2016.

With regards to the Phase 3 HCT trial, this is a large global trial that is designed to enroll a total of 500 CMV seropositive HCT recipients. Enrollment is ongoing at over 80 clinical sites among 11 countries in North America, Europe, Australia and Asia.

With regards to the selection of the primary endpoint of this trial, Astellas originally considered a composite endpoint consisting of overall mortality, CMV end-organ disease and three additional clinical endpoint components, including grade 3-4 acute graft-versus-host disease, severe chronic graft-versus-host disease and severe non-CMV infections.

While the FDA accepted overall mortality and CMV end-organ disease as potential components of a composite endpoint, they requested additional data to support the temporal relationship of CMV and the other three components.

Astellas therefore positioned a retrospective study performed by investigators at Fred Hutchinson Cancer Research Center using a database of over 4,300 allogeneic HCT recipients who had undergone transplantation between 1995 and 2013.

Based on the data from this analysis, as well as the data from Vical’s Phase 2 study, Astellas concluded that none of these three endpoints grade 3-4 acute GVHD, severe chronic GVHD and severe non-CMV infections were suitable for inclusion in a composite Phase 3 endpoint.

Astellas has therefore decided to propose the primary endpoint as a composite of overall mortality and CMV end-organ disease. Based on the aforementioned analysis, Astellas has decided for go to the adapt design.

Therefore, Astellas will not unblind the data from the first 100 subjects in part one of the trial, and is now in active communications with regulatory authorities to gain concurrence on this composite endpoint. We will provide an update as soon as Astellas completes their discussions with the regulatory agencies.

Now it’s worth mentioning a previous study presented at ICAAC by the same investigators that Tony [ph] touched. They concluded that CMV viral load is associated with an increased risk of both CMV end-organ disease and non-relapse mortality.

So as we announced in July, Astellas expects the trial enrollment to be completed in the third quarter of 2016 with top line data available in the fourth quarter 2017. Now it’s important to note that these two CMV vaccine trials are being conducted and fully funded by Astellas.

Our support for these trials including manufacturing, process validation activities, regulatory and clinical support activities, which fully reimbursed by Astellas, has reflected by Tony’s comments today on our cash burn rate.

Let me add that we, together with Astellas, are gearing up manufacturing and scale of activities in preparation for a potential commercial launch of ASP0113. Just as a reminder, if clinical development is successful, Vical is contractually responsible for producing bulk drug commercial supplies at a manufacturing facility in San Diego.

We look forward to the potential approval of the first CMV vaccine and the first DNA vaccine for human use. Lastly, this vaccine has the potential to fill a big unmet need with significant economic burden.

Now, let me reference a recent study of the economic impact on CMV and HCT recipients that was presented at the 2015 American Society of Bone Marrow Transplant Meeting. This study has a link at our Web site, www.vical.com.

HCT recipients with a CMV diagnosis incurred significantly higher healthcare cost, exceeding $280,000 compared with subjects without a CMV diagnosis. These results indicate the enormous economic burden of CMV and HCT recipients that suggest that potential impact that therapeutic vaccine may have in improving the standard of care for these subjects.

Next I wanted to provide an update on the status of our CyMVectin program. CyMVectin is our prophylactic vaccine candidate designed to prevent CMV infection in women of child bearing potential.

Recently vaccine companies including Merck began developing CMV vaccine candidates that are designed induce neutralizing antibodies against a pentameric complex on the virus that allows viral entry into epithelial and endothelial cells.

During our own preclinical investigation of testing pentameric components as well as GV our gD glycoprotein D vaccine, we found that gD alone when expressed by our plasmid was sufficient to use very high amount of epithelial neutralizing antibodies.

And we attribute this to the essential role gD plays in CMV entering into all cell types in addition to the natural form of gD when expressed from our plasmid. We’ve shown an animal study that our vaccines can induce neutralizing antibody titers are comparable to those observed in sera from humans with naturally-acquired CMV infections.

We now intend to test the capability of this vaccine to induce epithelial entry neutralizing titers in human female volunteers. If successful, this could be a more elegant solution compared with more complex vaccines that are developed by large pharma companies.

We are working with Virginia Commonwealth University, VCU, to conduct an investigator sponsored Phase 1 clinical trial to determine the neutralizing antibody responses in normal healthy female subjects who are CMV seronegative. VCU’s IV has been allowed by the FDA.

We are working with VCU to initiate this trial in the near future and will provide you with a complete update once the trial is open for enrolment. I will now turn the call over to Dr. Anza Mammen..

