Anthony Ramos - CFO & Principal Accounting Officer Vijay Samant - CEO, President and Director Mammen Mammen - SVP, Clinical Development Andrew Hopkins - Senior Director, Corporate Development Lawrence Smith - SVP.

David Bouchey - IFS Securities Raghuram Selvaraju - H.C. Wainwright & Co..

We 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 the conference up for questions 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 and Chief Financial Officer. Please go ahead, sir..

Hello, everyone. Welcome to our fourth 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 of 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 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 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. Although the Phase III ASP0113 trial with Astellas did not meet its clinical endpoints, I'm pleased to report that all our remaining clinical programs are proceeding according to plan.

I believe we are well-positioned to continue the development of our two promising clinical stage programs and our recently announced preclinical hepatitis B virus development program. We'll be reporting the results from our Phase II HSV-two clinical trial in the second quarter of 2018.

We have also initiated enrollment in our VL-2397 Phase II clinical trial, which may be eligible for a limited use indication approval for the treatment of invasive aspergillosis, assuming a successful outcome of the single Phase II trial.

And as Tony will report, financially, we have the capital resources needed to continue the advancement of our key clinical development programs. On the call today, Dr. Anza Mammen will discuss our ongoing HSV-2 Phase II study, which I mentioned previously will report top line data in the second quarter of 2018.

Andrew Hopkins will provide more details on our antifungal program, VL-2397, and the Phase II invasive aspergillosis trial that is now open for enrollment. And finally, Dr. Larry Smith will provide a brief update on our exciting preclinical hepatitis B program. We'll begin the call today with a review of the financial results.

Tony?.

Thank you, Vijay. We reported financial results this morning for the fourth quarter of 2017, which reflects the costs associated with the ASP0113 program, our HSV-2 Phase II clinical trial as well as activities related to the startup of our VL-2397 Phase II clinical trial.

The costs associated with our recent restructuring will be recognized in the first quarter of 2018. Cost savings from the restructuring will begin in the second quarter of 2018. Revenues were $4.0 million for the fourth quarter of 2017 compared to revenues of $3.2 million for the fourth quarter of 2016.

Majority of the revenue for both periods were comprised of development services performed under our agreement with Astellas related to the ASP0113 therapeutic vaccine program. Revenues from that program will decline substantially in Q1 of 2018.

We had a net loss of $3.7 million for the fourth quarter 2017 compared with $2.8 million for the fourth quarter 2016. Our cash burn for the 12 months ending December 31, 2017, was $8.6 million, which was consistent with our full year 2017 cash burn guidance of between $8 million and $11 million.

We ended the fourth quarter with $62.9 million in cash and investments. For 2018, we are projecting a cash burn of between $20 million and $24 million. We believe that our current cash balance will be sufficient to fund our operations at least through 2019. I will now turn the call over to Dr. Anza Mammen..

Thank you, Tony. Vical is developing new HSV-2 vaccine to treat patients with symptomatic recurring genital herpes infection. Genital herpes is a chronic, incurable, contagious sexually transmitted viral infection caused by HSV-2. Once infected, many people deal with a lifetime infection with periodic painful outbreaks of genital lesions.

It can result in significant emotional trauma given the need to disclose your infection to your partner due to the risk of transmitting the virus. Furthermore, when you're infected with HSV, you have a threefold increased risk of HIV acquisition. Consequently, HSV-2 infection can be rather devastating from a number of vantage points.

A HSV-2 therapeutic vaccine conservatively represents a commercial opportunity of greater than $1 billion. In the U.S. alone, 1 in 6 people, 14 to 49 years of age, are infected with HSV-2. 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 15%.

It is estimated that over 400 million 15- to 49-year-olds 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. HSV-2 is the leading cause of genital ulcer disease worldwide.

It also fuels the HIV epidemic by increasing the risk of HIV acquisition and transmission. Physicians remain frustrated at the limited options for their patients with genital herpes. No vaccine, only antiviral drugs have been approved.

Currently, there are three approved antiviral drugs, cyclovir approved in 1985, famciclovir approved in 1994 and valacyclovir approved in 1995. These antivirals may reduce the frequency of outbreaks, but they do not eliminate outbreaks and are, therefore, underutilized.

Furthermore, they require daily dosing that may, in time, lead to poor patient compliance and serves as a daily reminder of their sexually transmitted disease. No new therapy has been approved in over 20 years.

