Tony Ramos - VP and CFO Vijay Samant - President and CEO Larry Smith - SVP of Research Anza Mammen - SVP, Clinical Development Andrew Hopkins - Senior Director, Corporate Development.

Mitchell Kapoor - Rodman & 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 call 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 will now turn the conference over to Mr. Tony Ramos, Vical's Vice President & Chief Financial Officer. Please go ahead, sir..

Hello, everyone. Welcome to our second quarter 2017 financial results conference call. Joining me on the call today is Vical's President and Chief Executive Officer, Mr. Vijay Samant; Vical's Senior Vice President, Research, Dr. Larry Smith; Vical's Senior Vice President, Clinical Development, Dr.

Anza Mammen; and Vical's Senior Director, Corporate Development, 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 2017 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 that all our programs are proceeding according to plan. As Tony will report, financially we are well positioned to continue the advancement of our key development programs in 2017.

On the call today, Larry will discuss ASP0113 collaboration with Astellas, speaking specifically to the trial endpoints and the timing of the Phase 3 trial top line results. Anza will discuss our ongoing HSV2 Phase 2 study which completed patient enrollment in July of 2017 and has entered the surveillance phase.

And finally Andrew will provide an update on our antifungal program. We're currently working with our clinical experts in the FDA to begin a phase 2 efficacy study in the fourth quarter of 2017 to evaluate the VL-2397 in the treatment of patients with invasive aspergillosis.

We'll begin the call today with a review of financial results, Tony?.

Thank you Vijay. We reported financial and operational results this morning for the second quarter of 2017 which reflect continued progress on our ongoing development activities.

Revenues were $3.4 million for the first quarter of - sorry, for the second quarter of 2017, which were primarily comprised of development activities performed under our agreement with Astellas related to the ASP0113 therapeutic vaccine program. That compares to revenues of $4.1 million for the second quarter of 2016.

Revenue for 2016 included 1.2 million of manufacturing service revenue related to our ASP0113 program. We had a net loss of $3.3 million for the second quarter of 2017 compared with $1.3 million for the second quarter of 2016.

Our net cash burn for the first six months of 2017 was $3.6 million which is consistent with our full-year cash burn guidance of between $8 million and $11 million for 2017. We ended the quarter with $37.3 million in cash and investments. We believe that our current cash balance will be sufficient to fund our operations at least through 2018.

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

Thank you Toney. 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 stem cell transplant recipients. CMV continues to pose a serious threat to HCT recipients for a very long time after transplantation.

So in addition to the immunosuppressive conditioning regimen required to successfully achieve allogeneic stem cell transplant procedure. Subsequent to immunosuppression it is sometimes necessary to prevent or treat graph versus host disease.

These immunosuppression conditions permit CMV to reactivate from latency at various periods of time after transplantation. CM reactivation which is measured by monitoring the appearance of CMV DNA or protein in the blood after transplantation significantly increases the risk of bad outcomes namely CMV end organ disease and overall mortality.

And you may recall from Vical's Phase 2 HCT trial was published in Lancet ID which is available at our website. ASP0113 has shown to significantly decrease CMV reactivation compared to placebo.

So we believe ASP0113 is a potential first-in-class treatment for CMV in HCT recipients because it offers the ability to harness the immune system to control CMV reactivation. And in turn to decrease the subsequent risks of end organ disease and death.

So unlike an anti-viral drug, which is active while it is being taken, ASP0113 has the potential to invoke immunological memory. This may allow a sustained long-term production against CMV and decrease the risks of late CMV reactivation and overall mortality associated with CMV.

So ASP0113 is the first CMV vaccine to undergo testing in a pivotal phase 3 trial. And enrollment completed in September of 2016.

The global phase 3 trial recruited 515 subjects at over 70 clinical sites in 11 countries in North America, Europe and Asia including the United States, Canada, Belgium, France, Germany, Spain, Sweden, Japan, South Korea, Taiwan and Australia.

And you may recall that the primary endpoint of this trial is a composite of overall mortality in CMV end organ disease at one-year after transplantation. An independent committee has been appointed to adjudicate all cases of CMV end organ disease and data collection is in progress.

Astellas anticipates releasing topline results from this well executed trial in 2018. Finally, we continue [indiscernible] Astellas on CMV activities. I'm pleased to announce [indiscernible] for the ASP0113 drug substance and we now expect to begin validation of the drug product process at a contract manufacturing organization.

Astellas has targeted a BLA filing in 2018. I'll now turn the call over to Dr. Anza Mammen..

Thank you. Larry. Vical is developing an HSV2 therapeutic vaccine to reduce lesion recurrences in patients with symptomatic genital herpes infection. Our VCL-HB01 vaccine encodes 2 full length HSV antigens gD and UL46 and is formulated with Vical's propriety adjuvant, Vaxfectin.

