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Vical Incorporated (NASDAQ:VICL)

Q2 2012 Earnings Call

August 1, 2012 12:00 PM ET

Executives

Alan Engbring – Executive Director, IR

Vijay Samant – President and CEO

Jill Broadfoot – SVP, CFO and Secretary

Analysts

Eric Schmidt – Cowen & Company

Lee Kalowski – Credit Suisse

Howard Liang – Leerink Swann

Stephen Willey – Stifel Nicolaus

Operator

Please stand by, we’re about to begin. 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’ll open the conference up for questions 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. Welcome to our second quarter 2012 financial results conference call. Participating on the call today are Vical’s President and Chief Executive Officer, Mr. Vijay Samant; and Vical’s Chief Financial Officer, Ms. Jill Broadfoot. I will begin with a brief notice concerning projections and forecasts.

This call includes forward-looking statements including financial expectations and projections of progress in our 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 second quarter 2012 financial results. These forward-looking statements represent the company’s judgment as of today. The company disclaims, however, any intent or obligation to update these forward-looking statements.

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

Vijay Samant

Thank you, Alan, and welcome to all our participants in the call today. I’ll review the status of our key development program and our expectations for the remainder of this year into 2013. But before I begin, I want to forward the baton on to our CFO, Jill Broadfoot, to give you our latest financial highlights. Jill?

Jill Broadfoot

Thank you, Vijay. We enjoyed continued financial strength through the second quarter of 2012. Revenues increased to $1.6 million for the second quarter of 2012 compared with $800,000 for the second quarter of 2011. The increase in revenues was driven primarily by reimbursements from Astellas for our costs and expenses in support of the TransVax program. Total operating expenses for the second quarter of 2012 were $9.5 million, consistent with the $9.3 million for the second quarter of 2011. Our net loss for the second quarter of 2012 was $7.9 million or $0.09 per share compared with a net loss of $8.4 million or $0.12 per share for the second quarter of 2011. We ended the first half of 2012 with cash and equivalents of $97 million including the $10 million milestone payment we received from Astellas in the second quarter, for which we recognized the revenue in the first quarter. We remain on track with our full-year 2012 cash burn forecast of $17 million to $22 million and believe we have sufficient capital for our planned activities through at least the end of 2013.

I will now turn the call back to Vijay.

Vijay Samant

Thank you, Jill. I’ll begin today with an update on our lead program, Allovectin, which is approaching completion of a pivotal Phase 3 trial of metastatic melanoma. I’ll remind you briefly of the program details. We enrolled 390 subjects with 2:1 randomization. The trial started in January of 2007, ended in February 2010. Our trial followed up to two years of treatment. So, the last patient had to complete treatment by February of 2012. We completed the last follow-up visits in March of 2012 and completed the final data audits by the end of May.

We’re now conducting the independent endpoint assessment and adjudication process for the primary efficacy endpoint response rate. The process is two steps, radiology and oncology, and they’re conducted in that sequence. We reviewed this process in detail in our last call, so I won’t go through that process again today. But I’ll remind you that both the committee, which is doing the adjudication, and the company, remained blinded throughout this process as to whether each subject was at the treatment arm or the control arm.

This entire adjudication process is expected to take several months. It’s a rigorous process and the results will remain blinded until we each trigger – until we reach trigger for the secondary endpoint of survival. For the survival endpoint, we are tracking the overall number of death events with the trial. We are blinded to the number of events for study arm. And just as a reminder, we are tracking the survival in a separate database.

Our Phase 3 trial was 90% powered to detect the survival difference of 18 versus 11 months. Now, if these survival assumptions were accurate, we should have reached the target number of death events by now. Since we have not, we know that the control arm, the treatment arm or both may be living longer. To value these alternatives, we looked at some additional information. As a proxy for Phase 3 control arm, we looked at 61% of the patients in our high dose Allovectin Phase 2 trial who received one cycle or less of treatment which should have provided minimal survival benefit.

As another proxy of Phase 3 control arm, we looked at the normal LDH patients in our earlier Phase 3 trial which evaluated dacarbazine with and without low-dose Allovectin. Just a reminder, the Allovectin dose in that study was 10 micrograms versus 2 milligrams in this study, which is 200-fold decrease. In both of these subset analyses, the result was not substantially different from my initial control arm survival assumption of 11 months. Regarding YERVOY and Zelboraf, we have unlimited number of patients from our Phase 3 control arm, which could have had access to this new melanoma treatments but the impact in the control arm of these new drugs on the overall survival is unknown.