Our VCL-HB01 therapeutic vaccine encodes 2 full-length HSV-2 antigen, gD and UL46, and is formulated with Vical's proprietary adjuvant, Vaxfectin.

Following an initial Phase I Class II study that was presented at the 2016 ASM Microbe meeting in Boston and is available on our website, we embarked on a Phase II study in September 2016 in healthy adult subjects. In this study, subjects who are 18 to 50 years of age were randomized 2:1 to receive either vaccine or placebo.

A total of 261 subjects at 15 U.S. clinical sites were enrolled into the study by the end of April 2017. The last subject completed the 4-dose vaccination series in July 2017 and entered a 12-month surveillance period, during which they recorded every day in their electronic diary as to whether they have lesions or not.

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

After extensive discussions with our clinical advisers and the FDA, we have concluded that annualized recurrence rate is the most clinically meaningful and rigorous endpoint for patients and treating physicians as it provides important information on the number of recurrences over time in this chronic disease setting.

We did not select proportion of subjects recurrence-free, the endpoint used to approve Altrex, and time to present recurrence, given that these both measure is single event and ignore the long-term impact of vaccination on subsequent recurrences.

Our primary endpoint of annualized recurrence rates will be calculated based on those recurrences that are both clinically and virologically confirmed once all subjects have completed a minimum of 9 months of surveillance. We are pleased with the trial progress and look forward to delivering top line results by the second quarter of this year.

I will now turn the call over to Andrew Hopkins..

Thank you, Anza. Earlier this month, we were pleased to announce the initiation of a Phase II study for our novel antifungal drug candidate, VL-2397. This study was designed through intensive interaction with the FDA, clinical investigators and members of the MSGERC.

The MSGERC or Mycoses Study Group Education and Research Consortium is a nonprofit organization dedicated to providing continuing medical education and thought leadership in the diagnosis, prevention, treatment and maintenance of patients at risk for or afflicted with invasive fungal infections.

As a reminder, the global Phase II study is designed as a randomized open-label trial conducted in approximately 200 patients suspected of having invasive aspergillosis.

These patients are severely immunocompromised due to an underlying condition of acute leukemia or through an allogeneic hematopoietic cell transplant, and therefore, at risk for invasive aspergillosis.

Participants will be randomized 2:1 to receive VL-2397, or 1 of 3 standard treatments, namely, voriconazole, isavuconazole or liposomal amphotericin B. The design of the Phase II was driven by nonclinical data and the results of the Phase I study in healthy volunteers.

Overall, the results spinning off from the nonclinical and clinical work to date point to a favorable safety and pharmacokinetic profile that supported advancement to a Phase II efficacy study to evaluate VL-2397 in the treatment of patients with invasive aspergillosis.

The Phase II is designed as a noninferiority study with a primary endpoint of all-cause mortality at 4 weeks and a key secondary endpoint of all-cause mortality at 6 weeks.

From the available literature on invasive aspergillosis clinical trials, we expect all-cause mortality on the compared arm to be approximately 15% and 20% at 4 and 6 weeks, respectively.

If both the primarily and key secondary endpoints are met, the Phase II trial could support limited use indication approval of VL-2397 for treatment of invasive aspergillosis in patients for whom alternative therapies are not available.

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

The final determination of whether the drug is approvable will be made by FDA after a 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 enacted by Congress in 2016.

This pathway is designed to streamline development programs for antimicrobial drugs like VL-2397 that are intended to treat serious or life-threatening infections like invasive aspergillosis. The VL-2397 Phase III trial will be required to support full approval on a reported of invasive aspergillosis patients.

We are excited that the Phase II study is now open for enrollment. Vical conducted a rigorous process to select high-quality sites that have the greatest potential for recruitment based on the recruitment rates from prior trials and their expertise in conducting invasive aspergillosis studies.

We believe this site selection effort will allow us to maximize recruitment in a cost-effective manner. And we estimate that the trial could take approximately 24 months to fully enroll at roughly 40 major cancer and transplant centers in North America, Europe and Asia.

In parallel to Phase II, Vical is conducting additional nonclinical work with external experts to better understand the mechanism of action of VL-2397 against aspergillosis and effectivity against other invasive fungal pathogens. We look forward to providing more details on this work in future updates and publications.

