Albert Kildani - Vice President, Investor Relations and Business Development Russell Cox - Chief Executive Officer Michael Swanson - Chief Financial Officer and Executive Vice President Robert Ashley - Chief Technical Officer and Executive Vice President Duane Nash - President.

Laura Chico - Raymond James.

Good day, ladies and gentlemen, and welcome to the Vital Therapies' Second Quarter 2018 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 conference call may be recorded.

I would now like to turn the conference over to Al Kildani. Please go ahead..

Thank you, George. Good afternoon. My name is Al Kildani, Vice President of Investor Relations and Business Development with Vital Therapies. 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, 2018.

On today's call are several members of the 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 conduct of our clinical trials and the timing of the release of the trials results, whether such results will be positive and adequate to support any regulatory submission or approval; our plans for and our current estimated timing of any regulatory submissions, whether such submission will be sufficient for acceptance, the timing of any pre-approval inspection by regulatory authorities, pricing of our product and the level of reimbursement and may support, our ability to attract key personnel to support our commercialization plans and our projected cash flow needs.

Forward-looking statements are subject to a number of risks and uncertainties that could cause actual events or results to differ materially, including the risks that our clinical trials program is unsuccessful or regulatory authorities require and additional clinical trial; and the risk that our biologics license application or BLA takes longer to prepare than we are currently planning is not accepted to filing or is more expensive to complete than we expect; or that we may 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-Q filed earlier today 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 Russell Cox, Vital Therapies' Chief Executive Officer..

Thanks Al. Good afternoon, everyone and welcome to our second quarter 2018 update call. On today's call, I'll begin with some introductory comments on the status of our VTL-308 clinical trial, recap our recent Analyst R&D Day and other R&D activities, discuss some of our preparations for potential positive outcome from 308.

Then I'll Mike to review our second financial results. And finally, we'll open it up the call for Q&A. As you probably know, we are very close to announcing topline results for VTL-308, our pivotal Phase III trial evaluating ELAD and subject to severe alcoholic hepatitis or sAH.

We expect to lock the database in the next 30 days, which keep us on track to announce topline results next month in the second half of September. Topline results will be announced via press release and will be followed by a conference call to discuss the results.

As a reminder, the primary endpoint for 308 is overall survival, assessing using a Kaplan-Meier analysis of the intent to treat population. I want to emphasize that we do not know the outcome of 308. And as the request of the FDA, we have steadfastly remained blinded to the data.

After database lock, we will turn the database over to our outside statistical consultants. These consultants will then perform numerous analyses according to statistical plan and quality check done.

This process takes a couple of weeks as it includes not only a topline analysis of survival data, but also the multitude of predefined analysis which are anticipated to form part of the BLA package assuming outcome is positive.

At the end of this analytical process, the outside statistician will present the results to us and we will then announce these results to the public. As mentioned earlier, this announcement is currently anticipated for the second half of September. Needless to say, we are very much looking forward to this momentous event for the company.

On the R&D front, on May 24, we held our first Analyst R&D Day our headquarters in San Diego. An addition to company presentations, two external clinical experts in the field of alcoholic hepatitis presented. Dr.

Stephen Atkinson, Specialist Registrar in Gastroenterology and Hepatology and an Honorary Clinical Lecturer at Imperial College London, gave a presentation on the background of pathophysiology of sAH. Also Dr. Nick Pyrsopoulos, Chief of Gastroenterology and Hepatology, Rutgers New Jersey Medical School, discussed his clinical experience with sAH.

There were a number of key takeaways from Analyst R&D Day. The outside clinical experts reviewed data and made it clear just how severe disease alcoholic hepatitis is in terms of pain, mortality and expense. The experts also highlighted the fact that there are limited treatment option for alcoholic hepatitis.

And then even among existing treatments, none have demonstrated survival benefit beyond 28 days. Numbers of the Vital Therapies R&D team presented extensive in-vivo and in-vitro data and we have generated characterizing ELAD hypothesize mechanism of action. We are very proud that considerable work has been completed in this area.

And we look forward to reporting future findings that support our cell therapy. Our Chief Technical Officer, Rob Ashley made a presentation on how our learnings from prior clinical trials let us to what we believe is the appropriate population treat with ELAD and how this shape design of 308.

Finally, we discussed some of our plans for how we will commercialize ELAD in the event of positive topline results from 308 and a successful BLA submission. Overall, these predictions reinforced our belief that if our clinical development is successful, we have a highly attractive commercial opportunity that we can target on our own and in the U.S.

and E.U. We like to thank Dr. Atkinson and Pyrsopoulos for participating in this informative event. We'd also like to thank the analysts who participated and the several who traveled to attend in person. An archive of the webcast from this event can be found in the Investor Relations section of our website along with the associated slide presentation.

We highly encourage you to review these materials. Next, a quick update on our liver perfusion program. As you may recall, we have been working with Drexel University in Philadelphia and the University of Birmingham in the U.K.

to evaluate the potential for the mixture of substances produced by VTL-308 cells to improve the condition of marginal donor livers. We call this mixture CGM [ph].

