Vical's CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: Vical Incorporated (VICL)

Vical Incorporated (NASDAQ:VICL)

Q1 2013 Earnings Call Transcript

May 9, 2013; 12:00 p.m. ET

Executives

Vijay Samant - Chief Executive Officer

Anthony Ramos - Chief Accounting Officer

Alan Engbring - Executive Director of Investor Relations

Analysts

Ritu Baral - Canaccord

Howard Liang - Leerink Swann

Jonathan Eckard - Citi

Stephen Willey - Stifel Nicolaus

Operator

Good day and welcome ladies and gentlemen to the Vical Incorporated, financial results conference cal.

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 a 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 Engbring

Hello everyone, and welcome to our first quarter 2013 financial results conference call. Participating on the call today are Vical’s President and Chief Executive Officer, Mr. Vijay Samant; and Vical’s Chief Accounting Officer, Ms. Anthony Ramos.

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 first quarter 2013 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 Samant

Thank you Alan and welcome to all our participants. Today we’ll provide updates on each of our key development programs and discuss our expectations for the remainder of 2013.

Let me introduce Tony Ramos, our Chief Accounting Officer who will begin the call with a review of the first quarter financial results. Tony, you’re on.

Anthony Ramos

Thank you Vijay. We reported financial results for the first quarter of 2013 earlier today. Revenues were $1.6 million for the first quarter of 2013, compared with $11.5 million for the first quarter of 2012. The decrease in revenues was primarily a result of the $10 million milestone payment from Astellas last year for progress in the TransVax CMV vaccine program.

Research and development expenses were $3.7 million in the first quarter of 2013, compared with $6.4 million in the first quarter of 2012. The decrease in R&D spending primarily reflects a sublicense payment we made in the first quarter of 2012 related to the Astellas milestone payment.

Manufacturing and production expenses were $3.7 million in the first quarter of 2013, compared with $2.5 million in the first quarter of 2012. The increase in manufacturing and production expenses was driven primarily by increased activity related to the Astellas agreements.

General and administrative expenses increased to $3.5 million in the first quarter of 2013, from $2.7 million in the first quarter of 2012, primarily as a result of higher compensation costs, which included the accrual of post-termination benefits related to our CFO’s resignation. These changes in revenues and expenses yielded a net loss of $9.3 million for the first quarter of 2013, compared with net income of $200,000 for the first quarter of 2012.

Our first quarter 2013 net cash burn was approximately $8 million, which is consistent with our first half forecast range. We ended the first quarter with cash and investments of $78 million.

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

Vijay Samant

Thank you Tony. We made an important announcement today, that we expect to complete the analysis and release top line results for both endpoints simultaneously during the third quarter 2013. Let me began and kind of walk you through our Allovectin program and get to that timeline.

As you know our Phase 3 trial of Allovectin with chemotherapy, which is the standard care, when the trial started in patients with metastatic melanoma, our primary end point is a response rate at 24 weeks or more after randomization, our secondary end-point is overall survival.

With regard to melanoma treatment landscape, the way it is, meaning two new products have been approved for survival, we believe that survival will be an important endpoint both for the approval process and for the commercial success of Allovectin. In our last quarterly conference call we discussed the importance of waiting for survival data to mature. I’ll focus today on our recent progress and our path forward.

As scheduled, we conducted a follow-up sweep of all active clinical sites in March, to get a real-time assessment of survival status. After completing the sweep, we met with a group of melanoma experts to review the progress to-date in the Phase 3 trial and are projected back to completion and I’m now pleased to confirm that we are on track to reach our target number of death events in the middle of 2013.

Once we reach the target number of death events, our clinical sites will submit final reports for each patient or survival database rendered. After data entry and added checks an independent audit will be conducted, and the survival database will be locked.

Meanwhile, the independent assessment and adjudication process for the primary endpoint is also approaching completion at our response rate database vendor. We expect data entry and final quality checks to be completed in the coming weeks, which will allow the adjudicated response data to be locked in July.

Remember that both primary and secondary endpoint data remain blinded to the database vendors and to Vical throughout this process. Once we are notified that both data sets are locked, we’ll initiate a transfer to our secure server and un-blind both databases and run the un-blinded data through a statistical analysis program.

We expect to complete the analysis and released top line results for both endpoints simultaneously during the third quarter of 2013. We expect completion of this clinical trail with great anticipation and we look forward to like all of you to see the results.