We also recently joined the Antimicrobials Working Group, an industry-led organization comprised of emerging antimicrobial and diagnostic companies with the aim of improving the regulatory investment in commercial environment for antimicrobial drug and diagnostic development. With that, I will now turn the call over to Dr. Larry Smith..

Thank you, Andrew. Let me introduce the new preclinical program in our pipeline, a potential treatment for chronic hepatitis B virus infection.

According to the World Health Organization, chronic hepatitis B virus infection affects over 250 million people or 3.5% of the world's population, with nearly 1 million yearly deaths, mostly due to cirrhosis or hepatocellular carcinoma.

The numerous antiviral drugs available do inhibit viral DNA levels, but unfortunately, they do not cure liver cells of the covalently closed circular or ccc viral DNA, which is a reservoir of persistent virus infection.

We are developing product candidates based on our expertise in infectious diseases, molecular biology and formulation science as a therapy that can be specifically delivered to hepatocytes to molecularly inactivate a viral cccDNA.

We plan to embark upon a proof-of-concept study and a hepatitis B virus challenge model later this year with our lead product candidate. We will be able to provide more clarity on the potential clinical development of this program in the second half of 2018. With that, I will now turn the call back to Vijay..

Thank you, Larry. In summary, we believe our strong cash position and our technical expertise will allow us to continue to advance our two clinical programs and our preclinical program as planned. We should be seeing our HSV-2 data in the second quarter of this year. Our VL-2397 antifungal study is moving forward as planned.

If both these therapies are successful in their clinical outcomes, they can eventually create a paradigm shift in treating chronic infection like HSV-2 and an invasive infection like aspergillosis. This concludes our prepared comments for today. Operator, we're now ready to open the call to questions from our invited participants..

[Operator Instructions]. And we'll first hear from David Bouchey of IFS Securities..

So I've got a couple of questions here. And the first thing I want to talk about the pivotal trial that you've got underway for 2397. Given that this is an open-label design, I assume that we're going to be getting periodic updates.

Is that correct?.

Andrew, you want to answer that?.

Sure. Thanks, Vijay. Hi, David. It is an open-label study. However, it's only open-label to the patients and the investigators. Vical will be blinded to the results for the study on an ongoing basis. And we'll only see the final results when the study is wrapped up at the end..

All right.

Will you know anything about enrollment? So can you give us quarterly updates on enrollment?.

We'll be closely monitoring their enrollment throughout the study..

All right. Right now, according to clinicaltrials.gov, there is one site that is open and recruiting at the Medical College of Georgia.

Is that information current?.

Yes. We actually have one more site that's been activated that we will be updating in the clinicaltrials.gov. And we have a slew of other sites that will be coming online in short order. So we expect that to happen very rapidly. We've currently opened up -- these two sites are in the U.S., and we'll be opening up some more in Canada.

We're also in the process right now of going through the regulatory approvals in Europe, and it's slightly different to the way things work in the U.S. But we expect that once the European approvals go through, that we'll very rapidly open up all the sites in those -- in the European region very soon after that happens.

So we'll keep you updated as well as the clinicaltrial.gov....

We got approval from the Canadian authorities. We have done a Phase I study there. And then we are going to all those four major European countries.

The way it works in Europe is once you get regulatory approval and the ethics committee approval, all the sites can become activated in that country simultaneously, unlike the U.S., where you go side-by-side..

Yes, that is a big difference. All right, lastly concerning HB01. So the trial results basically depend on when the last patient gets his last quarterly lesion surveillance visit.

Can you give us any kind of clarity as to whether you're expecting to hear the results from early or late next quarter?.

Well, it's going to be late this quarter simply because we have -- remember, Anza mentioned that we'll be following the last patient for about 9 months. So the average follow-up for those patients will be somewhere between 9 and 12 months. And so the time recruited towards the end of the last patient came in July of 2017.

That gives us sufficient time for us to clear, clean up the data and lock up the database due to statistical analysis. So it'll be towards the end of second quarter..

Ram Selvaraju of H.C. Wainwright..

Just three very quick ones.

Firstly, for Tony, could you give us a sense of what kind of revenue we should be expecting for 2018?.

We usually don't give guidance on the revenue. But like we said, the revenue from the ASP0113 program is going to be wrapping up in the first quarter, and then we wouldn't expect any revenue from that program [indiscernible] the quarter..

