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Vical Incorporated (NASDAQ:VICL)

Credit Suisse 2012 Healthcare Conference Call

November 14, 2012 4:30 pm ET

Executives

Vijay B. Samant – President & Chief Executive Officer

Analysts

Lee H. Kalowski – Credit Suisse Securities (NYSE:USA) LLC

Lee H. Kalowski – Credit Suisse Securities (USA) LLC.

All right, good afternoon everyone. Let’s want to we get started. Our next company is Vical, who’s lead product is Allovectin currently in Phase III for melanoma. So latest, which they said the data should be available next year, here to talk about Allovectin and Vical is Vijay Samant, President and CEO. Thank you.

Vijay B. Samant

Thank you, Lee. First of all thank you to Credit Suisse for inviting us to this conference. Before I begin, I want to remind you of our Safe Harbor. And we will be making some forward-looking statements. Please refer to our filed SEC documents are Ks and Qs to fully understand the risk associated and investment in Vical.

For people in the audience and on the webcast, who may not be familiar with Vical, we are a company with a core technology platform, which is based on DNA vaccines. Our lead program is in melanoma and with all excitement that’s going on with immunotherapy; I don’t know what you saw some of the data that came on PD-1 or the weekend. We have been the pioneers in the field of immunotherapy; we started working on in this immunotherapeutic before anybody else did and I want to tell you why this could be a game shift in the treatment of melanoma.

And we’re also on a franchise in cytomegalovirus, it’s a nasty herpes family virus, we have two programs they are one is fully partnered with the Astellas-1 unpartnered program. Allovectin-7, which I mentioned is unpartnered asset except, so it’s available for partnering in U.S. and Europe and maybe partnered in Asia.

The multiple validating partnerships in the interest of time, I would touch on just few of those, you can go to our website and read more about it. We will be making and launching Allovectin from our own precedent, and also will be supporting Astellas launch of CMV from our manufacturing facility. So we have a really fully functional manufacturing facility. Finally a strong balance sheet we ended the quarter with $92 million in cash, no debt and no liability.

So let me jump into Allovectin-7 it’s a first-in-class systemic immunotherapy. Immunotherapeutic we give it locally but it works systemically. We use the lesson as the classroom to teach the immune system. What’s wrong with that cancer, and once we teach the immune system what’s wrong with the cancer. The metastases for the lymph nodes and you get a systemic reaction, so if they local therapy, which has a systemic responds. So I think one of the fundamental things you need to understand.

Second thing it’s an intratumoral injection. And so when it’s given locally intratumorally, logically and naturally, you should have less side effects and that’s exactly what we saw in our Phase II trial. It’s given an outpatients studying conveniently, you get one injection per week and we continue doing that for six weeks followed by two week of observation periods. So the cycle of treatment is eight weeks. And in our Phase III study we treat patient up to two years.

Most patients start responding after two or three cycles of treatment. That’s about two cycles are 16 weeks and 3 weeks is 24 weeks, you’re talking four to six months. It’s a unique mechanism of action, I am going to take a minute to talk about and how the mechanism action works. It is an open drug; a fast track designation we have as I said mentioned both the U.S. and Europe in right.

And we have a special protocol is a agreement with the agency that allows us that would be meet some precedent points to get the drug, hopefully approved and I am tell you some of the challenges that we have there. Because of the new immunotherapies that have been approved. But we expect data to be valuable mid-2013, now a lot of investors are very unhappy. Why we are doing this obviously it’s very hard to predict how patients die. And in patients are not dying that necessarily it’s not a bad thing. That’s good immunotherapy, okay, are could to be good immunotherapy.

So we have changed their guidance periodically for the last 18 months or so. And a lot of people have criticizes like can be make prediction, but that’s what it is you cannot really predict the events rate, with what’s going on in the cancer field. I’ll talk more about the Phase III study in our timing little later.

