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Vical Incorporated (NASDAQ:VICL)

Q4 2012 Earnings Call

February 6, 2013 12:00 am ET

Executives

Alan R. Engbring – Executive Director of Investor Relations

Vijay B. Samant – President and Chief Executive Officer

Jill M. Broadfoot – Senior Vice President, Chief Financial Officer and Secretary

Analysts

Jonathan Eckard – Citigroup Global Markets Inc.

Stephen Willey – Stifel, Nicolaus & Co., Inc.

Howard Liang – Leerink Swann LLC

Lee Kalowski – Credit Suisse Securities

Ritu Baral – Canaccord Genuity, Inc.

Nicholas Bishop – Cowen & Co. LLC

Reni Benjamin – Burrill & Co. LLC

Operator

Good day and welcome ladies and gentlemen to the Vical Incorporated Financial Results Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for question-and-answers from invited participants after the presentation.

I will now turn the conference over to Mr. Alan Engbring, Executive Director of Investor Relations. Please go ahead, sir.

Alan R. Engbring

Hello everyone. Welcome to our 2012 financial results conference call. Participating on the call today are Vical’s President and Chief Executive Officer, Mr. Vijay Samant; and Vical’s Chief Financial Officer, Ms. Jill Broadfoot.

I will begin with a brief notice concerning projections and forecasts. This call includes forward-looking statements including financial expectations and projections of progress in our independent and collaborative research and clinical development programs that are subject to risks and uncertainties that could cause actual results to differ materially from those projected, including the risks set forth in Vical’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission, as well as the specific risks and uncertainties noted in Vical’s news release on 2012 financial results. These forward-looking statements represent the company’s judgment as of today. The company disclaims however, any intent or obligation to update these forward-looking statements.

Now, I would like to introduce Vical’s President and Chief Executive Officer, Mr. Vijay Samant.

Vijay B. Samant

Thank you, Alan, and welcome to all our participants. Today, we’ll review our accomplishments in 2012 and our expectations in 2013 for our key development programs. However, we’ll begin with highlights from our financial results and projections presented by Vical’s CFO, Jill Broadfoot. Jill?

Jill M. Broadfoot

Thank you, Vijay. Earlier today, we reported financial results for 2012, which reflected continued advancement in our product development program supported by a strong balance sheet. Revenues were $17.5 million for 2012 compared with $30 million for 2011. The decrease in revenues was driven primarily by the evolution of our relationship with Astellas under our TransVax CMV vaccine agreement.

In 2011, we received a $25 million upfront license payment and initial reimbursement from Astellas for our expenses in support of the TransVax program. In 2012, we received a $10 million milestone payment from Astellas for finalizing the design of the phase 3 trial for stem cell transplant recipients, and we received higher contractor revenues from Astellas for delivery of the clinical trial material.

Our net loss for 2012 was $22.9 million compared with a net loss of $7.3 million for 2011. The increase in net loss was driven primarily by the lower license revenue, partially offset by the higher contract revenue. Our full year 2012 net cash burn of $19 million, excluding cash from financing activities, was within our forecast range. We ended the year with cash and equivalents of $86 million.

For 2013, we are projecting net cash burn for the first half of 2013 of between $18 million and $20 million. We limited our projection to the first half because the results we expect in midyear from our phase 3 trial of Allovectin will determine the scope and direction of our future activity. After those results are announced, we intend to provide more detailed guidance on our path forward and update our forecast for the remainder of the year.

Our first half projection include preparations for success in the Allovectin trial, especially long lead time activities needed to support a timely BLA filing. We are maintaining aggressive schedules within our manufacturing, clinical and regulatory department and refining our plans for commercialization, balancing fee versus expenditures. While pursuing these activities vigorously, we are deferring staffing increases and large expenditures on commercialization activities until after we see the results.

We are completing our commercial manufacturing process validation and related analytical validation. Specifically, we are producing conformance lots at commercial scale to demonstrate consistency, comparability and stability. We’re evaluating commercial product supply and distribution networks. We’re preparing systems and compiling supporting materials for electronic BLA submission. And finally we’re developing our comprehensive launch plan with expanded market research to optimize decisions on pricing, reimbursement, branding, and distribution.

With that, I will now turn the call back to Vijay.

Vijay B. Samant

Thank you, Jill. I’ll continue on that same theme today with a brief update on our Allovectin program. I want to focus this morning on our recent progress, our current status and our remaining steps to trial completion.

