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Vical Incorporated (NASDAQ:VICL)

Credit Suisse Group Healthcare Conference Call Transcript

November 9, 2011 9:30 AM ET

Executives

Adam Cutler – Senior Biotechnology Analyst, Credit Suisse

Vijay Samant – President & Chief Executive Officer

Adam Cutler

Good morning everybody. I am Adam Cutler, one of Credit Suisse’s Senior Biotechnology Analyst. It’s my pleasure to introduce our first presenting company of the morning, Vical. Our speaker is Vijay Samant, CEO. Vical is a company we recently launched coverage on, with an exciting pipeline of products, the main one that investors are seem to be focusing on these days is Allovectin, the company’s Phase 3 product for the treatment of metastatic melanoma with data coming next year which should be a very exciting time at Vical. So, I will let Vijay tell you more about it. Vijay?

Vijay Samant

Thank you, Adam, and thank you to Credit Suisse for inviting us here for this exciting conference in a wonderful location. I thought the temperatures were going to be slightly warmer than other parts of the country, but it’s chilly this morning here.

Before I begin, I want to remind you of the Safe Harbor statement. We will be making some forward-looking statements. So, please refer to our filed SEC documents to fully understand the risk associated in investing in Vical.

The majority of my presentation is going to be focused on Allovectin-7 because this is a major event driver for us in the next six to 12 months. But briefly Vical at a glance, we are a biotechnology company with a broad pipeline. Our lead program is immunotherapy for treatment of melanoma. We expect some pivotal data in the second quarter of 2012. The Allovectin program is something that we have been working for a very long time, and it has potential applications to other solid tumor cancer such as head and neck.

We own the CMV vaccine franchise. CMV is a herpes family, which is a problem in both transplant patients and females of child-bearing age. We just did a deal with Astellas, which is a major Japanese company, which is a key player in the transplant market. I will tell you more about that.

The second target in the herpes family is Herpes Simplex 2. This is a major problem. It’s a sexually transmitted disease that leads to general lesions. The only antivirals available, we had some very exciting preclinical data in the therapeutic vaccine setting. But these are pipeline programs. We have key validating partnerships with some big pharmaceutical companies. We are one of the few companies by the way which has a GMP manufacturing facility where we have capacity to launch both our CMV and Allovectin programs worldwide. And finally, we have a strong balance sheet. In our recent guidance, we will end the year with about mid-50s million dollars in cash.

So, again a quick summary of our product pipeline. Allovectin-7 lead program in melanoma, market commercial opportunity is greater than $0.5 billion. The Phase 3 is fully enrolled, the top line data will be in the middle of the year. TransVax, again our product in lead transplant setting, our Phase 2 is completed. We expect to start a Phase 3 and a cease of Phase 2 trials in the solid organ transplant setting in the first half of next year.

Collategene is our program for treatment of peripheral arterial disease of the legs to a Japanese company, AnGes, which is for treatment of blockage of arteries where you inject an angiogenic growth factor. We expect that Phase 3 to be started sometime in 2012, early 2012. Now, CyMVectin is a big opportunity. This is for treatment of prevention of CMV infection of females of child-bearing age. The market is the size of Gardasil. And we have an IND allowed there. So, that’s a very exciting program for us for future product opportunity. I had mentioned the HSV-2 program and product extension applications for Allovectin-7.

With that, I will move on to Allovectin-7. It’s first-in-class systemic immunotherapeutics. Immunotherapy is now something that everybody gets excited, but we have been working on this for a long time. I think people are starting to believe that immunotherapy has really a place in the treatment of cancer. We have dosed several hundred patients, I think 900 patients up to date, from doses ranging from 300 micrograms to 2 milligrams. Allovectin’s advantage is it’s given locally but invokes a systemic response, and I will demonstrate that to you in the next few slides.

The other important attribute is it’s very well tolerated. You can see the side-effects of the newly approved therapies and you really understand the contract that Allovectin-7 brings to the table. It has a unique mechanism of action that drives a systemic effect. We have a Fast Track status, we have an Orphan Drug status and we expect the Phase 3 results to be available in the middle of 2012.

