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Vical Incorporated (NASDAQ:VICL)

Citi 2012 Global Health Care Conference Call

February 27, 2012 3:30 pm EST


Vijay B. Samant – President and Chief Executive Officer

Vijay B. Samant

People in the audience. So, first of all, I want to thank Citi for inviting us to this conference. They just did a recent financing, so it’s appropriate that they invite us to this conference. Before I begin my formal presentation, let me refer to your Safe Harbor Statements. We may be looking some forward-looking statements. Please refer to our filed SEC documents to fully understand the risk associated in investing with Vical.

For a number of members in the audience, may not know what Vical does? Vical is a biotechnology company, which has a broad pipeline and a substantial commercial opportunity. I think the lead program is Allovectin-7; I am going to spend some time talking about it. It’s a program for cancer immunotherapy. We have Phase 3 pivotal study which is complete, the one-year follow-up and the patient completed by the end of this month, so I will talk more about that timeline, I am sure in the breakout session, there will be a lot of questions in the timeline.

We are very excited about this program by the way, in terms of how this has come about and how we have executed this program. Allovectin-7 dose has been used for melanoma, if I go through the mechanism of the action you will clearly understand; it is applications of all the solid tumor applications. Our next application would be head and neck cancer, so keep your eyes open, as we talk about our data from our melanoma study, so you fully understand how that translates to other solid tumors.

The next franchise that we really have which is CMV, Cytomegalovirus is a herpes family virus, the apartment that with Astellas, we’ve completed a Phase 2 study we’ll be starting a Phase 3 study in the first half of this year, but Astellas has two indications, one is for the treatment of transplant patient, the second is treatment for females of child-bearing age who get CMV during pregnancy, first time [after] pregnancy.

I will talk more about that in terms of what the opportunity there, and then we announced in the last earnings call that we are embarking in herpes simplex 2 program, which is a therapeutic vaccine for treatment for patients, who have HSV-2 positive, will get lesion recurrences, given idea what size that market is, the big commercial opportunity, a ability to run that trial very quickly. We have a number of key validating partnerships, and the uniqueness about Vical is we do everything in-house.

And you may say why you do in-house because you need to be in control of your destiny, people who don’t do things in-house in fact apart those things out to third-parties, in the end realize that the devil is in the details in this business. We even have our own manufacturing facility, we are one of the few companies in Southern California, which has a biological manufacturing facility, and we have a strong balance sheet. We raised some money now, we have $100 million plus in cash, a burn rate guidance is about $20 million plus.

So there is only upside in terms of what we are doing. So Allovectin-7 the lead program, it’s a first-in-class immunotherapy, before immunotherapy was enrolled, we’ve been working on it for a long time, it’s licensed originally from University of Michigan from Gary Nabel Lab, it has gone in about 900 patients, so far in a variety of dosage forms, the dose that we are using currently is 2 milligrams, okay, which is the highest dose that we’ve used in clinical applications.

As I said before it has variety of applications in solid tumors, it’s well tolerated it’s given in a local study. The way it’s given, if you give one injection per week, for six weeks in a row followed by two week of observation period, for a cycle of treatment is eight weeks, okay. And it’s given into tumor release, so you inject the same lesions through the entire therapy, not all the people think by giving it locally that mean some local therapy it’s not a systematic therapy.

I am just flab a guess, if somebody comes and says, well you mean the injected lesion shrinking is how you measure response rate. Well in the RECIST criteria, you measure response rate by identifying a series of up to 10 target lesions and you follow those lesions through the course of the disease in which you base the response rate. Here we’re injecting only one single lesion, we follow all the 10 lesions, so that’s very important thing that everybody needs to recognize.

It has a unique mechanism of action, it drives a systemic effects, it’s a local therapy that drives systemic effect, and I think I am reemphasizing that point, because it’s so important as this therapy it’s completion, coming to a completion of the pivotal trial. It has potential synergy with other therapies, I will talk more about that, it is an Orphan Drug status, it has a Fast Track designation, we have retained U.S. and EU rights and [then the] SPA. So I will talk more about what the design of the studies in a minute.

