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

Ram Selvaraju - H.C. Wainwright David Bouchey - IFS Securities.

Good day, ladies and gentlemen, and welcome 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 questions from invited guests at the end of presentation. I will now turn the conference over to Mr. Tony Ramos, Vical's Vice President and Chief Financial Officer. Please go ahead, sir..

Hello, everyone. Welcome to our third 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 third 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 to report that all our clinical programs are proceeding according to plan. We'll be reporting the results from two clinical trials in the first half of 2018. We're also working intensely to begin our VL-2397 Phase 2 trial by the end of this year.

As Tony will report later on, financially, we are well positioned to continue the advancement of our key development programs in 2018. On the call today, Dr. Larry Smith will discuss our ASP0113 collaboration with Astellas, speaking specifically to the trial endpoints and the timing of the Phase 3 trial top line results. Dr.

Anza Mammen will discuss our ongoing HSV-2 Phase 2 study, which completed patient treatment in July of 2017. And we expect to report the top line data in Q2, 2018 after completion of the surveillance phase.

And finally, Andrew Hopkins will provide more details on our new antifungal programs VL-2397, that is eligible for a limited use indication for the treatment of invasive aspergillosis, assuming a successful outcome of a single Phase 2 study. We’ll begin the call today with a review of the financial results.

Tony?.

Thank you, Vijay. We reported financial and operational results this morning for the third quarter of 2017, which reflect continued progress in our ongoing development activities. Revenues were $3.2 million for the third quarter 2017 compared to revenues of $2.6 million for the third quarter of 2016.

Majority of the revenue for both periods were primarily comprised of development services performed under our agreement with Astellas related to the ASP0113 therapeutic vaccine program. We had a net loss of $3.1 million for the third quarter of 2017 compared with $2.5 million for the third quarter of 2016.

Our cash burn for the first nine months of 2017 was 6.9 million, which is consistent with our full-year cash burn guidance of between $8 million and $11 million for 2017. We ended the third quarter with $35.2 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, Tony. As you know, ASP0113 is our first-in-class therapeutic CMV vaccine candidate partnered with Astellas that's designed to prevent CMV disease and associated complications in hematopoietic stem cell transplant recipients.

You may recall from Vical’s Phase 2 HCT trial data which was published in Lancet Infectious Diseases that ASP0113 significantly decrease CMV reactivation compared to placebo. Increased interferon gamma T-cell responses were also observed in the vaccine group and the vaccine was well tolerated among HCT recipients.

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, decrease the subsequent risks of end organ decrease and death.

To our knowledge, ASP0113 is the first CMV vaccine to undergo testing in a pivotal Phase 3 trial and enrollment completed in September of 2016. As we recently accounted, the last patient completed their final assessment in the one year follow-up in September 2017.

You may recall that the global Phase 3 trial recruited 515 patients at over 70 clinical sites in 11 countries in North America, Europe and Asia. The specific countries include the United States, Canada, Belgium, France, Germany, Spain Sweden, Japan, South Korea, Taiwan and Australia.

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 full progress.

Astellas anticipates releasing top line results from this well executed trial in 1Q 2018. Finally, we continue to work extensively with our colleagues at Astellas on CMV activities.

I’m pleased to announce that we’ve completed the process validation activities for the ASP0113 drug substance and we now expect to begin the validation of the drug product process at a contract manufacturing organization. I will now turn the call over to Dr. Anza Mammen..

Thank you, Larry. Vical is developing a HSV-2 therapeutic vaccine to treat patients with symptomatic recurrent genital herpes infection. Genital herpes is a chronic incurable, contagious, sexually transmitted viral infection caused primarily by HSV-2.

Once infected, many people deal with the lifetime infection with periodic painful upgrades of genital lesion. It can result in significant emotional trauma, given the need to disclose your infection to your partner, along with the risk of transmitting the virus.

Furthermore, when you infected with HSV, you have a three-fold increased risk of HIV acquisition. Consequently, HSV-2 infection can be rather devastating from a number of vantage points. Dr.