I'll remind you that Allovectin trial actually compares Allovectin standard care. It was designed under special protocol assessment. Our primary endpoint is response rate 24 weeks or more after randomization, and our secondary endpoint is overall survival.

We believe our trial is appropriately powered for both efficacy endpoints. The recent approvals of two new melanoma drugs Yervoy and Zelboraf increased the importance of survival both for the regulatory approval process and for positioning in the marketplace. We have established a target number of death event that we believe that are needed to provide the statistical power for evaluation of the survival endpoint.

Our secondary endpoint is overall survival, which evaluates significance of differences between the treatment and control arms, or the entire length of the survival curves, as you see them in the Kaplan-Meier plot. Waiting for the survival data to mature, which means waiting for the target number of death events, is crucial. With immunotherapy like Allovectin, the treatment effect may occur much later than with chemotherapy, and this could result in a Kaplan-Meier curve with a long tail effect and a greater separation between the two survival curves at later time point.

We are tracking the overall death events for both arms together in a blinded fashion. There is typically some delay between the death of date and the day on which the death is reported. To align the reporting for surviving patients, we conducted a comprehensive sweep across all clinical sites last September, that sweep confirmed that we had not reached our target number of death event, but it did give us a good status update and helped us define the combined overall survival trend today. We used this information to estimate the future survival trend and have projected that we should reach the target number of death in mid-2013.

We are on track with our mid-2013 estimate, but we intend to conduct another data sweep by the end of March to track our progress. And people ask me, when are we going to reach that target event rate, and I said mid-2013. But the best way to describe is an analogy. We started, if we are you are traveling from Midwest to New York City, say Rockefeller Center, all I can tell you is we are right now in New Jersey and we are approaching Rockefeller Center soon. However, we don’t know what kind of traffic we’re going to encounter in the Holland Tunnel. Maybe one of the lanes is closed. We don’t know we’ll find out.

Meanwhile, the independent adjudication of the data for the primary endpoint is advancing on schedule. This comprehensive process is being conducted with greater attention to detail and will be completed by the time we reach our survival target. As a reminder, the adjudicators and the company remain blinded as to which patients are in which trial arm throughout the process. We intend to unblind both the response rate and the survival databases and to announce the results simultaneously. If our phase 3 results were positive, we intend the file the BLA as quickly as possible. Our goal is six months after data release. Once we complete the filing, based on Allovectin’s fast-track status an orphan drug designation for metastatic melanoma, we hope to receive a priority review which would streamline the regulatory approval process.

Assuming approval with a label that supports use of Allovectin in the initial target patient population based on our phase 3 criteria, we believe that the peak annual sales worldwide could reach about a $1 billion. Potential market expansion opportunities in melanoma include new adjuvant use in large number of patients with earlier stage diseases, use in combination with other therapies, and using certain patients with more advanced diseases if they have an underlying sufficient healthy prognosis.

Remember also that Allovectin potentially has a broad use beyond melanoma and may be useful for patients with head and neck cancer and other solid tumors. As we approach completion of this pivotal trial, we are really excited by our progress, and we believe that the rewards will justify the investment.

I’ll move next to brief updates on our other key programs beginning with our TransVax collaboration with Astellas. We continue to work very closely with our Japanese partner Astellas towards the initiation of two trials, a multinational pivotal phase 3 trial and recipients of hematopoietic cell transplant and a phase 2 trial and recipient of solid organ transplant.

We recently met with Astellas in Japan. They are very enthusiastic about the progress with the TransVax program, while harmonizing the trial design across the United States, Europe and Japan, has taken longer than originally expected. That effort is behind us were an Astellas expect to initiate both trials in the first half of 2013. The manufacturing material required to start the clinical trial has been completed. The Phase 3 trial will begin in the United States and then expand to Europe and Japan, we intend to provide details on trial designs and the timelines when the trials begin.

In our vaccine development program for herpes simplex 2, we recently announced the publication of prophylactic and therapeutic vaccine results in the guinea pig model supplementing the prophylactic vaccine results published last year in the mouse model. We are progressing well with the remaining preclinical requirements and preparations for an IND filing, and we plan to initiate a phase 1/proof-of-concept study in the second half of 2013.

