Vical Incorporated (VICL-NASDAQ)

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March 26, 2010 Issue

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With Four Key Programs Ongoing Including Immunotherapy Allovectin-7^® For Melanoma In Phase 3 Clinical Studies That Has Shown To Be Well Tolerated With Little Side-Effects, Vical Incorporated Is Well Positioned For Future Growth

Company Profile:

Vical researches and develops biopharmaceutical products based on its patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases. Potential applications of the company’s DNA delivery technology include DNA vaccines for infectious diseases or cancer, in which the expressed protein is an immunogen; cancer immunotherapeutics, in which the expressed protein is an immune system stimulant; and cardiovascular therapies, in which the expressed protein is an angiogenic growth factor. The company is developing certain infectious disease vaccines and cancer therapeutics internally. In addition, the company collaborates with major pharmaceutical companies and biotechnology companies that give it access to complementary technologies or greater resources. These strategic partnerships provide the company with mutually beneficial opportunities to expand its product pipeline and address significant unmet medical needs. Additional information on Vical is available at www.vical.com.

Vijay B. Samant
President and CEO
Vijay B. Samant joined Vical as President and Chief Executive Officer in November 2000. Mr. Samant has 23 years of diverse U.S. and international sales, marketing, operations, and business development experience with Merck. From 1998 to mid-2000, he was Chief Operating Officer of the Merck Vaccine Division. From 1990 to 1998, he served in the Merck Manufacturing Division as Vice President of Vaccine Operations, Vice President of Business Affairs, and Executive Director of Materials Management. Mr. Samant earned his M.B.A. from the Sloan School of Management at the Massachusetts Institute of Technology in 1983. He received a master's degree in chemical engineering from Columbia University in 1977 and a bachelor's degree in chemical engineering from the University of Bombay, University Department of Chemical Technology, in 1975.

Healthcare
Biotechnology & Drugs
(VICL-NASDAQ)

Vical Incorporated
10390 Pacific Center Court
San Diego, CA 92121
Phone: 858-646-1100
 

Interview conducted by: Walter Banks, Publisher, CEOCFOinterviews.com, Published – March 26, 2010

CEOCFO: Mr. Samant, we last spoke in 2008, where is Vical today?

Mr. Samant: There are some exciting things going on at Vical, with four key programs. The first is Allovectin-7^®, our program in melanoma, which has just completed a Phase 3 trial, and right now we are in the data collection mode and the data will be available in the middle of 2011. The program is particularly important because it is immunotherapy and because nothing has been approved in the field of melanoma for almost twenty years. In addition, there are not too many Phase 3 trials going on. We think we have a good shot at getting this drug approved because we have planned the study very systematically. The key factor in cancer immunotherapy is to choose patients likely to live long enough to benefit from the treatment. Immunotherapy is a technique for teaching the immune system to fight the cancer cells, and that takes time, but when it works, the results are better. However that training of the immune system takes time, so the patients must be healthy enough to live long enough to train the immune system. If the patients don’t live long enough for their immune systems to be trained to fight this cancer, then the therapy is not going to work. So what we have done is we have applied a different set of criteria in recruiting patients to make sure that we include patients that are chemo-naive, which means they haven’t had chemotherapy, because generally patients who had chemotherapy have compromised immune systems. We also pick patients who have no brain metastases or liver mets, and that is because people with brain mets die very quickly. The third thing we use in selecting patients is an important biomarker known as LDH. If the levels of LDH are normal, the patients with melanoma live longer; if the levels of LDH are elevated, then the patients live for a shorter period of time. So we have done three things:  we have chemo-naive patients; we have patients who don’t have brain mets or liver mets; and patients with normal LDH. As a result we are picking patients who have healthier immune systems.

You need to understand the difference between chemotherapy and immunotherapy. Chemotherapy works quickly. Patients benefit in the short term, but progress very rapidly. Immunotherapy takes time to work but works for the long term. If one set of patients is being treated by chemotherapy and another set by immunotherapy, in about two months the chemotherapy is ahead. However, about three months down the road they are probably equal, and after about four to six months immunotherapy is ahead and chemotherapy is really taking a nose dive. We have a very clear set of patients most likely to benefit from this therapy. We are going to measure whether the therapy is working six months after the patients start getting treatment. If it works in the first six months it is not relevant. We are looking for long-term responses and we are measuring responses six months and beyond. Melanoma is not a homogeneous disease, as people have thought in the past. Melanoma patients are not all equal and we need to make sure we pick the right type of patients to benefit from the therapy, which we have done in designing this clinical study.

The other beauty of this program is the Phase 3 trial was largely funded by our Japanese partner and our safety profile to date has been excellent with this drug. Remember most chemotherapy or cancer drugs have a lot of terrible side effects. We have had 3 successful safety reviews, so the drug is very well tolerated. It’s also a patient-friendly treatment given as one injection per week for six weeks followed by a two-week observation period. The patient goes home after each injection, with no pre-treatment or post-treatment required. We are pretty excited with how this program is going and hopefully all our hard work will translate to a product approval, which would be the first product approval in the field of melanoma in nearly two decades, if Allovectin-7^® is successful.

