Tony Ramos - VP of Finance and Chief Accounting Officer Vijay Samant - President and CEO Larry Smith - VP of Vaccine Research Anza Mammen - VP of Clinical Vaccines Andrew Hopkins - Director, Corporate Development and Project Management.

Mark Breidenbach - HC Wainwright Jason McCarthy - Maxim Group David Bouchey - IFS Securities.

Please standby, we are about to begin. 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 for questions and answers for invited participants after the presentation. 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 fourth quarter 2015 financial results conference call. Joining me on today's call 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 Director, 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 specific risks and uncertainties noted in Vical's news release on its fourth 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 the participants for joining this call. We continue to carefully manage our cash, and the company is well-positioned to continue our plan development efforts. On the call today, Dr. Larry Smith will discuss the status of our CMV programs; Dr.

Anza Mammen will give you an update on our recently completed HSV-2 therapeutic vaccine program, including the important nine-month efficiency data; and finally, Andrew Hopkins will provide an update on our recently commenced Phase 1 study to evaluate our antifungal product candidate, VL-2397.

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 fourth quarter of 2015, our revenues increased 41% compared to the fourth quarter of 2014. The increase in our revenues is directly related to delivery of an HIV vaccine for the IPPOX Foundation.

IPPOX has participated in the conduct of an HIV vaccine clinical trials supported by the Pox Protein Public Private Partnership, which is funded by the Bill and Melinda Gates Foundation and the U.S. National Institute of Allergy and Infectious Diseases.

We had a net loss of $2.4 million for the fourth quarter 2015, compared with $4.6 million for the fourth quarter of 2014. The decrease in our net loss compared to the fourth quarter 2014 was due primarily to the recognition of revenue related to the delivery of the HIV vaccine to IPPOX.

I am pleased to report that our cash burn for the fourth quarter 2015 was $1.9 million, compared to $2.7 million for the fourth quarter 2014. Our cash burn for the 12 months of 2015 was $7.1 million. We ended the year with $42 million in cash and investments. We're projecting the cash burn of between $8 million and $11 million for 2016.

I will now turn the call over to Larry Smith..

Thank you, Tony. ASP0113 is our therapeutic CMV vaccine candidate partnered with Astellas. It is designed to prevent cytomegalovirus disease and associated complications in transplant recipients. Just a reminder, ASP0113 is a vaccine, not an antiviral drug. This vaccine is undergoing testing in two major clinical trials.

The first one is a global registrational Phase 3 trial in hematopoietic stem cell transplant recipients. The second one is the global Phase 2 trial in solid organ transplant recipients. 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 the 11 countries; in North America, Europe, Australia, and Asia. You will recall from our previous earnings call that Astellas has decided that the primary endpoint of this trial is a composite of overall mortality and CMV and organ disease.

Additional clinical endpoint [ph] components were considered, including acute and chronic graft-versus-host disease and severe non-CMV infections.

However, none of these endpoints were considered suitable for inclusion based upon a retrospective study conducted by investigators at Fred Hutchinson Cancer Research Center, as well as data from Vical's Phase 2 HCT studies.

So Astellas also decided to forego the adaptive trial design, and have therefore not unblinded the data from the first 100 subjects in part one of the trial. During the course of the trial, a series of futility analysis based upon viral load were conducted by an independent statistician.

The final of these analyses has now been completed, and the trial continues as planned. Both Astellas and Vical remain blinded to the results of the futility analysis. Astellas expects the trial enrollment to be completed in the third quarter of 2016 with top line data available in the fourth quarter of 2017.

With regards to the Phase 2 SOT trial, 150 subjects were fully enrolled in May of 2015, and will therefore complete the planned one-year of follow-up in May of 2016. This trial enrolled high-risk subjects. CMV seronegative subjects receiving a kidney from a CMV seropositive donor at 80 centers in the U.S., Europe, and Australia.

Gnene T [ph] plus or minus group has an approximately 50% risk of developing CMV viremia, and about a 35% risk of developing CMV disease within the first one year of transplant. The Phase 2 trial is powered to show an approximately 50% decrease in the CMV viremia at one year. Astellas expects top line data released in the third quarter of 2016.

It's important to point out that these two vaccine trial are being conducted and fully funded by Astellas. Our support for these trials, including manufacturing, process validation activities, regulatory and clinical support activities is fully reimbursed by Astellas.

