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Executives

Alan Engbring – Executive Director, IR

Vijay Samant – President and CEO

Jill Broadfoot – CFO

Analysts

Ren Benjamin – Rodman & Renshaw

Stephen Willey – Stifel Nicolaus

Vernon Bernardino – Dawson James

Vical Inc. (VICL) Q4 2010 Earnings Call Transcript February 10, 2011 12:00 PM ET

Operator

Good day and welcome, ladies and gentlemen, to the Vical Incorporated Financial Results Conference Call. At this time, I’d 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 questions and answers from invited participants after that. I will now turn the conference over to Mr. Alan Engbring, Executive Director of Investor Relations. Please go ahead, sir.

Alan Engbring

Hello, everyone. Welcome to our year-end 2010 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 research and 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 the specific risks and uncertainties noted in Vical's news release on year-end 2010 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, everyone. In today's call, I'll present highlights from our ongoing development programs and our anticipated progress for the remainder of the year. We will then open the call to questions. But before that, I will ask Jill Broadfoot, our CFO, to review the 2010 financial results. Jill?

Jill Broadfoot

Thank you, Vijay. For the full year 2010, total revenues were $8.7 million compared with $12.7 million in 2009. License revenues declined in 2010, primarily as a result of completing the AnGes funded portion of our Phase 3 Allovectin-7 trial.

Contract revenues increased in 2010, primarily due to the Navy funding of our H1N1 trial and our manufacture of an HIV vaccine for the IPPOX Foundation. IPPOX is part of an international group of HIV vaccine researchers planning a prime boost HIV vaccine trial that will be supported by the Bill and Melinda Gates foundation and the NIH.

We reduced R&D spending in 2010 compared with 2009, primarily as a result of lower clinical trial costs following completion of enrollment in our Phase 3 Allovectin-7 trial in February. The reduction in R&D expense was partially offset by increased expenses in manufacturing and G&A, resulting in an overall expense reduction of $1.3 million.

Excluding cash received from financings, our net cash burn for 2010 was $29 million and we ended the year with cash and investments of approximately $61 million. We raised $37 million of net proceeds through the sale of equity securities during 2010, including warrant exercises during the first quarter and follow-on offering in September, with overallotment exercises in October.

We are projecting a net cash burn for 2011 of $22 million to $27 million, including projected cash from new or expanded partnerships for which we do not currently have contracts. Based upon this expected cash burn, we have sufficient cash to support our ongoing development programs at least through 2012.

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

Vijay Samant

Thank you, Jill. I will start today with our collaborative programs in angiogenesis. We were disappointed with the results reported by our partner, sanofi-aventis, for their Phase 3 trial of their FGF [ph] gene therapy in advanced PAD.

We are, however, encouraged by the continuing commitment of our angiogenesis partner, AnGes, which uses a different gene, which is hepatocyte growth factor, in its Collategene therapy. AnGes is moving forward with a Phase 3 trial in the United States, Europe, Japan. The trial was designed through a special protocol assessment process with the FDA and is intended to support multinational filing for marketing approval.

Next, I will provide a quick update on our TransVax CMV therapeutic vaccine for transplant patients. We reported at ICAAC in September the achievement of excellent efficacy, immunogenicity and safety results in our Phase 2 trial of TransVax in HCT patients. Just a reminder, this is – this drug has an orphan drug status in the United States.

The primary goal of the study was to define appropriate endpoints for a pivotal Phase 3 trial. We have now reviewed the Phase 2 data with CMV and transplant experts. These are worldwide experts, not just U.S. special experts and enlisted support of an independent statistician to evaluate [ph] potential Phase 3 endpoints. We are actively in discussions with regulatory agencies in the United States and Europe to review the Phase 2 results and confirm the design of the Phase 3 trial with a goal of initiating the trial in the second half of 2011.

So great progress. This is the only program that’s going on in hematopoietic cell transplant patients. This is a deadly disease. The reactivation of CMV in this patient population and if we are successful, as we were in the Phase 2 study, with the Phase 3 study, this could be an important solution to a major problem in these bone marrow transplant patients.

I will next move to our lead independent program, Allovectin-7, a novel immunotherapy with initial target indication in metastatic melanoma. We are encouraged by the string of recent advances, both in the general fields of cancer immunotherapy and the specific area of melanoma, the approval of Dendreon's Provenge, the (inaudible) data at ASCO, the Plexxikon-Roche trial update, and Amgen's acquisition of BioVex all point to the growing recognition of immunotherapy as an important product class.