What’s the commercial opportunity for Allovectin-7? People say, Vijay, well, you have two new products approved. First of all, those two new products are not cure for melanoma. One is the Bristol-Myers drug Yervoy, and the other is Zelboraf from Roche. They have significant toxicities, they have short-lived responses in some cases. There is plenty of room for additional treatments in the field of melanoma, and I think particularly drugs which have good and safety profile and efficacious. And Allovectin falls into that sweet spot. Quality of life is very important. Allovectin has given an outpatient treating with minimal side effects. The mechanism of action by the way is synergistic with other treatments. We believe them and we actually demonstrated in one of those (inaudible), I will show you some of the preclinical data.

Allovectin-7 is made by a very simple fermentation. So, we are not on the product cost constrains when it comes to pricing where some of the other drugs which are priced at $120,000 of treatment. We have a lot of constraints because the manufacturing costs are really outrageous. And then again, I said we have potential applications in other solid tumors.

So, how does Allovectin-7 work? The plasmic DNA incorporates multiple genes, but one of the key genes it incorporates is HLA-B7. And when HLA-B7 is expressed on the cancer cell surface, it drives a potent T-cell immune response and that potent T-cell immune response activates the T-cells and allows us it to break tolerance against the tumor-associated antigens that are expressed on the surface. So, normally, on cancerous cells, those tumor-associated antigens are not recognized T-cells. We give a mechanism for the immune system to start recognizing it.

The other defect in those recognition of that – those tumor-associated antigen cells is they are not properly presented. It’s like a headlight on a car, but it’s not properly oriented. You don’t get a good focus. We use a gene beta-2 microglobulin to make sure that those tumor-associated antigens are properly presented in the system. So, those two mechanistic activities work in combination. We also formulate Allovectin-7 in a proprietary cationic lipid complex which is pro-inflammatory which invites whole bunch of antigen-presenting cells and other immune systemic mechanistic components at the site of the injected further, which further aids the first two mechanistic that I mentioned.

And it’s complementary to the CLTA mAb mechanism simply because the Allovectin-7 directs T-cells to target tumors. The CTLA mAb actually activates the T-cells. So, they work in tandem, and I will show you that. And we just showed synergistic data where if used in combination, they actually do better job than either of the drug developed.

So, how is Allovectin-7 given? And that’s really the key, given an outpatient setting, there is no pre-treatment or post-treatment. The physician selects up to 10 target lesions. You give one injection that you inject all through the treatment. Why you inject one lesion? Because your goal is to break tolerance. In some human beings, the tolerance is broken in eight to 10 weeks and the immune system starts recognizing the cancer. In others, it may take up to a year, and so that’s the key thing.

We inject the same lesion six weeks in a row and there is a two-week of observation. So, the total cycle of treatment is about eight weeks. And then after that, you repeat the cycle. So, it goes on every eight weeks for up to two years. That’s how long the treatment could go on. The treatment is given an outpatient setting. There is no pre-treatment, no post-treatment. You can go and do whatever you want to do, you want to play baseball, golf, you are at your leisure to do what you need to do. It’s been well-tolerated in multiple, clinical trials and has a minimal impact on quality of life.

So, the Phase 2 study, which I am going to show you the data in a minute was a 127-patient study, not a small Phase 2 study by any standard of imagination. 53% of the patients were Stage III, 47% were Stage IV metastatic melanoma. These patients were classified as M1b, that means they did not have liver and brain mets, and the reason is because patients who have liver and brain mets don’t live long enough to benefit from the immunotherapy. The key thing at immunotherapy is the patients have to be healthy enough to benefit from this treatment. So, the important thing in terms of efficacy is there are no withdrawals for toxicity in adverse events. And you would say, well, Vijay, is that important? My God, you will see in most cancer trials, almost 5% to 10% of the patients are taken off because they can’t tolerate the treatment. There was not a single grade 3 o4 drug-related adverse events.

