Al Kildani - VP of IR and Business Development Russell Cox - CEO Mike Swanson - EVP & CFO Rob Ashley - EVP and Chief Technical Officer.

Jonathan Aschoff - National Securities Katherine Xu - William Blair Laura Chico - Raymond James.

Good day, ladies and gentlemen, and welcome to the Vital Therapies' Fourth Quarter 2017 Financial Results Conference Call. 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 call is being recorded.

I would now like to introduce your host for today's conference, Mr. Al Kildani, Vice President or Investor Relations and Business Development. Sir, you may begin. .

Thank you, Kylie and thank you everyone 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, 2017. On today's call are several members of Vital Therapies senior management team, including Russell Cox, Chief Executive Officer; Dr.

Duane Nash, President; Rob Ashley, Executive Vice President and Chief Technical Officer; Dr. Jan Stange, Chief Medical Officer; and Mike Swanson, Executive Vice President and Chief Financial 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 enrollment of our clinical trials, and event rates, which may vary from projections; 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 demand; our projected cash runway; potential product indications and market sizes; plans and objectives of management for future clinical and market operations; and statements regarding our current and future Research and Development activities with respect to ELAD mechanism of action in liver perfusion.

Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that our clinical trials program is delayed or is ultimately unsuccessful; the risk that our biologic license application or 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 filed earlier today for a discussion of the risk factors that could cause actual events or results 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 Russell Cox, Vital Therapies' Chief Executive Officer..

Good afternoon, everyone and welcome to our fourth quarter 2017 update call. On today's call I'll begin by sharing my background and some of the reasons why I decided to join Vital Therapies'. We'll then begin with an update on our 308 Phase 3 clinical trial, and we'll discuss our R&D activities and publications.

We will than review our fourth quarter financial results and we’ll finish up with questions. So for those of you who don’t know me already, I’d like to begin by briefly discussing my background. I left a great job, with an exciting company to join Vital Therapies.

As Chief Operating Officer at Jazz Pharmaceuticals, I had direct responsibility for about 80% of the company, including global commercialization, R&D, manufacturing and global molecule leadership. When I started Jazz, the company generated about a $170 million in revenues, which grew to more than $1.62 billion during my tenure.

Jazz has a bright future, and I wish my friends and former colleagues the best there. Prior to Jazz, I started my carrier at Genentech, where I spent 12 years. I was than fortunate to hold senior roles at Scios, which was eventually bought by J&J, and Tercica, who was bought by Ipsen.

I spend many years in the role of Chief Commercial Officer and over the course of my carrier I have been involved in as many as 20 commercial launches. When I decided to take the next step in my carrier, I was looking for an opportunity that met a particular screen that I had in mind.

Something next generation, either in cell or gene therapy, something in late stages of development and therefore close commercialization, something I believe is well positioned for technical and regulatory success, and it had to be differentiated and address a large unmet medical need with a strong competitive position and to be a long lived asset in order to maximize the value.

After screening multiple opportunities, I thought that Vital Therapies met this screen, and for me it clearly separated itself from the other opportunities I was reviewing. I was looking for something next generation, specifically cell or gene therapy, because that is where I believe we will see the greatest innovation in the coming years.

The regulatory environment is also maturing in its view of these therapies and that's been demonstrated by the establishment of new policy frameworks for approving cell and gene therapy such as the 21st Century Cures Act, and associated policy guidance that specifically address cell or gene therapy approval pathways.

Just in the past years, the FDA has approved two new CAR-T products and a gene therapy product. With hundreds of clinical trials and cell and gene therapy taking place, it's arguably the field with the greatest amount of excitement and potential in healthcare.

With the unique cell therapy in the late stages of development, I truly believe Vital Therapies' is in the right place at the right time. From a commercialization standpoint, ELAD is at the pivotal Phase 3 stage and we anticipate potential commercialization in 2020 in the event of positive 308 results.

We've already begun working on the commercialization plan and we'll be ready to hit the ground running in the event of the BLA approval. I'm eager to put my experience of launching new products to use with ELAD. I've also had the opportunity over the course of my career to evaluate the number of opportunities in therapeutics.

I've always approached these assets by trying to access our probability of technical and regulatory success. Technically the design of the 308 trial is based on a large prior dataset, and learning from an extensive subgroup analysis that have a strong medical rationale. This trial has been enrolled in a highly disciplined and timely matter.

In the event of positive results, I believe the regulatory pathway for BLA targeting a less favorable [ph] indication could be quite favorable. As you know ELAD could potentially address a critical unmet need in an orphan indication in the event of positive trial results. About 80,000 people in the U.S.

and Europe suffer from acute liver failure, that could be treated with ELAD. Our first target indication severe alcoholic hepatitis or sAH affects about 60,000 patients in the U.S. and the EU. Beyond sAH we have opportunities in areas like post-surgical liver failure, alcoholic [ph] overdose and Mushroom poisoning.