But how does the Allovectin work, Allovectin has two genes that we include in our plasmid, one is HLA-B7, which is a gene rare in Caucasians and when you inject that plasmid into the cancer cell and expressed HLA-B7 of the surface you get an immune reaction is came to foreign tissue mismatch. And that immune reaction is so port, it leads to recognition of what’s wrong with that cancer cell. And that’s the beauty and you used the same tumor to teach the immune system. Some immune systems are smart and they learn within two cycles. Some go for two years about learning. Its like kids in the classroom you can read predict which to immune systems are going to learn quickly.

The second mechanism is that we are beta-2 microglobulin, which actually allows the details which are ability sales to see what’s wrong with the cancer cells when a cancer cell is defective like melanoma cell there what idea of antigens that are expressed of the surface. And those markers had to properly seen by immune system, if they’re not properly aligned and the immune system cannot see them, then the immune system is not going to react in that particular gene exactly allows restores that MHC class 1.

And the third mechanistic action is we have a cationic lipid known which is a pro-inflammatory, which access is the TLR 9 so you get a why the entirely immune system. So these three mechanisms working combination and some we will are predominantly and then others depending on the patient’s immune system.

Now this is as I said in the beginning in the immunotherapy that we working on but it’s a beautiful immunotherapy in a sense that mechanistically it as a lot of synergies with some of the new drug that are coming out. So as an anti-chemotherapy we don’t expect it to be countered what’s new and we actually demonstrated in animal models with anti-CTLA map, which is the version of Yervoy in animal model and show that when you combine anti-CTLP map an Allovectin together does better than anti-CLTP map alone.

Now that’s translates into humans there will be big boon in terms of a synergistic effect that would cost of survival. Now we just presented data on the new mechanistic new immunotherapies that are coming out TD1 where we showed in the animal model TD1 and Allovectin head to head Allovectin does better and we’ll be doing more studies, but ultimately the point of those combination studies is show that there is synergy, so this drug as a synergistic featured its not reading the end of wrote like some drugs doing immunotherapy.

So what is the basis of your excitement futures as CEO I am always excited about my own compound. So why should you is investors to be excited. Let me talk a little bit about Phase II study. Our Phase II study was a pretty large study, 127 patients and open label study take a look it was a stage 3, 4 study the stage 3 52% patients 48% with stage 4 melanoma there were brain mets and liver mets.

The LDH, which is enzymatic marker, was a normal level of LDH. So it is a healthy set of patients to fit a normal cancer patients and the reason we picked healthy patients because immunotherapy takes time to work and unique to make sure patients will healthy enough to live long enough to benefit from the immunotherapy. What did be showing safety and efficacy, first of all it was a drug for toxicity and adverse of it not a single grade 3 or 4 drug related adverse events, which is treatment of cancer.

Now objective response is about 12% by the resist criteria and on median survivals those of our closed about 19 months, but its circled red on those slide. Regard these numbers despite 60% of the subjects dropping out without completing one or less cycle of treatment. Why did people dropout completing one less of cycle, because you get, which you know in this business as known as aggression?

In immunotherapy the tumor board on actually initially increases or if the new lesion shows up despite the fact that the patients is benefiting from the treatment you know she is to be taken up from the treatment. So, what exactly is the good year despite how such a drop out rates, we’re pretty good efficacy data that we showed and what we’ve done in the Phase III studies, we’ve actually modified those criteria.

So patients can stay on the study for at least two cycles of treatment, even if when new lesion shows up as long as the clinician believes that the patient is benefiting from the treatment. So the aggression that you’re seeing in immunotherapy will be able to work on the Phase III data. We haven’t published the dropout grade in the Phase III of study we’ll publish that in the future.

So this is the Kaplan-Meier the doted line, which you see in the bottom is the dark lined and that’s actually the intensive treat patient population, which is all the patients, patients who dropped out one cycle, two cycle, three cycles and the medians survival that is about 18.8 months. The blue line on the top is the Kaplan-Meier for responders in 7.5 years into the study we’ve not reach median survival. So there is good correlation between patients or live longer and patients respond.