As a reminder, our initial application is for therapeutic vaccine intended for people already infected with herpes simplex 2. Worldwide more than 500 million people are living with chronic HSV-2 infection, which represents about one out of six or one out of five people in the 15 to 49 age group. While 80% of those infected typically show no symptoms, but 20% who do suffer from periodic genital lesion outbreaks, some as often as monthly, the only treatment is antiviral drugs, which does not eliminate the underlying infection and must be taken consistently to control symptoms and the compliance is not very good in this area.

Unfortunately, most patients go untreated and sustained compliance among those who do receive treatment, as low as I said before especially between the outbreaks. Viral shedding does not stop between the outbreaks in both asymptomatic and a systematic patients can transfer disease to others. A vaccine regimen may include a few initial doses potentially followed by periodic booster starts, for individual patients, the reduction and frequency and severity of lesion outbreaks would provide welcome relief and have been return to a more normal lifestyle.

Additional population based benefit could result if the vaccine proves effective in reducing shedding, which could lower transmission rates and start to bring the worldwide health concern under control. We believe a conservative estimate of peak annual sales for such a vaccine, a therapeutic vaccine could be at least a $1 billion worldwide.

Potential market expansion includes the 80% of the infected population that’s asymptomatic and eventual development of a prophylactic vaccine to protect broader uninfected population. Our Phase 1/2 trial is well designed to demonstrate proof-of-concept with clear clinical endpoints, success of this initial drug should support discussions with potential partners with capacity and resources needed to best leverage the significant opportunity.

Finally, I would like to take some comments on our adjuvant, Vaxfectin. We have been working with a number of potential Vaxfectin licensees for several years and those efforts have began to yield tangible progress beginning in 2012. In September of last year we entered into a worldwide non-exclusive license with BMS, Bristol-Myers Squibb to use our DNA immunization technology and Vaxfectin adjuvant to generate hybridomas for the production of antibodies.

In December, we entered into a worldwide non-exclusive license with Cyvax, a privately held company to use Vaxfectin in malaria vaccines. These two first licensees of our Vaxfectin adjuvant represent our initial acceptance in a wide open field. The vaccine industry’s research for adjuvants with winning combination of safety and efficacy has been elusive with many companies developing, candidates and a few succeeding. The latest casualty, if you read the news has been a novel adjuvant developed by a big pharma and used in the recent swine flu vaccine. That vaccine was broadly distributed in certain European countries during the 2009 outbreak and subsequently linked to narcolepsy.

We are encouraged by the results we have seen to-date with Vaxfectin. Vaxfectin is an advanced adjuvant. However, it’s simple to make. It has broad range of applications from animal studies and initial safety studies in humans. We are eager to pursue additional commercial applications both in our internal development programs and through for the license agreement.

Our outlook for 2013 is based on anticipated milestones in each of our key development programs. We expect to reach the target number of death events in our phase 3 trial of Allovectin and release the top-line results for the primary and secondary endpoints in middle of 2013. Our partner Astellas expects to initiate a phase 3 trial for TransVax stem cell transplant recipients and a Phase 2 trial of TransVax in the solid organ transplant recipients in the first half of 2013. We plan to initiate our Phase 1 flash 2 proof-of-concept study for herpes simplex 2 in the second half of 2013. We expect the net cash burn in the first half of 2013 between $18 million and $20 million will report future progress and it occurs in our quarterly updates.

That concludes my prepared comments for today. Operator we are now ready to open the call for questions from our invited participants.

Question-and-Answer Session

Operator

Thank you, Mr. Samant. (Operator Instructions) Our first question comes from Jonathan Eckard with Citi. Please go ahead, sir.

Jonathan Eckard – Citigroup Global Markets Inc.

Well, thank you very much for taking my questions. Thank you for the update on the production activities that you are planning in the first half. Can you give us a clearer picture with regard some of these, that if everything goes as planned, how far advanced will you be in the CMC process if the trial were to hit, or how much extra, how much more time would be needed to complete those kind of needed CMC aspects of the filing?

Vijay B. Samant

Excellent question, Jonathan. I think we will be complete with almost majority for all of CMC activities and the key component of the CMC activities are really the conformance lots, both at the bulk level and the conformance lot at the finished level, and putting these new conformance lot and stability and we need to get that done. And those activities will be complete by that point in time.

Jonathan Eckard – Citigroup Global Markets Inc.

Very good. And if I could ask one more question on the Vaxfectin asset, you have these. You talked about some of the recent licensing agreements that you did last year. Now going forward, what’s the most optimal way to monetize this asset? Is it to do more of these nonexclusive licensing agreements and cast a broad net, or is there other ways that may be more strategic?

