Tony Ramos – Vice President and Chief Financial Officer Vijay Samant – President and Chief Executive Officer Larry Smith – Senior Vice President-Research Anza Mammen – Senior Vice President-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 Q1 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 and answers from invited participants after the presentation. And now, I'd 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 first quarter 2018 financial results conference call. Joining me on the call today from Vical are President and Chief Executive Officer, Mr. Vijay Samant; Senior Vice President, Research, Dr. Larry Smith; Senior Vice President, Clinical Development, Dr.

Anza Mammen; and 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 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 first quarter 2018 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 this morning. I'm pleased to report that all our programs are proceeding according to plan. We remain on target to report primary endpoint results from our Phase 2 HSV clinical trial in June.

We continue to make progress opening clinical sites for our VL-2397 Phase 2 trial in North America, Europe and Asia. And as Tony will report later on, financially, we are well positioned to continue the advancement of our key department programs in 2018. On the call today, Dr. Anza Mammen will discuss the ongoing HSV-2 Phase 2 study.

Andrew Hopkins will provide more details on our VL-2397 antifungal program, and the ongoing Phase 2 invasive aspergillosis study. And finally, Dr. Larry Smith will provide an update on our preclinical hepatitis B virus program. We'll begin the call today with the review of financial results.

Tony?.

Thank you, Vijay. We reported financial results this morning for the first quarter of 2018, which reflect continued progress in our ongoing development activities. The cost associated with our recent restructuring were recognized in the first quarter and the cost savings from the restructuring will begin to accrue in the second quarter.

As a result of these cost reductions, we believe, our current cash investments will be adequate to fund our operations and development programs at least through 2019. Revenues were $0.7 million for the first quarter of 2017 compared to revenues of $3.2 million for the first quarter of 2017.

A 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. We expect the revenue from the ASP0113 program to continue to decline as we wind down activities related to that program.

We had a net loss of $6.2 million the first quarter of 2018 compared with $2.8 million for the first quarter of 2017. Our cash burn for the three months ended March 31, 2018 was $4.6 million, which is consistent with our full year cash burn guidance of between $20 million and $24 million for 2018.

We ended the first quarter with $58.3 million in cash and investments. I will now turn the call over to Dr. Anza Mammen..

Thank you, Tony. We plan to announce the results of our Phase 2 trial of HSV-2 therapeutic vaccine in June. We embarked on this Phase 2 study in September of 2016 following the presentation of our Phase 1/2 study data at the American Society of Microbiology Microbe meeting in 2016. We recruited 15 U.S.

clinical sites to enroll HSV-2 infected subjects who are 18 to 50 years of age. And randomized a total of 261 subjects by the end of April 2017 to receive either VCL-HB01 vaccine or placebo in a 2:1 ratio.

The last subjects completed the four-dose vaccination series in July 2017 and entered a 12-month surveillance period, during which they record daily, in their electronic diary, as to whether they have lesions or not. If they experienced a new lesion recurrence, the subjects visited the clinics within 48 hours of the onset of the recurrence.

This allowed the investigator to independently verify each recurrence, both clinically and biologically.

After extensive discussions with our clinical advisors and the FDA, we had 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 occurrences over time in this chronic disease setting.

In contrast, the proportion of subjects who were recurrence free, which was the endpoint used for the approval of Valtrex, and time to first recurrence our endpoints that both measure only a single event and therefore, ignore the potential longer-term impact of vaccination on subsequent recurrences.

Our primary endpoint of annualized recurrence rate will be calculated based on recurrences that are both clinically and biologically confirmed once all subjects have completed in minimum of nine months of surveillance.

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

Based on encouraging immunology responses in our initial Phase 1/2 study, following the administration of three doses, we improved the Phase 2 design by increasing the number of doses from three to four, administered 28 days apart in order to potentially further increase the immunological responses.

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 are infected with HSV-2, you have a threefold increased risk of HIV acquisition. Consequently, HSV-2 infection can be rather devastating from a number of vantage points.

And licensed HSV-2 therapeutic vaccine could represent a paradigm shift in the treatment of genital herpes. In the U.S. alone, one in six 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 50%. Furthermore, it is 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 the Asia and Australia and 135 million in the sub-Saharan Africa.

As a result, we believe that as HSV-2 therapeutic vaccine could conservatively represent a commercial opportunity of more than $1 billion. No new therapy has been approved for HSV-2 in over 20 years. Physicians remained frustrated at the limited option for treating their patients with genital herpes.