Katharine Looker, at University of Bristol has estimated that over 400 million people, 15 to 49 years of age worldwide are infected with HSV-2, approximately 70 million in the Americas, 80 million in Asia and Australia, and 135 million in Sub-Saharan Africa. In the U.S. alone, one in six people 14 to 49 years of age are infected with HSV-2.

The prevalence is almost double in women than in men. The prevalence increases with age with approximately 30% of U.S. women in their 40s being infected. In non-Hispanic black women, the prevalence rates approach 50%.

There are currently three approved antiviral drugs, acyclovir approved in 1985, famciclovir approved in 1994 and valacyclovir approved in 1995. These antivirals are in adequate and underutilized as they may reduce the frequency of outbreak, but they will not eliminate them.

Furthermore, they require daily dosing that may in time need to poor patient compliance and served as a daily reminder of their sexually transmitted disease. Despite this unmet medical need, no new therapies have been approved in over 20 years.

Our VCL-HB01 vaccine encodes two full length HSV-2 antigen gD and UL46 and is formulated with Vical's propriety adjuvant, Vaxfectin. Following an initial Phase 1/2 study that was presented at the 2016 ASM Microbe Meeting in Boston and is available on our website, we embarked on our Phase 2 study in September 2016 in healthy adult subjects.

In this study, subjects who are 18 to 50 years of age are randomizes two to one to receive either vaccine or placebo. This study has proceeded as planned with the successful randomization of 261 subjects at 15 U.S. clinical studies at the end of April 2017. Subjects completed the vaccination theory as of July 2017.

An independent safety monitoring board has completed all three planned meetings and has recommended continuation of the study as planned. All active subjects are currently participating in a 12-month surveillance period, during which they record daily in their electronic diary whether they have lesions or not.

If they experience a new lesion recurrence, the subjects are expected to clinic within 48 hours of the onset of the recurrence. This allows the investigator to independently verify the recurrence.

Once all subjects have completed a minimum of nine months of surveillance, the primary endpoint of annualized recurrence rate will be calculated based on those recurrences that are both clinically and biologically confirmed.

Once the investigator clinically confirmed the recurrence, the subject received as per the clinical protocol three days of episodic value psychotherapy, intended to reduce the severity and duration of that recurrence. We feel that by providing episodic antiviral therapy for each recurrence, we establish a favorable report with our subject.

We are excited of the possibility of a HSV-2 therapeutic vaccine that if approved, would offer a paradigm shift in the management of recurrent general therapies. We feel that HSV-2 therapeutic vaccine offers the potential to boost one's community to HSV-2, thereby reducing lesion recurrences and associated symptom.

Such 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 over two decades. Patients and treating physicians are expecting therapeutic vaccine to reshape the treatment landscape.

Now that the four dose vaccination series has been completed as of July of this year, once allow subject dose completes nine months of follow up, we planned to conduct the primary analysis. We are pleased with the trial progress and continued to 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. As we announced earlier this month, our novel antifungal drug candidate VL-2397 is eligible for a limited use indication for the treatment of invasive aspergillosis. This is a life-threatening infection caused by Aspergillus species, which are ubiquitous soil-borne fungi.

The infection occurs primarily in severely immunocompromised patients and the annual incidences estimated to be in excess of 200,000 cases worldwide. Despite the availability of approved antifungal therapies, there are significant unmet medical needs in the treatment of invasive aspergillosis.

These unmet needs include six week mortality of approximately 20% variety of adverse events affecting the liver, kidneys, nervous system and vision, and interactions with the other drugs. In addition and as noted by the CDC, there is an increasing prevalence of infections caused by drug-resistant invasive fungal pathogens.

It's approved VL-2397 has the potential to address these unmet needs. This noble antifungal has a new mechanism of action compared to currently available therapies. In preclinical studies, VL-2397 demonstrated rapid fungicidal activity in vitro and high survival rates and reduced one fungal burn in vivo.

In these animal models, the survivals also high and experiments were in azole-resistant isolated disease. VL-2397 is a cyclic hexapeptide that resembles the siderophore ferrichrome and it enters the fugal cell through a transporter called SIT1.

This transporter is not present in humans, so we expect to translate into a favorable therapeutic window and low risk for toxicity. This is consistent with the safety findings reviewed by a safety review committee from our first in human Phase 1 trial of VL-2397 normal healthy volunteers.