Thank you Larry. As we announced the primary efficacy results in June, we have some new encouraging immunology results. Subjects who received the bivalent vaccine had significant increases in UL46 specific interferon gamma producing T cells after the second and third vaccine doses.

Subject to receive the monovalent vaccine had significant increases in the gD specific interferon gamma producing T cells after the second and third vaccine doses. These results demonstrate that both the bivalent and the monovalent vaccines illustrate T cells responses that were significantly higher than those observed in the placebo group.

These results clearly indicate the biological activity of these [indiscernible]. Just to remind you, while the bivalent vaccine did not need the primary endpoint of viral shedding reduction, it did need two prospectively defined secondary endpoints, reduction in lesion rate and a reduction in viral load at three months following vaccination.

We continue to follow all subjects for 12 months for safety and nine months for efficacy following their last dose. Both lesion rate and recurrence rate important endpoints from a clinical perspective will be available to us for analysis in December and will enable us to determine the next steps for our HSV-2 program by early next year.

I will now turn the call over to Andrew Hopkins..

Thank you Anza. Development of VL2397 continues on track with the initiation of a Phase 1 clinical trial in the first half of 2016. As a reminder VL2397 was licensed from Astellas Pharma in March of this year. It is a small molecule compound with a novel mechanism of action that represents a potential new class of antifungals.

VL2397 augments our infectious disease pipeline and similar to our ASP0113 vaccine it’s intended to use predominately in compromised patients. A high unmet medical need exists in the treatment of antifungal pathogens. And this was emphasized at the recent conference call at San Diego.

Infection such as aspergillosis remain a major cause of mortality and high risk in compromised patients.

In addition the critical need for new treatment methodologies is underscored by a mounting body of evidence pointed to the increasing number of infections caused by aspergillosis in candidate [restrain] resistance one or more classes of existing therapy. In August 2015 the U.S.

FDA granted a qualified infectious disease product or QIDP designation to VL2397 for the treatment of aspergillosis.

The QIDP designation was created by the GAIN Act of 2012 and provides certain incentives for development of new anti-infectives including eligibility for priority review, the FDA’s Fast Track program, and a five-year extension of exclusivity under the Hatch-Waxman Act. In addition to the GAIN Act the regulatory environment in the U.S.

continues to evolve with increasing support for expedited government pause for novel anti-infective therapies. We are working with our advisors to explore options for conducting small efficacy trials in well defined patient populations that could potentially comply the record path to regulatory approval.

We expect to initiate a Phase 1 study for VL2397 in the first half of 2016. This will be a randomized double blind study to determine the safety, tolerability and pharmacogenetics of single and multiple ascending doses of VL2397 administered by infusion in healthy volunteers.

The data generated from the study will be utilized to shape the future development of VL2397 in patients with invasive fungal infections. I will now turn the call back to Vijay..

Thank you, Andrew. In summary we believe our strong cash position and our projected low burn rate will allow us to continue to advance our clinical programs according to plan. We ended the quarter with 43 point million dollar in cash and we expect to end the 2015 more than $20 million in cash.

Astellas expects to complete patient enrollment into Phase 3 trial of ASP0113 in the third quarter of 2016. Astellas anticipates that the top line data will be available in the fourth quarter of 2017. ASP0113 in solid organ transplant recipients is fully enrolled. Astellas currently expects the data to be available in the first quarter of 2016.

The IND has been allowed for VCUs investigator sponsored Phase 1 clinical trial for our CyMVectin prophylactic vaccine candidate. We anticipate that this trial will start in the near future. The subject of the ongoing Phase 1/2 HSV-2 study will continue to be followed for 12 months for safety and nine months for efficacy.

We expect that the additional analysis of efficacy data will be available to our outside investigators and will allow us to determine the next steps with the HSV-2 program by early next year. Finally, we are targeting initiation of a Phase 1 trial in the first half of 2016 for a novel antifungal product candidate VL-2397.

That concludes our 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]. And our first question comes from Mark Breidenbach with HC Wainwright..

So let’s start first with the finalized thyroid endpoint for the Phase 3 CMV trial. And we certainly appreciate the value of using a composite endpoint given the low rate of CMV disease following metabolic simple [ph] transplant.

We’re wondering if you can give us a sense for or if Astellas has provided any guidance on the expected delta between or given this new component endpoint..

Right now Mark we’re waiting for Astellas to finish their discussions with regulatory agencies to arrive at a final number that’s going to be used for the trial. We obviously assume that the total number will not exceed 500 as originally projected. I’d ask you waiting until to hear a feedback from them on that..

Hopefully by end of year earnings call we’ll be able to give you some idea of what the study is powered to do..