Ram, the primary source of revenue has been, in the last few years, ASP0113. It's the minor revenues from royalty streams that we collect, [indiscernible].

So essentially, most of our revenues are going to drop off in 2018, okay?.

Okay. That's helpful.

Secondly, again with respect to the enrollment in the 2397 study, could you give us a sense of what was considered to be the appropriate steady-state per-month enrollment rate of the study at all?.

Right. We haven't done that yet. We have done a lot of work on that, obviously. But we don't have real experience yet. I think as we get further along the strategy, we should be in a better position to give those estimates.

But Andrew, you want to comment on this?.

Yes. Thank you, Vijay. What we've looked at very carefully when we selected the sites was the previous expertise in conducting the trials in invasive aspergillosis. So we looked at a number of things. We looked at the combination study conducted by Pfizer as well as the recent Cresemba study that was run by Astellas.

And based on those, we have an idea of where the recruitment will be. I think directionally, we can tell you that we expect the European countries to be much higher enrollers in the study, and that's because they have a different treatment paradigm compared to the U.S.

In the U.S., there's a lot more prophylaxis used than there is in the European countries. So we would expect to see more invasive aspergillosis cases in the places where prophylaxis is not used..

And to give you more granularity, Ram, if you look at the Cresemba study or the combo study or all of the previous studies, Belgium is the number one recruiting country, okay? You'll be surprised to hear that. And maybe it's because of extensive use of basils in agriculture in Netherlands or what. But Belgium, Germany have always been big recruiters.

U.S. has always been a much smaller recruiter. South Korea has also been a very big recruiter. So we'll be giving you more granularity as we get more experience to make sure we are mimicking what we've seen in previous studies..

And just to clarify, if we get to the end of this Phase II program and you have the majority of the patients being enrolled outside of the U.S., that is obviously something that you discuss with the FDA.

The FDA is aware of this being a significant possibility merely informed by the current treatment convention, right?.

Yes. The answer to that question is yes. I mean, the FDA has a lot of experience because if you look at the Cresemba, and we'll send you the publication, you'll see -- I don't know what the number was. It was 70-30, right, the Cresemba study, international versus domestic. I don't know what the exact number is.

So they are aware of that kind of trend in both in the combo study that Pfizer did a few years ago. So no issues there from the agency..

Okay, great. And then just a very quick question for Larry on the hep B program.

Maybe you could contextualize for us, in what sort of context do you expect this program potentially to be utilized, given the current treatment continuum in hep B? Within what context would it fit when you look at combinatorial regimens for the treatment of a hep B for the existing direct agitate and antiviral.

And is there any potential for applicability in diseases like hep B, for example?.

So thanks for your question. It's a great question So right now, there is about 7 different antiviral drugs. And most of the drugs are really designed to inhibit the reverse transcriptase step of the virus as opposed to an RNA to DNA step. And it does a really good job of suppressing viral DNA. If you look at the serum levels, it goes way down.

But that -- those drugs, as an entire class, do not transcriptionally inactivate the virus. They don't really attack the cccDNA. So what you really need for this virus in the long run in order to try to cure the chronicity of the infection is you need to go after something that's specifically going to inactivate that cccDNA.

So to answer your question, this actually affected, it could be a gigantic blockbuster because no other drug out there is able to do that..

It would be standalone, right, Larry?.

It would be a standalone. We wouldn't do this really -- when we're testing, it would probably test as a context of people that are using reverse transcriptase inhibitors because they're on that drug to suppress your viral infection. But ultimately, it could be a standalone drug.

And it obviously would be a huge blockbuster, just, given the sheer number of people that are chronically infected. And I think this is really set up for hepatitis B virus. That's where the major unmet need is. Nobody -- it's the Holy Grail. Nobody's been able to terminate that chronic state of infection.

And you -- and to do that, you have to get up that reservoir of cccDNA that's harbored in hepatocytes..

Did that answer your question, Ram?.

Thank you..

And it appears there are no further questions at this time. I'll turn the call back over to Mr. Samant for any additional or closing comments..

Thank you all for participating. We look forward to continued progress in our development programs, specifically, our HSV-2 program in the second quarter of 2018, and to meeting with some of you at our upcoming conferences. Thank you again..

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