We believe these developments bode well for the continued success of Allovectin-7 for the following reasons. These new melanoma approaches are positive development for patients but they are not necessarily all cures. There is plenty of opportunity for Allovectin-7 as a treatment modality.

Allovectin-7's unique mechanism of action makes it a potential synergistic therapy if and when these therapies get approved. The treatment regimen of Allovectin-7 in an outpatient setting, requiring no pre-treatment or post-treatment, would be a welcome option for individuals who cannot tolerate the toxicity of existing therapies.

Remember, in our Phase 2 trial, 50% of our patients were more than 60 years of age and our Allovectin-7 could offer an excellent treatment option for this population segment, and we hope that patient distribution profile continues in the Phase 3 study. And our phase 2 – if our Phase 2 survival data holds up in Phase 3, along with an excellent safety profile, it could provide a compelling advantage for Allovectin-7.

In summary, we are very excited with the recent developments, which have helped pave the path forward for Allovectin-7. Just to remind you, we completed the enrollment in our Phase 3 trial in late Feb of last year with a total of 390 subjects. It's two-to-one randomization, Allovectin-7 in one arm, dacarbazine or temozolomide in the other arm. Our current guidance is that we expect to lock the clinical data trial database in the second half of 2011.

As we pass the one year follow-up on the last few patients enrolled, we can, on the basis of patients remaining on the study and other factors sharpen these timeline projections. I am not quoting Dr. John here but the way this has been written here – the field that has tremendous visibility over the past few months, we believe more than ever that Allovectin-7 is the right product in the right place at the right time.

Our last featured program today is a collaborative effort to develop therapeutic and prophylactic vaccines against herpes simplex virus type 2 or HSV-2. We’ve been working very steadily with leading experts in the field at the University of Washington, at the University of Texas.

HSV-2 is a sexually-transmitted disease which is the leading cause of genital herpes. Approximately, one out of every six individuals in the United States, an estimated one out of every four worldwide, is infected with HSV-2 by age 50.

Last summer, we reported encouraging data showing that our prophylactic vaccine against HSV-2 protected mice against lethal challenge, providing sterilizing immunity and inhibited viral counts at both primary and latent infection sites. Our Vaxfectin adjuvant significantly improved vaccine effectiveness. A therapeutic version of a similar vaccine significantly reduced the recurrence of HSV-2 lesions in guinea pigs with latent infections.

I’m pleased to let you know that we have completed repeat studies confirming these results, which are among the best ever seen with a herpes vaccine. Obviously, they will be presented in an appropriate scientific conference.

We also recently announced the issuance of another HSV-2 patent, reinforcing our IP position around this program. We are approaching the completion of our grant-funded activities from the NIH and evaluating the potential to move forward with this program, either independently or in collaboration.

In conclusion, we had an excellent 2010, making progress across all our independent development programs, and we are planning for continued progress in 2011. Just a few milestones, we expect to release towards the end of first quarter data from our Phase 1 trial of swine flu influenza vaccine.

As I said before, we expect to launch lock the database in the second half of 2011 in our Phase 3 trial for Allovectin-7. We expect to initiate our Phase 3 trial for TransVax CMV vaccine for HCT patients in the second half of 2011.

Our Japanese partner, AnGes, has told us they expect to expedite the initiation of a multinational Phase 3 clinical trial of its Collategene angiogenesis product, by the way, which is based on the hepatocyte growth factor gene. We ended the year with sufficient cash, as Jill mentioned to you before, which is $60 million plus to continue development of our ongoing programs at least through 2012.

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

Question-and-Answer Session

Operator

(Operator Instructions) And we’ll go first to Ren Benjamin at Rodman & Renshaw.

Ren Benjamin – Rodman & Renshaw

Hi. Good morning and thanks for taking the questions, and congratulations on the progress in the year. Maybe just starting off with the Allovectin program, can you just give us an update or a sense – has the fifth independent safety review taken place already or if it hasn't, when will it take place? And are there any remaining safety reviews that are designated to take place?

Vijay Samant

It has taken place and we will be announcing the outcome of that in the near future. Okay.

