Al Kildani - VP, IR & Business Development Terry Winters - Co-Chairman & CEO Michael Swanson - CFO Jan Stange - CMO Robert Ashley - Chief Technical Officer Duane Nash - Chief Business Officer.

Katherine Xu - William Blair John Newman - Canaccord Genuity.

Welcome to the Vital Therapies Second Quarter 2015 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to our host of today's call, Mr. Al Kildani, you may begin..

Thank you, Tanya. Good afternoon. My name is Al Kildani, vice president of Investor Relations and Business Development. Thank you for joining Vital Therapies' management team on our conference call to discuss the company's operations, update and earnings for the second quarter ended June 30, 2015.

On today's call are several members of Vital Therapies' senior management team, including Dr. Terry Winters, co-chairman and chief executive officer, Mike Swanson, chief financial officer, Dr. Duane Nash, executive vice president and chief business officer, Rob Ashley, executive vice president and chief technical officer and Dr.

Jan Stange, chief medical officer.

Before we begin, we'd like to remind you that some of the statements we make today will include forward-looking statements, such as statements related to the timing and conduct of our clinical trial programs and the expected release of top-line results later in the quarter, future clinical trial results, possible mechanism of action for ELAD, the timing of certain development goals, including regulatory filing, our projected cash runway and plans and objectives of management for future operations.

Forward-looking statements are subject to a number of risks and uncertainties that could cause actual events or results to differ materially, including the risk that our clinical trials program is delayed or ultimately unsuccessful.

Please note that these forward-looking statements reflect our management's views only as of today's date, it disclaims any obligations, update any forward-looking statements expect as required by law. Please refer to our ICC filings for a more detailed discussion of the risk factors that could cause actual events or results to differ materially.

Vital Therapies properly makes available on its web site reports that the company files or furnishes with the SEC, corporate governance information, press releases and other posters and presentations. A replay of this call will be available on our web site later today. I would now like to introduce Dr.

Terry Winters, Vital Therapies' co-chairman and CEO..

Good afternoon everyone and welcome to our second quarter 2015 update call. First, a brief summary of the company for those of you who may be new to our story. We're developing ELAD, an extracorporeal, human allogeneic cellular therapy which could improve survival in liver failure.

We have two phase three trials underway, one of which is close to topline data release. ELAD has orphan drug designation in the U.S. and in the EU and assuming successful clinical results, we plan to seek regulatory approval and to commercialize ELAD directly in most major markets of the world.

The agenda for today's call will be to review key developments, including -- number one, we're following the timing of the expected release of top-line data with VTI 208 phase III clinical trial during the current quarter. Number two, an update of our ongoing clinical programs.

Number three, further developments in our research on ELAD's mechanism of action and an overview of our poster presentation at the recent International Liver Transplant Society or ILTS, meeting and before a summary of our financial results for the second quarter ended June 30 and finally a brief discussion of certain misinformation that has recently appeared about the VTI 206 phase II clinical trial and the safety profile of ELAD.

After this, we will open up the call for Q&A. I would like to begin with an update on our VTI 208 phase III clinical trial. We're on track with our announced plan to release top-line data with VTI 208 phase III clinical trial later in this current third quarter.

We're close to locking the data base, after which our independent statistician will be commencing the pre-specified analysis of the data. Management should receive the results later this quarter and we will now announce the top-line results promptly afterwards.

Full results will be presented at a medical conference in the fall, possibly at the American Association for the Study of Liver Disease, AASLD conference, in early November. We would like to make several things clear about the VTI 208 trial and the results.

First, we will not know the results of the trial until our independent statistician has analyzed and presented the study outcomes to management later this quarter. Second, we have not yet locked the data base and the analyses have not yet been run.

Thirdly, our management, our board of directors and our lead share-holder have not sold any shares of the public company and we're all locked up until after the top-line results of the 208 clinical trials have been publicly released. We're all in this together. And lastly, we need to point out the VTI 208 is the first of two phase III clinical trials.

Although we plan to file the Biologic License Application or BLA, if the VTI 208 results are sufficiently positive, the results may or may not be good enough to support the filing of a BLA for marketing approval.

If they are not good enough for BLA filing, our current plan is to continue with our second phase III trial, VTI 210, possibly amended by whatever we learned from VTI 208. Please rest assured that we're hard at work. Our goal is to save lives. We're hoping ELAD will prove successful in doing so.

Now for a brief update on our other ongoing clinical trials. Our second phase III trial, VTI 210, is a randomized, controlled open-label trial, evaluating the ELAD system in subjects with severe acute alcoholic hepatitis, with a [indiscernible] over-all survival endpoint to at least 91 days.

As of yesterday, there are 18 subject enrolled and in 38 sites open for enrollment in the U.S.A, U.K., Spain and Germany. The enrollment rate is increasing and as I anticipated, we're starting to see some of our high-enrolling sites from VTI 208 transition their focus to VTI 210 which should help to increase enrollment rates.

We continue to expect top-line results from VTI 210 in early 2017. Now, for a clinical trial, VTI 212 is a phase II, single-arm survival trial in subjects with fulminant hepatic failure or surgery induced liver failure. As of yesterday, there were seven subjects enrolled and 18 sites open for enrollment in the U.S.A.

We continue to expect top-line results from VTI 212 in 2016. I would now like to update you on recent work to further evaluate ELAD's potential mechanism of action. You may recall that our efforts are focused on four main areas of investigation.

The one, immune modulation, number two, detoxification of the blood, number three, the regeneration and restoration of liver function and number four, coagulocity or disorders of blood clotting. With the health and guidance of a Scientific Advisory Board, we have made progress in several of these areas.

It should be noted that these are laboratory-based studies and these findings have yet to be demonstrated in patients and correlated with clinical outcomes. But immune modulation, it is believed that liver inflammation is a critical factor in the development in alcohol-induced liver decomposition or AILD.

This inflammation is caused, in part, by the high concentration of several pro-inflammatory proteins, such as interleukin 1 beta and interleukin 6 which are known to be elevated in patients with AILD. At the ILTS meeting in Chicago in July, we presented data for ELAD's potential role in helping to resolve this harmful information.

This poster describes the ability of VTL C3A cells to secret anti-inflammatory proteins, such as interleukin 1 receptor antagonist and Alpha-1 antitrypsin in response to expose to the common pro-inflammatory factors, such as I01 beta and I06.

We have also shown that our VTL C3A cells can increase the amounts of anti-inflammatory proteins that they secret depending on the type and extent of exposure to the pro-inflammatory factors. We believe these data are exciting, because they show how VTL 3CA cells may be able to respond in a dynamic, patient-specific manner.

In addition, data we presented at the World Transplant Congress in 2014 describe a spectrum of proteins that ELAD producers, such as [indiscernible] which has been shown to reduce cell death.

Taken together, we believe that these properties of ELAD may help to elucidate some of the mechanisms by which use of ELAD may lead to improved outcomes in AILD subjects. The second area of investigation is the detoxification of the blood which is an important function of the normal liver that is compromised in patients with liver failure.

We presented data at the European Association for the Study of the Liver or EASL, meeting in Vienna in April, showing that our cells express genes for the majority of the enzymes of the cytochrome P450 system which our present normal hepatocytes or liver cells and are responsible for the metabolism of 90% of the drugs, as well as many of the toxins produced by the body.

Furthermore, the gene expression profile was observed to change after exposure to plasma components from different subjects. So, the data is an exciting finding and further reinforces the ideal that the cells can respond in a dynamic manner to the patient's particular condition.

We're also studying the production of other detoxifying enzymes, particularly in the context of reducing bilirubin levels during ELAD treatment. There are certain critical enzymes and transport proteins associated with the processing and transfer of bilirubin in and out of liver cells.

We have now been able to show expression of the genes for these proteins by the VTL C3A cells.

For the more subtle of these proteins that are present in elevated levels, particularly in cells exposed to bilirubin in cell culture -- once we have completed further work to ensure that these proteins are not just present but functional, we anticipate that these findings will be the subject for the submission to a scientific meeting.

The third area of interest for mechanism of action, is the regeneration and restoration of liver functions -- for which, as it well know, the liver has a remarkable capacity after it has been damage.

Prior data have been published showing that the VTL C34 cells produce several growth factors, including transforming growth factor alpha, that may contribute to liver regeneration in AILD patients.

For the last few months, we have been able to expand on these findings that show that the cells produce several other growth factors which may also be of benefit for these patients. These findings are the subject of an abstract that has been accepted for presentation as a poster at the AASLD meeting in November.

Further work is aimed at understanding whether these findings translate into improvements in liver function and patient outcomes. The final area of study is coagulopathy or disorders of blood clotting. The liver makes most of the blood clotting factors, including factors 2, 5, 7 and 9.

We continue to investigate the different types of blood coagulation factors that are produced by our C3A cells and the impact of the use of the ELAD system on the coagulation status of the patient. We're planning a specific scientific meeting in collaboration with experts in this field in the fall and I'll have more to say after that meeting.

So, in summary, our mechanism of action work continues to expand as we add to our understanding of the properties of the VTL C3A cells, particularly in response to varying stimuli and in different culture conditions. The EASL, ILTS and AASLD presentations are examples of this program.

In particular, we continue to explore how our cells may contribute to the modulation of inflammation and the stimulation of liver regeneration; potential therapeutic mechanisms that are unique for the cellular approach toward resolution of liver failure in critical ill patients being treated with the ELAD system.

These properties may represent the significant advance compared with previous approaches, by simultaneously targeting module processes associated with liver failure, such as inflammation, coagulopathy and cell death.

We will also focus on how the ELAD system can dynamically respond to varying stimuli, as this also remains -- represents a significant advance to bear, with previous approaches, to the management of these patients involving non-biologic dialysis systems or drug therapy.

We look forward to reporting further on these data after they have been presented. I would now like to turn the call over to Mike Swanson, our CFO, for a review of our second quarter financials.

Mike?.

Thanks, Terry and good afternoon. We ended June 30 2015 with cash and cash equivalent of $71.9 million. Our monthly cash-burn rate during the first half of the year was approximately $5.1 million.

Based on our current business plan, our existing cash would fund our operations into the third quarter of 2016; however, as we have previously stated, our cash-burn rate is highly dependent on the topline results of our VTI 28 clinical trial which are expected to be announced later this quarter.

Summarizing our results for the quarter into June 30th, 2015, the company reported a net loss of $15.1 million, including non-cash expenses of $1.3 million for stock-based compensation and depreciation and amortization.

This, compared to a net loss of $10.2 million for the corresponding period in 2014, including non-cash expenses of $920,000 for stock-based compensation, depreciation and amortization.

The increase in the net loss in 2015 is compared to 2014 which was primarily associated with increased costs in support of our clinical trial activities, research activities related to the ELAD system mechanism of action and preparation for a potential BLA filing.

As we have indicated throughout the year, we expect to continue to incur increased costs in 2015 as compared to 2014. For more details on these financial results, including year-to-date figures, please refer to our press release issued earlier today. With that, I would like to turn it back over to Terry..

Thank you, Mike. I would now like to clarify the record with respect a few of the numerous pieces of mis-information we have become aware of. With all our phase 2 trial, VTI 206 was a relatively small study and not powered to achieve statistical significance.

The results provided us with information that we used in the design of our phase 3 clinical trials. There were other treated subjects in the AILD cohort of our VTI 206 study, who received a transplant during the follow up period. Well, the data from that subject were treated exactly in accord with the pre-defined statistical plan.

The primary end-point of the VTI 206 study was overall survival, assessed using a Kaplan-Meier analysis with long-range statistics. This endpoint has no restriction on concomitant therapies, including whether a subject was listed for or actually received a liver transplant or any other intervention, during the course of the study.

Overall survival is a very rigorous, unbiased endpoint from a regulatory perspective and the data were labeled properly in the analyses presented. An alternative approach which was not pre-specified as the primary endpoint in VTI 206, would have been to carry out a transplant-free survival analysis.

Under this approach, data from the transplanted patients would typically be removed from both the numerator and the denominator of the fraction used to determine the percentage of patients alive at the end of the study.

Post hoc application of this transplant-free survival endpoint to the AILD arm of the VTI 206 study would have had minimal effects on the Kaplan-Meier statistical analysis. For example, the median survival would not change; the hazard ratio would have changed slightly, from 1.9 to 1.8; and the p-value from 0.27 to 0.31 for [indiscernible] population.

The proportion of survivors had 90 days in the ELAD treated group, would have changed from 69.2% to 66.7%. However, this transplant-free analysis was not pre-specified and would not have changed the overall conclusion for the study.

The fact of the subject in the treated arm was the AILD co-op of the VTI 206 trial was transplanted during the period of follow up, was previously presented at the ILTS meeting in 2012 and at the American Transplant Congress in 2013. Both presentations have been available on our web site since before our IPO.

Moreover, unlike VTI 206, the inclusion criteria for VTI 208, our first phase III trial specifically require that subjects are not eligible for transplant at the time of enrollment. That said, we cannot preclude the possibility that subjects in either arm of VTI 208 may subsequently become eligible and receive a transplant.

As a pre-specified primary endpoint of VTI 208 is also overall survival any such transplanted subjects will be treated the same way in the statistical analysis. The second point I want to make is that ELAD's current safety profile has been acceptable in clinical trials to date.

Based on the literature, our trials were generally designed to enroll subjects with at least a 50% probability of death in 90 days. These subjects are obviously very sick and they experience many adverse events.

The adverse events associated with our trials have generally been expected, manageable, consistent with the population being treated and appear to be tolerable in the context of the potential benefit in overall survival.

In fact during the VTI 206 study, there were fewer serious adverse events reported in the ELAD group than in the control population. The safety data of ELAD in VTI 206 and in our current phase III clinical trials has been closely monitored by an external and independent data and safety monitoring board, known as a DSMB.

This board reviews the incidents in severity of serious adverse events arising during the course of our studies. The DSMB has always allowed the phase III clinical trials to continue. It is also important to view adverse events rates in the context of the benefits sought.

For example the occurrence of highly-treatable and incidental findings, like transient hyperglycemia which is practically irrelevant in the AILD population. All this said, the FDA will of course be the final arbiter on this topic. Thirdly, comparing ELAD to either to either MARS or the MARS clinical trial data is inappropriate.

ELAD is a biological system which relies on several hundred billion live C3a cells to produce enzymes and proteins and to process metabolites. ELAD is not a filtration or dialysis system. In contrast, MARS is a dialysis system which physically removes molecules from the blood. For more details, I'd like to call on Dr.

Jan Stange, our chief medical officer, who is uniquely qualified to comment on this.

Jan?.

Thank you, Terry. Hello, I am Jan Stange. I patented the idea of our leading dialysis and co-invented the MARS [ph] device and took it through clinical trails in the United States and Europe. MARS is an effective device with respect to its ability to remove toxins from the blood and treat certain symptoms of liver failure.

ELAD is very different because as Terry explained moments ago, C3a cells have been shown to express a variety of biologically active proteins, potentially associated with the resolution of the pathophysiology underlying AILD, such as [indiscernible] can one receptor antagonist which will help to reverse the part cellular damage.

So, while MARS and ELAD were both designed to treat subjects with liver failure, they do so through very different mechanism of action. Furthermore, any comparison of MARS' relief trial and ELAD's VTI 208 would be difficult, because the entry criteria for the studies resulted in different patient populations.

For instance, a large number of relief subjects were presumably not qualified for VTI 208, because the precipitating event of liver failure was an infection in 30%, gastrointestinal bleeding in 12% and a spontaneous bacteria peritonitis in 10%.

Likewise, subjects in the MARS study had a substantial degree of multi organ dysfunction at baseline as compared with the VTI 208 population, as shown by the much higher rates of kidney failure and neurological dysfunction in the relief trial. And now I will hand it back to Terry..

Thank you very much, Jan. We could continue, but what our discussion would simply take too long and instead I'd like to conclude this clarification by thanking you for your attention and emphasizing one great critical point.

Though we're trying here to set the record straight we simply cannot guarantee that our phase III trail, VTI 208, will achieve a statistically significant result.

VTI 208 is a ground breaking trial, exploring new areas of medicine and science and involves inherent uncertainty in a very sick patient population where all of us - since we have not yet achieved data lock or analyzed the data, management and our board do not yet know the VTI 208 results or what the future will bring.

However, once we know, we plan to inform the market promptly. I can assure you that our board, management and employees are driven by the potential to save lives and that we're working to bring you those results. Before we take we take your questions, I would like to summarize our key upcoming milestones.

During the current quarter, we expect to announce top-line results from the VTI 208 and if the results are favorable, to file a BLA in the first half of 2016. We expect the announce top-line results from VTI 212 in 2016 and we expect to announce top-line results from VTI 210 in early 2017.

Thank you and I would now like to open up the floor to your questions. In addition to Mike Swanson and Jan Stange, joining me for the Q&A portion of our call are Dr. Duane Nash, executive vice president and chief business officer and Rob Ashley, executive vice president and chief technical officer..

[Operator Instructions]. Our first question comes from Katherine Xu of William Blair. Your line is open, Katherine..

I'm just wondering, with regard to 208, can you give us some more color on how the data QA/QC process has been going and approximately when we could potentially see data. Is it mid-third quarter or late in third quarter. Just a little bit more color on the process..

Well, Katherine, thanks for the question, it's a very good one, but what we said on our last call, I believe, was that we enrolled the last patient at the end of January. The 91-day portion of the trial went through early May and it is now the end of July.

We're working very hard, of course, towards database lock and it's of course a very complicated trial, I think you know that. We're dealing with very sick patients, we're dealing in the intensive care unit and we have both a device and a biologic component here.

We're close to database lock, haven't done it yet and we're certainly expecting this before the end of the third quarter. I would like to give you more color on that. At the present time I can't. What I can tell you is that we're on schedule and very comfortable with the analysis and the progress towards data base lock at the current time.

I hope that answers your questions..

And also another one on 210..

Yes..

So, how is the enrolling -- suppose the issue would be tracking faster than 208. Can you just give us some color on that? Just want to gauge the potential excitement from the 208 sites, when they are transitioning to 210. That could be an indication of experience in the field..

Yes, of course and again, another great question. I'm -- it's something that we're tracking very closely, but remember, we're trying to of course clean up all the data for 208. That takes a tremendous amount of time at the sites.

We're gradually getting our high-enrolling 208 sites on 210 and as you would note, with the number of patients enrolled versus last time, we have had a slight acceleration of the enrollment rate.

We wish it was more, I mean, we always wish it was more in the trials, but on the other hand, we do want to make sure that we're enrolling the right kinds of patients. It is, if you recall, 210, all the 210 patients would have been eligible for 208, but not vice versa.

So, what we're doing is we're taking a more sick count of patients for 210, so it will probably naturally be a slower and long trial. But we're very hopeful when we get all of these 208 high-enrolling sites flowing that the enrollment rate will pick up very nicely..

And our next question comes from John Newman of Canaccord. John, your line is open..

The first one is, it sounds like you are reasonably confident that, assuming you had produce positive results from VTI 208, that you could file the BLA based on that one single phase 3 trial alone.

And the second question had was, can you give us just a rough idea, maybe based on, you know other studies that have been done in the past, what is the average time after which a data base is locked that a company can generate a result from the statistical analysis? Thanks..