An initial phase 1/2 study has been completed and results were presented at the 2016 American Society for Microbiology Microbe meeting in Boston and are available on our website. The vaccine is being evaluated in a Phase 2 study in healthy adult subjects 18 to 50 aged for a randomized two to one to receive either vaccine or placebo.

The phase 2 study was initiated in September of 2016 and I'm pleased to report that recruitment of 261 subjects at 15 US clinical sites was completed in April of 2017 and the four dose vaccination series was completed in July of 2017.

All active subjects are currently being monitored for lesion recurrences during a 12-month surveillance period during which they record in their electronic diary daily whether they have lesions or not that day.

If they experience a new recurrence, the subjects are evaluated by the investigator in the clinic within 48 hours of the onset of the recurrence when the investigator verifies the recurrence both clinically and biologically. These confirmed recurrences support our primary endpoint of an annualized recurrence rate.

Once the investigator confirms that it is a recurrence, the subjects receive three days of episodic value psychotherapy, intended to reduce the severity and duration of that recurrence.

After extensive discussions with our clinical advisors and the FDA, we had concluded selecting annualized recurrence rate as a primary endpoint would offer the most clinically meaningful end point for patients and treating physicians. It provides important information on the number of occurrences over time in this chronic disease setting.

We did not select time to first recurrences and proportion of subject's recurrences free given that these both measure a single event and ignore the longer term impact of vaccination on subsequent recurrences.

Likewise we did not select lesion rate because it would preclude our ability to offer our subjects episodic antiviral therapy, often times desired by patients once a recurrence is confirmed. The vaccination series has been completed and once subject dose completes [indiscernible] annualized recurrence rate.

We should be able to deliver topline results during the second quarter of 2018. We are excited of the possibility of a HSV2 therapeutic vaccine that if approved would offer a paradigm shift in the management of genital herpes. The currently available anti-viral drugs are inadequate and underutilized.

Once HSV2 virus is contracted, it becomes a lifetime infection with periodic painful outbreaks of general lesions. The psychosocial impact of these lesion recurrences can be as dramatic as the physical disease itself.

Patients face disclosing the infection to their partner, not to mention the guilt they feel when they transmit the virus to their partner. Once infected with HSV2 you live with that persistent stigma. If you are co-infected with HIV and HSV2, the risk of transmission of HSV2 to your partner in three-folds higher than if you were not HIV infected. Dr.

Katharine Looker at University of Bristol has estimated that over 400 million people, 15 to 48 years of age worldwide are infected with HSV2. In the US alone, one in six people 14 to 49 years of age are infected with HSV2. The prevalence is almost double in women than in men.

The zero prevalence increases with age with approximately 30% of these women in their 40s being infected. In non-Hispanic black women, the zero prevalence rates approach 50%. We feel that that an HSV2 therapeutic vaccine offers the potential to boost one's immunity to HSV2, thereby reducing lesion recurrences and associated symptoms.

Such a vaccine would alleviate the need for daily pill taking that serves as a constant reminder that one has herpes. Given that no new antivirals have been approved for at least a decade, patients and treating physicians are hoping that a vaccine like ours can reshape the therapeutic landscape.

We are pleased with how the trial has been progressing and we'll work diligently to deliver top line results during the second quarter of 2018. I will now turn the call over to Andrew Hopkins..

Thank you, Anza. VL-2397 is Vical's novel antifungal drug that was licensed from Astellas Pharma in 2015. It was isolated from a leaf litter fungus [indiscernible] environment. In vitro, VL-2397 [indiscernible]. In vivo, VL-2397 provides a complete protection against azole sensitive and azole resistant Aspergillus infection.

Vical completed a Phase 1 clinical trial of VL-2397 in 2016. This was a randomized double-blind placebo-controlled study designed to evaluate safety, tolerability, [indiscernible] VL-2397 in 96 healthy volunteers. VL-2397 was featured in four poster presentations and an oral presentation at the June ASM Microbe meeting in New Orleans.

Of these, the results of the Phase 1 study were covered in two posters. Poster number 192 presented by Dr. Anza Mammen provided a summary of the safety and pharmacokinetics of the Phase 1 study. Poster number 190 presented by Laura Kovanda from Astellas Pharma [indiscernible]. The two additional posters featured non-clinical data of VL-2397.

Poster number 235 presented by Dr. Sean Sullivan outlined the limited potential drug interactions with VL-2397. And finally poster number 239 by Dr.

Nathan Wiederhold from the University of Texas Health Science Center San Antonio provided a review of an NIH sponsored in vivo study that investigated the effect of VL-2397 to treat wild type and drug resistant Candida glabrata. Finally, Dr.

Sean Sullivan provided a detailed overview of the clinical and non-clinical development of VL-2397 in an oral presentation as part of the session 160 that focused on Early New Antimicrobial Agents. The slides from the oral presentation and the four posters can be found on the VL-2397 page of the Vical website.