Vijay B. Samant

Well, it all depends on case by case basis, okay. There are some companies, so the reason I featured Vaxfectin this time obviously is because our success in 2012, but we have also been working with a lot of people behind the scenes, okay. And nothing is done till it’s done, because everybody wants to test Vaxfectin in their own mousetrap to make sure the results reflect their best mousetrap compared to Vaxfectin and this takes occasionally time, because most of the companies, the big companies particularly have their own bureaucratic way of going about doing it.

So we have a lot of activity going on and we’ll be using a Chinese menu approach for smaller companies. There will be nonexclusive licenses for larger companies. They always want exclusive licenses in the field that they are working on. So it’s going to be a mixed bag approach, but this is an important asset. There is a lot of talk of adjuvants, new adjuvants. I won’t mention companies by name, but some of them have gone away. The only one that’s out there is MF59 that people have, the opium companies have, but that’s passé now. It’s a tree-derived adjuvant. This is a synthetic adjuvant, very easy to make.

We have gone into human studies, okay. So this is not something that we are talking preclinical work with no human experience. We have done two human studies and we have tested in a variety of applications, in cancer proteins, with [skilled] influenza vaccine, we published studies that, when we took Sanofi’s Fluzone vaccine few years ago, we showed almost a 24, and I may be off by a magnitude, but a significantly dose-bearing capabilities of Vaxfectin. So that’s the reason. The asset is slowly reaching a level of maturity, and I thought it was important today to kind of highlight to people who were wondering what is there in Vical other than CMV, Allovectin, Herpes Simplex 2, which a lot of companies don’t have the breadth that we have.

Jonathan Eckard – Citigroup Global Markets Inc.

Great. That’s great. I’ll get back in queue, let other people ask questions.

Operator

Thank you. And we’ll take our next question from Stephen Willey with Stifel Nicolaus.

Stephen Willey – Stifel, Nicolaus & Co., Inc.

Hey, just a couple of quick questions. So when it comes to the adjudication committees, do they have all of the data other than the overall survival, or is it going to be [weighted] until you hit the number of primary events and the adjudication committees will still get further patient files?

Vijay B. Samant

The adjudication committee is only adjudicating response rate. There is no adjudication on survival, just to make sure, because survival is counting bodies, okay, who’s alive and who’s dead, okay and make sure you have recorded correctly.

The adjudication committee, by the way, is only looking at response rate. They are looking at in a blinded fashion. They don’t know which arm the patient is. They are adjudicating the entire patient population, even if the patient progress before week 24 and he was not going to be a responder, the agency wants us to adjudicate everybody. So everybody is getting adjudicated, not only the responders, okay.

So every patient, even if the patient was on the study for eight weeks, he or she will get adjudicated, okay. So there is no bias. And again reminder, the oncologist and the radiologist are blinded. They have no idea which arm the patient is on.

Stephen Willey – Stifel, Nicolaus & Co., Inc.

So the adjudication committee now has the files for all the patients, or as the patients have so treated, they’re going to…?

Vijay B. Samant

So after the database is closed, the adjudication committee, or really the rate-limiting step, there are three oncologists who live in three different parts of the world. They fly to a third-party vendor once every several weeks and spend Friday night, Saturday night and Sunday all day and go through systematically patient-by-patient, case-by-case.

There are several scans on each time point and they make sure they go through them very thoroughly. And so, they have been chomping at it, and of those 390 patients we have, and we still have not reached the [300]. We have not completed all the 390 patients. There is still work to do. So the way the work is going, what I said in my script is that we should be just about complete by the time, the mid-2013 unblinding time. So we should have both the datas available around the same time.

And anyway, even if we were to complete sooner, which we don’t, I don’t think we are going to complete sooner. The datas of third-party database will not be transferred to Vical. Vical, by the way, is not involved in the adjudication process. We are (inaudible) when the adjudication is going on. The data is blinded. It’s at a third database. And when we say it’s complete and we ask them through a secured measurement to transfer the data, the data will be transferred to us.

Stephen Willey – Stifel, Nicolaus & Co., Inc.

Okay. Thanks for the clarity, Vijay

Vijay B. Samant

Thank you.

Operator

And we’ll take our next question from Howard Liang with Leerink Swann.