Well two drugs have been approved for melanoma in the recent times, Yervoy and Zelboraf one is by Roche drug and the other is by Bristol Myers Squibb, those are not cures for melanoma, so there is plenty of room and particularly there’s plenty of room for drug, which can offer a safe efficacious pathway for patients which then exist today, including chemotherapy. Our drugs hopefully if it gets approved and the safety profile bears out, as we have seen in Phase 2 would be a perfect solution for patients.

So lot of melanoma patients are old, our drug has been well tolerated on our Phase 2 study and that experience bodes into the Phase 3 study. This could be a perfect frontline therapy for patients who have stage III/IV disease. We believe that the patient population that we’re addressing in this study represents about a third of the melanoma patients, which is about 20,000 to 25,000 patients in the U.S. and an equal number of patients in Europe.

So plenty of commercial opportunity even at the pricing lower end of the pricing range. The highest pricing actually is $120,000 plus Yervoy, it’s a $0.5 billion to a $1 billion market very comfortably. And without counting that is this drug is indeed successful. This could be an opportunity to be treating even stage II, early stage melanoma disease. Obviously, we had approved the benefits of it, but this is a great drug. You certainly cannot use the drug like Yervoy in stage II patients, because the risk was as benefit as, is no out ways the risks that you get from getting the benefit of this drug, okay.

So how does this work? It’s a classic therapy where we use multiple mechanistic actions to make sure that we teach the new system to recognize what’s wrong with the melanoma cells, so we inject the plasmid encoding HLA-B7. HLA-B7 is a rare [lease] type in Caucasians, so when you express that on the surface, you get an immune reaction that came to foreign tissue mismatch. And that’s such a powerful immune reaction. It leads to breaking of tolerance against all the tumor associate and antigens that are expressed on the surface.

Okay, and that leads to a systemic activation of T-cells that grade to the lymph nodes and really shrink lesions or destroy lesions in other parts of the body that’s a primary mechanism, okay. HLA-B7 is an important component which originally came from Gary Nabel's lab out of University of Michigan. We also have another gene on this beta-2 microglobulin and that up regulates the MHC Class I. In these cancer cells, the tumor associated antigens are not properly presented and by encoding beta-2 globulin and you actually position those correctly so the immune system can see it.

If the immune system cannot see these self-antigens then they can’t destroy them. And then finally, we use a cationic lipid, and the purpose of the cationic lipid is twofold is to improve the transfection efficacy of the plasmid, but also it’s a pro-inflammatory in access of the TLR9 pathway. And so it invites the whole antigen presenting in the immune mechanism around the cell to facilitate the first two mechanisms that I’ve talked about. So multiple pathways in some patients, they work quickly some patients they work longer. We use the individual tumor as a classroom to teach the immune system to break tolerance.

In some patients, we break tolerance very quickly. Some patients we go two years and they are stable disease patients, we don’t break tolerance. So it’s based on the stubbornness of the immune system. And that’s why we inject the same tumor because we use that tumor as a Class [room]. We recently published our last year data, people say, well how does this drug with the new treatment in Yervoy, so we combined with anti-CTLA mAb in a animal model that was originally used by the originated company. And we showed that the mechanistics, which are theoretically synergistic that actually synergistic in an expandable animal setting. We showed that Allovectin directs T-cells to target tumors. Anti-CTLA mAb actually potentiate T-cells, so they both beautiful. So if you give Allovectin plus followed by CTLA mAb, it does better than CTLA mAb alone.

So assuming this drug gets approved, there should be synergy, obviously, we will have to show that synergy, but right now in animal model indeed that synergy is being shown. So multiple components of the data, let me talk about our Phase 2 study and that’s really the pivotal study on which we made assumptions and designing the Phase 3 study. Our Phase 2 study was an 127 patients, it’s an Open Label study 2 milligram dose, hey, it’s a pretty large Phase 2 study. This is not (inaudible) 20 patient study, okay. So the data from it is really important, okay.

Of course, it’s not a double blinded study and that’s the weakness of this study. 50% of the patients approximately stage III, 50% of the patient stage IV, no liver mets, no brain mets reason is we want patients with how the immune system. Because immunotherapy takes time to work, and one important criteria that we’ve used is LDH. LDH, I think in 2006 they came really, our 2005, they came an important determinant in the HSCT classification. So if you look at all the early decades in studies there is no measurement of LDH and LDH is a good market to tell you how healthy the patient is and we have been, we are probably the first company that started using LDH as a marker.