Ren Benjamin – Rodman & Renshaw

And then in your prepared remarks, I think you mentioned that you should be able to tighten up timelines and then either there was just a dead space or I missed it, but is that – have you already sort of tightened up timelines as to when the data might be available or is that something we might be expect…

Vijay Samant

No. We said the database was going to lock in the second half of 2011. Let me elaborate a little bit. We need to make sure that we have – that there are very few patients left in the study, because we don't want to leave any responders on the study. As you know, the study is blinded to us. And at the same time, we need to make sure the database is locked, so at that point we have sufficient events so that we have the statistical power to show the survival advantage.

So both those endpoints need to converge before we can lock the database. And I think we will have a better understanding of that in the coming months as how many patients are left in the study and how many events are occurring. Right now, so far of where we are today, it looks like by the end of this year, we should be able to lock the database. But we will give you better granularity. If we slow down or we accelerate, we may be able to do it faster, but stand by for the update.

Ren Benjamin – Rodman & Renshaw

Okay. Moving on to the angiogenesis program, the AnGes program, can you just give us a sense or give us some additional color about the trial, the trial design and how long you expect it to last?

Vijay Samant

The trial design is approximately 560 patients. They probably had accrued much faster because their design allows them to bring a lot more patients into the study. It is much more – less restrictive in terms of inclusion criteria. And I can give you details off-line instead of taking time here. But those are all available and we can make those available to you. Okay.

It is (inaudible) patient, amputation is the endpoint. There is a very similar study design, except that the patient inclusion criteria is much more relaxed, so the trial recruitment is going to be faster.

Ren Benjamin – Rodman & Renshaw

Got it. Okay. Just moving on to the infectious disease programs, can you give us a sense as to any sort of partnership talks that might be ongoing with either the CyMVectin program or the TransVax program?

Vijay Samant

The answer to that question is yes. The partnership talks are indeed ongoing. However, we don't have a deal to discuss at this stage. And one of the most important things that we – that all the partners are looking for, particularly in the TransVax program and which I've said before previously, is to make sure that we get from the regulatory agencies a clear signal that CMV disease is not the endpoint.

And they want to make sure that we are able to negotiate an endpoint which is anything but CMV disease. If that's our goal because if CMV disease is the endpoint, the study design is so large it's impossible to do this study. And if we are able to accomplish that, I think it is a slam-dunk based on our Phase 2 data, where a small, reasonably clear, 2 to 300 – 250 to 300 patient study, which allowed us to achieve the endpoints, based on the CMV reactivation rates.

So from a partnering perspective with the Phase 2 data, this is a damn good asset. The only ambiguity that we have right now is the endpoint definition and that should occur sometime towards the middle of the year.

Ren Benjamin – Rodman & Renshaw

Okay. So those talks with the regulatory partners are ongoing?

Vijay Samant

…are ongoing. Yes, absolutely.

Ren Benjamin – Rodman & Renshaw

And once some clarity is obtained, I guess with – are you going to even be pursuing an SPA for this, so that you can show that to the partners as well?

Vijay Samant

What I mean – that is something that we have to discuss with the agency, get guidance from the agency. It's an orphan drug. Do we really need an SPA? Because anytime you tag on an SPA, it takes an additional three to six months to negotiate an SPA and you know, we want to make sure we want to start this trial sooner.

So if we have a partner at that point in time, the issue is what is the partner's view on it, and the Agency's view on it, because there is not a lot of competition going on in this space. We own all the space. It is an orphan drug status. So do we really need an SPA? Take a look at all the orphan drugs that are being done by Biomed and a lot of other companies. You know, there are hardly any SPAs negotiated but we are open to the idea.

Ren Benjamin – Rodman & Renshaw

Okay. And then regarding TransVax and solid organ transplant, is that still on the cards?

Vijay Samant

Absolutely, because the strategy here is pretty straightforward. It is to do a Phase 3 study in hematopoietic cell transplant patients and do a Phase 2 efficacy study and solid organ transplant study. It allows you to do two things. It allows you to obtain efficacy in the solid organ transplant group, so that that can be used in the solid organ transplant setting plus, it expands your safety database, which the agency requires.

And for that, we will be looking for some government funding. There is a lot of funding available from the U.S. government to do the Phase 2 study. But we won't start the Phase 2 study in the solid organ transplant, which we can start sooner than the Phase 3, until we get the endpoints in Phase 3 negotiated first.