Overall, the results from the non-clinical and clinical work to date point to a favorable safety and pharmacokinetic profile to support advancement to a Phase 2 efficacy study to evaluate VL-2397 in the treatment of patients with invasive Aspergillosis.

Under the auspices of VL-2397's QIDP designation, Vical has been able to interact intensively with the FDA on the design of the Phase 2 and in exploring an expedited development pathway for VL‑2397. Our plan is to initiate a Phase 2 efficacy study in the fourth quarter of 2017 and we look forward to updating you on our progress.

With that, I'll now turn the call back to Vijay..

Thank you. In summary, this is an exciting time at Vical. We have a late stage clinical program with ASP0113 in Phase 3 for CMV, VCL-HB01 in Phase 2 for genital herpes and VL-2397 entering Phase 2 soon for invasive aspergillosis.

We are also approaching important milestones in all of these three programs with top line CMV data anticipated by Astellas in the first quarter of 2018. Data for our Phase 2 HSV-2 trial is expected in the second quarter of 2018 and the start of the Phase 2 for our novel antifungals is planned for fourth quarter of this year.

Additionally, as our programs advance towards regulatory filings and potential commercial launch, our established [indiscernible] expertise is well positioned, has positioned us well and preparations are well underway for our CMV program.

Finally, while our experienced team remains focused on advancing our promising pipeline, we're committed to doing so in a way that optimizes our financial resources and efficiently manages our cash, which [indiscernible] at least through 2018. This concludes our prepared comments for today.

Operator, we're now ready to open the call for questions from invited participants..

[Operator Instructions] Our first question will come from Ram Selvaraju of Rodman & Renshaw..

This is Mitchell on for Ram.

My first question is, what would the Phase 2 trial design of VL-2397 look like and when might it be finalized with the FDA?.

The trial would be and I'll leave that to - I'll let Anza add more to it, but it will be a Phase 2 study.

It will be a study with VL-2397 in one arm with the standard of care in the other arm, which is - can you tell me the standard of care drugs?.

So it's between voriconazole, Isavuconazole and liposomal amphotericin B..

And our work is to have it a two-to-one randomization, so we get maximum number of patients exposed to VL-2397 and the endpoint in the study we're hoping when we announce it formally, we'd be mortality okay. So this is a real proof of concept study that we're going to do.

Anything else you want to add?.

No. I think that's it..

Does that answer your question?.

Yes. Thank you for that one.

And so the last question I have is, have you guys been in discussions with potential partners for VCL-HB01 and if so, what does the tenure of those discussions kind of look like?.

I think we have had discussions with a number of big pharma companies and they're all people who are in the business of vaccines and a few are in the herpes or the antiviral area. And I think people are waiting to see what the Phase 2 data is going to look like, okay, the outcome of the data. People are very familiar with the trial.

There's a lot of interest and we have continued to keep in touch with them and hopefully with the way the trial is being executed, the data should be really good. Just to remind you, this trial, we have done a number of things to maximize success. We have four doses of vaccines that we're giving you, right.

What are the other design changes that we did compared to the Phase 2 study besides the four doses?.

So we've introduced the electronic diary to reduce some of the subjectivity and each of the recurrences [indiscernible]..

So this is a dual confirmation, a clinical confirmation and a biological confirmation to make sure [indiscernible]. So this is not a self-reported mechanism that we're using elsewhere. This is a visual confirmation, a clinical confirmation.

So it's a pretty rock solid endpoint from our perspective, right, compared to the other endpoints that you've explored. So I think the data is good. It should lead to partnership, but it all depends on the quality of the data in the end, which you'll find out in the second quarter of 2018..

And our next question will come from David Bouchey of IFS Securities..

First off, congratulations on the really good data for VL-2397 that you presented at June.

I just have a quick housekeeping question probably for you Tony and that is, I believe your contract for your current facilities gets renewed at the end of this month and could you tell me what changes we're going to see in terms of things like restricted cash once that happens..

Well, we extended the lease on this facility through the end of '18. So through the end of December of '18..

So, there is no renewal coming up this month..

There is no renewal coming up..

Actually when we - if you go through our Qs and Ks, when we renewed the contract, actually, we got a reduction in rent and we took our letter of credit that was required [indiscernible].

Am I right Tony?.

Yeah. The restricted cash will go down substantially, more in the couple of hundred thousand dollar range from 3 million, where we're at today. And that'll happen next month..

And also very quickly looking at the R&D expenses and the manufacturing expenses were a little bit higher than I had thought they might be by just a couple of hundred thousand.

Are they going to stay at the levels in second quarter or maybe go up a little bit?.

I think it's going to be around the same. We don't expect this to change. Obviously, our clinical expenses in the quarter will increase as we embark on the VL-2397 study..

If there are no further questions, I will now turn the call back over to Mr. Samant..

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

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