In addition, VL-2397 is not metabolized by cytochrome P450 enzymes and studies demonstrated that it has a low propensity for drug-drug interactions. Turning now to the planned development for VL-2397, Vical is interacted intensively with the FDA to design a single Phase 2 efficacy study that could support limited use indication approval.

For VL-2397, this would mean to a treatment of invasive aspergillosis in patients with whom alternative therapies are not available.

The eligibility for a limited use indication approval is contingent upon the successful outcome of a single Phase 2 trial carried out in accordance with the protocol and statistical analysis plan consistent with the FDA's advice.

The final determination whether the drug is approvable will be made by the FDA after review of all relevant data and if all standards have been met for a new drug application. The limited use indication is a provision of the Limited Population Pathway established under the 21st Century Cures Act of 2016.

This pathway is designed to streamline development programs for antimicrobial drugs like VL-2397 that are intended to treat serious and life-threatening infections like invasive aspergillosis. The VL-2397, a Phase 3 trial will be required to support full approval in a broader population in invasive aspergillosis patients.

Vical intends to initiate the Phase 2 trial in fourth quarter of 2017. The trial design was developed after discussions with FDA in addition to clinical investigators with experienced treating invasive aspergillosis including members of the Mycoses Study Group.

The global Phase 2 trial will be a randomized open-label study conducted in approximately 200 patients with acute leukemia and recipients of allogeneic hematopoietic cell transplants who suspected of having invasive aspergillosis.

Participants will be randomized two to one to receive VL-2397 or standard treatment with voriconazole, isavuconazole or liposomal amphotericin B.

This trial is designed as a non-inferiority study with a primary endpoint of all cause mortality at four weeks and a key secondary endpoint of all cause mortality at six weeks, achieving a limited use indication approval is contingent upon successfully meeting both the endpoints.

We anticipate enrolling at 30 to 40 major cancer and transplantation centers in North America, Europe and possibly other regions with a targeted first site activated in fourth quarter 2017. We estimate the trial could take up to 24 months to fully enroll. With that, I’ll now turn the call back to Vijay..

Thank you, Andrew. I want to remind investors that this is a very exciting time for Vical.

We have two important clinical readouts in the first half of 2018 and we’ll also be embarking on the VL-2397 proof of concept study which would be eligible for a limited use indication approval for the treatment of invasive aspergillosis, assuming a successful outcome of the Phase 2 trial carried out in accordance with the protocol and statistical analysis plan consistent with the Agency's advice.

The final determination whether the drug is approved will be made by the FDA, after review of all relevant data. Our partner Astellas is planning for success and has begun preparations for BLA filing and a commercial launch.

The team at Vical is geared towards getting our manufacturing facility ready for a potential commercial launch, in summary a busy and exciting time for Vical employees and hopefully a satisfying 2018 for our shareholders. That concludes our prepared comments for today.

Operator, we are now ready to open the call to questions from my invited participants..

Thank you, Mr. Samant. The question-and-answer session will begin at this time. [Operator Instructions] Our first question comes from Ram Selvaraju from H.C. Wainwright. Your line is open..

I just wanted to ask about what the relative reception was to VL-2397 at the recent ID week conference in particular with regard to A, the possibility of using it as a weapon against these new fungal super bugs like Candida auris as well as potentially in compliment to existing antifungal agents potentially of the conazole class? And also if you could make some comments regarding what the potential commercial infrastructure might be for commercialization of 2397, and if you would regard as an opportunity that you will proceed entirely independently or potentially in collaboration with more established company? Thank you..

Let me start-off, I think the reception I daresay for this program was very enthusiastic because as you know nothing has been approved for treatment of invasive aspergillosis as of almost 20 years now. So, this is based on the preclinical data to remind you this is a drug which has a unique mechanism of action. It’s a fast acting drug.

This is all in preclinical models. And also in our Phase 1 study, it was well tolerated. So, I think people are looking for a new modality to treat these patients. So, we had a little cocktail hour. We had a whole bunch of invasive aspergillosis physicians who actually came in to find out more about this drug and do seem to be a level of excitement.

Larry, you want to add something to this?.