We, together with Astellas, are gearing up manufacturing and scale of activities in preparation for a potential commercial launch of ASP0113. Astellas is also working on their overall commercial launch assessment and strategy. Just as a reminder, clinical development is successful.

Vical is contractually responsible for producing bulk drug commercial supplies, at our manufacturing facility in San Diego for up to the first six years following commercial launch of the product. We look forward to the potential approval of the first CMV vaccine, and the first DNA vaccine for human use.

Finally, 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.

A recent school of thought for developing improved CMV vaccine candidate for this indication have centered on the induction of neutralizing antibodies against a pentameric complex on the virus that allows viral entry into epithelial and endothelial cells.

Although our won preclinical investigations indicated that glycoprotein B expressed by our plasmid induce very high amount of epithelial neutralizing antibodies. We currently do not have a vaccine component directly targeting the pentameric complex.

We recently discussed the design of an optimal vaccine construct experts including most recent member to join our Board of Directors, Dr. Tom Shenk, who is not only a world expert in CMV, but more specifically, he has worked extensively at elucidating the role of pentameric complex through CMV entry.

Based on these discussions and despite already having an allowed [ph] IND, we decided that it would be prudent to pause our plan to conduct a Phase 1 trial with AgB-only vaccine and instead conduct additional preclinical studies to further optimize our vaccine.

We believe our long-term goals for developing a containable [ph] CMV vaccine would be better served by first building upon the preclinical findings with gB alone before entering the clinic. We hope to collaborate in the future with our colleagues at Virginia Commonwealth University to access our improved vaccine candidates in the clinic.

We will provide updates once additional preclinical data become available. I will now turn the call over to Dr. Anza Mammen..

Thank you, Larry. We recently received the nine months efficacy data from our Phase 1/2 study of our HSV-2 therapeutic vaccine following our June announcement of the three months data.

We are pleased to announce the bivalent vaccine which had elicited a statistically significant reduction in lesion rate at three months after vaccination when compared to pre-vaccination, showed a 57% deduction in lesion rate at nine month after vaccination.

Neither the monovalent vaccine nor the placebo elicited a statistically significant reduction at nine months. Let me repeat, when measuring lesion rate, a clinically meaningful endpoint, it is only the bivalent vaccine and not the monovalent vaccine or placebo that elicited a statistically significant reduction at nine months.

From a safety standpoint, the final 12 months follow-up has been completed and we are pleased to report that we observed no vaccine-related serious adverse event.

Based on this nine months efficacy data, the safety profile, and the earlier reported T-cell immunogenicity data when measuring antigen specific interferon-gamma producing T cell, we convened our clinical advisory board. Its recommendations are under review.

Our plan is to present the detailed trial results in an upcoming scientific conference and define our next step for our HSV-2 program. I will now turn the call over to Andrew Hopkins..

Thank you, Anza. As we announced early this month, Vical initiated a Phase 1 clinical trial with VL-2397. This a randomized double blind study to determine the safety, tolerability, and pharmacokinetics with single and multiple ascending doses of VL-2397 administered by infusion in healthy volunteer at one U.S. clinical site.

With respect to the pharmacokinetics assessments in the Phase 1, we plan to evaluate blood levels of VL-2397. It is generally accepted that antifungal activity in animal models translates [ph] well to human if appropriate drug levels can be achieved.

The data generated from the Phase 1 study will be utilized to shape the future development of VL-2397 in patients with invasive fungal infections where a high unmet medical need still exist despite medical[ph] treatment options. Infections such invasive aspergillosis remain a major cause of mortality in high risk immunocompromised patients.

As a reminder, VL-2397 was licensed from Astellas Pharma in March of 2015, is a small molecule compound with a novel mechanism of action, represent potential new possible therapies to treat life-threatening fungal infections.

VL-2397 augments our infectious disease pipeline and similar to our ASP0113 CMV vaccine is intended for use predominantly in immunocompromised patients. In August 2015, the U.S. FDA had gone through the qualified infectious disease product or QIDPs designation to the VL-2397 for the treatment invasive aspergillosis.