Now, the trial went extremely well. There were no drugs of toxicity and adverse events. There was not a single grade 3 or 4 drug-related adverse event. There was a 12% approximately objective response rate by the RECIST criteria and the median survival is 19 months (inaudible) and you can say that we got all this data despite the fact that we lost almost 60% of the subjects without completing one cycle of treatment.

Why did that occur in the standard RECIST criteria even if the therapy is benefiting, but the new lesion shows that doctor is forced to take the patient of the study. So we really didn’t get Allovectin-7 large amounts of any sizable patient population. What we’ve done in Phase 3 study is we have modified this Phase 3 criteria.

So we had allowed to inject up to 16 weeks into lesion shows up as long as the physician thinks that the patient is benefiting. So we expect complying through the 60%, our drop out rate of 60% to substantially go down and if that goes down, correspondingly the response rate as well as the survival data should improve logically. So we have done a number of things why this study is going to do better. But I just wanted to show you that there are a lot of people still don’t believe that to be a number of [yields] how does this drug help?

These are some of the patients, this is a stable disease patient, you can see the low led at the end of cycle and a lot of these lesions that you see on the low leg are scrap tissues. It’s amazing how this patient [did] not even respond to it. So you see, I don’t know it’s a 56-year old female and had done all kinds of treatments from thalidomide to IL2 peptide vaccine and Allovectin-7 made a difference. So it’s likely this is shown to be stable, showing something better than that. This is a patient with a partial response to the number of lung lesions. None of the lung lesions are injected. As you can see after two cycles that was Vitiligo and there is a response after three cycle in five of the lung – six lung lesions were non-detectable by scan.

Remember none of the lung lesions were injected. So we had a lot of data where patients have responded systemically and remember it’s not the injected lesions, but the major response rate. So the drug indeed works systemically and the reason that toxicity is low because it is given locally. It’s not given intravenously and that’s one of the key advantages of this drug. Most of the patients who take this drug take it in an out-patient setting. There’s no pre-treatment, post-treatment and go home, play baseball on their own or with their grandchildren with what they want to do or go for a rock concert or whatever they want to do, it’s an important drug and how it is successful in terms of how it impacts patients’ lifestyle.

This is another patient. This was a 74-year old male. I think he was in the Northwest 13:15 but if you go up on the scalp, right, basically there were no lesions left, okay. You look at the size of his head, all kinds of lesions at the end of cycle 6 there were hardly any lesions left that we have a minimal criteria of what the size of the lesion. You cannot inject a lesion less than one centimeter. So there was nothing left to inject in the patient and that’s the amazing thing that the patients who responded really benefited and it was a good correlation between responders and survivors.

Now there are two curves on this. The dotted line [back there] is the capital mark plat where we intend to treat patients. You can see the median survival is 18.8 months. I’ve told you that we lost almost 60% of the patients completing one cycle. If we made the modifications, we believe our numbers should be north of 22 months, okay, in our Phase 3 study, but the blue curve is the interesting curve. These will survive. These are all responders and seven years after the study how the responder is still alive. That’s remarkable, okay. Let’s say if you take a look at the properties limits it’s almost 33.5 months do not available because of the average to median survival. So we expect both the response rate and the survival data to improve based on some of the adjustments that we have made in the Phase 3 study, and I’m going to talk about those in a minute.

But how do we compare ourselves with the new drug that is being approved. Now you are preparing apples and oranges. This is from the Yervoy study, the Zelboraf update as shown. Those studies were in 250. This is a second line therapy. Frontline therapy Yervoy plus DTIC versus dacarbazine and take a look. Our study is [N1b] study. Their study is it is well below brain met shortage, (inaudible) just publishing in the New England Journal of Medicine what our survival number describes the effect of the shortcoming of the Phase 2 study was remarkable 18.81.