The response rate, doable response rate was about 12%, but the important thing is the survival is almost 19 months. That’s an amazing data in this particular patient population. This is the comparison of the Phase 2 data, and you have got Dacarbazine, Zelboraf, Yervoy plus DTIC, and Allovectin-7 in one single pad. But take a look across, now the patient population is a slightly different one. Some have M1b, some have M1c, ours is M1b. But the median survival compared to Dacarbazine and despite the patient differences is almost twice. And this 18.8 months despite the fact that we lost a lot of patients without completing treatment, and I will come to that in a minute, but take a look at the one-year, two-year survival rate. The data is spectacular. I feel so good about it every time I look at it.

But as people say, well, Vijay, that’s Phase 2 data, we need to see Phase 3 data. And there are patients who question, well, is this looking only locally. I just wanted to show you, this is the first time we are showing in a webcast presentation to my knowledge the actual patient data. This is a 74-year-old male patient with multiple lesions on scalp and the side of the neck. You need to go laterally on the first section and the bottom section. You can see five months post-study in 2003, the whole neck lesions, the scalp lesions were gone, the side lesions were gone. This patient had been given IL-12 before or temozolomide which is a standard of care. And after six cycles, with just 48 weeks or almost a year, the patient had a partial response and went on to live for a very long period of time. And this was a very old patient.

So, these are the kind of patients who cannot tolerate the kind of treatment that are just being launched in the last few months. And take a look at this patient. Another patient I am going to show you is a patient with a 40-year-old male patient, had multiple lung lesions, and these are sections of the lung lesions at two time points, and you can see the circles represent where the lesions were and the bottom section represents the difference, the scan pictures that the lesions were completely gone. And remember, we are not injecting lung lesions. These were only cervical lymph node lesions that were injected, okay.

And again, this patient responded after three cycles which is 24 weeks, which is six months. So, do we get systemic responses? Here is the proof. This is a stable disease patient. I just wanted to show you some people recognize how melanoma manifests itself, okay. This is two sections. One, the lower part of the limb and the upper part of the limb. And take a look how melanoma is shown. We had seen in the lower section of the limb really a complete elimination of all the lesions and a pretty decent elimination the upper part of the limb. The patient was stable disease and went on to live longer. And take a look at the kind of treatments the patient have gone through before. The patient got Allovectin-7. From everything, thalidomide, canarypox, IL-12 plus, interferon gamma, peptide vaccine, paclitaxel, and was not responding, but it responded to the Allovectin-7. So, that’s the beauty of the drug, but the key element of the drug to work is you need time.

Immunotherapy, the patient is going to die in four weeks, Allovectin is not the drug for that individual. So, what was the median survival in that Phase 2 study? If you look at that black line there, on an intent-to-treat basis, the number was almost 19 months, but the blue line is the more interesting line. That’s the median survival curve for the responders, and we happen to reach median there almost after eight years. It’s amazing. Half of the patients of the 15 responders are still alive, which is unheard of in melanoma. And if we look at the patients in Phase 3, we expect that median survival in that black curve, we should achieve about 22.5 months, that’s a theoretical prediction, okay.

We had about 15 responders of which four complete, 11 partial, and take a look at the – though the median was 18, the confidence bounce were 15 and 26 months. So, it’s a pretty wide range that we have there. But look at the safety. The safety and tolerability. This is apples and oranges, because Yervoy is from another study and this has outpaced the study. Zeroes in our column and take a look at the numbers, drug-related safety and tolerability. So, this is an amazingly well-tolerated drug. We are hoping that we will replicate the same effect in our Phase 3 study, and so far, our safety reviews have gone extremely well.

So, what’s the impact on quality of life? Allovectin-7 has given an outpatient setting. There is hydration, there is pre-medication, there is a minimal post-administration or monitoring, there is no withdrawals for toxicity or adverse events, and there were no grade 3 or 4 drug-related adverse events.

Now, you compare that obviously from a different trial, but similar patient population, first of all, it’s an in-patient infusion setting. Close monitoring is required, 10% to 15% of the patients have grade 3 or 4 adverse events. I know that you saw the recent The New England Journal of Medicine where a doctor has written that a patient who have taken the drug had hemophilia associated with it. I don’t know whether it’s related to the drug, but it’s interesting what CTLA mAb, and we are going to find out as we get more experienced with that drug.