Additionally in December 2015, the FDA granted orphan drug designation to VL-2397 for the same indication. We plan to work closely with our team of expert advisors in the FDA to explore options for conducting small efficacy trials in well-defined patient populations that could potentially provide a record path to regulatory approval.

I'll now turn the call back to Vijay..

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 effectively managed our cash in 2015, and ended the year with $42 million, and we are projecting a cash burn rate of between $8 million and $11 million for 2016.

Astellas expects to complete the patient enrollment in its Phase 3 trial of ASP0113 in HCT recipients in third quarter of 2016. Astellas has not completed the final futility analysis, as Larry covered before, and anticipates that the top line data from the trial will be available in the fourth quarter of 2017.

ASP0113 in sold organ transplant recipients is fully enrolled. Astellas currently expects the data to be available in the third quarter of 2016. We are encouraged by the positive extended clinical efficacy data we recently received from our HSV-2 Phase 1, 2 clinical trials. We're currently in the process of evaluating a fast-forward for this program.

We recently began a Phase 1 trial for our novel antifungal product candidate VL-2397, and expect this trial to be completed by the end of 2016. That concludes our prepared comments for today. Operator, we're 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 Mark Breidenbach with HC Wainwright..

Hi, good morning guys. Thanks for the updates. And I have a few questions maybe on each of the main program areas. Let's start with Larry in the CMV vaccine program. Thanks for giving us the update on some vaccine that was actually going to be one of the first things I asked. Turning to the Phase 3 trial that Astellas is running in HCT [ph].

I wanted to get your thoughts on one thing that's always been in the back of my mind with this trial.

As you know, hematopoietic transplant states involve a very heterogeneous patient population, and in fact there's like the type of primary disease and really be the main driver for overall mortality, and the things like donor CMV status [ph] can certainly have a major impact on the likelihood of CMV and organ disease appearing [ph] in patients.

Can you just remind us a little bit or speak to what Astellas is doing to ensure that enrollment demographics are being appropriately balanced in the two major arms of the trial..

Sure, Mark. Thank you for the question. Right now, what Astellas is doing is they have stratified enrollment, so that it'll be by site as well as by CMV donors' status. So, hopefully that aspect of it we'll stratify and study. As far as the underlying leukemia or lymphoma status, you know, that is not obviously being stratified.

So that should answer your question..

Okay.

And so we're kind of hoping that that's the 500 patients being enrolled that will sort of balance out in terms of the different underlying primary malignancies involved, correct?.

We have shown a reasonable balance of the small study that we conducted, the Phase 2 study, and this is a much larger study. I think you know, first of all you need to understand -- Larry, remind that we're careful in our HLA matches.

How many HLA matches do we require for this study?.

Yes, we -- it's almost full of [indiscernible] eight out of eight or seven out of eight, so….

So that's a very important factor compared to some of the other studies where there are a lot of mismatches, again [ph], where the incidence of mortality is much higher, or heterogeneous, is the best way to describe it..

Okay, fair enough. Let me ask a quick question on the HSV-2 program.

Is it at this point, safe to say that the monovalent vaccine development is not going to proceed going forward, if you see continued development it's going to be strictly on the bivalent vaccine?.

That is absolutely correct. I think our focus is going to be a bivalent vaccine, let me give you a little more clarity, okay, in terms of our next steps, okay. First of all, we are working with our CMV. We really need to elucidate the right clinical endpoint that we're going to use in our next Phase 2 study.

That clinical endpoint has to be clinically meaningful, both from a commercial perspective as well as from a regulatory perspective. We also need to make sure that we have a sufficient trial size to make sure that we can reach the right conclusions in the Phase 2 study.

And once all those factors have assessed, both with the agency and with our experts we'll be in a position to decide what our next steps are. But definitely our focus is in bivalent vaccine, which has shown some solid results in the nine-month endpoint..

Okay, great. We really appreciate the update on the nine-month data from the bivalent vaccine and -- go ahead, go ahead..

No, we expect to present it at the -- at an upcoming scientific conference, where you'll get full granularity of the data, including some additional ad hoc analysis that was conducted, which we did not cover in today's press release or our presentation. So, stand by for that..

Okay, I actually had another question.

Are we going to see maybe in that presentation data on time to recurrence for the bivalent vaccine, in addition to lesion rate data?.

The answer is yes. You will see time to recurrence. You'll also see recurrence-free data also in that presentation..