We also believe there is a significant long-term opportunity in the rest of the world where liver failure related to hepatitis B is a real problem especially in China. From our competitive standpoint, we believe Vital Therapies' is well positioned to become the leader in a field with a large unmet medical need.

Despite the considerable efforts of others, there have -- there are no other new therapeutic options for patients suffering from acute forms of liver failure in a very long time. To our knowledge ELAD is the only bio-artificial liver system in clinical development either in the U.S. or the EU.

Should we be successful, we believe it would be difficult for anyone to follow behind us in a comparable approach for several years. There are some monotherapy approaches being explored at very early stages but the complex nature of this disease suggest that monotherapy would have difficulty to make any impact in an overall survival endpoint.

Bottom-line, we believe you really need a cellular approach to address this disease. And now it appears there is no one else in the arena. I hope you can see the reasons why I'm thrilled to lead Vital Therapies' during this exciting time.

And for that, I would like to express my deepest gratitude to my predecessor, Terry Winters, for all he's done to get Vital Therapies to this point. In my first two months, it's been obvious to me that Terry has been a wonderful leader for the company. ELAD would not be at this stage without his commitment, passion and hard work.

I also want to thank our distinguish Board for their support and I look forward to working with them and the rest of the outstanding people here at Vital to hopefully transform the company into a very successful commercial enterprise. I'll now turn to an update of our 308 Phase 3 trial.

Our number one priority is completing the enrollment of 308 and the finish line is now in sight. As of yesterday, we had enrolled 147 subjects and we had 43 sites open for enrolment. This compares with 118 subjects enrolled in 45 sites at the time of our last update on October 25 of last year.

As you will recall, the design of 308 incorporates an event-driven feature that provides flexibility to enroll additional subjects, if necessary to help the study achieve target overall blended total of approximately 55 events at the time of data lock.

As planned early in the first quarter, independent statistical experts evaluated the blended event rate from the 308 study. These experts, including Dr. Thomas Fleming of the University of Washington, who many of you know as a respected consultant to the FDA, these statisticians, including Dr.

Fleming concluded that the data observed as of the year-end 2017 was consistent with the predicted event rate modeled in the original statistical plan, and would be likely to yield approximately 55 events at the time of data lock. As a result, the statisticians recommended that we will retain the original enrollment target of 150 patients.

It should be noted that the data used in this analysis was blinded as to treatment arm and therefore provided no insight on the primary endpoint of the study. We are pleased that the event rate and 308 appears to be consistent with what we expected based on the original design of the trial.

As a result, we continue to expect we will enroll the last patient in 308 this month. Once the last subject has been enrolled, the minimum follow-up period of 90 days begins, following which we anticipate a couple of months to lock the database and then a short period for the data to be analyzed by our independent third party statisticians.

That timeline keeps us on track to report top-line results from 308 in Q3, 2018 likely in September.

Before Joining Vital Therapies, one of the things I found most impressive about the company was the rigor with which the 308 trial is being conducted not only with the learnings from the 208 trial methodically applied to the 308 trial design but we also maintain the discipline to ensure that subjects enrolled met all trial criteria.

In my experience this is difficult to pull off in a complex hospital based trial.

We've take no short cuts and remain patient and deliberate in our execution of the trial, As you can see in the table included in this afternoon's press release based on our 147 subjects base line characteristics continue to fall within the required study range and their means remains closely aligned to those observed in the 208 reference population on which the trial design was based.

I'd like to congratulate all those who have contributed to the design execution of this pivotal clinical study including our clinical investigators, and to thank the patients themselves for their participation.

Now turning to our R&D work and progress with publications, we were delighted to see publication of the full 208 clinical trial results in the March issue of the Journal Liver Transplantation. The paper provides the detailed rationale for the design of our current 308 study. And this is highlighted in the accompanying editorial by Dr.

Timothy Morgan of the VA Long Beach Healthcare system entitled ELAD, A Potential Silver Lining. We continue to make progress in our understanding of the mechanisms by which ELAD maybe influencing survival in subjects with severe alcoholic hepatitis.

Most of the work we have reported so far has been in the laboratory looking at a variety of proteins that VTL C3A cells release under various conditions and their impact on other relevant cell types. This work has led to hypothesis of potential mechanism for action.

Recently we've been analyzing clinical samples from our prior 208 studies to explore these cell based hypothesis in-vivo. We are hoping to show that changes in circulating level of these substances can be related to improvement in clinical conditions. So far we focused on three proteins produced by the VTL C3A cells.

