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

Shaunak Deepak - HC Wainwright David Bouchey - IFS Securities.

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 up for question and answers from invited participants after the presentation. I would now turn the conference over to your host Mr. Tony Ramos, Vical’s Vice President & Chief Accounting Officer. Please go ahead, sir..

Hello, everyone. Welcome to our second quarter 2016 financial results conference call. Joining me on the call today is Vical’s President & 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 the 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 second quarter 2016 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’d like to introduce Vical’s President & Chief Executive Officer, Mr. Vijay Samant..

Thank you, Tony, and thank you to our participants for joining the call. I’m pleased to report that our independent and partnered programs are proceeding according to plan. As Tony will report, we have continued to manage our expenses such that the Company is well-positioned to continue our planned development efforts.

We were able to further strengthen our financial position in August 2016, by entering into an agreement with AnGes, MG Vical's long time partner and existing shareholder to purchase approximately 7.8 million of Vical’s common stock in a private placement.

AnGes has been a very supportive long-term shareholder of Vical since 2006, the terms of this investment include above market pricing, no warrant coverage while already attractive giving the current funding climate. In addition, the shares are subject to two year lock in period in which they may not be sold by AnGes.

This investment further strengthens our financial position and extends our cash runway well beyond our upcoming clinical milestones. Further details of the agreements are included in an 8-K that we filed on August 03, 2016. On our call today, Dr. Larry Smith will discuss our CMV collaboration with Astellas; Dr.

Anza Mammen will discuss the status of our Herpes simplex-2, HSV-2 therapeutic vaccine program; and finally, Andrew Hopkins will provide an update on our ongoing Phase 1 study to evaluate our antifungal product candidate, VL-2397. But before that we’ll begin the call today with a review of our financial results by Tony Ramos.

Tony you’re on?.

Thank you, Vijay. We reported financial results this morning for the second quarter of 2016, which reflect our ongoing development activities. Revenues were $4.1 million for the second quarter of 2016 compared with $4.2 million for the second quarter of 2015.

Our revenues reflect ongoing manufacturing services and development activities performed under our agreement with Astellas related to the ASP0113 vaccine program. We had a net loss of $1.3 million for the second quarter of 2016, compared with $2.8 million for the second quarter of 2015.

The decrease in our net loss compared to the second quarter of 2015 is primarily the result of $1.2 million increase in deferred contract cost associated with manufacturing services under our agreement with Astellas related to the ASP0113 vaccine program.

As in prior quarters, we continue to effectively manage our cash burn, our cash burn for the second quarter of 2016 was $1.8 million compared to $2.5 million for the second quarter of 2015. We ended the second quarter with $38.5 million in cash and investments.

This cash balance does not include the $7.8 million in proceeds we received from our recently completed private placement. Our cash burn for the first six months of 2016 was $3.5 million. Our cash burn projection remains unchanged for 2016. I will now turn the call over to Dr. Larry Smith..

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

First one is a global registrational Phase 3 trial in hematopoietic cell transplant recipients. The second one is a 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 targeted to enroll 500 CMV seropositive HCT recipients.

Enrollment is ongoing at over 70 clinical sites in 11 countries, in North America, the United States and Canada, in Australia, in Europe, Belgium, France, Germany, Spain and Sweden and in Asia, Japan, Taiwan and South Korea.

I am pleased to report that the trial recruitment is proceeding according to plan and we have now exceeded 90% enrollment into the trial. Astellas expects to complete enrollment on schedule in 3Q 2016.

And you may recall from our previous earnings calls, that the primary end-point of this trial is the composite of overall mortality in CMV end organ disease. Those end-points will be assessed at one year after transplantation. An independent committee has been appointed to adjudicate all cases of CMV end organ disease.

Astellas expects to announce top-line data in 4Q 2017. And with regards to the Phase 2 SOT trial, this is a multinational double-blind placebo-controlled study, 150 subjects were fully enrolled in May 2015 and have completed the planned one year follow-up.

The trial enrolled high risks subjects, CMV seronegative recipients receiving a kidney from a CMV seropositive donor, at 80 centers in the United States, Europe and Australia. The D+/R- group has an approximately 50% risk of developing CMV viremia, and about a 35% risk of developing CMV disease within the first year of transplant.

The primary end point is CMV viremia and the Phase 2 trial is powered to show an approximately 50% decrease in the CMV viremia at one year. Viremia is being measured by a PCR assay conducted as central laboratories.

An independent committee is adjudicating a variety of secondary end-points from this trial, including a key clinically volatile end-point of CMV disease. Astellas expects top-line data to be released in the third quarter of 2016.

In addition to the substantial progress on the clinical fronts, we would like to report that Vical and Astellas have also made substantial progress in process validation activities for the manufacture of the bulk drug product in preparation for a potential BLA filing in 2018.

We continue to work extensively with our colleagues at Astellas to ensure all of our development objectives are on track for this filing. I will now turn the call over to Dr. Anza Mammen..