Howard Liang – Leerink Swann LLC

Thanks very much. I guess my first question is where are you in New Jersey? Are you close to Holland Tunnel yet?

Vijay B. Samant

You look like a New York resident. We are not in Eastern Pennsylvania, just crossed into New Jersey. We’re in Central Jersey. We are approaching, just to say, we are in the middle of New Jersey.

Howard Liang – Leerink Swann LLC

Okay. So actually, I’d like to discuss a scenario that you meet your primary endpoint in overall response rate, but not the secondary endpoint, overall survival. Can you talk about under what scenario will you file if that’s the case?

Vijay B. Samant

I think your question is an excellent question. Your question is that we meet our primary endpoint with flying colors, but on secondary point, we do not meet the endpoint. I think then we’ll have to look through an expert committee, are we showing a trend, how close we are to be 0.05. We show a negative trend.

Obviously it’s going to be hard. And if we are showing a good trend then, certainly there’s a chance that we will go on (inaudible), but if we have a complete negative trend, it’s going to be very hard to justify. Though the agency is bound by the SPA, bound is the unfair word to use. Survival is an important endpoint after approval Zelbarof and Yervoy and we need to make sure that we at least show a trend there. But until we see the data, it’s hard to predict what’s – we haven’t defined the bounds yet.

Howard Liang – Leerink Swann LLC

So the agency has not told you that a statistical – overall survival needs to be statistically significant?

Vijay B. Samant

Our SPA right now, the primary endpoint is response rate, okay. Secondary important is survival, but it’s commence sense that if we show a negative trend on survival right now with survival being approved for two drugs, the agency is not going to look at that very kindly, okay.

Howard Liang – Leerink Swann LLC

Sure. But the reason to look at survival, was that a commercial consideration, or was that based on regulatory feedback?

Vijay B. Samant

Well, I mean, we have informal regulatory feedback, and the recognition, as you know, SPA is based on what the landscape is at that point in time. Remember, this trial started long time ago. The landscape has subsequently changed and agency always has the ability to go and look at what has changed the landscape. And common sense tells you that survival is going to be an important marker now in any approval of any melanoma drug.

Howard Liang – Leerink Swann LLC

Okay, great. Thanks very much.

Operator

And we’ll take our next question from Lee Kalowski with Credit Suisse.

Lee Kalowski – Credit Suisse Securities

Great. Thanks for taking my question. Maybe start off with one or two for Jill. Just if I look at the cash flow guidance for the first half of the year, and looking at where Q4 came in, does look like a little bit of a step up. I guess that’s to be expected. Could you just give a little bit of clarity on which line you sort of see this coming from? Is it R&D, manufacturing, production, SG&A, maybe just come clarity on that? And just to be clear, this is ex- financing. There are no milestones expected in the first half here either, correct?

Jill M. Broadfoot

Correct. Yeah, there is no milestones expected in the first half of 2013, whereas if you look at the first half of 2012, we did receive the $10 million milestone payment. And just taking the $10 million out of the cash burn for the first half of 2012, your cash burn would have been approximately $18 million. So we’re not too different from the first half of 2012, but the additional expense is basically what I said in the script. It’s for preparing for success and mostly for CMC type of related activity, so what Vijay was explaining with conformance.

Vijay B. Samant

Those are long lead-time activities, and if we wait for after P value to start those activities, we’re going to significantly delay the BLA filing and that’s why we have to do those, okay. But we are postponing, as Jill said in her script, balancing speed versus spending and we have just taken a pretty conservative approach, but doing things that are necessary, but not doing things that are not necessary where we can catch up very quickly.

Lee Kalowski – Credit Suisse Securities

Now that makes sense. But just to be clear, is that booked in the manufacturing and production lines?

Jill M. Broadfoot

It would primarily be in manufacturing, correct.

Lee Kalowski – Credit Suisse Securities

Okay. And maybe one last question for you, Vijay, give you an opportunity to answer a question. Could you just walk through briefly the timeline basically before the data is released and after the data is released? I guess specifically just wondering how much time it will take from the time the events are reached until the time it can be released, and then, once the data is in hand, how long it would take to submit filings.

Vijay B. Samant

Let me tell you what the reality is, okay. The minute we unblind the data, I am going to be under intense pressure, both my own personal pressure, pressure from my Board and everybody to release the data. So that is going to be. But we want to make sure we do it correctly. We want to make sure the data calculations are audited. We have some experts. Really world-class experts will be looking at it, but I will tell you, given the fact that this is such an important trial for us, that would take several weeks, minimum four weeks from the time we get the data to the point it’s released, okay, because we want to do it right and I don’t want to undersell.

