Al Kildani - VP of IR and Business Development Terry Winters - Co-Chairman and CEO Mike Swanson - EVP and CFO Rob Ashley - EVP and CTO Duane Nash - President Jan Stange - CMO.

Jonathan Aschoff - Opus National Market Chris Raymond - Raymond James.

Good day, ladies and gentlemen, and welcome to the Vital Therapies Second Quarter 2017 Financial conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will follow at that time. [Operator Instructions]. As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Al Kildani. Sir, you may begin..

Thank you, Justin. 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 second quarter ended June 30, 2017.

On today's call are several members of 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 that some of the statements we make today will include forward-looking statements, such as statements related to the timing, conduct and enrollment of our clinical trials, future clinical trial results, and whether such results will support any regulatory submission or approval, the timing of certain development goals including regulatory filings, our approval strategies, our ability to scale up our process and to increase our manufacturing capacity to meet demands, our projected cash runway, potential product indications and market sizes, and plans and objectives with management for future clinical and market operations.

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

The risk that our BLA takes longer or is more expensive to complete or that we need additional financing sooner than anticipated. 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, except as required by law.

Please refer to our SEC filings and our most recent 10-K for a discussion of the risk factors that could cause actual events or result to different 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..

Thank you, Al, and good afternoon, everyone. Welcome to our second quarter 2017 update call. I would like to begin with our usual summary of the Company for those of you who may be new to the 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 3 clinical trial stage, and has often drug designation in United States and the EU. We are currently enrolling subjects in VTL-308, a randomized controlled clinical trial in severe alcoholic hepatitis, or sAH. Top-line 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 to, first, review the status of VTL-308 and the outlook for completion of the trial.

Second, to give an update and discussion of the baseline characteristics of subjects enrolled in VTL-308. Third, to update you on some other aspects of our planning for commercialization. Fourth, a review of our financial results. And then finally, we will open up the call for Q&A.

So first, we'll discuss the status of our VTL-308 phase 3 clinical trial. This trial is our top priority since successful results are essential for us to move to a BLA-submission targeted to mid-2019 and subsequent commercialization. I am very pleased to report that as of yesterday, we had enrolled 95 subjects in the trial in the U.S.

and the EU, and we now have 49 clinical trial sites open for enrollment. This compares to 67 subjects and 46 sites reported at the time of our last Investor Call on May 10. Subjects' enrollment is about nine per month and continues to be close to our plan. The overall rate is 0.19 subjects per open site for month, close to our plan metric of 0.20.

The U.S. at 0.24 is well ahead of plan, but the EU is behind at 0.11. We are working with the EU sites to see if they can increase the enrollment rate. The number of sites is now close to our target of 50. We have no plans to increase the number of sites above 50, although we continue to get inquiries for new potential clinical sites.

As we have discussed before, the pace of enrollment can be choppy and will inevidently fluctuate from month-to-month. If we can continue enrolling at the current rate, we should enroll the 150th subject sometime in the first quarter of 2018.

Providing that the event rate is, as expected, and we do not need to enroll additional subjects, this should put us on target to disclose top-line results around about mid-2018, most likely in the third quarter. We would also like to give you some more color on the progress of subject enrollment in VTL-308.

Many of our sites are academic tertiary care centers and they may not see the subjects at the earliest stage of the disease. This means that we need to cast our net wider to the clinical sites referral network and feed our hospitals.

So we set up a medical affairs group within the Company to work with the sites to increase their access to these referral and feed our hospitals, and thereby the subjects. We are very pleased with the results of the referral program. We are enrolling subjects in VTL-308 at 2.5x the rate we enrolled subjects meeting the 308 criteria in the 208 trial.

This supports our underlying assumption that these patients are out there in significant numbers. Our key assumption is that most patients with severe alcoholic hepatitis pass through the earlier stage of the disease as defined by the 308 criteria before they progress to multi-organ failure and become ineligible for VTL-308.

Accordingly, it is a matter of finding ways to identify and recruit them to the trial while they meet the 308 criteria. As a reminder, and as we have explained on prior calls, at the suggestion of the FDA, VTL-308 incorporates an event-driven feature into the trial design, consistent with the primary endpoint of overall survival.

