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

Mitchell Kapoor - Rodman and Renshaw. 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 like to turn the conference over to Mr. Tony Ramos, Vical’s Vice President & Chief Accounting Officer. Please go ahead, sir..

Thank you. Hello, everyone. Welcome to our fourth quarter 2016 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 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 fourth 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 and 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 programs are proceeding according to plan. As Tony will report financially we are well positioned to continue the advancement of our development programs in 2017. On the call today, Dr.

Larry Smith will discuss our ASP0113 collaboration with Astellas, speaking specifically to the trial endpoint and the timing of the Phase 3 trial top line results. Dr.

Anza Mammen will discuss the ongoing VCL-HB01 Phase 2 HSV2 therapeutic vaccine study designed to evaluate the clinically significant, clinically relevant endpoint of analyzing lesion recurrence rate. And finally Andrew Hopkins will provide an update on our antifungal product candidate VL-2397.

But before we get into our development programs let me begin with our financial results by Tony Ramos.

Tony?.

Thank you, Vijay. We reported financial results this morning for the fourth quarter of 2016 which reflect continued progress in our ongoing development activities.

Revenues were $3.2 million for the fourth quarter of 2016 which were primarily comprised of ongoing manufacturing services and development activities performed under our agreement with Astellas related to ASP0113 therapeutic vaccine program that compares to revenues of $6.8 million for the fourth quarter of 2015.

Revenue for 2015 included $4.1 million of non-recurring revenue from IPPOX for the manufacture of an HIV vaccine. We had a net loss of $2.8 million for the fourth quarter of 2016 compared with $2.4 million for the fourth quarter 2015.

Our cash burn for the fourth quarter of 2016 was $2 million compared to a net cash burn of $1.7 million for the fourth quarter of 2015. Our total cash burn for 2016 was $8.8 million which was at the lower end of our 2016 guidance of $8 million to $11 million. We ended the fourth quarter with $41 million in cash and investments.

For 2017, we are projecting the cash burn of between of $8 million and $11 million. We believe that our current cash balance will be sufficient to fund our operations at least through 2018. I'll now turn the call over to Dr. Larry Smith. .

Thank you, Tony. As you know ASP0113 is our therapeutics CMV vaccine candidate partnered with Astellas that's designed to prevent CMV disease and associated complications in hematopoietic cell transplant recipients. ASP0113 encodes two CMV antigens, phosphoprotein 65 or PP65 and glyco protein B or gB.

These antigens are widely recognized by human immune system and play important roles in the immunological control CMV replication. ASP0113 is the first CMV vaccine to undergo testing in a pivotal Phase 3 trial, which completed enrollment of 515 subjects since September of 2016.

The Phase 3 trial has been designed to increase the likelihood of success compared with the Phase 2 trial. Important Phase 3 design features include a larger trial size, approximately 500 versus 80 from Phase 2.

The administration of fifth vaccine dose compared to four doses in the Phase 2 and the selection of a clinically relevant primary endpoint that can support full product license insured in lieu of virologic endpoint that will only support conditional approval.

The Phase 3 trial is advancing towards completion of the 12 months follow up period and Astellas anticipates releasing top line results in 1Q, 2018.

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

And finally we continue to work extensively with our colleagues at Astellas process validation and commercial readiness activities to support our current BLA filing -- our targeted BLA filing in 2018. So I'll now turn the call over to Dr. Anza Mammen..

Thank you, Larry. In September, we announced the initiation of the Phase 2 trial of our bivalent HSV-2 therapeutic vaccine VCL-HB01.

The Phase 2 trial is a randomized, double-blind, placebo-controlled trial evaluating the efficacy and safety of the vaccine in approximately 225 otherwise healthy adults aged 18 to 50 years with symptomatic genital HSV-2 infection. After the vaccination series, subjects will be evaluated for recurrences for up to a 12 months period.

For protocol we will conduct the efficacy analysis once the last subject in reaches nine months of follow up. Following extensive discussions with the FDA and our clinical experts, we selected the most clinically meaningful primary endpoint of annualized lesion recurrence rate.

In addition, we introduced several improvements to Phase 2 trial design that we believe will increase the likelihood of success. These include providing a fourth dose as opposed to the three doses used in the Phase 1/2 study, as well as ensuring that the lesion recurrence is for the primary endpoint are both clinically and virologically confirmed.

We've concluded that annualized recurrence rate is one of the most clinically meaningful endpoints for patients and treating physicians as it provides important information on both the number and spacing of lesion recurrences over time in this chronic disease setting.

We are excited to have 15 academic and private sites with HSV-2 expertise taking part in the trial. We expect enrollment to be completed by April of this year with top line results to be available in the second quarter of 2018.

The Phase 2 trial has been designed based on Phase 1/2 trial results presented at the 2016 American Society for Microbiology, ASM Micro Meeting in June that revealed a statistically significant reduction i.e. 57% reduction with the p value of 0.009 in lesion rate compared to baseline in the VCL-HB01 vaccine arm at nine months.