Next I’ll provide quick updates on our other key development programs. TransVax, since our last call we have continued to advance the TransVax program in close collaboration with our partner Astellas. We confirmed our product guidance in a news release earlier today that Astellas is expected to initiate a multinational, pivotal Phase 3 trail of TransVax recipients and hematopoietic cell transplant in the first half of 2013.

A planned Phase 2 trail of TransVax in recipients of solid organ transplant is expected to begin soon afterwards. As before, we intend to provide details on trial design, including endpoints and timelines when this trial begins.

Herpes simplex 2, in our vaccine developments program for HSV-2, we are beginning with a therapeutic application to help control outbreaks and shedding in people who are already infected. This application alone represents a significant unmet medical need and a large commercial opportunity, with more than 500 million people who are currently living with chronic HSV-2 infections worldwide and about one of every six people in the 15 to 49 age group.

Our drugs are even not available in some parts of the world, are not effectively used by a majority of these patients; virus shedding and transmission to partners with a chronic problem, where the patient suffer from periodic lesion outbreaks or not.

I’m pleased to report that we are approaching completion of our preclinical safety talks and bio-distribution studies and the program is advancing on track to initiate a Phase 1/2 trial in the second half of 2013.

Vaxfectin; I will conclude with some promising data for our Vaxfectin adjuvant. Earlier this week we announced the publication of preclinical results from Baxter's evaluation of our Vaxfectin adjuvant, in combination with several of their cell culture influenza vaccines. Baxter simply mixed Vaxfectin with their vaccines, which are both seasonal and dynamic strains of influenza and found substantial increases in both antibody and T-cell responses compared with non-adjuvanted vaccines.

Progress in the adoption of new influenza vaccine technologies has been slow and sporadic, driven by periodic dynamic outbreaks that highlight the shortcomings of historical approaches. Seasonal influenza vaccines provide limited protection, especially among elderly who need it the most.

Emerging streams of potentially pandemic influenza like the H7N9 strain spreading in Asia right now. Strain, the time and capacity limits of a current production methods, we believe that an adjuvant that could improve the efficacy of seasonal influenza vaccines can provide dose spreading enhancements of pandemic influenza vaccine, would be a tremendous value to vaccine providers and the affected populations.

Just to remind you, when we entered into two license agreements for Vaxfectin last year; one with Bristol-Myers Squibb for the production of antibodies and with Cyvax for malaria vaccine. We look forward to continue discussions with other potential licensees. Hope to see, but expecting to apply more broadly in the years ahead.

In conclusion, for the remainder of 2013, we expect to reach 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 in mid 2013, to lock the adjudicated response rate data in July 2013 and to release the top line results for primary and secondary endpoints in the third quarter of 2013.

As I said before, it expects to initiate a Phase 3 trial of TransVax in stem cell transplant patients in the first half of 2013 and a Phase 2 trial of TransVax in sole organ transplant recipients soon afterwards. We plan to initiate a Phase 1/2 of our vaccine for HSV-2 in the second half of 2013.

That concludes our prepared comments today. Operator, we are now ready to open the call to questions from our enlightened participants.

Question-and-Answer Session

Operator

Thank you Mr. Samant. (Operator Instructions). Our first question will come from Ritu Baral from Canaccord.

Ritu Baral - Canaccord

Hi guys. Thanks for taking the question. Vijay, is there anything that you’ve seen in the sweep of the data of the [non-Mo] (ph) trial to change your estimate of placebo survival of about 12 months?

Vijay Samant

No. If you remember, the sweep is all done in a blinded fashion, so all the data is blinded to us. All we know are the number of death events. We have no idea which harm they are in.

Just to remind you, that our trial started in Jan of ’07. It included the last patient in February 2010. The two year follow up was Feb 2012, so we are pretty long speared into this trial, okay, but going back to your question, we have no clues of that particular cycle. .

I have done in my prior conference calls my public presentations, we have done a pretty exhaustive analysis of literature, including our old Phase 3 study in (Inaudible) and we still believe that the numbers for Vic were up to 14 months in that range, okay.

Ritu Baral - Canaccord

14 months, got it. And could you remind us again, the break out between stage II and stage III in your Phase 2 versus what you are seeing in the Phase 3?