Now one of things we found in the studies of those 15 responders over complete 11 were partial majority of them or chemokine logically sound because patients of chemokine have healthy immune systems and therefore in Phase III study, we actually going to recruit only chemokine, we have included only chemokine patients, which is frontline therapy. Also the medians survival of chemokine patients was 22.5 months. So you’re also seeing a benefit despite the fact the response rates are better, the survival components also better.

So how did it compare on safety with the current therapy Yervoy, which is one of the frontline therapies? And I’m comparing apples and oranges here because they are from two different studies. But the bottom-line is our drug is given and an outpatient studying requires no pre-treatment, no pre-medication. And you know the median age of the patients in that study was 60 years, so we had really old patients. There were no withdrawals but drug-related toxicity. Tell me which cancer therapy that you’ve seen where there would be no withdrawal for drug-related toxins.

It is amazing how well it was tolerated compared to this Yervoy again from a different study, if I take it with a word of caution but take a look 10% to 15% Grade 3 or 4 adverse events, 14 drug-related deaths. So this is not a cakewalk okay, and neither Zelboraf a cakewalk. The Allovectin demonstrates a similar profile in Phase III and shows the efficiency indeed it’s going to going be a cakewalk, but we’ll see when the data comes out.

So what did we do in the Phase III study to improve on what we learned from Phase II? We recruited healthy patients, okay and what we did as a result by recruiting healthy patients we assured that the patient will at least get two cycles of treatment. We also took patients with functional immune systems. We had chemo-naive patients as opposed to all-comers in the Phase II study. And finally, the most important thing, we did is we modified the RECIST criteria. So patients could be on this study for at least two cycles of treatment without being pulled-off the study for new lesion shows up. And this will allow us to improve both the response rate functionality hopefully and the survival functionality.

Now, this study is designed to capture the advantages of immunotherapy. The primary endpoint in the study is response rate, and we’re measuring response rate between six months and two years, six months after randomization. So anybody who responds in the first six months is not counted. And logically in chemotherapy most patients respond in the first six months and they go on to progress. So our measurement starts at the optimal peak of the benefit of our therapy.

And the secondary endpoint is overall survival, but as you know with the approval of two new drugs now Yervoy and Zelboraf and now the PD-1s behind them, survival is going to be very important endpoint and we believe that based on some of the data we’ve shown on Phase II that is everything goes well, that’s going to be an important efficacy market that we’ll have to demonstrate. I’m going to talk more about that in a minute.

So this is a simple illustration how immunotherapy and chemotherapy works. The blue line is immunotherapy. The red line is chemotherapy. Response rate is on the Y axis and time. And depending on where you measure it, you’ll get a different answer. If you recollect, Yervoy is a study that Medarex did, which was a SPA on response rate. They did not meet the endpoint, because they measured the response rate too soon. And our response rate, by the way, will be independently adjudicated, so there will be no, it will be really a third-party determination. It’s not investigator-sponsored response rate. So there will be three independent oncologists who will be calling and looking at all the patients (inaudible) to call who the real responders are.

So what is the Phase III study design that is being completed, fully enrolled look like? 390 subjects, the study started in Jan of 2007, completed in Feb of 2010. It’s 2 to 1 randomized, 260 patients getting Allovectin, 730 patients getting dacarbazine or temozolomide. Patients have stage 3, 4 metastatic melanoma of lung mets, but no brain mets and liver mets. The maximum treatment period is two years and that maximum treatment period ended in Feb of 2012. It’d be at a last patient who got Allovectin and moved off the treatment.

So now the patient, the last patient treatment was complete. There is no patient on treatment right now. And we are approaching almost middle of next year, three years into the completion of the trial, okay. So it’s a small trial. It’s designed originally for response rate, but we will be looking for survival data coming out of the study, which would help. But in my conference call, though I stated verbally, a lot of people, I think patients are not dying in your study, because your patients in your Phase III are healthier than their Phase II study.