So we’re just hoping more of that, and so one of the point you mentioned that there is still engaged in discussions with regulators which is incurring on the composite endpoint.

Can you give us a little more color on unresolved issues remained and/or what points of retention remains [multiple speakers]?.

The answer to your question, Astellas has defined exactly what they want to do. I think it’s the matter that Larry pointed out very eloquently in his presentation that particularly with the FDA and the other regulatory agencies there is a clear acceptance of mortality and CMV end-organ diseases composite endpoint.

So there’s no questions asked on inclusion of those composite endpoints. This is a matter of time that you need to go back to the agencies, otherwise your endpoint -- put all the regulatory submissions, make sure your SPA statistical analysis plan is put in front of them. So that’s why it’s going to take time.

So I don’t anticipate any discussions but I think it’s more going to the formal procedures. Is that fair….

Yes, that’s fair..

And just to clarify you said that the first 100 patient data has not been unblinded and primary analysis will be conducted on group of 500 patients.

And I just want to remind myself, it’s all caused mortality not in the -- or mortality as a way to CMV viremia or anything along those lines, correct?.

Yes, so the first 100 will not be unblinded. The total number of subjects that will be included in efficacy is to be determined once Astellas has reviewed all of this with the regulatory agencies. But we know that the total should not exceed 500. And yes, the endpoint is overall mortality..

Switch briefly to the HSV-2 program that would depend on 5, as you mentioned we recently saw some new [indiscernible] data suggesting that some Marbella [ph] and Bigram effects, even though they are capable of holisting an adaptive responses, increases in specific T-cell populations.

Have we create and get in terms of febrile or antibody responses from the vaccine? And then will we see the effective data with the nine months analysis, either in December or early 2016?.

So Mark we really focused on the T-cell advances and what we presented was a result of 125 subjects out of the 131 that were included in efficacy so we’ve done pretty comprehensive T-cell analysis.

We’ve done antibody analysis using elisa assay to look for GD binding antibodies and these subjects already have substantial level at baseline of gD antibodies. And so, and when we looked at some of them, we didn’t actually see a [indiscernible] increase in gD antibody titers. But the T cell response is clearly one-off.

And if you think about what’s going on here, it’s really going to be a T cell mediated effect against the [indiscernible] more so than in antibody [mediated effect]..

Okay.

And that’s coming from the fact that patients generally because of been doing [valour] with the virus for a long time at very high levels of [secured] surfaced, antibodies against viral surfaced structuring?.

Yes..

Okay, okay. Quite about shedding for a minute, I think there are still a lot of people out there who view viral shedding as a good surrogate for recurrence or even likely bit of transmission. And looking at the available Phase 1 data and assuming we’re not dealing with an oversensitive shedding assay which was one possibility we were considering.

Can you rationalize a scenario or walk us through a scenario in which we could still see decreased recurrence or decrease in lesion rate without an accompanying viral shedding?.

Yes, so I think the best way to look at that is when somebody lesions, they are shedding very high levels of virus. And so if you have something that knocks down that very high level, you may results in decreasing the lesions but you may not knock the level always down to a non-detectable.

So you still may be setting in the very high shedding resulting in what’s ultimately important at the end of the day which is the lesion [if there’s] lesions but you may not be reducing the overall shedding rate down to less than your detectable level. That’s the way that I would answer that..

Okay. And..

I think also Mark there is a good paper that Larry can send you, what is a proxy paper which shows that people who are above 10,000 -- what paper that was?.

Yes, so there kind of couple of studies out there and all published by the University of Washington. And basically it’s shown that the higher levels of viral loads, that is something above 10,000 copies per mil is associated with lesions.

And there’s also been some mathematical modeling studies by Joshua Shapiro which has been published, again show that numbers above 10,000 are those that are usually associated with transmission. So we don’t think that lower level of viral loads are associated either with lesions or with transmission the case is a higher level.

So if you think we have a vaccine and it can impact those higher levels, we should be able to show that it should impact the clinical lesions and maybe ultimately gunpoint the impact transmission. But our purpose right now is to impact lesions, lesions recurrences. So we think that all associated with high levels of viral shedding..

And day-to-day we might have the HSV-2 program by early 2016?.

Yes, that’s right. We have a export panel which has one clinical investigator and four other experts who are not on our clinical studies. So we get a complete diversity of opinion. When we have the data, we will put in front of them and decide where do we want to go with this program..

Okay. Thanks for taking the questions guys..

Thank you..

And as there are no further questions, I will now turn the conference call back to Vijay Samant..

Well, thank you very much for all of you who are joining this call this morning. And we hope to see you at one of the upcoming conferences. Thank you very much..

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