Vijay Samant

I know the Phase 3 number. I think it is 63 stage IV and 37 stage III paid down and it’s about 50/50 in the Phase 2 study. So we have sicker patient all through the median age and this group is in the mid 60s versus – Alan, 60 is what…?

Alan Engbring

60 in Phase 2 and 64 in Phase 3.

Vijay Samant

64 in Phase 3. So older patients and sicker patients, okay. This is a composite population, including both odds together.

Ritu Baral - Canaccord

Got it, stage III and stage IV. Sorry about that. One quick follow up, the Astellas CMV solid organ transplant trial, are the endpoints for that set? I mean, can we just look at sort of historical trials for solid organ transplant CMV and sort of know how that trial will look and I’m assuming that when you say that the trial will start soon afterwards, we are talking about a 2013 start with that trial.

Vijay Samant

Yes, absolutely. So I think just since you brought the subject of transplant from under the cover, the hematopoietic cell transplant is the first trial that will start and we are pretty eager, as soon as the trial starts, to kind of walk you through the trial design, including the endpoints, because I think Astellas has done an absolutely fantastic job in terms of coming up with a very, a profited endpoint, which will work on the strength for technology and also will have clinical meaningful benefit okay, as opposed to using an endpoint that a lot of people use. Such as progression free survival in cancer would be an example, which really doesn’t tell you whether the benefit survival in the long run.

So we can wait as soon as the trial starts to tell you what the trial design is, what the endpoint is and the more important thing is they’ve actually gone and harmonized all those – that endpoint across the three inter agencies. Primarily Europe and the United States, but also Japan, and its a worldwide trial and so I think that should be the first stage of it.

The second stage of that, after that will be the solid organ transplant study. The endpoint for that is going to be different from what’s in the hematopoietic cell transplant study, but I'm not at the liberty to disclose about that, but again, that’s a pretty straightforward endpoints, very much in line with what people have used in the past and depending on which study you look at and I think that also will play on the strength of our technology, and also hopefully providing meaningful clinical benefit.

Ritu Baral - Canaccord

Got it. Thanks for taking the question guys.

Vijay Samant

Thanks Ritu.

Operator

Your next question will come from Howard Liang from Leerink Swann.

Howard Liang - Leerink Swann

Thanks very much. So I think Ampton recently said that they think for TVax, it potentially is file able based on the durable overall response rate data. I guess we have some overall survival, maybe at the trend. Do you think that you still need both, overall response rate and overall level two-growth rate in order to file?

Vijay Samant

I think the issue is not whether its file able, the issue is whether it’s going to have a commercial potential, okay. The two products approved on the basis of survival are already in the market, and a couple of more products coming, such as the GSK products, potentially PD-1 and PD-L1, which are going to demonstrate hopefully lots of viable advantages.

If you don’t have a product that shows benefit with survival, even if you get through the FDA, because you have an SBA and the advisory already approves it, because you met your primary endpoint and your showing some trends in survival, commercially it’s going to be hard to push that product to the system, okay.

So we believe that in order to make a commercial dent and we believe Allovectin has some other advantages compared to some of the competition out there without getting into those detail. I think survival we believe is an important element of making Allovectin a commercial success, beyond approval.

Howard Liang - Leerink Swann

Okay, then I have a question on a combination. Based on the mechanisms of action, would Allovectin be more combinable with PD-1 or TVax and also is TVax combinable with Allovectin?

Vijay Samant

See, you need to understand, TVax, from what I understand from the public announcements, it’s a herpes simplex 2 replicating virus, which has encoded GMC effects in it, okay. So it’s a completely different mechanism than Allovectin.

Let me talk to you, why Allovectin would be a combinable with the PD-L1 Yervoy, right. In most melanoma, and you can go through the literature, only 30% to 40% of cancer cells have T lymphocyte infiltrates into the cancer cells, meaning the melanoma actually is not recognized with the immune system. So there are no T cells, T lymphocytes in there, okay.

Remember what Yervoy does; when there are T cells it makes sure those T cells are, the check point innovation mechanism, the PD-1 or Yervoy make sure those T cells do their job. Remember what Allovectin does. Allovectin by expressing (inaudible) at the surface creates a potent immunity action, so you get a whole bunch of T cells that are activated.