I’m showing you some data here and I want to repeat it and I’m going to systemically, particularly for my webcast audience. We had 127 patients in Phase II. We have 390 patients in Phase III. We have 50%, 48% Stage IV melanoma patients in Phase II. We have 63% patients to Stage IV melanoma. So our patients in Phase III are not healthy if you just look at the Phase IV characteristic.

Take a look at one, which is greater than one injectible lesion. We had 43% of patients in Phase II, which had more than one injectible lesion. We have 62% of the patients in the Phase III study were more than one injectable lesion. We have 62% of the patients in the Phase III study who have more than one injectable lesion, more lesions means the cancer have spread seriously. Injectable lesion means they would be more than 10 millimeter in size. ECOG level, ECOG 1, ECOG 0 and 1 of 77%, 23%, 80% and 20% fairly well balanced for the most important median age. The median age of the past study was 60. The median age in this study is 64. So we have really old patients. Go and look at the Yervoy study and look at the Zelboraf study and look at what the median age of those patients population was. So these are no way healthier than our Phase II patient population.

So the delay in the survival events is not necessarily bad in the study, that’s what I’ll stop not saying anything more. The Phase III efficacy end points, there are two end points. One end point is primary response rate, which is response rate measured at 24 weeks or more. We have a 90% powered to detect an absolute 10% difference and the survival is powered again at 90% to detect a difference between 18 and 11 months, 18 in the treatment arm and 11 in the control arm.

So what’s going on here, likely the control arm is living longer? The answer is probably yes. We have slightly healthier patients. And the fact that our new therapies that are becoming available and maybe the patients are getting new therapies and maybe they’re living longer. But let me remind you during the conduct of the study, we doubt any of our parents got any of these frontline therapies, the first time these therapies are available in the U.S. was May and September, our last patient was recruited in Feb of 2010, so half of patients hopefully were dead by the time these new therapies were available.

But given granted that be less assumed for the purpose of discussion, the number is higher and this is the benefit of the new therapy. But take a look at on the Allovectin phenomenon, the number was 18 months originally, but actually if you go to the chemo arm, (inaudible) the number could be 22.5 months. We are modified RECIST criteria, so more people are getting more Allovectin and if they indeed get more Allovectin, there should be more benefit on the survival front.

Impact of new therapies and the animal model we have shown some synergies, did the Allovectin of those synergies translated to humans that number could be high. Could the number be greater than 22.5 months? The answer is potentially yes. I don’t know, we’ll find out. But either one or two is correct or both are correct, either way the longer the time has gone, it allows us to capture, it improves our power of the study, it also allows us to capture the tail, the separation of the growth. If you take a look at the Yervoy study, there is a clear separation of the growth towards the end. And the fact that if we wait and we can capture the separation of the growth, we can really put points on the table showing that this drug besides its safety profile if it holds up in Phase III as the efficacy marker better, equal or better than the currently approved new drugs.

Just to kind of give you we completed sweep. Now what is the sweep? The sweep is basically you call up every patient during the month of September of 2012 to see whether he or she is alive. So at that point in time, you get an exact count of how many patients are alive. Normally that doesn’t occur and patients don’t like to be called everyday, particularly patients who are on dead bed. So this is a sweep that you can do every second month. People say why don’t you do a sweep every month? Well, you can’t do that, first of all the docs are not willing to do it; the nurse coordinators are not willing to do it. And so we’ve got a very accurate number in the month of September. And clear from that number that we are not going to reach the target event rate by the end of this year. So it would be unethical to tell you that I’m going to meet the target event by the end of the year and that’s why we announced why we’re going to meet it by the middle of the year.

Now that’s obviously an estimate based on the slope we are getting. We’re making progress towards the target rate but we are not there to the target event rate that I can tell you with a 100% eternity that is going to occur by the middle of the year and we’ll give you periodic updates where we are. But I am fairly confident that sometime by the middle of this year, we should be there to reach our target event rate.