That Yervoy DTIC frontline study showed only about two months advantage okay or conventional therapy with all the toxicides that come with it okay. One these survival rates are all out there and if you see the safety data, we did not have the single grade 3 adverse events, so if you were to compare again, you are comparing apples and oranges, but I just want to make sure you understood, we both got no hydration, no premeditation, there is no hardly any monitoring post the drug given, there is no withdrawal for toxicity.

There is not a single grade 3 or 4 drug related adverse events. To the point, you think what’s going on here, that’s how remarkably this drug works. This is basically a new concept that immunotherapy and inter-tumor therapy is not fully understood, so there are some people who don’t understand, they say how is inter-tumor therapy. It is given on an outpatient setting, the coordinator gives injection, the Doctors not even involve, there is no (inaudible) in inter-muscular injection.

But take a look at Yervoy, 10% to 15% of issues get through after immune-related, there are 2% or 3% death, i.e. this is not a third of the melanoma patients are aged 70. The drug therapy is available and had shown the safe safety group that would be a choice one to do, because you all of us have the ability to go and deal with Yervoy, if you progress after taking Allovectin-7.

Or if you take Yervoy and reasonably healthy, your ability after you progress from Yervoy to take Allovectin is too late, because Allovectin takes time to work, that’s the key thing. You need to be healthy enough, so that’s one of the advantages that we have.

So Allovectin Phase 3 study; this is very important, we started the study at January 2007, we completed the enrollment in February 2010. I have said this publicly, 50% of the patients who enrolled in the first two years, another 50% that enrolled in the last one year, that’s the distribution. You can model the study 16 different ways if you want to and come up with what the valuations are going to be, making assumptions that control arm.

Our control arm assumptions are here; 11 months in the control arm, 18 months in the treatment arm, 90% partly show that difference, okay. And I am going to talk about the timeline in a minute, but the study, recruitment criteria is no difference. Stage III for melanoma patients, M1b or less, chemo-naïve, no brain mets, no liver mets, normal LDH, the study is two to one randomized 260 patients in the treatment arm 130 patients in the control arm.

RECIST criteria which has been optimize that the patient can stay for 16 weeks, even when your lesion shows up, which is the dispensation that we got from the agency. But the primary endpoint is your response rate, which we measure six months and beyond, so anybody who responds in the first six months is not target. This is not the best response rate. What did the Yervoy study published in the New England Journal of Medicine and the response rate is 8 or 9, I forgot what the numbers, 9% or 10%. That’s the best response rate include counting response rates in the first six months. Our response rate at six months (inaudible) patients can respond at 60 months and you need to confirm that four weeks later.

So it’s a confirmatory validation of that response and the secondary response rate is survival. Now, survival is a very important endpoint, because a, two drugs have been approved after we got the SPA, both have been included in survival and we want to make the much out of this survival is going to be key. So we have to convert survival data and we are confident that we will come up with the survival data.

Once you know everything goes as for plan, the beauty of this drug is it’s funded by AnGes, our partner in Japan recently given rights in Asia, they don’t have rights for Australia, New Zealand the study conducted in the United States, Europe and select countries in Europe, Brazil and Israel, which have been a big recruitment center for us. It will be important that drug (inaudible) Israel already, okay.

The response rate criteria is we had short 10% absolute difference, that empowered 90% showed between both arms, okay. So that’s where we are, so where are we would be a study, the study started and hopefully we have the timeline here, the study started in January of 2007, the last patient – would step 2010, we have a maximum treatment horizon of two years, so we can only treat patients to February of 2012, as it each patients are still on study, meaning they are not progressed. If they are progressed, they would be taken out of the study.

As I told in my last earnings call, patients were still on study, so we will have the final patients get out the study by the end of this month, there will be one month follow-up after that, that will be end of March, then we will audit and clean the data, then we will go to the adjudication and will take us through, towards the fourth quarter of this year, when we’ll have the independently adjudicated there where Vical will not be involved. In parallel, we are collecting the survival data, and the event rate has been behind schedule. And the event rate is behind schedule is to a no surprise, because we made certain tactical improvements in the study. So on we are hoping that those tactical improvements of study are improving the control of the treatment on outcome.