So the whole bunch of T cells are activated in the T lymphocyte infiltration, the tumor increases, then the checkpoint in it should work better with that mechanism and that’s why that combination ought to work.

I’m not clear or in don’t know mechanistically how TVax would actually help in that combination study and I’m not seeing Amgen in their public definition address any preclinical studies demonstrating the advantage of combination of TVax. So at this point I can’t comment on that drug. But we definitely have mechanistically at least and show the models of the samples that are going to help us.

Howard Liang - Leerink Swann

Okay great. And just lastly on the timidly, I think you gave a very specific timeline of database lock in July. So does that mean you already have reached a prespecific number of events.

Vijay Samant

No, no. We said we expect to reach a specific number of events by the middle of 2013.

Howard Liang - Leerink Swann

Okay, all right. Thank you very much. Okay.

Operator

(Operator Instructions). We’ll move next to Jonathan Eckard from Citi.

Jonathan Eckard – Citi

Hi, thank you for taking the call. I was wondering if you could remind us of what other published literature or published information that is about the different vaccines you’ve combined with your agenda and just to remind us to date, what ones you have combined where there’s data available.

Vijay Samant

We have published actually a series of publications, which we have tested it in the modality of DNA vaccine. We have tested in the modality of cancer vaccines, we have also combined with killed vaccine, so a variety of papers have been published, but (inaudible) and we’ll make it available through Alan. If it’s not on the website, we’ll put it on the website.

But just go with the DNA vaccines we have done; two studies with H5, one study with Swine Flu, we have done now a generation of antibody study with Bristol-Myers group, which leads to a license. We have two more studies, one more study going on influenza with another company. We just published a study with influenza with Baxter with a kill vaccine. We are doing malaria vaccine with Cyvax.

We have done two cancer studies on our own and in every case we have demonstrated that this vaccine is an uncanny, this adjuvant has an uncanny ability to increase immune responses in the target matrix that we are studying, okay.

And its not a molecular adjuvant such as TLR9 molecular adjuvant or a TLR5, because those adjuvants are very potent, but at the same time there are some altering immunity issues that you’ve seen over the years, okay, the variety of adjuvants that have come thorough.

I don’t know whether you saw, one of the GSK adjuvants is involved in narcolepsy and there is a lot of investigation going on. This is a swine flu vaccine which is adjuvanted with one at GSK, I forget, one of the AS numbers and it has caused narcolepsy.

So you know adjuvants are a double-edged sword. You want to sure they are sufficiently generic and not too molecular, so that they don’t create the side effect profile that you don’t want them to create, and I think we believe so far in the data that we have got in humans and animals, that we have a pretty balanced adjuvanted approach with this adjuvant that we have.

I’ll make sure all the papers are on our website if they are not already on it, okay.

Jonathan Eckard – Citi

Very good, and if you could just help us understand, so the herpes simplex 2 virus vaccines, it sounds like most of the preclinical data is coming to a wrap. What would be the next dealing factor in getting this trial up and running? Is it design, manufacturing supply and I’m guessing when in the second half will we be thinking that you are really trying to aim for?

Vijay Samant

Well you know, it’s all about balancing resources. If the Allovectin data is indeed as we expected to be in the right direction, we are going to put a lot of resources behind Allovectin, and that doesn’t mean we’re going to neglect herpes simplex 2, but then you know it’s a balance of resources, because the same people have to work on it.

So right our energy, our focus will be on Allovectin. Having said that, we are studying removing HSV-2 through the system. As I told you today, we are pleased with all the preclinical talk studying progressing well. I think there are more dating factors. We just got to get it done there, to file on IND.

The manufacturer supply, we need to make sure we complete the manufacturing, fill the lots. We’ve already done a lot of work by the way on the clinical trail design, all the expert committee meetings have taken place. So we have a clinical trial synopsis in place. The clinical trail protocol has been written, so we are in good shape. It’s just balancing the resources, okay. That’s why I’m hesitating and predicting the exact time when we’ll start the study.

Jonathan Eckard – Citi

Okay, thank you very much.

Operator

Your next question will come from Stephen Willey from Stifel Nicolaus.

Stephen Willey - Stifel Nicolaus

Yes, thanks for taking the question. So Vijay, I guess just to clarity your prior comments, will you not be filing then without achieving statistical significance on OS or is this one of these things where by -- is this one of these things we need to see the data and then meet FDA and then make a decision.