No vaccine is yet to be approved, only antiviral drugs are the current standard of care. Antivirals may reduce the frequency of recurrences but do not eliminate them, and are therefore, underutilized.

Furthermore, antivirals require daily dosing that may, in time, lead to poor patient compliance and serves as a daily reminder of their sexually transmitted disease.

We are pleased with the trial execution and look forward to delivering topline results in June that will consist of the primary endpoint of annualized recurrence rate measured after the last subject competes nine months of follow-up as well as safety finding.

All other endpoints will be measured as part of the final analysis later this year, after the last subject completes 12 months of follow-up. I will now turn the call over to Andrew Hopkins..

Thank you, Anza. The Phase 2 study for our novel antifungal drug candidate VL-2397 is actively recruiting patients with invasive aspergillosis who are immunocompromised adults with acute leukemia or recipients of an allogeneic hematopoietic cell transplant.

We've started to activate sites in North America and are working with regulators in selected European and Asian countries to gain the necessary authorizations to begin enrolling patients in those regions. We estimate that enrollment could take approximately 24 months at roughly 40 major Cancer and Transportation centers.

As a reminder, the Phase 2 study was preceded by a phase I study in healthy volunteers. This was a randomized double-blind placebo-controlled study designed to evaluate safety, tolerability and pharmacokinetics of single and multiple ascending doses of intravenous VL-2397 in 96 healthy volunteers.

The results from this phase I study along with the nonclinical work, indicate a favorable safety and pharmacokinetic profile that supported advancement to a Phase 2 efficacy study. The Phase 2 trial is designed as a randomized open-label study conducted in approximately 200 patients.

Participants we randomized to 2 to 1 to receive VL-2397 or one of three standard treatments, namely voriconazole, isavuconazole or liposomal amphotericin B. The primary endpoint for this non-inferiority study is all-cause mortality at four weeks with the key secondary endpoint all-cause mortality at six weeks.

As we've previously disclosed, Phase 2 trial could support limited use indication approval for 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 2 trial carried out in the 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 FDA after review of all relevant data, and if all standards are being 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.

The Pathway is designed to streamline development programs for antimicrobial drugs like VL-2397. They are intended to treat serious or life-threatening infections like invasive aspergillosis. For VL-2397, a Phase 3 trial would be required to support for approval in a broader aspergillosis patients.

We are excited by the progress we are making with a Phase 2, and the potential for VL-2397 to benefit patients with invasive aspergillosis. We believe that the novel mechanism of action, rapid fungicidal activity and low potential for drug-drug interactions make VL-2397 an attractive therapeutic alternative for patients with invasive aspergillosis.

With that, I will now turn the call to Dr. Larry Smith..

Thank you, Andrew. As announced during our last earnings call, we've introduced a 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, representing 3.5% of the world's population with nearly one million deaths yearly. Mostly due to cirrhosis or hepatocellular carcinoma.

Preclinical candidate in development BRCHBO 1 is designed to inactivate the covalently closed circular or ccc viral DNA reservoir, which is a source of persistent infection.

We are leveraging our expertise in infectious diseases, molecular biology and formulation science to create a product candidate that can be specifically delivered to have parasites to molecularly inactivate the viral cccDNA.

We are optimizing, both the formulation and the molecular design of our plasma in parallel and attend to screen several candidates to select the optimal performing candidate. We plan to embark upon a proof-of-concept study in an HBV in vivo challenge model later this year with the lead product candidate, and we will keep you apprised of the progress.

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

Thank you, Larry. In summary, this is an exciting time at Vical. We plan to announce, in June, the top line results from our Phase 2 study for genital herpes, which will include the primary endpoint of annualized recurrence rate.

In addition, we have recently started a Phase II study of our novel antifungal VL-2397 for the treatment of invasive aspergillosis. If this trial is successful, VL-2397 could potentially be eligible for a limited use indication approval for the treatment of invasive aspergillosis.

Finally, we're pleased with the progress being made on our recently initiated hepatitis B research program. Our team remains focused on advancing our promising pipeline. And we are committed to doing so in a way that efficiently manages our cash.

We believe our strong cash position of $58 million will allow us to continue to advance our programs as planned. This concludes our prepared comments for today. Operator, we're now ready to open the call to questions for my invited participants..

Thank you. [Operator Instructions] And we'll go first to Ram Selvaraju at H.C. Wainwright..