The GI issues are most common. Almost 2% patients had death, drug-related death. So, this is not a cakewalk as they say in this business. This is a tough treatment and it is more like IL-2. If you look at how the IL-2 profile or Proleukin was. So, what have we done in the Phase 3 study or what lessons have we taken from the Phase 2 study to do a Phase 3 study better. And we have done a number of things, and I want to make sure you focus on these things, okay.

First of all, we are making sure that we have healthy patients and that they live longer. We don’t include patients with lung mets and brain mets. We found that in the Phase 2 study of the patients who responded, majority of them were chemo-naïve. So, we had chemo-naïve, chemo-refractory, bio-refractory patients. The chemo-naïve patients, 11 of the 15 responders were actually chemo-naïve. So, we have recruited chemo-naïve patients. Logically, it makes sense because chemo-naïve patients have healthier intact immune systems. Then one thing that we did which is very critical, we lost almost 62% of the patients in the Phase 2 study without completing one cycle of treatment. Why did we lose 62% of the patients without completing one cycle of treatment. Because RECIST criteria even if you are responding means your target lesions are shrinking, but a new lesion shows up, you have to be taken off the study, because you are a progressive. And so, we got only 38% of the patients who got one cycle or more. What we have done in the Phase 3 study is, as a part of SPA and an agreement with NDA, modify the RECIST criteria so that the doctor can keep the patient under study for 16 weeks or four months even if a new lesion shows up as long as the physician believes that the drug is benefiting the patient, clinically benefiting the patient.

So, that’s going to be improving our compliance rate, which should impact positively both on the response rate as well as the survival. And then the most important point is we measure response rate six months after randomization, the first time a patient could be counted to responder is six months after the trial starts. Now, that’s very important because most of the chemotherapy patients respond in the first six months and progress that as we start peaking in terms of response in six months and beyond, and the secondary endpoint obviously is survival. But just to show you graphically how this works, I will show that to you in a minute, but the Phase 3 study, pivotal studies in 390 patients, Stage III/IV metastatic melanoma, we also include patients with normal LDH. LDH is an important enzymatic marker which tells you how the health status of patient is, we are one of the first companies to use LDH as a marker and we actually do the LDH blood work all centrally.

The studies 2:1 randomizes not blindly to the doctors or the patients, it’s blindly to the company. So, if you are a patient getting the drugs, you know what you are getting. And if you are the doctor, you know how you are treating. And so, our target was 375, we recruited 390 patients. The trial started in January ’07 and the last patient we recruited in Feb of 2010, just keep that in your mind. And by the way, the most important point is AnGes, our partner in Japan, funded the entire U.S. trial for which we have given rights in Asia.

So, the Phase 3 efficacy endpoints, the two most important ones are the objective response rate is at, will be measured at six months and beyond after randomization. Historically, Dacarbazine response rate at that point is about 4%, our Phase 2 response was about 12%. Based on this trial redesign we have done, we expect that number to go to about 17%. So, the studies is powered, 90% powered to show a 10% difference between response rates, and based on our assumptions, that’s achievable.

The secondary endpoint which is overall survival, which is very important now, because of the two drugs being approved and survival, and we are going to have to show survival benefit. Historical median for Dacarbazine is about nine months. Our last overall survival despite the fact that we lost 62% without completing one cycle, our treatment is about 19 months or 18.8 months. We expect based on the changes what we have done the survival to be around 22.5 months. Wow, that’s pretty good, okay, compared to what you see in 11 months with the new drug.

The Phase 3 has a 90% power to detect the survival difference between 18 versus 11 months. Now, why 11 months versus 9 months, because we are using healthier patients. So, we added about two, three months to that nine months to account for M1b versus M1c. But even 18 months, we should be able to meet. If we hit 22.5 months, we would have a homerun, okay. And the lower bound is more like 16 months. So, I think there is a lot of room for us to show both of these endpoints.

So, what do we stand with the endpoint, but before I go, this is a very important graphic, which shows you how chemotherapy and immunotherapy works. Chemotherapy, as you see, X-axis, the Y-axis is the response rate. As you can see the red line, most of the chemotherapy patients respond before six months and at the end of six months, they actually progress. There are few responders left.

Immunotherapy on the other hand takes longer for the patients to respond. So, depending on where you measure, you get the different answer. And we measure after where that dotted line is crossing the vertical axis. And that’s really the key thing.