Under this 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, at which point, the first subject will have been in the study for more than two years.

The target of 55 deaths is consistent with the rates seen in the targeted sub-population from 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 and make a determination as to whether additional subjects should be enrolled in order to meet the minimum number of 55 deaths called for in our statistical plan.

This could result in the need for us to enroll more than 150 subjects, which could extend the timing for releasing top-line results. We believe that the VTL-308 study is robustly powered. The actual hazard ratio observed in the VTI-208 subgroup analysis, that led to the design of VTL-308, was less than 0.3.

This reflects the absolute improvement in survival of more than 40% observed between the ELAD treated group and the controlled subgroup at 200 days. With a sample size of 150 subjects, the VTL-308 study is 99% powered to detect a hazard ratio of 0.3.

Even if the difference between treated and controlled is half that observed in the VTI-208 subgroup, for example 20%, the 308 study would be more than 85% powered to detect the difference, in each case assuming a similar patent of survival time to the VTI-208 subgroup.

That said, there can of course be no assurance that the 308 study will have a successful outcome. The VTL-308 statistical plan does not include an interim look at the data, as we do not wish to take the risk of incurring a statistical penalty during the analysis of results.

Consequently we plan to enroll at least 150 subjects before looking at outcomes data. Next we would like to discuss the data we released on the baseline characteristics of subjects enrolled in VTL-308.

The enrollment criteria for our current study were based on extensive analysis of prior clinical data to the ELAD system, including the 203 subject randomized data set from VTI-208, our prior phase 3 trial. As part of routine quality control of study conduct, we monitor the critical baseline characteristics of subjects enrolled in the VTL-308 study.

As announced in June, the baseline characteristics of the first 67 subjects show that across all key enrollment criteria from age to MELD score and its component measurements, no subjects were enrolled who fell outside of the enrollment criteria. Furthermore the subject characteristics closely tracked the reference VTI-208 subset.

I am pleased to report that we now have the analogous baseline data for the first 93 subjects and all subjects continue to fall within the enrollment criteria and the means continue to track the VTI-208 subgroup. The detailed numbers are in today's press release.

We intend to maintain this enrollment discipline throughout the remainder of the trial and look forward to reporting top-line data around mid-2018. We continue to plan for commercialization in the event of positive trial results from VTL-308.

On our last quarterly call, we discussed our preparations for the biologic license application, or BLA, and our commercial manufacturing. Today, we would like to talk about market development.

ELAD is a biologic combination product that could improve survival in several forms of acute liver failure, of which sAH is the first indication selected because this population is well-suited to the survival trial that is required by FDA.

sAH is a sizable offer market, where patients meeting the criteria for VTL-308 have about a 50% chance of death in 180 days, and are usually not listed for transplant, which could otherwise confound the trial results. Next we would likely to look to expand ELAD's label in sAH to all the patients who are excluded in the current VTL-308 trial.

In addition to expanding the sAH label, development of other markets is expected to follow. Other important markets include the following. Acute flares of viral hepatitis B. This is the largest potential market by patient numbers, but is concentrated in Asia and the developing world.

In China, there are about two million acute cases per year of liver failure from about 130 million people infected with the virus. However this market in the U.S. and EU is small, mostly in immigrant communities.

We completed a successful phase 3 trial in China, predominately in this population, and filed a marketing application with the Chinese Regulatory Authority, or CFDA, in 2007, which remains on file. It is possible that we could gain approval to market in China with no further trials after we receive U.S. or EU approval for sAH.

We have kept CFDA informed of our progress, and we intend to reopen our dialog with CFDA in the event of successful top-line results for VTL-308. Secondly, liver cancer resections. Liver cancer resection, where the cancerous part of the liver is removed can cure liver cancer.

This is a potentially large market worldwide if ELAD could enable larger resections. But trials are a challenge because a survival trial is unethical since surgeons cannot be expected to resect the liver, pass the point of certain recovery by natural liver regeneration.

We propose to begin a dialogue with FDA on how to expand our label to this market in the event of successful top-line results in VTL-308. And third, fulminant liver failure. This is a small, but important market.