Hi, thanks very much for taking my questions. Two quick ones on the HSV-2 vaccine program.

Could you maybe enumerate for us some of the potential ways in which, the vaccine is likely to boost the endogenous immune response? Because my understanding is that a lot of times, there is significant immune response signals to an HSV-2 infection but obviously, those are clearly not sufficient to actually clear the virus and stop the shedding and the continued susceptibility to infect others.

So if you could perhaps enumerate on that please. And the second question is from a more strategic standpoint. If the upcoming results in June are positive, have you had any new thoughts regarding what the next strategic step would be to facilitate continued clinical development? And then, just one question on the invasive aspergillosis program.

Was hoping you could provide us with some granularity on what is likely to drive either faster than projected or slower than projected enrollment in the study? Thank you..

So you've given three good questions. Let me start with the first one, which was on – mainly on HSV-2 immunology and Dr. Larry Smith will answer that question.

Larry?.

Sure. Thanks for the question. It’s an excellent question. So we're vaccinating intramusculary and it's designed to boost pre-existing T-cells. It may also stimulate new T-cells from naive T-cells. And those cells are recirculating, and they have the ability to home into tissue. They express certain Vigantol to allow home into the tissue.

So we think the critical part is to generate HSV specific T-cells that actually will be at the site where the virus is reactivating. And so we increase the frequency of that by vaccination, they home to the site. And then there is more of them there that can potentially prevent viral reactivation from resulting in a lesion.

That's really our thinking right now..

Did it answer your question, Ram?.

Yes, exactly. So just to clarify, this means that while the vaccine is not going to eradicate the incipient reservoirs of the virus, it would effectively prevent those from reemerging at the same rate as they otherwise would.

Do you think that in a real-world setting, also, this vaccine would have to be paired with continued antiviral administration? Or is the idea that it would effectively reduce reliance on the existing antivirals?.

I think it could – we believe it would be used alone and you give a vaccination series. And then, at some point, periodically, maybe a year or so, you give a booster to keep those T-cells up. But no, we don't envision it is being combined with an antiviral, but really as a standalone entity..

Completely – Ram, the vaccine is never going to eradicate HSV-2 into the system because it – where way it hides, okay, that's really the issue. But what it's going to do is, it's going to prevent those reactivations, and that's really the goal, and that's really been one of the big issues for the patients who have this nasty disease.

Going to your second question, which was, what our plans with the HSV-2 study, as we have said all along, the study results are positive that there are about half a dozen player in the United States who would be interested in partnering with us on this program. This is going to be a reasonably large study.

It will also be a study that will be conducted outside the United States where we don't have a lot of resources to conduct the study. And we are looking for such a partner particularly, to use both the clinical and commercial expertise.

We have had discussions with partners, and you know everybody is waiting what this data is going look like so both this nine-month data also including the 12-month follow-up data. So our plans are not to go alone but really go with a partner.

And then, the third question you had was – to repeat your question, VL-2397 in terms of what can speed up the recruitment? Or what could slowdown the recruitment? I'll give it a shot and then, I'll pass it on to Andrew. Well, first of all, if you look at the historical studies that have been done in invasive aspergillosis, U.S.

has certainly been not a big recruiting center, okay? The European countries such as Belgium, Germany, France, including South Korea, Singapore, Israel's, these are some of the big countries.

If you look at their recent Astellas study, you'll find in terms of how the authors are ranked, the big – the linage of the authors out there and they're published and they are all from these countries.

So what can speed up the study? If we get rapid approval from the regulatory authorities in those countries, then we'll speed up recruitment in those European countries. If we don't get rapid approval in those countries, then it could slow down. On the other side, the upside is though, U.S.

has been a slow recruiter, we have been very careful working with the MSG group, which is the Mycoses Study Group in selecting sites which have historical experience in recruiting invasive aspergillosis patients. We don't know what impact that's going to have, but assume that we have picked really more productive site, the U.S.

recruitment could be an upside. So those are the two balancing facts.

Andrew, you want to add anything?.

Yes, Thanks, Vijay. So I think you hit the two points there that we've spent a lot of time identifying the top and enrolling sites. We've looked at multiple trials, the Astellas trial, the Pfizer combination study and others to identify which sites have performed in prior trials.

We're – and we're carefully selecting which regions to go into, and Vijay mentioned a couple of examples, especially, European countries where we think that, that will give a lot of the enrollment. And we've been working with groups. Vijay also mentioned, MSG.