I think that really covers it, Vijay. I think there is quite a bit of excitement in the community and we've had a great opportunity to speak to a number of investigators for Phase 2. And we had a really great turnout at our poster presentation in which we presented the data supporting PK/PD data supporting the dose selection for Phase 2.

So, overall I think that was a terrific venue and we spoke to quite a few people, and we got some really good interactions and feedback..

One of the reasons for that Ram is that we are working very closely to the Mycoses Study Group, but these are really the -- this is the group that has the alignment all of invasive -- physicians were treating invasive aspergillosis, and they'd been giving us guidance on design on the clinical study and they’ll be also helping us in selection of some of the clinical sites in the United States.

So, all that adds up okay to make sure that we take the right steps going forward with this particular program. Your second question was commercial infrastructure. This was dealt for a limited use indication. This is not a huge sales effort. This could be done via rent of sales force, but you need to understand the synergy.

We remember at the ASP0113, we have co-promotion rights in the United States, okay. So these are the basically the same patient population, so if ASP0113 is positive, there could be synergy with the same sales force calling on the hospitals and the physicians that this group will be attacking. So I think it will be a synergy.

So we haven’t given a much thought at this stage. Our focus right now is to get the study going, and we patiently await the outcome of our ASP0113 data which is going to occur in the first quarter of 2018, but that’s an exciting thing to think about going in the future..

Our next question comes from David Bouchey with IFS Securities. Your line is open..

I have -- I think my first question is a quick housekeeping question for Tony. Can you give us some guidance going forward on what the license and royalty revenue streams are going to be? In way for the past two quarters, it's been in the 52 range.

Do you expect that to continue?.

Yes, I would think that would continue, yes..

Okay. And the next sort of financial question as you guys have recently filed an S1.

The last time I have Vical raising money was in January of 2012, is that correct?.

Yes, that was the last underwritten offering..

The last underwritten offering, yes, excuse me. So, that’s been quite some time.

And do you have a specific objective in mind for this cash?.

First of all, we don't talk as to cash raises in the public forums. But anytime, a company raises money, it's specifically related to their development programs and general corporate purposes..

So would it be fair to say that if you do raise money, you would probably have enough to pay for the entire Phase 2 trial for VL-2397?.

I think that's a fair answer..

Okay, great. And let's go now real quickly to the ASP0113. I believe you mentioned that you are completing the chemistry manufacturing and control segment requirements.

Can you give me a little bit more detail about how much work you have to do for that?.

I think it's probably the one of the largest sections of the PLA and the first element of that really is completion of the process validation for the bulk drug. And we have completed that last year that involves manufacturing lots for each. There are two plasmids here in this vaccine.

You have to make three lots in a series and all three have to pass and the meet the specifications. So, we have completed six lots of that activity last year.

Then the entire manufacturing process has to be written out, the process characterization data to make sure that the process is validated and control all the guiding documents, their reference assays which are all validated, the potency assays, the release assays, the validation protocols are all have to be included, the description and the manufacturing facility, the description of process.

It's a pretty huge undertaking, okay. Now, that's just in a bulk drug, and then beyond that you also have to do the same thing for the filling process. We actually fill the vials which is known as the drug product, which involves the defining the process, including storage conditions, stability data, pretty good work, David..

Yes, it does sound like a lot of work. One last question, I want to make sure that I understand….

David, just to remind you whether Pfizer or Merck filing of BLA versus Vical assisting Astellas filing the BLA, the CMC sections are reviewed in the same context, okay. There are no [indiscernible] because you're a small company..

Okay. One last question here about the antifungal Phase 2 again.

You make sure I understand what inclusion/exclusion criteria you're going to be applying to patients that you'll be enrolling in order to satisfy the limited use indication?.

So David, we're going to be focusing on patients who have either ALL or AML, so acute leukemia are those who have received allogeneic HCT transplant. So, that's the primary focus.

Now, we don't want to -- we're including patients who are at least 18 years of age and that they've not received more than four days of previous antifungal therapy before they going into receive our patients..

And the patients we include our both possible diagnosis invasive Aspergillosis probable and confirmed those are three categories, okay..

There are no further questions. I will now turn the call over to Vijay Samant for additional or closing remarks..

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

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