Okay, great. We're looking forward to that. Final question on the antifungal program, first of all, congrats on getting 2397 into the clinic. We were hoping, maybe Andrew, you could provide a little bit more color on the study parameters.

We are trying to get a sense for the size of the trial, and -- those things that are being tested, as does compound Astellas clinic..

So that's for the question, Mark. And yes, we're very excited about getting this compound into the clinic. It's -- as a reminder, we got it from Astellas in March. There's been a very rapid progression from us for us to take from a preclinical stage into the clinic.

And so, the design of the study is, as far as a typical format, it's got several single ascending dose cohorts that will be followed by multiple ascending doses. And this is in healthy volunteers, and the purpose of the study again is to look at the safety and then also the pharmacokinetics of the compound.

As far as the doses, we followed a typical format that is suggested by FDA for defining the starting dose. You look at the animal studies, and the toxicities, and you find out what the -- where the safety -- observed event level is, and you work backwards to find your starting dose, and then we go up in pretty standard increments from there..

Okay.

So, in terms of max -- maximum does is not pre-classified in the protocol, and do you have a target patient enrollment for the trial?.

Your first question is correct. We haven't defined the maximum does, and this is going to be something that we define as the trial goes on. We'll be looking -- monitoring the safety very, very closely. The site that we're working with is fantastic. It's a single U.S. site.

And we're well -- communicating very closely with them to monitor safety, and we're also working with the bioanalysts at a local lab, and we'll be working with them to make sure that we're seeing the appropriate blood levels of the drug. And from there we'll define what the doses will be..

Okay.

It sounds like you're not talking about little trial time yet?.

That's right. So this is something that we do have a little bit of flexibility in here. If there's something that we see that -- if there's anything safety-wise or if we see excellent results we may decide to increase or decrease the size of the study..

Okay, got it. Thanks for the clarity on that. And thanks for taking the questions..

[Operator Instructions] And I'll take our next question from Jason McCarthy with Maxim Group..

Hi, guys. Congratulations on all the progress. I just want to ask a question on CMV and then one on the antifungal.

For CMV, can you just talk, or could you walk us through the conditioning regiments being used in the 500 HSCT recipients, there's a lot of patients, and is there is a range of I would imagine from mild to moderate intense conditioning depending on what they are being transplanted for? So my question is how does that impact the rate of potential CMV infection? I know that conditioning plays a critical role.

And are you considering that and accounting for that as you approach the end of the study?.

Thank you for the question. In this trial as in our Phase 2 trial, we do have subjects that will receive ablative conditioning. And there will be some that will receive non-ablative or reduced intensity conditioning. So, both of those are eligible for this trial.

Using these older subjects we use reduced intensity conditioning and -- but to also those are also eligible. And at this moment, there is nothing that we are trying to do to stratify or to partition either of those equally into the different groups.

So, they are coming as they would for their underlying condition and for their age and other risk factors for the -- at the site of our each principal investigator on a subject-specific basis..

Great.

So the risk of -- so you are saying the risk of CMV infections doesn't vary that widely that it should impact the study significantly?.

I don't think so, no..

Okay. Great.

And for the antifungal for 2397, since there is [indiscernible] coordinating aluminum, I couldn't agree with you more that a lot of what you see in animals for anti-infectives usually does translate into humans, and so I know there has been data in animal showing that aluminum overload in molds infections in the lungs can be used to -- it does reduce fungal mass.

It also decreases iron in the areas, kind of like a one-two plunge.

I am wondering if you are thinking about this as potential Trojan horse for the fungus or the mold, does it fall in [indiscernible] is actually getting poisoned by aluminum?.

Great question here, Jason. So we're still investigating what the precise mechanism of action is. We disclosed earlier that it's a two-step mechanism. First off, it's and as you mentioned it mimics this [indiscernible].

So, it gets into a [indiscernible] iron transport of one or [indiscernible] one, and this is a -- a transport of this from early on fungal cells and some bacteria. It's not present on mammalian cells. So, it is more mechanism to get into human cells through that transporter. What happens is that it's actively taken up into the cell.

And from there, we are not entirely sure what happens but what we do know is that it has rapid antifungal activity. It's grows very quickly once it's in there to prevent hyper growth and to clear the infection in infected animals..