IL-1Ra, VGEF-A and soluble fats [ph] that showed activity during our in-vitro models and have also been shown to increase in 208 subject plasma samples, while in ELAD treatment.

In the same samples, other proteins, including procalcitonin and ferritin, markers of inflammation endothelial 1, a marker of endothelia dysfunction have been shown to increasing concentration during ELAD treatment. Taken together, these results are suggestive of an in vivo response to ELAD treatment consistent with the in-vitro findings.

In addition, we continue to study the ability of proteins and other factors produced by the VTL C3A cells to prevent cell death and reduce oxidative stress and in endothelial cells, hepatocytes and macrophages.

This work has formed the basis of abstract subject for presentation at upcoming scientific conferences, including, the International Liver Conference -- Congress sponsored by European Association for the Study of Liver or EASL to be held April 11 through 15, 2018 in Paris, and Digestive Disease Week or DDW to be held June 2, through 5, 2018 in Washington D.C.

These posters and associated presentations will be available on our Investor Relations website, under the section titled, Clinical Publications and Presentations by the close of each conference.

While these data are preliminary, we believe they provide an encouraging insight into the potential for the VTL C3A cells to have a significant impact on key pathological characteristics of severe alcoholic hepatitis such as liver information, impaired regeneration and apoptosis.

Lastly, I would like to provide a brief update on our liver profusion research program.

We have extended our research collaboration agreement with Drexel University in Philadelphia and the University of Birmingham in the UK and we are continuing to pursue the potential for proteins generated by VTL C3A cells to improve the condition of marginal donor livers and thereby possibly increasing the number of organs available for transplantation.

Preliminary results have shown promise and we are working to utilize a more definitive ex vivo model, to potentially demonstrate positive effects of proteins, generated by these VTL C3A cells on marginal livers. We look forward reporting more on this program in the future.

I’ll now turn the call over to Mike for a discussion of our fourth quarter financial results. .

Thanks Russ. We ended the fourth quarter with cash and cash equivalents of $56.9 million. Our average monthly cash usage for operations and capital expenditures during 2017 was approximately $3.4 million.

Our use of cash will continue to vary primarily on the timing of expenditures related to our VTL-308 clinical trial and on the timing of expenditures in anticipation of a future BLA for ELAD.

Based on a current rate of expenditure, our yearend cash balance would fund our operations through the first quarter of 2019 and past the expected announcement of 309 topline results. Summarizing our results for the quarter ended December 31, 2017, the company reported a net loss of $14.6 million, or a $0.35 basic and diluted loss per share.

This included non-cash expenditures for stock-based compensation, depreciation and amortization totaling $2.3 million. This compared to a net loss of $11.7 million or a $0.37 basic and diluted loss per share for the fourth quarter of 2016, which also included $1.7 million for the same non-cash expenses.

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

Thanks Mike. As you can see it's an exciting time for Vital Therapies. With 308 almost fully enrolled, our focus is shifting to what lies ahead for the company. Once enrollment is completed we will immediately transition our focus to preparations for filling the BLA which we will hope to do sometime in 2019 assuming positive trial results.

Next month, we will be attending the International Liver Congress sponsored by the European Association for the Study of the Liver or EASL, which is one of the larger scientific meetings, focused on liver disease. We are also beginning to lay the ground work for a successful commercial launch in the event of positive data and regulatory approval.

And of course, sometime in the third quarter, probably September, we expect to announce topline results from the 308 trial. I would like to open up the call for your questions. In addition to Mike, joining me today for 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, please open the line for questions.

[Operator Instructions] Our first question comes from Jonathan Aschoff with National Securities. Your line is now open..

Thank you guys, and congrats on almost being enrolled. The only question I have is really housekeeping.

The SG&A bumped a lot and I was curious as to how that's going to look this year?.

Thanks Jonathan, I'll hand it over to Mike..

Yeah, the reasons for the increase are primarily due to the transition of the COO. It's both compensation related to that, and also stock option modifications, and that caused most of the bump. .

And I should expect that to grow modestly, let's say quarter-over-quarter in 2018.

That's going to pretty much be the level?.

Those are onetime charges, but as you also see in the footnote to financial statements, there was a stock option grant to Russ when he joins the company and that that will increase the stock-based comp over the next four years as we amortize those options. .

Okay all right. That's helpful. Thanks a lot guys. .

[Operator Instructions] Our next question comes from Katherine Xu with William Blair. Your line is now open. .

Yeah good afternoon. Russ welcome and congrats. I guess with regards to that 308. It looks like the different therapeutics are tracking very well with the reference population also the event rates are now looking to track pretty well with the reference population as well.