To estimate survival for the Phase 3 Allovectin treatment round, we looked at the most relevant subset from the Phase II study again. The chemo naive patient subgroup which met the current trial criteria had a median survival of 22.5 months. As a reminder, we modified the RECIST criteria for Phase III, which allows more patients to receive Allovectin. Most of them will receive at least two cycles of treatment, which should potentially help increase the survival for the Allovectin sub-arm. In addition, we reported a mouse study showing synergy between Allovectin and the mouse equivalent of YERVOY. If that synergy translates to humans, we would expect patients from our Allovectin arm to derive greater benefit from YERVOY than these patients from the control arm.

Combining all these factors, we believe that the overall median survival in the Allovectin treatment of – arm if our Phase 3 trial has the potential to be higher than our initial assumption of 18 months. Of course, there would be other factors that we’re not considering and we’ll not know whether this is true until we conduct the final statistical analysis.

We are very pleased with the trial’s progress to date. The databases for the primary and secondary efficacy endpoints will remain blinded until both are locked, which we anticipate will occur late 2012. We plan to conduct the final statistical analysis for both endpoints simultaneously and announce the topline results for both endpoints as soon as practical after that. As always, these timeline projections reflect our best estimates, but could change due to developments we do not control.

Let me now move to CMV, our key program in the area of hematopoietic cell transplant. TransVax is designed to control CMV infection or reactivation in transplant patient; was licensed to Astellas last summer. We have transferred the stewardship of this program to Astellas and have been working together to finalize the design of a multinational pivotal Phase 3 trial for TransVax for recipients of stem cell transplants. Our progress towards that goal in the first quarter triggered a $10 million milestone payment to Vical that we discussed on our last call.

Based on our guidance from FDA and EMA, we have confirmed that CMV disease will not be the primary endpoint of the Phase 3 trial. We continue to support Astellas in advancing the TransVax program. Under our services and supply agreement, Vical will manufacture TransVax for Astellas through clinical development and commercial launch and continue to support Astellas in product development activity. We expect Astellas to initiate the Phase 3 trial of TransVax for stem cell transplant recipients later this year and to initiate a Phase 2 efficacy trial of TransVax for solid organ transplant recipients shortly thereafter.

In our vaccine development pipeline, the next important candidate is the herpes simplex type 2 vaccine. I’ll simply remind you that we are completing the remaining requirements to support an IND application and we expect to be ready to initiate the Phase 1/2 trial in 2013.

In conclusion, as Jill outlined in earlier calls, we have sufficient financial resources to support our planned development at least to 2013. As noted, we continue to make good progress in our development programs. Our expectations for the remainder of 2012 into 2013 include locking the databases for the primary and secondary efficacy endpoints in our Phase 3 trial of Allovectin, which we anticipate will occur in late 2012, an announcement of the topline results for both endpoints as soon as practically after that, the initiation of Astellas, a Phase 3 trial in TransVax and stem cell transplant recipients in the later part of this year, and a Phase 2 trial of TransVax in solid organ transplant recipients shortly thereafter, and the initiation of Phase 1/2 trial of our vaccine – therapeutic vaccine for herpes simplex during 2013.

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

Question-and-Answer Session

Operator

Thank you, Mr. Samant. (Operator Instruction) Our first question comes from Eric Schmidt with Cowen & Company.

Eric Schmidt – Cowen & Company

Hello. Good afternoon, Vijay, and thanks for the introductory comments and taking my question. It’s about the Phase 3 Allovectin study. I was wondering if you could give us the exact number of patients that might have gone on to get either YERVOY or Zelboraf or even other investigational therapies. And I think you also made a statement that you – insinuated that maybe the control arm would have had fewer such patients receiving subsequent therapy. I’m wondering, one, if I heard you correctly and; two, what that might be based, on given again this trial is still blinded?

Vijay Samant

So, let me give you a little background on it. So going to answer your question in a long-winded way. First of all, just a reminder, our study started in Jan of 2007 and then the last patient was enrolled in Jan of – Feb of 2010 and the final patient came off the study in Feb of 2012. During the conduct of our studies between Jan 2007 and Feb of 2010, the pivotal studies were going on for Zelboraf as well as YERVOY and both those were in treatment naive patients, so none of the patients were eligible, okay, for getting our drug even if they decided to drop out of our study because once they enrolled, it’s hard to get into another program.