Along with trends in other secondary endpoints. In addition, the VCL-HB01 vaccine was immunogenic and produced a statistically significant increase in antigen specific interferon gamma producing T-cells.

Just a reminder that this is a Vaxfectin Adjuvant bivalent vaccine encoding full -length HSV-2 antigens like a protein D and BPL11/12 tegument protein and coded by the UL46 gene. As you may recall that the antigens were selected in collaboration with investigators at the University of Washington.

A number of patients have continued to contact us regarding how to enroll in our HSV-2 trial. I refer them to www.clinicaltrials.gov where specific contact information is provided for each of our active clinical sites. I will now turn the call over to Andrew Hopkins. .

Thank you, Anza. As we announced during our third quarter update, we completed dosing and all planned cohorts in the Phase 1 clinical trials on novel antifungal, VL-2397.

The randomized, double-blind, placebo-controlled trial in approximately 90 subjects was design to evaluate safety, tolerability and pharmacokinetics of single and multiple ascending dose of intravenous VL-2397 in healthy volunteers. Preliminary results point to a favorable safety and pharmacokinetic profile for VL-2397.

And we expect to present the full data set at the June ASM Micro Conference in New Orleans. Moving forward our plan is to initiate Phase 2 efficacy study to evaluate VL-2397 in a treatment of patients with invasive aspergillosis and we are working with our clinical experts and FDA towards this objective.

Invasive aspergillosis represents a sizeable unmet medical need in immuno comprised patients due to a high mortality rate despite available antifungal therapies. VL-2397 has the potential to be an efficacious and well tolerated therapy for immuno comprised patients who are susceptible to invasive fungal infections.

As a reminder, VL-2397 is a new class of drug licensed from our partner Astellas Pharma in March 2015. There is small molecule compound that was isolated by Astellas from leaf litter fungus in Malaysian National Park.

VL-2397 has a novel mechanism of action that represents a potential new class of therapies to treat life threatening invasive fungal infections.

VL-2397 has demonstrated rapid and potent antifungal activity against a range of invasive fungal pathogens, including frequently-occurring Aspergillus species, azole-resistant Aspergillus fumigatus, Candida glabrata and Cryptococcus neoformans.

The FDA has gone to Vical QIDP orphan drug and fast track designation to VL-2397 for the treatment of invasive aspergillosis. With that I'll now turn the call back to Vijay. .

Thank you, Andrew. In summary, we continue to make good progress on all our development programs. We believe we are well positioned to continue to advance our clinical programs according to plan. First, we ended 2016 with $41 million compared to 2015 year end balance of $42 million, that's a remarkable way of managing our cash.

Our management team's primary focus is to advance our clinical program and to manage our cash burn. That's a tough objective but we've done a very good job, thanks to my team here. During 2016, we used $8.8 million of cash to fund our operations which was the low end of our 2016 cash guidance.

For 2017, we are projecting a cash burn rate between $8 million and $11 million. In September, Astellas completed an enrollment in its Phase 3 trial of ASP0113 in HCT. A total of 515 subjects were enrolled. Astellas anticipates that the top line data from the initial trial will be available in the first quarter of 2018.

Enrollment in our HSV-2 efficacy trial for BCL HBO 1 therapeutic vaccine candidate is proceeding according to plan. This approach could represent a paradigm shift in the management of this chronic and emotionally debilitating infection for which no new anti-viral therapy is in approved in 20 years.

We expect enrollment to be completed in April of 2017 with top line data being available in the second quarter of 2018. The first in human Phase 1 trial of our antifungal VL-2397 in approximately 90 subjects has been completed.

Preliminary results point a favorable safety and pharmacokinetics profile for VL-2397 and we expect to present the full set of data at June ASM Micro which is formerly known as ICAAC in New Orleans.

Vical is working actively with this expert advisors in the FDA to design a Phase 2 efficacy study to evaluate VL-2397 in the treatment of patients with invasive aspergillosis. Finally, I'd like to remind investors that the company continues to execute on its development programs in a timely fashion.

The data from our pivotal Phase 3 CMV study in the first quarter of 2018, a Phase 2 HSV-2 program with the clinically meaningful endpoint that will read out in the second quarter of 2018 and a novel antifungal poised to enter Phase 2 in the second half of this year.

We are planning to have an Analyst Day in the second quarter of this year with KOL to have an in depth review of our HSV-2 therapeutic vaccine and our novel antifungal VL-2397. That concludes our prepared comments for today. Operator, we are now ready to open the call to questions from our invited participants. .

[Operator Instructions] Our question will come from Michelle Kapoor with Rodman and Renshaw. Please go ahead..

Hi, there. Thanks for taking my questions. So my first question is for the CMV vaccine.

Do you and Astellas plan to target additional patient population with weaken immune system such as the elderly?.

At this point, I think the entire focus is to focus on patients such as transplant patients and give this drug approved as rapidly, vaccine approved as rapidly as possible assuming the data is positive. I think Astellas will then post that accomplishment and look at other opportunities but right now there is no plan..

Okay. Thank you for that one. And I just have one more.