Ren Benjamin – Rodman & Renshaw

Okay. Terrific. Thank you very much and good luck.

Vijay Samant

Thank you.

Operator

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

Vijay Samant

Thank you. Stephen has a question.

Operator

We’ll go to Stephen Willey at Stifel Nicolaus.

Stephen Willey – Stifel Nicolaus

Yeah. Hi. Thanks for squeezing me in. Have you gotten any feedback from the regulatory agencies with respect to how many patient numbers they want to see on TransVax out to a given time point?

Vijay Samant

I think – based on what we are looking at in terms of our proposed endpoints, in the 250 to 350 range, we haven't publicly disclosed that, but that's the range. Okay. Less than 400.

Stephen Willey – Stifel Nicolaus

Okay. And is that patients on drug out to six months, out to 12 months?

Vijay Samant

The treatment arm is about six months and then the follow-up will be about six to 12 months. Those are not being defined but no more than 12-month follow-up.

Stephen Willey – Stifel Nicolaus

And then just any color on how discussions have gone thus far? You talked about the other orphan drugs that don't have SPAs but I think those other endpoints aren't entirely novel that are being brought before the agency. And I think the CMV endpoint is a little bit more novel.

Vijay Samant

It is actually more sophisticated. Those endpoints are pretty crude. Those are like treadmill walk scores.

Stephen Willey – Stifel Nicolaus

They are.

Vijay Samant

Unless we get. No, these are pretty sophisticated endpoints. And no, we are open to the SPA. I think one of the reasons we feel very good about it is we have put together an expert panel of leading experts who are really the transplant experts in the clinical setting who understand how this disease is treated. And we have gotten their insights both from people in Europe and people in the United States and these are the thought leaders, okay, in terms of how patients are treated. And so we feel good in terms of our position paper, in terms of our contemplated endpoint, that the agency knowing the ravages of CMV in this patient population would recognize that CMV disease is impractical, and based on our Phase 2 data, particularly our efficacy and safety profile, that this is something that should be given a chance.

Stephen Willey – Stifel Nicolaus

Okay. And then Jill, just quickly back on the cash burn guidance. I know you made some comments with respect to either that cash burn not including any potential partnership revenue. Was I correct there?

Jill Broadfoot

Actually, I didn't mention that. But in the press release, we do state that it includes anticipated cash from new or expanded partnerships that we don't currently have contracts with.

Stephen Willey – Stifel Nicolaus

Okay.

Vijay Samant

But Joe [ph], I mean, Stephen, look at our last five years, okay. Our revenues in the last five years, if you look at, have been in excess of $10 million plus. Okay. Last year was probably the only – but remember, the revenues are not calendar-denominated. They are always rolling 18 months. So you are going to see some ups and downs. So whatever adjustments we have in our burn rate are not horrendous that we are going to be asking you for a $50 million burn rate, okay? Nowhere near that. We have titrated financials in this company very carefully in the last 10 years, okay.

Stephen Willey – Stifel Nicolaus

No, I was just curious as to whether or not you were kind of referring to more kind of smallish contract grant revenue or …

Vijay Samant

These are milestone and modest contract revenues, not a huge milestone payment of any kind or a licensing deal. That would create a different paradigm shift in terms of our burn projections.

Stephen Willey – Stifel Nicolaus

Understood. Thank you very much.

Operator

(Operator Instructions) We’ll go to Vernon Bernardino at Dawson James.

Vernon Bernardino – Dawson James

Hi, Roanna [ph]. Thanks for taking my question. Regarding Allovectin-7, can you just elaborate a little more? What gives you confidence that you will be able to lock the data in second half of this year? And can you say whether you are seeing response rates similar to the Phase 2? Then regarding Temusi, can you share any further insights gained from key thought leaders regarding the failed study?

And then regarding HSV-2, the strategy there going forward, do you intend to try to get a partnership once you are in proof of concept or take this a little bit further, since it may be a relatively inexpensive clinical program? Thanks.

Vijay Samant

Thanks, Vern. Those are a mouth full of questions. Let me go – if I miss some of them, your question was how are – what basis are we projecting. You know, there are statistical tools available based on when the enrollment (inaudible). 50% of the enrollment is completed. What is your estimated median survival that you expect in the control arm, in the treatment arm and that mathematical model tells you when you will get the event rate.