Once the data is released, our goal is to – depending on we have the ability to release it at a conference level. We may just release the top line data and then present the data at the first available conference, but our goal, as we’ve said in our conference call this morning is that we want to file the BLA within six months of release of the data. So there’s a lot of work that we have to do, particularly both on the BLA component (inaudible) some of the commercialization activities, okay, which we are holding out some of the spending including new hires, including head of commercial operations, okay, which we intend to bring on if that occurs, okay.

Lee Kalowski – Credit Suisse Securities

Okay, thanks. Appreciate it.

Operator

Thank you. And we’ll take our next question from Ritu Baral from Canaccord.

Ritu Baral – Canaccord Genuity, Inc.

Hi, guys. Thanks for taking the question. Vijay, to drill in a little further on what you might expect from survival data from Allovectin, given that you’ve expected sort of continued separation of the survival curves in the last six months, do you still expect to see sort of an 11-month to 13-month placebo survival, or has that changed?

Vijay B. Samant

Our estimate, as we have said before, in our public presentation based on our analysis of the data and particularly after getting a good read on the demographics of the Phase 3 population, that number is in the 12-month to 13-month range is what we expect the control arm to be, based on and remember, to remind you, our analysis is based on some of the historical data for the (inaudible) our Phase 2 data where people got only one cycle or less, we basically didn’t get any Allovectin-7 and they represent basically the same patient population of Phase 3 study. And then going back to a low-dose Phase 3 study somewhat 10 years ago, which is our own database and we cull out the patient population, which match the characteristics of this patient study, that number is about 12 months. So that’s why I’m saying 12, 13 months is our estimate, okay. And nothing in my mind has changed, if anything that demographics of Phase 3 further confirms that we should be in that range, time will tell us when we unblind the date.

Ritu Baral – Canaccord Genuity, Inc.

So if that placebo survival rate would still lead to separation of the curves this far out?

Vijay B. Samant

Well absolutely.

Ritu Baral – Canaccord Genuity, Inc.

All right. And then, any additional detail on Astellas and the Phase 3 CMV trial? We saw a little bit of a delay. Has there been any other developments, or are the pre-trial activities just still coming together?

Vijay B. Samant

They are all coming together as I said in my call, I mean they are a smart company, they understand the transplant space well. They got all the leading transplant experts working with them, they want to make sure that before they start the trial that the regulatory design and in the U.S, Japan, and Europe was harmonized so that there is a clear understanding that the regulatory agency, this is the common endpoint that we’re going to use to get approval worldwide and Japan is always harder to get. It’s a country that we haven’t done any trials in the past so that’s taken a little longer, but I think it’s all coming together.

Jill and I were in Japan recently to meet with their senior team and there is a lot of excitement and this is kind whether you saw, this was listed at their JP Morgan as one of their top few programs in the CEO’s presentation, so we’re pretty excited. As I said in my call before that they have made the manufacturing material, we have a CMC meeting where we’re going to get together with them in the near future, where a big delegation is coming here from Japan, or we’re going down there. So a lot of activity going on, it’s just a matter of time.

Ritu Baral – Canaccord Genuity, Inc.

Great. Thanks for taking the question.

Operator

And we’ll take our next question from Nicholas Bishop with Cowen & Company.

Nicholas Bishop – Cowen & Co. LLC

Hi, thanks for taking my question. Just one or two actually on the HSV-2 program. I wonder if you could outline what you might expect a typical kind of proof-of-concept Phase 1/2 trial to look like in this indication. And then, longer-range, what do you think you need to show relative to trial design versus currently available antivirals? Do you think you need to have additive efficacy on top of that, or would you do a head-to-head, or what's the kind of longer-term thinking there?

Vijay B. Samant

The first question is a proof-of-concept study would be – we’re actually would take people who will get, I’ll just give you some numbers out the head, these are not the actual number in the trial design but take say 100 patients in each arm, one getting placebo, the other getting vaccine, what you do is, these people are shedding and have lesions, recurring lesions. Those are the patients who will be selected for the trial. For the first 90 day’s every week you’d establish a baseline shedding for each of the patient in both arms.