About 2,000 cases per year in the United States caused by drug overdoses such as acetaminophen and other insults, where the liver fails with no underlying disease. The Commercialization Committee of our Board of Directors is guiding our commercialization planning.

We are thinking ahead with regard to commercialization, so that we have a detailed and actionable plan that can be set in motion in the event of positive top-line results from VTL-308. We will continue to share parts of that planning with you on future calls.

I will now turn the call over to Mike Swanson for a discussion of our second quarter financial results.

Mike?.

Thanks Terry. We ended the second quarter with cash and cash equivalents of $76.2 million. Our average monthly cash usage for operations and capital expenditures during the first six months of 2017 was $3.1 million.

We continue to expect our use of cash to vary primarily on the timing of enrollment in the VTL-308 clinical trial, and also for expenditures on longer lead time activities in anticipation of a future BLA for ELAD.

Based on our current plans, this would fund our operations through the first quarter of 2019, well past the expected announcement of VTL-308 top-line results. Summarizing our results for the quarter ended June 30, 2017. The Company reported a net loss of $12.4 million, or a $0.29 basic and diluted loss per share.

This included non-cash expenses for stock-based compensation, depreciation and amortization, totaling $3 million in the second quarter of 2017. This compared to a net loss of $9.5 million, or a $0.30 basic and diluted loss per share, for the second quarter of 2016, which also included $3 million for the same non-cash expenses.

The $2.9 million increase in the net loss for 2017, primarily reflects higher costs associated with increased enrollment and activities associated with our ongoing VTL-308 clinical trial. For more details on these financial results, please refer to our press release and our quarterly report on Form 10-Q. With that, Terry, I turn it back to you..

Thank you, Mike. I would now like to open up the call to your questions. In addition to Mike joining me for the Q&A portion of our call, 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]. Our first question comes from Jonathan Aschoff from Opus National Market. Your line is now open..

Thank you. Hi guys. Congrats on the enrollment case, and far more importantly, for adhering to the inclusion criteria.

My first question is, having given us the statistical powering of 308 under a couple of result scenarios, could you tell us what was the obviously lower statistical power of the 60-patient subset in trial 208, such that we can get a comparative sense for what was achieved in that trial versus what we hope to see next year? And of course I'm hypothetically assuming that 208 was - for this purpose, just a trial of those 60 patients..

Thank you, Jonathan. It's good to hear you. And thank you for your comments.

Rob, could you address that?.

Sure. So the metric which matters is the difference between the two groups, between the control subsets and the ELAD subset, which provided a hazard ratio over the full study of 0.28 I think....

0.283..

0.283. So the actual outcome of that study was better than anything that we've been talking about modeling today. So we've had that study been carried out with 150 subjects, then it would have powered substantially greater than 99%. It's an exponential return on investment in the number of subjects, if you like.

So you never get to a 100% certainty but it would have been extremely well powered. The actual p-value was also statistically significant. But you have to - you can't quote actual p-values unless you have prospectively - completely prospectively defined subgroups. So it's a nominal p-value, but it was significant to the p-value of….

0.007..

Yes, 0.007, so better than 0.01. But again, I would note that that's a nominal p-value because that particular population was not predefined, although the component parts of that population were predefined. So hopefully that answers that..

That's close enough.

Based on how the event rate is progressing thus far in trial 308, can you give us any likely range of number of patients that you intend to add? Should 150 not be enough, or is this not something you can estimate?.

Yes, we can't actually estimate that, Jonathan, because we're not exposed to that - to those data. The number - the 55 number was driven by a fairly conservative view of the subset populations that we've just been discussing.

So one would expect with the inclusion criteria being so well-maintained, that we would easily obtain that number even with just 150 subjects with the length of follow-up that we have on these patients. As noted earlier, the longest follow-up with one of these patients - the first one will be a couple years.

The average follow-up will be around a year, and the minimum follow-up will probably be 150 days or so by the time you account for the 90 days of the trial and a couple months for achieving data lock. So as confident as you can be without knowing the data, I would anticipate that we would see that number of events with just 150 subjects.

But the ability to stretch past that is a tremendous insurance policy, and frankly was a very nice idea from FDA's perspective. We were happy to adopt that..