Thank you, Larry. We presented the Phase 1/2 study results of our HSV-2 Therapeutic Vaccine at the American Society of Microbiology ICAAC conference on June 20th in Austin. The complete presentation is available on our Web site. At that time we announced that we would conduct a follow-on Phase 2 trial of our bivalent vaccine.

Our decision to advance the bivalent vaccine is based on our Phase 1/2 data in which the bivalent vaccine conferred one; a significant reduction in viral load at three months to a 57% reduction in lesion rate at nine months; three, a favorable impact on additional clinical end-points and lastly a significant increase in UL46 specific interferon gamma producing T cells.

We are confirming with the FDA the Phase 2 trial design which has intended to evaluate the vaccines efficacy using clinically relevant end-points rather than biologic end points. We have posted an overview of the trial design on www.clinicaltrails.gov. We look forward to initiating the Phase 2 trial in the second half of 2016.

I’ll now turn the call over to Andrew Hopkins..

Thank you, Anza. As we announced in March, Vical initiated a Phase 1 clinical trial by an novel antifungal agent VL-2397.

This randomized double-blind placebo-controlled trial is intended to evaluate safety, tolerability and pharmacokinetics of single and multiple ascending those cohorts of VL-2397 and healthy voluntaries, aged 18 to 55 at a single U.S. clinical site. The trial is expected to be completed by the end of 2016.

We are working closely with the FDA on the aspergillosis of the VL-2397’s QIDPs designation, and our expert advisors to design a Phase 2 efficacy study in invasive aspergillosis. This fungal infection is associated with a high mortality rate in immunocompromised patients underscoring to need for new antifungal therapies.

Long clinical testing has demonstrated VL-2397’s fact mechanism of antifungal action and high survival rates and several invasive aspergillosis animal models.

As a remainder, VL-2397 was licensed from our partner Astellas Pharma in March 2015, is a small molecule compound that was isolated by Astellas from leaf litter fungus in the Malaysian National Park. VL-2397 has a novel mechanism of action that represents a potential new class of therapies to treat life-threatening fungal infections.

In addition to the QIDP designation, the FDA has gone with Vical orphan drug designation and Fast Track designation to VL-2397 for the treatment of invasive aspergillosis. I’ll now turn the call back to Vijay..

Thank you, Andrew. In summary, we believe our strong cash position coupled with our projected low burn rate that allowed us to continue to advance our clinical programs according to plan. Our management team has done an exceptional job managing our cash burn in the first half of the year, limiting our cash burn to $3.5 million in the first six months.

We ended the second quarter with $38.5 million, we expect to burn a total between 48 million and $11 million for all of 2016, the $38.5 million cash balance at the end of June does not include the 7.8 million of proceeds that we receive from the AnGes equity investment completed in August. On the development front we made great progress.

Astellas has now then enrolled 90% of the patients and expects to complete patient enrollment in its Phase 3 trial in HCT in the third quarter of 2016. Astellas anticipates that the top-line data from the trial will be available in the fourth quarter of 2017.

On the other indication SOT, the one year follow-up period for that multinational Phase 2 study kidney transplant recipients is now complete. Astellas currently expects the data to be available sometime in the third quarter of 2016.

We look forward to initiating a Phase 2 efficacy trial for our bivalent HSV-2 therapeutic vaccine candidate in the second half of 2016. This indication has a huge unmet medical need. The Phase 1 trial for antifungal product candidate VL-2397 to evaluate safety and pharmacokinetics is ongoing and we expect this trial to be completed by the end of 2016.

This concludes our prepared comments for today. Operator, we’re now ready to open the call to questions from our invited participants. Thank you..

Thank you, Mr. Samant. The question-and-answer session will begin at this time. [Operator Instructions] Our first question comes from Shaunak Deepak from HC Wainwright..

My first question relates to ASP0113 and I was wondering if you had any additional granularity on the timing of that update and also was curious like what kind of data and granularity you'd expect to report versus savings from that of 4 million?.

So, according to the hematopoietic cell transplant study which will finish recruitment in the Larry..

Third quarter..

In the third quarter of 2016 that has a one year follow-up period and the data from that will be available to our fourth quarter of 2017. And I think it's a pivotal registration study and if the data is good it will be presented at an important conference, it's a little too early right now to kind of predict where it's going to be presented.

The Phase 2 solid organ transplant study where the data is going to be reported in the third quarter and I'll have Larry comment specifically in the endpoints and the detail on the endpoints.

But that's a more of a proof of concept study and I don't think it'll be presented at a medical conference if I'm correct, it may be published at a later date but that's our understanding from as far as -- Larry can you comment on the endpoints please?.

Yes, sure on the SOT Phase 2 the primary endpoint is CMV viremia and so that is the primary endpoint and then there's a series of secondary endpoints with I think the most clinically relevant endpoint is CMV disease and that'll be adjudicated by an independent committee and there will also be additional endpoints as well.