Even in the chemorefractory study that YERVOY conducted, you see about halfway through the study, which is early on in the study, and modified the protocol not to include any patients which are involved in a survival study as well, okay. So, the earliest approval to my knowledge, and you can check on it because on top this – YERVOY was approved in the United States in – sometime in March, about April of 2011, really not available through May, okay, is my best guess, okay, and then Zelboraf was available in September 2011. Our last patient when enrolled was February 2010 and European availability of this drug was low. The compassionate use was not widely used for both these drugs and you could independently checkout.

So, if you say that the likelihood and the fact that we’re 2:1 randomized and if the assumption in the control arm is 11 months, I’m speculating at this stage that if the patients had died and the control arm has been predicted, then the likelihood of them getting these new drugs after approval was low. That’s the way the thesis was but that’s again subject to a question. We don’t have any knowledge of which patients got what because we don’t follow the subsequent treatments.

Eric Schmidt – Cowen & Company

All right, so that was my follow-up. I mean, do you have an ability to follow-up patients for subsequent treatments or...?

Vijay Samant

No, we do not have the ability to follow-up the studies – the randomized study when it was done, there was no requirement to follow-up what the subsequent treatments were.

Eric Schmidt – Cowen & Company

Okay, and then last question on the primary endpoint. I know you’re going through all the rigors of collecting and adjudicating that data. At the end of the day I guess simply put, does it really matter if assuming that overall survival is good, this is a drug that you would expect to be approved regardless of the success on the primary endpoint, and I guess vice versa if the overall survival is poor does primary endpoint data have any chance of rescuing you?

Vijay Samant

I think you are a very smart and logical person. Where did you go to school, Eric?

Eric Schmidt – Cowen & Company

Not quite the school that your daughters attended, but not bad either.

Vijay Samant

No, the reason I bring that up is, obviously your logic is absolutely right and I wish your thinking will be reflected by the FDA. But you know, we have to go – since adjudication is part of our special protocol assessment, we don’t want to violate any elements of our special protocol assessment and that’s why we’re going through that reverse adjudication, so nobody can question that we abandoned it because we had some knowledge of what the primary endpoint was, because we have no knowledge and so we are following it. Obviously the data will stand on its own in the end, okay, and obviously we meet one endpoint versus the other, it all depends on the quality of the data in the end, Eric.

Eric Schmidt – Cowen & Company

Okay. Thanks for taking my questions.

Operator

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

Lee Kalowski – Credit Suisse

Thanks. Good afternoon or I guess good morning your time. Thanks for taking my question. Just one – just a very quick clarification. Last quarter, you had talked about – it sounded like the data would be available both in Q4 and now it sounds like you’re saying that it would be done as soon as practical. Has anything changed that – such that the overall survival data is not going to be available in 2012? It might just be a minor point. And then secondly, I understand that you’re blinded on the response rate. Is there anything that could happen with that, that could have the committee unblinded? In other words, is there a threshold such that the data is so positive that they would want it unblinded or that there would be some sort of utility analysis?

Vijay Samant

Let me go back to your second question first and then I’ll go to the first question, okay. First to all this – the committee that’s doing adjudication will be doing blinded adjudication. They will have no knowledge of which arm the patient is in. So, they will be counting responders in the study in the end, okay, and it will be in a log database. That won’t be transferred to us till we request them to transfer to us. And once it’s transferred, we will break the chord. So, the committee has no knowledge. And plus this is an adjudication committee, this is not a data safety management committee, okay. So, they have no authority in terms of declaring, even if they had the knowledge. Does that answer your question?

Lee Kalowski – Credit Suisse

Yeah, I think so. So in other words basically both – the analysis of both will be done simultaneously?

Vijay Samant

Simultaneously, and the committee which is doing adjudication is doing in a blinded fashion. They don’t know which arm the patient is in.

Lee Kalowski – Credit Suisse

Got it.

Vijay Samant

Got it. So regarding your question, no, I think you need to understand we are on track. As I’ve said before on prior earnings call that the death event is slow and nothing has changed, which – this is how it works, right. In this business, you could get a slug of death in the month of October and we can read the endpoint or you can get a slug of deaths in October and slow down completely in November, December. We also need time to analyze the data.