This is to generate excitement through the key opinion leaders, also start to provide education about the trial and help investigate as understand how to enroll patients. So we think that will certainly help a lot there as well.

And we also spend a lot of time working with the a lot of the key opinion leaders and the investigators in the field to design the trials. We think that there is some education out there ready and we think that those three strategies will help to get the recruitment going..

One thing, Ram, that needs to be commented on. In U.S. when you're recruiting sites, it's hand-to-hand combat because you know, every site you have to go through their heartbeat, you negotiate individually with the site. Every site has their own nuances.

Whereas in Belgium, if you go in Belgium, if you have five sites in Belgium, once you get the complement authority agreeing to the trial and the ethics committee agreeing to the trial all the five sites can start on the next day, when you get both those approvals, okay, as you begin negotiating your contracts with them.

So it's a much faster approach to getting through the EC, the ethics committee and the competent authority are really directly meeting steps. But once you are done, all the sites are on board, whereas in U.S. you go site-by-site, site-by-site and it's a long drawn out process.

So those are the differences, okay?.

Okay.

So just to clarify, on an ongoing basis, do think you're going to be able to provide us with updates as to which countries have given permission for the trial to go ahead? And also, I was just curious, can you enumerate for us where outside of the hospital setting a potential patient might pick up an invasive aspergillosis infection? Thank you..

Andrew?.

Right. So first of all, in terms of giving you periodic progress on the regulatory approvals. Yes, we'll be in a position to do that, yes. And so to date, we do have kind of the updates, given the approval on the U.S. front and the health Canadian authorities have also given….

And we are working with the Belgium and German and other authorities very diligently. In terms of the….

Right. So in terms of risk of acquiring invasive aspergillosis. Aspergillosis is a fungus that is ubiquitous, it is all around us. So it really hinges on your immune status.

So these patients who have acute leukemia or who have just had her transplant, whose immune system is compromised that's when they are at risk of acquiring aspergillosis primarily through pulmonary route. So it's really not any kind of specific location of risk quite….

But if you are a COPD patient, an elderly COPD patient, you can acquire it, and you have a immune sinus and you can acquire in your own home and can be moved to the hospital. So as you know, invasive aspergillosis is everywhere. It's right in your ductwork, everywhere that you sit right now.

You are in New York City, and there is a lot of invasive aspergillosis in New York City, in all those big buildings out there. As long as your immune system is in great strength, you are okay..

Okay, thank you very much. Very helpful..

And we’ll go next to David Bouchey at IFS Securities..

Hi, guys. Vijay, I think you made some great points about European enrollment. Let me ask you a quick follow-up question.

Do you have to go country-by-country in Europe in order to get permission to start having centers enroll in the trial? Or do you – can you go centralized through the EMEA?.

You go country-by-country. So if you go country-by-country to their individual ethics committee and the competent authority.

But as I said before, once you get the country approval, getting all those sites approval is just a matter of couple of weeks, okay? So all the sites will come on board, so example, if you have four sites in a country, get both those approvals, and those four sites will come on very rapidly, whereas U.S. you go site-by-site..

Yes.

But you still have to apply to each individual country's regulatory authority?.

Correct. Correct. We don't do that sequentially. We apply – just wanted to make sure..

You can't make a whirlwind, rock and roll road trip to hit them all..

Yes, you get questions from them all coming at the same time. So you're scrawling to answer their questions and clarifications. So it's been a pretty busy work schedule for Anza and Andrew in the last couple of weeks..

All right, according to clinicaltrials.gov, there are still two sites that are open and enrolling in 2397 trial, that hasn't been updated since March 22..

Right, we have whole bunch of the hopper. There are a whole bunch of the hopper as soon, as they are initiated, the site initiation visits are complete, they'll come on board..

All right, great. Thank you. And one last series of question more for Tony.

Tony, are you expecting any licensing revenue from the AnGes collaboration for the habitat is B program?.

From the hepatitis B program, not a material amount..

Okay. And so what would you say – what would you expect is going to happen to contract revenues, et cetera, for the next quarter, when will that go to zero is my question..

It will probably go to zero in the third quarter is what we're assuming. We'll wrap up the ASP0113 program hopefully in the second quarter, it may we leak a little bit in the third but it's going to be very small revenues from here on out on that program..

All right, great. Thank you very much. That’s all I have..

Thank you..

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

And once again, Ladies and gentlemen, that does conclude today's conference, and again, I'd like to thank everyone for joining us today. You may now disconnect..