And we are hopeful that the use of CGM in combination with machines designed to maintain the livers at body temperature prior to transplant might increase the number of organs available for transplantation.

We are pleased to announce we have recently extended this program by entering into research collaboration with Massachusetts General Hospital or MGH to further explore the use of CGM in comparison with current profusion solutions in a more definitive Ex Vivo split liver perfusion model developed by MGH.

We look forward to reporting more on this program in the future. In order to capitalize on what we hope will be positive results from 308, we continue important preparations for the future. These include preparations for a BLA submission assuming positive clinical trial results, critical hiring and commercialization.

With regard to preparations for the BLA submission, we're accelerating our BLA activities in advance of the 308 topline results. Preparing a BLA submission is a huge undertaking for any organization, although we will prepare to work to BLA for submission as quickly as possible after topline results.

We currently believe submitting 12 months after data is a realistic time frame. To understand why, it's important to recall that we manufacture the ELAD C3A cell cartridges at our own facility here in San Diego. For the last two years, this facility has been fully occupied, manufacturing product for our clinical trials.

However prior to BLA submission, we need to focus from preparing the facility for commercial product manufacture, which includes generating new validation data is part of commercial scale manufacturing processes and related equipment and facilities.

While the ELAD manufacturing processes is modular in nature, new modules need to be installed and validated through full manufacturing runs which is a time consuming but unavoidable part of BLA development plan.

Also at the risk consider, our goal is to prepare a submission that will be accepted for following on first submission and result in the shortest approval time and the highest likelihood of success as we can possibly achieve. We hope this shed some light on what we will be required for our BLA submission.

On the critical hiring front, we're working to identify key additions to the Vital Therapies leadership team that will be needed as we evolve towards a commercial stage organization. We recently added Gary Neumann to the management team as Vice President Quality. Gary has extensive experience with biotech companies such as Genentech and Novartis.

Gary will play a critical role in guiding the BLA submission. Looking ahead, we are in contact with a number of promising candidates for key leadership roles that will need to fill soon when we get [ph] a positive results. On a commercialization front, we're pursuing a number of initiatives to lay the groundwork for potential launch of ELAD.

We're working with outside consultants and clinical experts in the field of sAH to expand our understanding of the disease as well determine how we might best be able to reach these patients.

This effort will be on prior work including the recent publication of a development broader in the peer reviewed journal alcohol that we believe validates a size of the sAH market in the U.S. We continue to build out the value proposition that we believe ELAD may offer to the healthcare system.

In the event of positive results from 308, we believe that ELAD will demonstrate highly attractive quality adjusted life years or qualities as a potentially lifesaving therapy in a relatively young population.

We believe this will have positive implication for ELAD's reimbursement since the cost effectiveness ratios that pairs evaluate could be quite favorable, particularly when compared to other life extending therapies. In addition, we have been meeting with key experts in the field to confirm our thinking around our launch strategies.

It's been great to hear directly from them as we seek to optimize our approach to centers of excellence for the treatment of sAH. To date, the feedback from these experts is very encouraging due to potentially lifesaving nature of the ELAD. We will continue to raise the visibility of the company and a positive topline data for the 308 trial.

Much of this will be focused on raising awareness around the serious nature of sAH and the appropriate characterization of this patient population. There is already growing awareness of how prevalent alcohol related liver disease is becoming.

Just last an article published in the BMJ documented the sharp increase in deaths related to alcohol consumption in the United States between 1999 and 2016 particularly among those in their 20s and 30s.

While that study focused on chronic liver disease, increased alcohol consumption among the young likely has implications for acute forms of liver failure as well. So it's important to educate the public about this growing problem.

This is only a snapshot of the activities we're undertaken as we prepared for moving forward in the event of positive results from our VTL-308 clinical trial. We hope to report more on these activities in the near future. I'll turn the call over to Mike for a discussion of our second quarter financial results..

Thank you, Russ. We ended the second quarter with cash and cash equivalents of $31.1 million. Our average monthly cash usage for operations and capital expenditures during the second quarter was approximately $4.2 million. Our use of cash is shifting from clinical development to BLA related activities and anticipation of future BLA for ELAD.

Assuming our current level of operation and limited BLA in commercialization related expenditures, our quarter in cash balance would fund our operations through the first quarter of 2019. Summarizing our results for the quarter ended June 30, 2018. The company reported a net loss of $12.7 million or $0.30 basic and diluted loss per share.

This included non-cash expenditures for stock based compensation, depreciation and amortization totaling $2 million. This compared to a net loss of $1.4 million or a $0.29 basic and diluted loss per share for the second quarter of 2017, which included $1.4 million for the same noncash expenses.

For more detail on these financial results, please refer to our press release and our quarterly report on Form 10-K. With that I turn it back over to us Russ..

Thanks Mike. We truly look forward to reporting 308 topline results in a second half of September. We are unlikely to have any significant announcements before announcing those results and so this may be one of the last opportunities to address any questions you may have before then. I'd like to open up the call to your questions.