In the Phase 2 HSV-2 trial, what is the anticipated reduction in annualized lesion recurrence rate that would facilitate advancement in pivotal development?.

I think our goal is, Anza what percentage actually is we targeted?.

38%.

About 35% to 40% reduction is what our goal and if we can achieve that goal -- we are not actually gone into the filing assumption but at some point in the future will it need to, but about 35% -40% reductions will allow us to advance to Phase 3. .

[Operator Instructions] We will go to our next question from David Bouchey of IFS Securities. .

Hi, guys. Might as well I've got a couple of questions here as we go to the quick financial housekeeping one first.

Larry, I probably assume that your restricted cash would be reported in the range of $3 million to $3.5 million, is that something that's comfortable assumption?.

This is Tony. Yes, that's correct. .

Tony, I am sorry, yes, not Larry. Larry is the next question. Okay.

And talking about the VL-2397, so as you progress, as you think about going down the road with that antifungal drug and you think about Phase 3 trial for instance if you get that far, would you be looking at comparing against voriconazole and would you be thinking about doing a Phase 2 that's comparative?.

Yes. To answer your question, first step first, Phase 2 there would be an active comparator such as voriconazole and I would think the same will also be true for Phase 3. .

And in Phase 2 particularly we'll be focusing on non inferiority study..

Yes..

Okay. So that would be similar end design than to Astellas' CRESEMBA their Phase 3. .

For the perspective of non-inferiority design, I mean there is still more details to be worked out with the specifics of the non-inferiority margin and things of that nature. But, yes, there would be -- we are thinking of non-inferiority trial design. .

But I don't think the trial would be anywhere near what the Astellas trial size is okay. That's what you are going.

Yes, CRESEMBA-.

We are much smaller size so we need to focus on what mortality time point we are going to pick, we need to make an assumption on what the mortality assumption is in the treatment armed versus the control arm and the most important thing is what is a non-inferiority margin and once those three all come together, we should be able to define the task, which we are working on right now as Larry and Andrew clearly outlined with the KOLs and the FDA.

So stay tuned. .

And lastly in terms of the CMV vaccine, so Merck announced or put out a press release in October about MK-8228 letermovir saying that they had a positive Phase 3 which kind of reverse some previous negative Phase 3 for other drug results.

And I have not yet seen the actual results and I was wondering if you guys had any comments about what you think about that data?.

Andrew you want to take that?.

Sure. David that's an excellent question and we've seen the press release in the publicly disseminated information on it. And there are some important points to make with respect to the differences between ASP0113 as vaccine and letermovir as an antiviral drug. So the difference is in the products and there are differences in the Phase 3 trial design.

So the most important thing I would point out is so the letermovir is a drug, has an antiviral effect directly on infected cells but ASP0113 is a vaccine. So that means that their mechanisms are very different.

So ASP is harnessing the immune system and trying to control CMV like it normally would, or as drug is really not harnessing a new system and is having a direct antiviral effect.

So this difference is to be really important especially at later time points because the effect of the drug like letermovir is good for the time period in which the drug is used. But vaccine in parts immunological memory and can therefore be effective at later time points.

And so that's a really, really key things so their trial they looked up to 24 weeks. And we are looking up to one year. So CMV risk continues and continues beyond week 24.

And so we think for those reasons that our vaccine offers a superb way to try to control CMV reactivation and then antiviral drug although I think letermovir data appeared to be very, very good, there are limitations there. And even after this continuation of the drug you can begin to see that CMV infection rate do begin to increase.

So there is a lot of things there and the secondary endpoint or rather the primary endpoint we are going after clinically --sorry we are going after two clinically significant endpoint which are overall mortality and CMV end organ disease and so if we meet the endpoint that will support full product approval.

Where letermovir, they are going after what they call clinically significant CMV infection which is largely based upon viral lows that trigger anti preemptive antiviral therapy. So we are not really sure if that's going to be conditional or full approval but our endpoints are really designed for full approval.

And so we think that those really, really important, two really important points. At the end of the day, the commercial market for this treatment will be all data driven. So if ASP0113 hits the primary endpoints that we've outlined, that would be a major prophylactic regiment to present CMV manifestation.

So and again one that could actually last lot longer than a relatively narrow treatment period for antiviral drug. So the important -- the other important things to really mention here which is really endpoint that is Merck also mentions some overall mortality data.

And it said that letermovir actually demonstrated significant reductions in all cause mortality at 24 weeks. And that's really important because it helps support the validity that you can provide anti CMV treatment and impact overall mortality. So that actually we find encouragement by that finding.

So overall we think the trial what we've seen has done very well but there are also some important distinctions between our drug -- and our vaccine and their drug. .

What I am hearing from physicians is that they are really putting the emphasis on prevention of infection. And I agree with you that long term prevention of infection is going to be a much more critical endpoint than short term and I think it's a very good point that when you grow the anti viral drug that protection is gone. Thank you.

I'll go ahead and get back in a queue. .

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

Well, thank you all for participating. We look forward to continued progress in our development programs and meeting some of you at the Roth conference in California where we will be presenting in next week. Thank you. .

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect..