Al Kildani - Vice President of Investor Relations and Business Development Terence Winters - Co-Chairman and Chief Executive Officer Michael Swanson - Executive Vice President and Chief Financial Officer Duane Nash - President Robert Ashley - Executive Vice President and Chief Technical Officer Jan Stange - Chief Medical Officer.

Joe Arnofsky - William Blair Peter Stapor - Bank of America Merrill Lynch Edward Tenthoff - Piper Jaffray Michael Guo - SunTrust Robinson Humphrey, Inc..

Good day, ladies and gentlemen, and welcome to the Vital Therapies Fourth Quarter 2016 Financial Results. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I’d like to introduce your host for today’s conference Al Kildani. Sir, you may begin..

Thank you, [Terence]. 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 results for the fourth quarter ended December 31, 2016.

On today's call are several members of the Vital Therapies' senior management team, including Dr. Terry Winters, Co-Chairman and Chief Executive Officer; Dr. Duane Nash, President; Mike Swanson, Executive Vice President and Chief Financial 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, conduct and enrolment of our clinical trials, future clinical trial results, the timing of certain development goals, including regulatory filings, possible mechanism of action of ELAD, 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 is ultimately unsuccessful.

Please note that these forward-looking statements reflect our management's views only as of today's date and we disclaim any obligation to update any forward-looking statements expect as required by law. Please refer to our SEC filings for a discussion of the risk factors that could cause actual events or results to differ materially.

Vital Therapies promptly makes available on its website reports that the Company files with or furnishes to the SEC, corporate governance information, press releases and other posters and presentations. A replay of this call will also be available on our website later today.

We encourage investors to use our Investor Relations website as a way of easily finding information about Vital Therapies. I would now like to introduce Dr. Terry Winters, Vital Therapies' Co-Chairman and CEO..

Good afternoon, everyone and welcome to our fourth quarter 2016 update call. I would like to begin with our usual summary of the Company for those of you who maybe new to our story. We are developing ELAD, an extracorporeal human allogeneic cellular therapy, which could improve survival in acute forms of liver failure.

ELAD is at the Phase III clinical trial stage and has Orphan Drug Designation in the U.S. and EU. We are currently enrolling subjects in VTL-308, a randomized controlled trial in severe acute alcoholic hepatitis, topline data are anticipated around mid-2018.

Assuming successful clinical results in the future, 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 first to review the status of VTL-308 trial, then to provide an update of our R&D activities, thirdly to review our financial results, and finally, we will open up the call for Q&A. So first, we will discuss the status of our VTL-308 Phase III clinical trial.

This trial is our priority and I am delighted to report that we have now enrolled over one-third of the targeted 150 subjects and we remain on target to report topline data around mid-2018. 53 subjects have been enrolled on multiple sites in the United States and Europe.

This compares with 20 subjects at our last quarterly report on November 3 and over the last three months enrollment has accelerated to a rate of about nine subjects per month or slightly above our targeted enrollment rate at 0.2 subjects per open clinical site per month.

With 40 sites now open and at least 10 more in process, we believe we should be able to sustain this robust enrollment rate. As we have noted previously and at the FDA’s suggestion, we have incorporated an event driven feature into the trial design consistent with the primary endpoint of overall survival.

Under this trial design, enrollment will continue until at least 150 subjects have been enrolled and a total of at least 55 deaths have occurred in the overall trial. The target of 55 deaths is consistent with the rate seen in the targeted subpopulation in our prior study VTI-208.

As we approach enrollment of 150 subjects in the VTL-308 trial, we will assess the overall death rate up to that point to make a determination as to whether additional subjects would need to be enrolled in order to meet the minimum number of 55 deaths called for in our statistical plan.

Now on to R&D, we have entered into a collaboration with Drexel University in Philadelphia and the University of Birmingham in the UK, two of the key clinical sites that participated in VTI-208 and are also open clinical sites in VTL-308. The Gift of Life Donor Program in Philadelphia is also participating.

The collaboration is exploring the potential for ELAD to resuscitate marginal donor livers and thereby increase the supply of livers available for transplantation.

The supply of donor livers is limited not only by the number available, but also by the quality of the organ and the length of time it takes to retrieve the liver and transport it to the transplant center.

Up to 70% of the livers that are donated after cardiac death and up to 30% of livers donated after brain death are found to be unsuitable for transplantation. The number of perfusion devices have been developed to help preserve levels and to improve liver quality prior to transplant without none or approved for routine use in the United States.

We plan to evaluate whether adding VTL C3A secreted proteins to these systems might further improve liver quality. An importance spin-off of this work is that it provides us with a unique opportunity to study the impact of the VTL C3A cell-secreted proteins on an entire organ rather than just on cells grown in artificial tissue culture dishes.

This may help us further elucidate the mechanism of action of ELAD. Next we continue to analyze the data from our VTI-208 study in order to help us with future clinical development plans.

In particular, we have been working on identifying a biomarker that might help predict to lay the outcome for ELAD treatment in subjects with severe alcoholic hepatitis. During the recent meeting of the Asian Pacific Association for the Study of the Liver in Shanghai, China, one of our leading investigators Dr.

Tarek Hassanein of the Southern California GI and Liver Center in San Diego made an oral presentation titled Early Change in Bilirubin Level or ECBL has a Surrogate for Outcome in ELAD Clinical Study of Severe Alcoholic Hepatitis.

This presentation can be found on our Investor Relations website under the tab of clinical publications and presentations. Elevated serum bilirubin level, which causes yellowing of the skin in patients with jaundice, is a well-known marker of compromised liver function.

Rapid reduction in serum bilirubin in response to treatment is new to be associated with improvements in liver function and improve survival in patients with alcoholic hepatitis.

During the clinical development of ELAD, we have often observed more rapid and significant reductions in serum bilirubin and ELAD treated subjects compared with control subjects.

As discussed in the presentation, in our study VTI-208 significantly more ELAD treated subjects and controlled subjects had decreases of at least 20% in the serum bilirubin during the first seven days of treatment and this was predictive of 90-day survival in both the ELAD treated and controlled subjects.

However, only when those subjects with preexisting evidence of kidney failure or coagulopathy, prior to treatment were eliminated from the analysis where the differences in survival between ELAD and control subjects correlated with ECBL.

This finding further supports the inclusion and exclusion criteria for our current Phase III study VTL-308 and subjects with preexisting secondary organ dysfunction are specifically excluded from participation. I'll now turn the call over to Mike Swanson, our CFO..

Thanks Terry. We ended the fourth quarter with cash and cash equivalents of $60 million. Our average monthly cash usage for operations and capital expenditures during 2016 was approximately $3 million. We continue to expect our use of cash will vary based primarily on the timing of enrollment in our VTL-308 trial.

It will also increase to support expenditures for longer lead time activities that could support a future biologics license application or BLA submission. As reported, based on our current plans, we believe our existing cash and cash equivalents will be sufficient to fund the Company through the first quarter of 2018.

During 2016, we raised net proceeds of $11.7 million from our at-the-market or ATM sales agreement and $700,000 from a private placement with our new director. We currently have $153.3 million remaining under an effective self-registration statement, of which $62.8 million maybe offered under the ATM sales agreement.

No shares have installed to-date under the ATM in 2017. Summarizing our results for the quarter ended December 31, 2016. The Company reported a net loss of $11.7 million or a $0.37 basic and diluted loss per share.

This included non-cash expenses for stock-based compensation, depreciation and amortization totaling $1.7 million in the fourth quarter of 2016. This compared to a net loss of $9.9 million or $0.34 basic and diluted loss per share for the fourth quarter of 2015. This included $1.5 million for the same non-cash expenses.

For more details on these financial results, please refer to our press release issued today and our annual report on Form 10-K. With that, I’ll turn it back over to you Terry..

Thank you, Mike. I would now like to open up the call to your questions. In addition to Mike, joining me to the Q&A portion of our call are Dr. Duane Nash, President; Rob Ashley, Executive Vice President and Chief Technical Officer; and Dr. Jan Stange, Chief Medical Officer.

Operator, can you please provide instructions and open up the call for questions..

[Operator Instructions] And our first question comes from Katherine Xu from William Blair. Your line is open..

Yes. Hi, guys. This is Joe on for Katherine.

So could you mind reminding us that the prior assumptions of the trial so - and then also of the minimum 55 patient deaths, what number is the trial designed to show on the controlled arm versus the placebo arm? And then also as the pool mortality data come in, do you only get one, look at that as you approached 150 patients enrolled [indiscernible] continuous looked at that data? Thanks..

Okay. Let me turn that over to Rob, if I can please..

Sure. So the sample size assumptions are based, obviously there's a number of things that go into that, but they're fundamentally based around achieving a hazard ratio of around about 0.4. And to get that hazard ratio around about 0.4 with a power of about 95%, we need a 150 subjects in total to be enrolled in the study.

There's also an assumption as there are 10% dropout to know this sorts of things and then like to follow-up and so on and so forth. So the way that these capital markets that calculated is based on a ratio of median survival times, but if you translate that into mortality rates, the once the better way of looking at it.

Then the blended mortality between the two groups is around about 37% and we would anticipate that that would be split about 25, 45 something like that between the two arms of the study that’s sort of fundamental math that goes into that assumption.

Going to your question about - when we would look at this and so on because we're not a blinding the data we're just revealing the sort of blended mortality rate between the two groups. Then I don't think we're sort of confined necessarily to I mean looking at it once.

However, I think good practice from the perspective of managing data in the clinical trial like this would be to only to look at the data is infrequently as you could.

So our plan is to look at it once as we are approaching the full enrollment of the study and then just to make an estimate based on that of what the mortality rate is likely to be 90 days after the last patient is enrolled, which is when we would love the database and short time after that.

And one point is worth making is that there are obviously a couple reasons why we might now get to the 55 deaths. One is that the controlled death rate might be too low. I think that’s unlikely based on the literature and everything that we've done. The other thing is that the ELAD might be performing much better than we anticipated.

So there are a number of reasons why the mortality rate might be, somewhat less than we anticipate, but all of the literature and our own data will suggest that that is an accurate estimate as best as we can make it..

So Joe, you might want to go to Slide 12 of our Investor Deck and we have some more information on powering. If you remember the subset that we're targeting at hazard ratio of 0.28 in the 208 trial that were over 99% powered for that were over 95% powered for 0.4 and about 89% or over 85% for 0.5. Again you'll see that on Slide 12 of our deck..

Great. Thank you so much..

And our next question comes from Tazeen Ahmad from Bank of America. Your line is open..

Peter Stapor:.

. :.

I'm sorry, what was that second question again?.

What the rate of death accrual will be expected in the placebo arm and in the treatment arm? Thanks..

Okay. Well, the answer to your question is easy and that is yes and we certainly would hope so, we gave you the rate of 0.2 for open site per month and you can do your own calculations if we get up to 50 sites.

But on the other hand, enrollment is always somewhat pickle and I certainly wouldn't want to predict that it is going to increase, but is it possible, yes it is possible. Now the second question I think I understand it Rob, but I'll turn it over to you..

Yes. I think that was really what I was just going through is to look at the mortality rates that we anticipate in the study. The average follow-up to these subjects is going to be somewhere around about a year.

If you recall the way that it work is that we all love the database after the last subject is - or closed to when the last subject is completed 90 days of follow-up and they might up going to the proceeding, the first subject will be nearly two years through the study.

So the average follow-ups about a year and those mortality rates that I described, the blended mortality rate is 37% would be what would deliver the 55 deaths which we have in the plan, if the plan worked out exactly the way that we laid it out..

Rob, I think most of the deaths occur in the first 180 days….

Yes, most of the deaths are in the first 180 days or so and then things started to level out that there's not a continuous proportional death as you would anticipate from something which is reasonably acute disease where in principle at least we're returning people to a more or less normal liver function,.

And just to be clear, say most of the deaths in the first 180 days, we would expect based on this disease process and quite frankly what we've seen before. Right now we are not tracking deaths. I presume the DSMB is looking at that, but we as a company are unaware of the current death right in the trial..

Yes, thank you..

Yes. And just to remind you the FDA has asked us to conduct this trial as best we can on a blinded basis and to the extent that we can do that we are in fact making that happen..

Thank you..

Thank you. And our next question comes from Edward Tenthoff from Piper Jaffray. Your line is open..

Great. Thank you very much and I apologize if my name was called my phone disconnected. Helpful updates on enrollment, my success is veryinformative. I wanted to get more of a kind of qualitative view just in terms of when it comes down to the enrollment criteria for the new study in terms of focusing in on liver specific disease.

How owner assist that for docs? Is this something that they're routinely doing? Are they very easily able to distinguish via these simple markers liver sick patients versus kidney or other conditions, and ultimately it ends up coming out in the enrollment rate which looks good, but I wanted to get more of a qualitative picture of how that selection is affecting enrollment and docs?.

That's a great question Edward. Let me turn it over to our Chief Medical Officer, Jan Stange who is actively out on the firing line with the investigators.

Jan?.

I appreciated..

Yes, this is a fantastic question because I think this is what makes this trial so interesting to us.

The cutoff for secondary organ dysfunction, the ones that we identified in the last trial critical for whether ELAD can make a difference or could make a difference and survive or not is really based on clear-cuts on lab values, which [indiscernible] prognostic scores like a MELD. So it's very, very objective.

And to us did that make medical sense because it's well-known that alcoholic hepatitis patients, if they did deteriorate and face dot prognosis that’s basically because they go to secondary kidney failure. So the new cut-off is really clear-cut 1.3 milligram per deciliter of creatinine cutoff.

And the same is true for the INR again we had pretty convincing data from 208 that once you reach a certain insufficiency of your coagulation system that ELAD cannot - could make a difference in the last trial. We are eliminating those patients and with clear cutoff on the INR it cannot be higher than 2.5.

We have a tremendous prescreening process where we actually look at those patients that come close to the study, but don't qualify and as it looks it's the vast majority of patients that are eliminated from that because of those two cutoffs that the third thing is of course age, according to the mechanism of action that we have on the website, we do believe it’s the capability of the liver to regenerate.

That capability goes down exponentially with age and therefore we have this new age cutoff of 50 years old and then a lot of patients that would have entered 208 and basically contributed to 208 not working as a trial are not now and eliminated in 308. So it's not a subjective gut feelings thing of the doctors.

It's actually very well reproducible very objective and it makes medically sense to me..

If I can also comment that, Ted, these are universally used tests and the results appear quite rapidly. So if a patient showed up in the emergency room at one of our trial sites, probably was in the first hour, they would know that bilirubin and the creatinine in the INR and so that aspect is very clear.

The challenge in the trial, which we've had and getting the patients is typically patients who are not yet and stage don't show up at university academic transplant centers, they typically show up at referral centers and so what we've been doing throughout this trial and I think the increase in the enrollment rate shows, we’ve actually done a pretty good job is helping our transplant centers build up their referral channels.

So the local hospitals know when they see a patient in the right range that they call us right away, particularly as if they let the patient deteriorate too long not only is their prognosis terrible, but they've also excluded themselves for ELAD, which is what we hope would potentially save them.

So I hope that provides some useful color?.

Absolutely, both are really, really helpful. So thank you very much..

And our next question comes from Edward Nash from SunTrust. Your line is open..

Hi, thanks for taking the question. This is Mike Guo for Edward and congrats on the progress of the patient enrollment.

Just want to follow-up on the patient enrollments; just now I mentioned that maybe one of the reasons for the accelerated patient enrollments due to [indiscernible] channels, but do you see any kind of seasonality for the patient enrollments?.

Any what term Mike?.

Seasonality, yes..

Seasonality, that's an interesting question, anybody like to take that..

So we do see seasonality, but I’d say it's more random numbers because I in particular remember looking at the 208 trial and very often in the months that we’re active in 2014. We’re not active in 2015 in 208. So it's just - I think its random numbers.

But Jan, do you want to…?.

Yes, we were there and then that’s not only seasonality probably also geographic seasonality because as you know we have a significant number of European sites, which are more socialist systems, people have more vacations. I come from Germany.

So you would expect that in August for instance where people have a long vacation that the numbers might go down that’s what we expected. However, as Duane said, sometimes we have the year with the total opposite. So I think also it’s a random number..

But it takes a while for this disease to really develop after the last big - big doesn’t it..

Couple of weeks?.

Yes. It’s up to six weeks, I mean that’s where our criteria say, we actually required that the alcohol, we then cannot be longer ago than six weeks because we want to take of those acute alcoholic hepatitis events.

Now I really - as we always said this is a population that reflects a third of the two way population that is really enriched where we think ELAD can make a difference and the key was the outreach activity to the referring sites to pick up those patients early.

I think that's the reason and then of course quite intensive selection of up to 50 sites, now we have 40 opened that those in combination explain the success on enrollment..

Got it. That’s helpful..

Good ahead, Mike..

Yes. My next question is about the mortality rates.

We understand that you're still un-blinding the mortality rates, but only on un-blinding the basis if we assume that the patient enrollment maybe 50-50 utilized into control, so for the mortality rates you have observed so far and that’ sort of expected?.

Mike, maybe if I can interrupt there. So we're not blinded to the mortality so far, we do not know the mortality in the 308 trial even in a blinded sense..

Got it.

So the owning time you're going to check the mortality data that’s when you are close to finish the patient enrollment you're going to check the mortality rates that’s an un-blinded basis - on blinded basis mortality?.

No at that point, we will check or perhaps we’ll have the DSMB check for us in a blinded basis and we will just get a number that says, okay there have been 57 deaths so far or there are 40 or there are 60 and there will be no attribution to one arm or the other and then we will use that to assess whether we have the requisite 55 and how many more patients we need to enroll..

Yes, Mike we cannot take the risk here of incurring any statistical penalty and that's the reason we do it that way..

Got it. That's helpful. My final question is about the Bilirubin Level.

So for the Phase III of 308 trial, the coagulation and the kidney function and also the age you are trying to recruit like less severe patients, but for Bilirubin you are continuously enroll patients at some more severe patient population, could you remind us the reason for that please?.

Sure. So when we cut the 308 data, we had 71 patients who had the right age, the right Bilirubin, the right INR. Of those 71 there were 11 who's Bilirubin was under 16, of those 11 only one died. It was a control, but what it told us is that you know because we're through the Bilirubin the age and the INR we're selecting for a healthier group in total.

We want to make sure patients are actually coming in with some possibility of death, which is obviously unfortunate, but that's you need deaths in a survival trial. And so without that Bilirubin floor, the event rate was essentially diluted.

Does that makes sense Mike?.

Okay, got it. Thanks a lot. Yes, that makes sense. Thanks a lot..

Okay. Thank you, Mike..

And at this time, I'm showing no further questions..

Okay. Well it reminds for me then to thank everybody. We appreciate it. We will do this again on our first quarter report in early May I believe. So thank you and have a great day. Bye..

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Everyone have a great day..