Okay. The studies 221 randomized, you can run your own statistics with all kinds of assumptions using 11, 12, 13, 14, 15 and come to your own conclusions. We will make sure that we get, we meet our target event rates, which we believe that we should meet in the end, towards the end of this year, and then blind the data then and to support both the endpoints at the same time. We are very excited about the study, well, I can tell you at this stage.

Moving onto TransVax, this is a republished Phase 2 data at ASGCT last year, the study went extremely well. We have given an exclusive license to a Staller, people are asking me which year we are going to get a final endpoint, dispensation with the FDA which is not seem the disease, the answer is yes. We will we are working with the agency, we want to make sure the endpoint that we develop is harmonized between the European authorities and the U.S. authorities but CMV disease will not be an endpoint, if some of you listen to the proceedings of the workshop that CMV had conducted recently. While there was a small section of the workshop that wanted to translate the conclusion drawn by the chair of the workshop clearly state that CMV disease is not a valid endpoint for this Orphan Drug population.

Astellas will be starting the study sometime in the first half of this year including an SOT study we’ll receive $25 million, there are other milestones payments including a $10 million milestone after we finalize the study, they are a great company, we have a great synergy with them, we track with the agency, we still hold behind these and things have gone extremely well. We are making all the stuff for them right now, particularly for all the clinical trial matures a lot of activity going on in the company, great partnership for both the SOT and the HSCT program. They are experts in SOT because they have a drug known as Prograf that they work on, which is a largest selling drug in the transplant market.

I’m not going to spend a lot of time but the FDA’s primary need for the workshop was to define target endpoints for doing the study in females of child-bearing age. This is doing a 3,000 patient study and following them for five years. This is prevention of CMV infection females or CNB negative who get CMV infection during pregnancy is a leading cause of birth defects in children, okay. So the conclusion was, yes, indeed there can be surrogate markets that can be identified. They will be published as a part of the FDA’s expert panel meeting. There are four pharma companies and Vical was invited.

And the proceedings were live webcast and once that particular endpoint, surrogate endpoint is defined we could proceed with the partner to go into clinical studies can be done in a proof of concept study. So, this is completely partnerable program. We have an IND approved so we are in a great shape here. We raise money. Why did we raise money? We raised money because we wanted to do a lot of pre-commercialization work, manufacturing, getting ready for the BLA filing, plan for its success. That is one component of the money. But the second component of the money is starting a herpes simplex 2 program.

500 people infected worldwide, big population in the United States general lesions, recurrence of half a dozen to 12 a year. We have some exciting data that we published in, presented last year. We repeated the data. The data is very good. And I’m not going to go into the industrial time of the data but it was an animal model where we show sterilizing immunity. We showed even recurrence, prevention of recurrence of lesions in guinea pig model. Our experts said that we should go into the clinic very quickly. The concept of doing the study is pretty straight forward. If you go into 200 patients or a 150 patient population, divide them into two groups, one gets; and you establish a 90-day baseline of shedding in all those patients.

These are patients who get constant recurrences. After 90 days you do about 90-day with the vaccination and post 90 days you again do shedding studies on the remaining 90 days. So each patient has its individual control. And shedding is a key criteria in terms of recurrence and transmission.

And that’s an important surrogate marker. Why is that data good? I urge all of you to back through the literature and look at what is being published and where people have failed. We have gone systematically and looked at where people have failed and how could we do better in that [top] program as we design to succeed. And this study can be completed and recruited very rapidly. We haven’t given a firm timeline as to when we start the study. It is going to be early next year at best, okay.

Astellas on this collaboration of melanoma vaccine for dogs which is on our website approved uses of similar mechanism that we use for Allovectin. A lot of collaborations with NIH, which have basically come to an end, but allowed us to validate our technology. So in terms of upcoming milestones, we will have Allovectin Phase 3 data towards the end of the year.

We’ll have both components of the data available at the same time of the year. The start of the TransVax, is going to Astellas transplant study followed by the SOT study, the Herpes Simplex 2 study, where a lot of prep work is going on. This study, (inaudible) approved in a couple of days. That’s the demand people are lining up, they want to get into the study, and that obviously, CyMVectin has decided endpoint is defined to get into partnering opportunities.

So with that, I’ll end my presentation. Thank you very much.

Question-and-Answer Session

[No Q&A session for this event]

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