Okay, well, on the BLA, on one trial, what the FDA has told us is that we may be able to get approval based on one trial. Actually, they put it differently, they said we may need a second trial. But it really depends on the robustness of the trial results that we get in 208.

There is some very interesting papers on the FDA's track-record reserving drugs for serious and life threatening diseases, where many of them have, in fact, gained approval on a single trial. But again, it depends upon the robustness of those results. So, as with everything FDA, no, you can never be certain.

But I think there's certainly a possibility of it happening. On the average time between data lock and the announcement of results, I don't have any data on that. I would like to call on Rob Ashley.

Rob, do you have any comments on that?.

Well, the important thing is that the data analysis is carried out right and that the quality control of the analyses is conducted carefully. So, our independent status condition won't reveal the data to us, until their confident that the data completely represents -- the data as it shows -- the analyses are done properly.

They will be checking and rechecking and checking and rechecking. So, it's kind of a little difficult to predict how long that's likely to take in this particular case. I mean, obviously, three months, but it's not two days either. So, there's a period of time that's required to carry out the appropriate quality control..

And then, if I could speak in one last question, I apologize for the other people in the queue. Can you remind us what the policies are with regard a liver transplant for patients that have been diagnosed with alcohol-induced liver disease and why a patient would not generally be eligible to receive a transplant in that particular case? Thank you..

Yes and again, that's a really good question, John. I'll take a crack at it and then might ask either Duane or Rob to comment. The first thing to remember and I think most of you know this, is that donor livers are in very short supply.

And there are approximately 5,500 transplants done per year and somewhere between 16,000 and 17,000 people on the transplant list, with 2, 3,000 patients per year dying while on the list or because they've been taken off the list because they're far too sick.

Therefore, in making a decision for a transplant, you have to look very, very carefully at whether the patient will, in fact, treat the newly transplanted liver with respect. And that leads to the -- what appears to be a guideline and alcoholics will not be transplanted unless they have been dry for six months.

Now, there is a movement afoot to change that; it's not a law or anything, it's simply a guideline that most people live with, but sometimes, alcoholics and especially the binge-drinking alcoholics that we're dealing with, do, in fact, get transplanted.

And one of the ways we've tried to handle that in our current trial, to minimize the transplants, is to not accept patients into the trial that are, in fact, listed for transplants -- that is in the AILD trial, 208 and 210. But once they're in the trial, you cannot stop them getting on the transplant list or getting transplanted.

Now, I'll finish us by saying that the whole transplant area is very dynamic at the current time and there is lots of values underway to change the -- to change the regions and to change the regions of them dropping transplantable livers around between the regions. We follow that quite a bit as to how it may be relevant to what we're doing.

Duane, Rob, would you like to comment..

So, one piece of information that -- there are roughly 125 transplant centers in the United States and as Terry mentioned, the official mantra that comes from AASLD and EASL, who are both in agreement, is that patients, in this AILD population are not transplanted simply because AILD requires the recent ingestion of alcohol.

That said, though, there are few centers -- and I'm personally aware of, too, there may be a few more who are beginning to -- or actually have been testing this theory for years in very specially selected cases.

And so, that at least opens the possibility that a patient who wouldn't be transplantable at the vast majority of centers, could wind up getting transplanted if they were enrolled at one of these two centers. That said, because as Terry mentioned, livers are extraordinarily rare. The numbers aren't going up, they're so much in demand.

I think we're fairly confident that transplant will not become the mainstay for the treatment of AILD, unless there is a dramatic change in something that we can't foresee..

And I'm not showing no further questions at this time. I would now like to turn the conference back over to Terry for closing remarks..

Well, thank you very much. We appreciate you being on the call and we're all very excited that biotherapies, as I'm sure you can appreciate, at the possible, well, not possible, the availability of the results from VTI 208 very soon. So, thank you for the support. We appreciate it and that concludes the call today..

Ladies and gentleman, this concludes today's conference. Thank you for your participation and have a wonderful day..