What does we’re waiting help? Okay treatment impact of immunotherapy, normally occurs late that are late responders, okay. There is a long tail effect and which cause late separation of the Kaplan and Marcos and that has a huge impact on the P value and on the statistics. And we’re doing a small study, a single study and it’s going to be hard to repeat the study because the standard of care has changed and we need to make sure, we need to put good P value with a couple of zeros in front on the table in order for us to make this a very useful drug for the treatment of melanoma.

The adjudication of response rate which is the primary endpoint is ongoing. It takes long time. These oncologists meet on weekends. They came from three different locations. They go scan-by-scan, weakly visit-by-visit and so it has taken longer time, we want to do it thoroughly, it also gives us time to get this done completely as we’re collecting the survival data. So we’ll keep you posted where we’re but I think all-in-all we’re very pleased with the progress we’ve made in this trial today.

So this is the overall timeline. The data audit and data adjudication we expect to complete by the middle of the year and, we’re targeting based on the moving average rate that we got with the death rate, that we will reach our target demand rate, by the middle year our goal is to announce both the endpoints simultaneously, sometime next year.

I think immunotherapy is there is a lot of progress being made on immunotherapy. The PD-1, the CTLA mAb that made a lot of difference in Allovectin, which is one of the oldest immunotherapy started, we started working on it before everybody else, so indeed make a huge difference in PD some of the efficacy market.

Very quickly CMV 2 markets TransVax, which is the hematopoietic cell transplants and CyMVectin, which is a vaccine for female with childbearing age, they will get CMV infection during pregnancy big market like Gardasil. And we have an IND approved TransVax, which is for hematopoietic cell transplant is being bartered fully with Astellas.

Astellas is going to start a major phase II study, some people were little disappointed that yesterday we announced that instead of the study starting by the end of this year, we’ll start in 2013. These guys are going to recruit large number of centers both in U.S., Europe and Japan. They’re going to do the study faster than Vical could have ever done. Obviously, they do things differently, is the big company, they don’t have the flexibility of the nimbleness that we do.

But they will do a thorough study and we will be hopefully announcing the start of the study very soon. They was recently data pottering with Abbott to use their PCR Assay to recollecting the Phase II study, they use Roche PCR Assay, they are partnered with PCR. The clinical material is made and trial will start imminently and we’ve a lot of confident in terms of how Astellas does the work. Astellas has a lot of expertise in the transplant market; there we have a market progress, which is the leading drug in the transplant study. So it’s an amazing partner rebuilding the vaccine expertise, they bring the transplant expertise.

CyMVectin is a big opportunities I got a few minutes, few seconds left, 50 seconds left. Our goal is to start the study next year. There is no new drug approved, the only thing that’s approved is Valtrex, the most important thing as you walk away one out of four people in the United States as positive. And if those people are positive 80% of the people do not have any symptom so they are asymptomatic in their transmitting.

Financially, I think we're in great shape. We ended the quarter with $92 million of cash. Our guidance has been narrowed to 18 to 20, so our burn rate is always been low, if you look at the last ten years. We have no debts, no warrants, no lawsuits of any kind so far. Financially well positioned to continue with Allovectin, we have great partnerships, we have a great management team, really you know how to drug develop in the 50, 90s in the last nine years, none of the companies that you hear would have told you that, okay.

So I think the track record of dealing with the agency. So in terms of upcoming milestones top line data from Allovectin-7 in the middle of 2013, significant progress both on the solid organ transplant and the hematopoietic cell transplants by Astellas in 2013. That is the herpes simplex 2 therapeutic vaccine trial in 2013, so some of you where new to the Vical store. Here is a platform company with the broad technology, strong IP, a pivotal Phase III a factorable assets, which is a very good Phase II data to bank on. Two programs partnered with one of the big pharma Japanese companies and a pretty intense pipeline beside herpes simplex and finally fiscal response via manage causality very well. Thank you.

I think we don’t have time for questions. Thank you.

Question-and-Answer Session

[No Q&A session for this event]

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