Okay. Thanks a lot guys..

Thank you, Jonathan..

Thank you. Our next question comes from Laura Chico from Raymond James. Your line is now open..

Hi guys. It's Chris Raymond on for Laura. Just wanted to also maybe talk a little bit about the assumptions on 308. And I think you guys have indicated in the past that the study assumes a 50% mortality rate.

And we were just noticing a recent publication that hinted that that rate actually maybe - and this was again maybe a small - I think there were 27 patients in this study that was published, but that it might be closer to 60%. So just realizing that there could be differences in populations.

Have there been any new results or publications that you would point to that that have changed your initial assumptions? And maybe also to dovetail on the last question, remind us about the powering of 308 if you do end up seeing a mortality rate that's different?.

Thanks Chris. Let me ask Duane to address that question..

Yes, I'll talk about the first part. So the mortality you're going to see obviously depends entirely on the exact population you bring in, and I'd love to see that study that you're referencing.

But every study is going to bring in a slightly different population with a different risk of dying, which is one of the reasons why we published the baseline characteristics of our patients - so for the 308 trial, because we certainly have very good data on how patients with those characteristics did in the 208 trial.

And if we follow that, even only somewhat closely, we should be very well powered for the trial..

So the assumption remains around 50%.

Is that a fair statement?.

Yes..

Yes..

Great. Okay. And then maybe just another question. I know you guys might have touched on this a little bit in your prepared comments but I just wanted to clarify. I think you mentioned and talked to a little bit about what drivers might be behind a potential delay in the readout.

But I noticed something new in your commentary about a third quarter '18 readout. And I think that's a little bit new, although enrollment seems to be still tracking. Can you maybe just revise - review again how you're characterizing that timing for that readout? Thanks..

Let me ask Duane to address that..

Sure. So what we had been doing is we had been assuming that data would be around mid '18. Now we assumed or we interpreted that to mean sometime Q2 or Q3. I think as we're getting closer, we have more granularity on enrollment rates, and I think that gives us more comfort that it will be after June 30.

Now it could be before, but I think the - if we had to place a bet, we would bet it's Q3..

Chris, I'm sure you know it's not easy to predict when these trials are going to complete enrollment..

Yes, absolutely..

And it just depends among the rate. As you can see, the rate has been ticking up, and we would hope that to continue, but it does tend to spike up and down..

Okay, great. Thanks guys..

And Chris, if I remember you had a second part to your first question on statistical power, which I didn't address. Maybe we should have Rob..

Yes. You mentioned the point about modeling smaller differences and what the powers would be. We did touch on it in the call and actually on our Investor Presentation on the website. There is a slide that addresses this question.

But you could model, for example, instead of a 40% difference, absolute difference between the groups, which is what we saw in the VTI-208 subset, half that difference - and even at half that difference with a hazard ratio of about 0.5 or so, we're still 88% power to detect that.

Now it's also important to note that it really makes very little difference whether that is 50% controlled versus 70% ELAD, 60% set [ph] controlled versus 80% ELAD. Around the middle of the ranges there, there is very little impact on the power calculation.

If it was 80% versus 100%, then it would make a difference, but around the middle of the powers of the endpoint there, there is very little difference in the power calculations. So I think we're robustly powered for a whole variety of potential scenarios here, including just an absolute difference of 20%..

Jan, would you like to add anything?.

Yes, since this question came right after Rob explained the nature of the potential adaptation of the patient numbers, I want to make crystal clear that as of today, we do not have any indication that the patient number will need to be more than 150. That information will only be available once we are closed there.

But as of today, there is no indication that we will need more than 150. We might but we might totally not..

Yes, I think it's important to stress that we are not looking at the event rate as we go along..

Correct..

We are maintaining a strict blind here..

Thank you guys..

Thank you. [Operator Instructions]. One moment for questions. I'm not showing any further questions. I would now like to turn the call back to Terry Winters, Vital Therapies' Co-Chairman and CEO, for any further remarks..

It remains to thank investors for their support of the Company. We appreciate it, and we look forward to our next call for the third quarter results. Thanks everybody. Goodbye..

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. And everyone have a great day..