In addition to Mike, joining me 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, can you please provide instructions and open up the call for questions?.

[Operator Instructions] And our first question comes from the line Laura Chico from Raymond James. Your line is now open..

Hey, good afternoon and thanks for taking my questions. I just have a couple here, first a clarification question. Russ, if I'm reading the press release correctly, your comment it sounded like you're not in data lock yet.

Could you just confirm have you actually crossed the event trigger, I believe it was 55 events?.

Yeah. So thanks for the question, Laura. So just remember that 55 is an approximate number, so that's not a moment in time or we have to lock the database. And you are I think assuming correct in terms of how you are reading the timing, but I will refer to Rob and maybe he give you a little bit more color there.

Rob?.

Sure. Hi, Laura. Yeah you remember we - the way we're dealing with the sort of number of events that we anticipated was that we made a prediction of when we anticipated we would hit the 55 event point is what I would say that counting events as they come in or anything, we're blinded to that information.

So we'll lock the database at the point where that prediction suggested that we would have 55 events. And we don't absolutely have to have 55, a range around that number but we're lock database when our calculations anticipated that are 55 event number will take place and that will be soon..

Okay. That's helpful. So if I can just say that you are blinded to the actual events, but based on your calculations that will triangulate off of and trigger the data lock.

Is that what I hear?.

Yeah..

Okay..

I'm not really - our calculations it was our independent study station that do that conclusion. We didn't even look at the preceding data to do that calculation. We have people independent from us do that calculation for us..

Okay. Thanks, Rob. That's helpful. I guess just two quick follow-ups.

And I was looking back at the Analyst Day slides, and I'm just wondering could you remind us you were doing the 208 analyses and you looked at a subset of patients that had elevated MELD scores and if we look at the curve there, it looks like that ELAD group and this is just in the elevated MELD over 30, it looks like ELAD patients fared a little bit worse in control and Rob and Duane I know you both talked about this pretty extensively, but could you just remind us kind of the rationale or hypothesis for why that is actually occurring?.

Hey, go ahead, Rob..

Sure. So as you know MELD is made after three biomarkers, one is the better word and the fact is one is deliver and when we looked at the data and we look the impacted we revealed on data then subject on ELAD just as well. Irrespective of the delivered, ELAD will just control patients.

But when you look at the other two factors, AILD which is measure coagulopathy and which measure of kidney failure. Yeah, those patients which were already moving into kidney failure already have evidence of coagulopathy, the ELAD patients didn't do, as well as the control patients.

And I think there are number of explanations that are consistent with for example the extracorporeal therapy such as ECMO and is probably a function based on the coagulopathy side of the destructive nature of carrying out extracorporeal therapy, bladder on tubes and so on.

And then on the kidney function side, it simply indicative of subject to patients who are essentially moving past the point at which ELAD which doesn't address kidney function directly, could be anticipated to help, so sort of fell off the cliff if you like. And really this was what directed the design of the three way study.

And particularly pushed us towards the idea of getting these patients earlier in the disease process prior to them moving into these secondary organ distractions which he would say clearly almost inevitably fatal.

We have to be able to address that in the future but with the ELAD systematic and its center today as those patients were excluded from study..

Okay. Thanks. And one last one up in the queue. Russ you mentioned the primary endpoint for this would be overall survivor, I think you alluded to a couple additional pre-solidified analyses that will be also performed in the topline analysis. Is there anything you can kind of share with us in terms of what you expect there? Thank you..

Yeah, I mean I think the one thing that you should recognize is topline results are going to be specific to capital analysis, but I'll let maybe Rob and Duane and Jan talk maybe a lot about things that you will look out.

You can imagine we were running all kind of different analysis just to make sure that everything holds up exactly where we want, but then there is some other secondary endpoints that we look at. So Rob, go ahead..

Sure. The primary endpoint is exactly that you described in the capital analysis of overall survival after at least 90 day of follow-up. Just like with the last study, we also be looking at proportions of survivors, given puts in time 28 days and 91 days.

And will be in terms of disorder that kind of once better exploratory in our next level analysis, we will be carrying out very similar analyses to what you saw us present for the date day plus few others based on our experienced and based on the experience from these doctors' study which might help eliminate the mechanism of action might help eliminate outcomes some more help drive the labeling for the product.

But really the primary and secondary endpoints are the critical ones and that's the captain analysis will go survival at 90 days and secondly end points of proportion of survivors. Yeah, I don't know whether you want to expand on it..

All that I can see is that a large part of the analysis is of course to make sure that the groups are balanced in all kinds of potential barriers, the baseline emergences, the baseline age things like that just to make sure that there are no other areas that would propose a positive results if we have one just making sure the groups are balanced is the big part of that..

Thanks very much, guys..

Thanks, Laura..

[Operator Instructions] And I show no further questions at this time. I would like to turn the call back over to Al Kildani for closing remarks..

Again I'd like to thank everyone for joining our 2018 second quarter update call. We look forward to speaking to you again after announcing topline results for VTL-308 next month. All have a great evening..