So, where do we stand with our endpoint calculation? This plot again tells you people say, well, Vijay, you are showing the Phase 2 data. It’s an open-label study. Well, we have plotted all of the Phase 2 study. And this is a 95% confidence limit, which shows one-year survival rates in Allovectin-7, clearly outlier, okay. These are small molecules, large molecules. So, Allovectin-7, if you plot it independently, it has done well. It’s mechanistically different from lot of the chemo and the bio drugs. So, it’s a unique drug and we are hoping that the trial will bode out our results in Phase 2.

So, where do we come with the timeline? So, let’s go through this very carefully, because investors are asking, when are we going to get the data. Our trial started in Jan of ’07, last patient renewal was in Feb of 2010. We have to follow every patient for up to two years. So, if the last patient was enrolled or the last patients were enrolled in Feb of 2010, the two-year follow-up goes to Feb of 2012, because we have patients still on study at the end of two years and they have not responded and they go and respond after two years, we can’t count them. So, the drafted [ph] date for response rate is Feb of 2010. At that point in time, we have all the data to calculate the objective response rate or the overall response rate.

We need to clean the data for a couple of months. Then we have to get the data adjudicated, and that takes us towards the end of second quarter or sometime in the second quarter. We have been fortunate that we have been allowed to log that component of the database, but continue to collect the survival database separately, and our goal is to make sure that we collect the survival date in parallel. So, by the middle of next year, we will have both the data points, the event rates reached. Now, the event rates are running behind schedule, which I have said before, and they are behind schedule.

We are projecting that we will reach our target event rate by the middle of the year, but we really have no granularity right now because in this business, you can get a lot (inaudible) in the month of December. So, I think the best projection that we will be able to give you at this stages would be the middle of the year, but at Feb earning call, we will probably give you a very specific direction into where we are standing. But right now, we are behind schedule as I said in my earnings call before, which is good for the patients but bad for the investors, because they are all anxiously waiting for when this data is going to be available.

And that could be because, a, the control arm is living longer or the treatment arm is living longer or both, but remember our study is 2:1 randomized and collects the number of patients get Allovectin-7. A number of people asked, well, are these people during the trial got any of the new drugs? Both the studies for Yervoy and Zelboraf, which were conducted in parallel by using treatment-naïve patients, go to the New England Journal of Medicine article.

So, none of our patients were eligible at that point of time to get those drugs. These drugs were approved in the May-July-September period. Remember, our last patient was enrolled at Feb of 2010. These drugs are not widely available. So, any impact during the conduct of the trial of these drugs is likely very low. Post-approval, only Allovectin-7 patients who have lived long enough, they have gone into and gotten those drugs, but the study is randomized. That’s the reason the study is randomized.

We showed, in interest of time, we showed the combination of CTLA mAb. We can’t afford to do a study at $120,000. And the study is very positive. So, Allovectin is synergistic with these drugs. Quickly, TransVax, our data is our Website, a great deal. Astellas is a great partner, it’s one of the large pharma companies in Japan, has done a number of deals, understands the transplant space. It is the biggest player in the transplant market, will be funding the entire study. They will do a Phase 3, two Phase 2’s and potentially a Phase 1 in Japan. So, multiple studies have been planned. We are working very religiously with the regulatory agencies to get these trials started in the first half of next year.

Our Herpes Simplex program, big opportunity, we showed some great data that both in a prophylactic setting and a therapeutic setting in animal models, on a study that’s repeated twice that we can really make a difference, and this has been an amazing study, probably one of the best data that has come out of this program, is ready to go to the clinic, and this is a program that we are very seriously considering taking to the clinic.

Collaborations; Astellas, Merial, Novartis. We are probably the first company with SARS in clinical trial. Multiple milestones, but the key milestone is Allovectin-7 in the middle of next year. And the company is well-financed, has great management team to bring this drug home. So, if you have not been an investor in Vical, it’s a company with multiple products in Phase 2, 3, a number of data points coming out very shortly, two approved animal health products, physical response, really the burn rates have been less than 20. So, thank you very much for attending this and we will go to the breakout room for any questions. Thank you again.

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