So you’ll have each patient in his own control as well as the composite of the group and then post, that shedding baseline establishment the next 90 days you give three shots of the vaccine and then post 90 days of the vaccination, you again kind of establish a shedding profile. And if you can show that you are having a complete statistical significances of production in shedding across the cohort, as well as the individual patients that tells you that the therapeutic vaccine is working. And shedding is the target marker for occurrence of lesions, okay, in those patients who get general lesions.

So that would be conceptual study. Will also get general recurrent data in these patients. So that would be a proof-of-concept study. That would then be expanded to a larger study where you do a safety study; there will be probably multiple arms in the study, one with the antivirals given concurrently in both arms, placebo versus vaccine in two arms where we just use patients who are not taking antiviral. So that basically efficacy design has not been laid out but there is a good residence of that by the way. The study that Larry Corey had conducted for Chiron few years ago, which did not meet the endpoint in several thousand patients.

So the agency has had a good understating and that was a prophylactic but the agency has a good understanding how these studies need to be conducted. So but we haven’t done a lot of thinking in the Phase 3 study. Right now energy is on Phase 2 study and we’re working with University of Washington because that’s where the expertise, the world’s greatest expertise on HSV lies there because Dr. Larry Corey is there and his team has really created a central vaccines both for intellectual property and trial design.

Nicholas Bishop – Cowen & Co. LLC

Okay, thanks a lot. That’s helpful.

Operator

We’ll take our next question from Ren Benjamin with Burrill & Company.

Reni Benjamin – Burrill & Co. LLC

Hi, good morning, and thanks for taking the questions. Just one question I guess, Vijay, regarding the adjudication process. Can you give us a sense of what percent might be complete? And could you comment at all if on the rate of discordance or the quality of the data that they've seen so far?

Vijay B. Samant

The answer to your question is the analogy what I gave on the survival, the analogy is we had in New Jersey except that this time we are out to George Washington bridge and we don’t we don’t expect a lot of traffic, so there is a clear timing when we’re going to reach into Manhattan and Rockefeller Center. So we’re getting dead, we’re on the last lot of that particular activity, okay? So we’re not going to get stuck in a tunnel there. In terms of the quality of the data, more than quality of the data, we need to make sure that you know the scans are properly time slotted and occasionally there is an audit done and if the time slots are not good then the doctors take this and put it on the side and the group that’s working with us will recast that.

We have not seen any – if your question is, hey Vijay are there 30% of the patients missing baseline scan, the answer is no, because if your base line scans are missing, you’re DD dead because you can’t, you don’t have a frame of reference to judge. So I think the data is pretty tight from our end. It’s occasionally you run into some technical issues and then you have to reread them. So yes there are some rereads but nothing of any concern, the quality of data generally very satisfying, despite the fact that we’ve collected data from variety of locations around the world, Okay. Remember we have three components to our lesion measurements.

We have physical measurements, we have pictures, we have CT scans and we also have scans occasionally for limbs, where there are lesions on them, okay. So there are a variety of data inputs that go into it and remember the physical lesion measurements are from the scan measurements, physical lesion measurements are the primary indicators and they are not really – the PI’s measurement they are not yet adjudicated, okay. It’s what’s been adjudicated are the internal lesions, okay.

Reni Benjamin – Burrill & Co. LLC

Got it. Okay. And just switching gears very quickly to the HSV-2, can you just tell us what's involved or remaining to start the clinical trial? So you have the mouse models, the guinea pig models they were all published, so what remains that a trial starts in the second half as opposed to, let's say, the first half?

Vijay B. Samant

The reason is you got to do, the pre-clinical safety tox study takes a long time to complete and then you have to submit the pre-clinical safety tox data along with the trial designed to the agency, so that’s the pre-clinical safety tox study is the rate-limiting step and that’s done, it takes six months to get done or eight whatever the number is. Then you got to make sure the data is audited and you make a submission of the IND and then within 30 days of the IND submission unless the agency has objection to that you start the trial, so that’s the rate-limiting step. We already have – the pre-IND meeting is all behind us. So this is not the first time we’re dealing with the agency on the subject matter.

Reni Benjamin – Burrill & Co. LLC

Okay, terrific. Thank you very much.

Operator

If there are no further questions I will now turn the call back over to Mr. Samant.

Vijay B. Samant

Well, thank you very much for all of you being in the call and we hope to see all of you sometime in the near future. Thank you.

Operator

Ladies and gentlemen, this concludes our conference for today. You may now disconnect.

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