But those are really key endpoints for Vical..

And despite the initial post-transplant antiviral treatment Larry what is the incidence of CMV viremia in those patients right now?.

It's close to 50% is our assumption..

So, it's a huge incidence of CMV viremia.

And what about CMV the end organ disease, also it's a pretty high contingent?.

Yes, around 35%..

35% so, it's a big unmet medical need. It's an opportunity where vaccine intervention could make a real difference..

And just to clarify on the powering assumptions there on the trial, if guys were to show as opposed to 50%, 25% CMV viremia is that going to be considered a win in the trial?.

Yes, that's what the trial is powered to show it is 80% powered to show that 50% reduction approximately..

And then I had a question on HSV-2, and I saw like the clinicaltrials.gov entry, I was curious based on like the current 225 patient enrollment number, what would you be powered to show in terms of the primary end-point here or recent occurrences?.

Well I mean we are powering the study, but somewhere we haven't put out the statistical analysis plan to probably give you a much more granular details that we put out our press release on the trial design.

But the trial is powered more than 80% to show, show difference with the clinical or clinically meaningful end-points which are also be defined in our press release internal and clinicaltrials.gov because we are still finalizing them and we are in discussions with the agency and once we have finalized we will announce those.

But the end-points followed more than 80% between the vaccine and placebo am I correct Andrew?.

Yes that is correct..

Okay.

And I understand you might hold off until the press release, but I was curious, what are you assuming your placebo and the current trial will be on trial and also like just in terms of the timing of finalizing that like when do you expect to get that final sort of feedback from the agency before…?.

I think in the near-term, but the average recurrence rate that we are expecting the placebo to, based on our recruitment type for aspergillosis [Multiple Speakers]….

About five recurrences..

About five recurrences per year is what we are aiming for. But joining that’s what we aim for in the groups and it can be somewhere between the four to six range, that’s what our expectation is..

Okay great.

And then lastly, I just wanted to touch on 2397 and I was curious how the enrollment was going there like was there control or you guys just advanced here?.

The enrollment is going on plan, as you know there is SADs and there are multiple ascending doses which are for seven days, there is a 28 dose final MAD cohort and everything is running right on schedule. And so we expect to complete the trial by the end of the year, so far so good..

Okay.

And what type of data read out would be expected to be when you complete that trial?.

Larry?.

Well, the primary goal is obviously safety and tolerability but we will also have a read out on pharmacokinetics as well. And these are all normal healthy adults, so both safety and PK..

And safety is very important in this, because this is an untested drug in human, so I think the safety is key and the final recognizing data will allow us to decide the right amount of dosing and the right dose as we go into the proof of concept study..

And you expect to resolve it 2 to 3 in a press release presumably?.

Well, absolutely no probably at a conference but also a top-line data on safety in a press release..

And we will now take a question from David Bouchey from IFS Securities..

A quick question about milestones from Astellas, when you complete enrollment in the Phase 3 for 0113, will be receiving a milestone or is the next milestone coming upon results of the Phase 3?.

I think all the milestones that are coming are based on finding of PLAs or for that sort of case, so those milestones are not on completion of studies. And to just to remind people the milestones are close to approximately $100 million from milestones to collect on Astellas that’s the magnitude.

We have a high-teen royalties from day one going into and we also have full promotion rights in the U.S.

so it's a pretty nice arrangement that we have okay and plus we're going to be supplying the product to them for at least five years on a first luck basis, is that right Andrew?.

Yes..

Let me clarify what the time line for that will be, if you're going to have results, top-line results in the fourth quarter of 2017 from the Phase 3 trial, it's going to take at least six to nine months to submit a biological license application, so you're looking at mid-2018 for submission and another eight to nine months maybe for the FDA to review and approve assuming everything goes well and that puts you in a launch sometime around the middle of 2019?.

Yes, I think that's approximately in the ballpark, okay, and maybe slightly a quarter here and there..

Okay..

But I think we've milestone both for filing and approval for a variety of applications, variety of models okay..

Filing approval in submarket indications, okay.

One last quick question I want to ask about VL-2397, the next step, are you anticipating doing something like a Phase 1b, in looking at pharmacokinetics data in patients who have invasive aspergillosis or are you going into a Phase 1/2 or directly into a Phase 2, what are you thinking about right now?.

Our goal is directly into a Phase 2 because if we clear the safety hurdle with flying colors, there's a huge unmet need in invasive aspergillosis right now the mortality can be anywhere from 30% to 50% depending on which particular patient group you look at.

And as you know we have QIDP designation for the medical community, meaning the KOL and in the agency, once something approved in invasive aspergillosis. So, no, not a Phase 1b or anything like that, a Phase 2 proof-of-concept study, that's what it has always been..

And if there are no further questions at this time, I'd like to turn the call back over to Vijay Samant for additional and closing comments..

Well 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. Thank you..