This is such an important study for us and we want to make sure once we unblind the data we need to bring a couple of experts before we announced the topline results so that we don’t make a mistake, so that our outside exports scrutinize the statistical plan, the analysis and if it occurs – God forbid, this occurs in the last two weeks of December, we’ll probably not announce that data at that point in time because it doesn’t make sense at that point to announce any data and we’ll probably announce early in Jan. So, that’s where we. So there’s no substantial change, but we wanted to caution people so that people understand that there’s some lag time after the data’s unblinded where we do a careful set of analysis.

Lee Kalowski – Credit Suisse

All right. Thank you, Vijay; appreciate that.

Operator

(Operator Instructions) We’ll go next to Howard Liang with Leerink Swann

Howard Liang – Leerink Swann

Thanks very much. How – assuming the Phase 3 data are positive, how soon can you file this? I guess I’m wondering whether you’re ready with the CMC portion – or other portion of the filing.

Vijay Samant

It looks like you’ve a manufacturing guide there. Obviously, we’re working very hard on it. The CMC component is very important including conformance log, validations, stability, and that’s where a lot of the energy in the company is right now focused on. I said our goal is to file between the six to nine months after unblinding and making the data available, okay. We’ll give you a better guidance as the data becomes available, but there’s a lot of activity going on in the company focused on that.

We actually have a core group in the company completely focused on getting that done. I just want to remind you, our manufacturing is relatively simple, okay. It’s not like some other companies where they’re doing patient-specific cell therapy. This is a generic fermentation process that we use – which is used to equalize fermentation. There are two purification steps. So, the manufacturing is not complicated, but again you’ve got to do the things correct and that’s where the focus is right now.

Howard Liang – Leerink Swann

Okay. So if I remember correctly, there’s no interim analysis in this trial. Has there been any opportunity for the DSMB to stop the trial for – either for security or for positive efficacy?

Vijay Samant

It’s a data safety board. They don’t have any efficacy data, but they could have stopped it on the basis of safety if they received a stage 3 or 4 adverse event, and we’ve had I don’t know how many...

Alan Engbring

We’ve completed five reviewed lots safety, but it’s the safety monitoring board. There’s no...

Vijay Samant

And we’ll have one final review later this year which will be our final review. So, those reviews have gone well, okay.

Howard Liang – Leerink Swann

Okay, great. Thanks very much.

Operator

(Operator Instructions) We’ll go next to Stephen Willey from Stifel Nicolaus.

Stephen Willey – Stifel Nicolaus

Yeah, thanks for taking the question. Just quickly on the TransVax Phase 3 trial initiation; can you maybe just talk about kind of what’s going on there and I guess if there are any kind of specific bottlenecks to that trial getting started? Presumably, you’ve gotten feedback from the FDA on what the efficacy endpoint need to look like. And is this just kind of getting a drug supply up and running? Is this getting trial sites up and running? And then secondly, when do you anticipate communicating to us I guess when – or what that endpoint does indeed look like? And is that something that we need to wait to see on clintrials.gov? Thanks.

Vijay Samant

It’s an excellent question. I don’t think – first of all, let me tell you that drug supply is ready. It’s all – we manufactured the stuff. I want to thank the Vical team, put a lot of effort behind it. I think you need to understand it, as I mentioned in my script today, that we’ve handed over the baton or the stewardship of this program to Astellas which is a much bigger partner than us.

And it has been a lot of time – the people in business development and the clinical group who do due diligence in acquiring the program are a small group in a large company. A whole bunch of people then get involved and need to be educated with the basic tenets of the program. Then we’ll participate in the clinical trial design.

Here, we have a smaller committee of four or five people. It’s a larger committee, then there’s a joint venture – joint partnership development committee. So there are a lot of multiple steps that large corporations go through. When I did with committees, there have been interactions with the FDA. We’ve transferred the R&D to them. So, their regulatory reports have been established credibility with the agency’s counterpart.

So there are no delays; it’s just then the time with the educational overlap between the two companies and transferring the baton. I think the clinical trial design has been set, and I think we should be able to give you sometime later this year, hopefully sooner, in terms of what the trial size is, what the endpoints are. But I think Astellas is all energized to take this program forward. And as I said before, that they plan to start the Phase 2 (inaudible) study shortly thereafter.

Stephen Willey – Stifel Nicolaus

Okay, thanks.

Operator

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

Vijay Samant

Well, thank you all for participating. We hope to see you – some of you individually at one of our next scheduled presentations before the next conference call. Again, thank you for your interest in Vical.

Operator

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

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