Vijay Samant

Absolutely. So, if you are going to say, well, I’m going to do this, I’m going to do that, does it make sense. You got to look at the quality of the data, right. You got to look at quality of the safety profile of the drug, you look at the quality of the response rate data, you look at the quality of the survival data and you put all those three together and make that call, okay.

What I’m saying is, having said that, so why right now, with the landscape is an important element, but I’m not ruling anything out. Well, we put a lot of effort on looking at the – one of this drug, what for 15 years now and we are pleased that we are reaching completion right now.

I keep on giving this analogy of traveling from Ohio to Rockefeller Center when we are coming out of the tunnel now, okay. We’ve just got to decide how we are going to go to the east side or to get to Rockefeller Center are we going to take 42nd Street or are we going to go 34th Street, are you going up town and go down town, are we going to down town and go up town or do you have that luncheon appointment at noon at that Spanish restaurant in the MetLife building we need to be there, which is the third quarter.

Stephen Willey - Stifel Nicolaus

Well said and then I guess going back to the synergies you spoke of between Allovectin seven and the checkpoint inhibitors that you’ve seen preclinically. What’s the opportunity that you think you might have in terms of maybe tapping into your KOL base and getting some investigator initiated studies up and running? I know that there are some that are already ongoing, looking at vaccines and checkpoint inhibitors and some other somewhat human types.

Vijay Samant

Well, I think the important thing is it really is a response or the company that owns the PD-1 has to agree with the clinical investigator in order to do the study. And I think once we come out with the data and if we believe that the data is going to be good as it should be, and if the data really meets the endpoints that we are describing, there will be more than one study going on with a variety of those sponsors, because it’s in their best interest if that demonstrates what you have demonstrated in Phase 2. It is an idea brought to the mind with all the other toxic drugs to see if there’s a benefit and decide on the one-two punch theory, okay.

Stephen Willey - Stifel Nicolaus

Okay, and then just a quick TransVax question. I know that there is a competitive registration study that which was posted not too long ago and it looks like they are using fairly straightforward endpoint with respect to CMV reactivation and I guess based on your comments, it sounds like yours is a little bit more complex than that. Is that a safe assumption to make at this point?

Vijay Samant

I think when we said that we are going to use CMV viral load, everybody told us that Vijay your crazy, the agency will not agree with you on the CMV viral load. Now everybody is believing viral load as opposed to CMV diseases is getting the – is the fad of the day, okay.

I think we have started to even better – I think its not complicated. It’s actually a simpler endpoint than CMV viral load. CMV viral load is a complicated endpoint in one way, particularly in hematopoietic cell transplantations, because you need to make you use the central lab, you need to make sure that the algorithms at we local hospitals have to be magnitudes right. But I think we -- Astellas has done a wonderful job and just wait for a couple of – in the near future we’ll be able to tell you what it is.

By the way, just want to remind you, you said there are competitive trails going on, those are anti- virus. Remember this is a vaccine okay, and the vaccine is very important because it teaches the immune systems as the power to kill the viruses okay and particularly with solid organ transplantation where you have the risk of reactivation throughout your life, the vaccine is going to be far more effective than anti-viral. Just want to make sure.

Stephen Willey - Stifel Nicolaus

And then presuming that you are going to preclude the use of the investigational agents, post vaccination study, so do you foresee any kind of enrolment challenges within the stem cell setting itself, just in terms as you look at the base today and some of the other things that aren’t going competitively.

Vijay Samant

No, I don’t think so, because we have pretty good along with Astellas, which has progressed and they have a great reach with some of the volunteer work. We thought we had most of the KOL’s lined up. We are surprised that they have relationship with our KOL's. Beyond them they know a lot more other people, they know a lot of clinical studies. They know where the patients are. Where as some of the other new companies don’t know this, okay. I mean including a trail is an art from more that a science and that’s where they have their strengths, okay.

Stephen Willey - Stifel Nicolaus

All right, thanks Vijay.

Operator

And at this time there are no further questions. Mr. Samant, I would like to turn the conference back over to you for any concluding remarks.

Vijay Samant

Well, thank you all for participating. We hope to see some of you individually at one of our scheduled presentations before the next conference call. Again, thank you very much. We look forward to Allovectin results in the third quarter of 2013.

Operator

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

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