So we have got a lot of experts helping us in terms of predicting that. And then we are tracking that theoretical model with what the actual event rate is, okay. The response rate, we have no color on the response rate because the study is completely blinded to us. Though the study is not a blinded study, we don't have any access to what the overall response rate or what the individual response rates are and what arms they are. So there is no granularity that I can provide.

I think one thing that we know before we lock the database, is how many patients are on the study. And our goal is to make sure that we really dwindle down on the number of patients who are on the study, so that we don't leave any responders hanging out there. Because we know that some of the Allovectin patients take a longer time to respond. So that was your first question.

Second question was on angiogenesis. The only thing I can tell you is that the company is going to continue to follow. This was a one-year look-see at the data and what they have told us and what they have said publicly is they are going to follow these patients for three years. They were unfortunate that there was a real dip in the control arm. A lot of patients got amputations and deaths early on in the control arm and the study never recovered from that.

And this is the lack of homogenization in that patient population. It is really hard to stage patients in those very tightly. So the inclusion criteria were very tight and that could have hurt them. But, no, we have not heard anything from either Sanofi or the opinion leaders. But the group that – who understands this data better than anybody else is AnGes, who has looked at that data, were at the meeting, have analyzed the data and feel even more confident that their treatment may work even better despite – because of the intrinsic differences in their trial design.

Vernon Bernardino – Dawson James

It is along those lines why I asked the question. I was just wondering if should Sanofi find anything positive whether or not they could revisit and not consider the program at least dead for now.

Vijay Samant

You know, it is an option that is always around. I think they have not really come forward to us and told us what the next steps in the program are. And we are awaiting some response from them in the near-future in terms of what direction they are going to take on the program yet.

Vernon Bernardino – Dawson James

Thanks. And the strategy for HSV-2?

Vijay Samant

HSV-2, I think – first of all, I think you guys need to see the data when we publish it. I think one of the things when we first initially published the data, there was some reaction that, hey, you need to repeat the data to make sure indeed that data is true and this was not just a fluke, okay, that you've got an experimental abnormality. And we have now repeated the data. It takes a lot of effort to do that, both in prophylactic setting and the therapeutic setting and the data was identical. So we are pretty excited.

We need to get our heads together with the experts in Larry Corey’s lab in – at Washington and come up with our plans. And we have not even, with what is on our plate right now, particularly as it relates to TransVax and Allovectin-7, not really put our effort behind it in terms of looking for funding or partnering but that's going to be our next goal and say, is this asset a marketable asset? How do we go about doing this? So that is the thought process that we need to define. So more about it in the future.

Vernon Bernardino – Dawson James

I'm sorry if I missed it. When again – what is the timing and what publication are you trying to…

Vijay Samant

We haven't announced it. It will be announced at a public – a scientific meeting where it will be presented at.

Vernon Bernardino – Dawson James

Okay. Thank you very much.

Operator

And we’ll go next to Stephen Willey of Stifel Nicolaus.

Stephen Willey – Stifel Nicolaus

Yeah. Hi. Thanks for taking the follow-up. Just quickly, on the Allovectin-7 program, are you guys collecting BRAF mutation status of patients at baseline?

Vijay Samant

No.

Stephen Willey – Stifel Nicolaus

And also, just wondering if you have any color as to post-study therapy these patients may be seeing.

Vijay Samant

Our group – remember, just to give you a comment on that study, it is mind boggling. The study started in – what we heard in publicly, the study started in Jan of 2010, the BRAF mutation study. And they were 130 sites and they've announced data in Jan of 2011. It takes three months to lock the database. The control arm has a median survival of – in dacarbazine – of at least six months.

It’s mind boggling how those numbers were accomplished. But since they announced it, we had to go with what they have told us we need to look at that data. It is amazing how you can close the database that quickly and recruit all the patients. Should some of our patients be getting that drug? Remember that's a chemo-naive study. So if anything, the chemo arm patients are not going to go on the study. The Allovectin-7 patients who progressed may have the option of going on that study.

Stephen Willey – Stifel Nicolaus

All right. Thanks.

Operator

And at this time, we have no further questions. Mr. Samant, I will turn it back over to you for closing remarks.

Vijay Samant

Well, thank you. Thank you for participating in this call. Hopefully, we will see you guys in the near-future. Thank you.

Operator

Ladies and gentlemen, this concludes our conference for today. Thank you.

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