Okay. So and pending the safety data, have you thought about the type of patients that you would like to use this for in a more advanced clinical study in aspergillosis as I don't have tell you to be from bone marrow transplant or to the solid organ transplant, and the disease kinetics, if you would, change dramatically depending on multiple factors.

And there is a something that you have thought about internally and maybe you could discuss what future plans might be given that humans really can't take up this drug, so it's probably going to be safe in my own opinion?.

Well, the first thing here is obviously we need to complete the Phase 1 study in these healthy subjects. And our plan is from this to pivot really quickly into a Phase 2 trial in invasive aspergillosis. And we're working very closely with our team of expert advisors and FDA to define what a rapid pathy to approval would be in this patient potential..

The patient population that you are kind of alluding to is really the target okay that we will have to look at okay, particularly bone marrow transplantations which are -- as most of these patients are given azoles prophylactically to prevent aspergillosis or fungal infection.

And despite getting azoles prophylactic they still have breakthroughs and get aspergillosis, mortality in those patients depending on who you talk to is high as 30 to 50%.

So, it could be terrific target and that's why we need to focus or narrow down in terms of a design such study and then making sure that the appropriate endpoints are articulated both to the agency and the [indiscernible], okay, and that's what [indiscernible], but in the mean time, of course, we need to get safety data, and that's our first task to complete..

All right, great, thanks guys, looking forward to data..

Thank you..

Thank you. And now we will take our next question from David Bouchey with IFS Securities..

Hi, guys.

First, congratulations on a very strong job on managing your cash position; can you estimate for me how many years you can fund current operations, especially giving your expectations for years outlined?.

Right now we're projecting that we have enough cash through 2017..

Very comfortably we have cash for 2017. Astellas is funding the programs, you know, our burn rate is substantially subsidized, and as you know, we came at the very low-end range of our burn rate last year.

So we know how to manage our cash, we know how to work and spend -- advance our programs and not burn a lot of cash, and that's really the goal of it..

Regarding the HIV, the thing that you delivered to IPPOX, what kind of news load do you expect over the next 12 to 18 months?.

I don't think a lot of news load, because these HIV trials typically take a long time to complete and you know, [indiscernible] had been made, it's a prime boost regimen, the boost regimen is a pox virus and those concepts are still under construction, meaning still under manufacture, one goes to manufacture -- I would say it would at least take 24 to 36 months before you hear any data from those trials..

Okay.

What about in terms of any milestones that you might be expecting?.

No. This is a non-profit collaboration. So, there are no financial milestones..

Oh, good for you.

Your antifungal 2397, congratulations on getting that, it is a bit earlier than I expected actually, I would like to ask you a general market question about resistance occurring antifungal therapies, what are you seeing out there? Do you see resistance to the current therapies increasing, or they are holding steady?.

Andrew?.

Hi, David. So we are looking into this at the moment, and it seems that in invasive aspergillosis there is increasing resistance in -- globally. Where we've seen high rates are in EU. And from what we've heard is that the problem is, in some countries they use ASAL [ph] drugs to spray crops, and the suburban population is very close to the farmland.

So you're getting resistant bugs getting into people from the environment. It's not such a major problem in the U.S. right now, but it is rising. And so we expect to see this become something much more of a problem in the coming years. And it's highlighting the dynamic need for new therapeutic options..

Yes, that's what I'm thinking too, especially three-four years out..

Yes, but in Europe the problem is much more serious because they use ASALs as fungicidal, and there for farming areas, particularly in the central farming countries, such as Holland, France, and other countries. And as a result, there's a lot of ASAL-resistant aspergillosis in the environment.

And once that infect individuals are immunocompromised, such as bone marrow transplants or leukemic patients, then the current ASALs don't work. In the U.S., we have seen in some hospitals, we have seen ASAL resistance. But it's slowing spreading.

And so as Andrew pointed out correctly, that a new drug for treating aspergillosis is going to be badly needed. And the timing, as you said, this may be become more evident, three-four years. That would be the time when we should be in a good position to make this drug a reality..

Exactly. Thank you very much..

Thank you..

That does conclude the question-and-answer session. I will now turn the conference back over to Vijay Samant for any additional or closing remarks..

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

That concludes today's conference. Thank you for your participation. And you may now disconnect..