Can you just elaborate a little bit what that means to you and the confidence in the study and the company?.

Yeah thanks, Katherine. So I think that in the grand scheme of things, if you look at a trial that is driven based on previous data, it's important to make sure that we followed the exact design of the trial.

So the fact that we've lined up our enrollment criteria very much in line with what we had expected from 208, I think that's really an important piece of the equation for us.

The other piece of it is to make sure that when we did the study design we thought about it in such a way that we had modeled it correctly and having approximately 55 events was an important piece of that. So it's great to see that that's consistent.

So if I sort of zoom up and say what does it mean, it basically means that we have modeled this in a way that we thought it would play out, and so it's consistent with our original thinking. And that the discipline that we've taken in actually enrolling patients seems to be playing out the way that we'd hoped. .

Okay, just talk a little bit about your initial thoughts on China as a market?.

Yeah. So as we think about China, China is a tremendous opportunity for the company given the fact that many of these patients who have hepatitis B and really do not have any other ways of been treated, it's a large market for us. I will say that if I think about where our focus is right at this moment, we're mostly focused on the U.S. and the EU.

As we get to a place where we want to think about what we want to do in the rest of the world, whether that be Japan whether that be China, we'll be sharing more about what our thoughts in terms of potential partnership or something that we might want to do to approach those markets. But as we stand here today, we're more focused on the U.S.

and the EU and thinking seriously about how we would approach China. .

And do you think you're going to market the European market -- partner for the European market or you're going to go alone as you do in the U.S.?.

Our intention would be to cover the U.S. and the European market ourselves..

Thank you. .

[Operator Instructions] Our next question comes from Laura Chico with Raymond James. Your line is now open. .

Hey, thanks, good afternoon and congrats on the progress. Guys. Welcome Ross. I think, I just wanted to clarify I think just confirming the analysis that was performed was a blinded analysis.

I'm just curious if there was any color or any extra visibility into perhaps the safety profile at this point?.

So what I would say is the DSMB has been looking at this for some time. I'll hand it over to Rob. He can give you a little bit more flavor into what was actually looked at as it relates to safety. But I don't believe there is anything really new to talk about there..

Thanks, Russ. Hi, Laura. No, there isn’t really anything new to talk about. We monitor the safety profile, we have an obligation to file every year a safety update report to the regulatory authorities and there is really nothing remarkable in that safety update report.

And our safety profile is consistent with the profile which we saw it in the same patient population in the prior study and indeed the safety profile which we've seen across all of our studies. It's remarkably consistent across all of the studies in these acute forms of liver failure. .

Okay, great helpful. And I guess secondarily then, Russ, you mentioned a little bit in terms of the commercial preparation activities and I guess, settling back, could you remind us in terms of the BLA submission, what additional effort you guys would need to complete in order to advance the BLA submission. .

Yes, so I gave you the timeline, in terms of what it would take for us to get to topline findings and then from there we are sort anticipating your typical timeline in terms of the BLA submission.

Given this is a cellular therapy, there are some things that we are going to make sure that we are in a position to be right where we want to be from a BLA perspective in terms of putting the package together. But there is really nothing that I would say is unique about our submission or different.

It's going to basically follow what you would expect from a typical BLA submission. .

Okay, that’s helpful. And then I guess last question and then I’ll hop back in the queue. Russ, you provided some good color in terms of your rationale for joining the company. I am wondering if you could kind of opine a little bit on the commercial opportunity and potential pricing and kind of your perspective on that opportunity..

Yes, sure. So I think the one thing that’s attractive about this market is, as I mentioned there isn’t competition that we’re going to be considering as we launch. So it's really focused on the 125 centers of excellence that exist with liver transplantation. So those are I’d say the most important targets for us.

I think the biggest challenge from a commercial perspective will be figuring out how to get referring hospitals to transfer these patients to the centers of excellence in a timely fashion. So we would be very focused on that.

I think from a pricing perspective we have had work done for us, by pricing experts and they have given us ranges anywhere from sort of a low case of 175 to a high case of 275.

We have done a lot of work of late just on the value preposition and understanding qualities and knowing what we believe the value preposition could be, of course that’d driven by results and top line data. So we are doing that work right now and we are doing a refresh but it will be a little while before we decide on pricing. .

Thanks guys. .

You’re welcome. .

At this time, I am showing no further question. So I’d like to turn the call back over to you Al for closing remarks. .

Thank you everyone for joining our fourth quarter results conference call. We look forward to updating you on our next call. In the mean time we will be presenting at the H.C. Wainwright Global Life Sciences Conference on Tuesday, April 10. A webcast of the presentation will be available on our Investor Relations website.

And again I want to thank everyone and have a great afternoon or evening. .

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