CEOCFO: Chemotherapy has often been described as a race against time!

Mr. Samant: You used the exact words, ‘race against time,’ and we are leveraging this race against time to make sure that the immunotherapy can benefit the patient by beating the time.

CEOCFO: What about your other programs?

Mr. Samant: In the field of angiogenesis we have two programs. This is a concept where you inject an angiogenic growth factor into the muscle to promote the growth of blood vessels locally. It is a magical concept. Many people have suffered from this disease known as peripheral arterial disease, or PAD, where they get blockages of blood flow in the legs. This is because of high cholesterol, from the high-fat food intake that we are all subjected to because of our busy lives. The disease PAD manifests itself initially as pains in the legs and calf muscles when you walk. As the disease progresses, you get that pain continually when you sit at a chair, table, desk, or lie on a bed. If you are a diabetic eventually this leads to ulcers and these ulcers progress to gangrene, and that leads to amputation. It is a pretty nasty disease. There are almost 10 million people impacted by this disease in the United States. The annual healthcare burden in the United States because of amputations is about $10 billion. As people are living longer the amputation burden is going to increase. People’s lifestyles are changing; younger people are going to get PAD disease, so the market potential for this kind of application is huge.

CEOCFO: Why not put stents in there?
Mr. Samant: The stents unfortunately tend to block up easily in legs and in the heart; in addition, these patients who get ulcers are beyond the stage where stents can be actually installed in their legs. Our therapy involves injecting an angiogenic growth factor gene into the muscle at the site of the blockage, which then causes growth of blood vessels locally to bypass the blockage. It is a fixing of a plumbing problem, which is the most simplistic way of describing it. We have two programs going on, our first program is with a large big pharmaceutical company known as Sanofi Aventis, and they just completed enrollment in their Phase 3 trial in July of 2009. It was a 500 patient study run in US, Europe, and Japan. It is a pivotal study, where they are going to follow the patients for twelve months, at the end of twelve months they are going to count how many amputations there were in the placebo group, and how many amputations there were in the treatment group. There is no subjectivity in terms of counting whether the drug works or not and those data are going to be available in the 4^th quarter of this year. We are pretty excited that if the data are good, they may lead to approval of the drug in 2011, and it will be the first gene therapy product approved in the United States. You have heard of the promise of gene therapy; nothing has been approved yet and this would be the first.

CEOCFO: Why do I feel so good about the data in the 4^th Quarter being successful?
Mr. Samant: Because what they are doing is this large Phase 3 study, which I have just described to you and they have already done a small Phase 2 double blind placebo-controlled trial in 107 patients and reached statistical significance on the amputation end point. So they are basically taking that small study and replicating in Phase 3 with almost five times the number of patients for safety. Their Phase 3 data only needs to follow the same trend as Phase 2.

CEOCFO: What about your other angiogenesis partner?
Mr. Samant: We have a Japanese company known as AnGes, which filed for approval for the same kind of treatment using a different angiogenic factor in March of 2008. We have been very patiently awaiting approval of that drug therapy in Japan and we expect in hopefully the early 2^nd quarter to hear from the agency whether the drug is approved or the agency may have questions. As you may know, the Japanese regulatory agency is very slow to respond, so this is not unusual. We are also pleased that our partner in Japan is also going to do for that same angiogenesis treatment, a Phase 3 study in the United States. I am pleased to let you know that the U.S. Food and Drug Administration has given them a special protocol assessment, which is a binding agreement with the agency defining a Phase 3 trial. We are hoping, assuming they get positive data in their Japanese regulatory interaction, that they will start this trial in the United States in the later half of the year.

CEOCFO: What about your CMV program?
Mr. Samant: We also have a very important program in the field of cytomegalovirus (CMV), which is from the herpes family. You may have heard of the herpes family. People think of herpes as herpes simplex, which are the cold sores, and the sexually transmitted disease, but that is just one particular pathogen in that family. There are multiple pathogens in that family, and one of the nastier pathogens, even nastier than herpes simplex or chicken pox, is known as CMV. Herpes simplex in my opinion is a much milder disease than CMV. Most people get infected by age 40-45. It is initially a benign infection, however it hides in your body and it is in equilibrium, controlled by your immune system, so it cannot cause any damage. However, if the immune system for some reason fades or is suppressed as in the case of HIV patients, or in case of solid organ transplant patients or bone marrow transplant patients, this bug comes out and creates all sorts of problems. It attacks the liver, kidneys, eyes. It is the biggest problem in transplant patients. Before undergoing the transplant, CMV is kept pretty well under control by the immune system. But when you replace the bone marrow, you wipe out the original bone marrow, which has the immunity to fight this bug inside your body. In addition, when the new bone marrow comes it doesn’t have the same capability, so it takes time for the new bone marrow to be prepared. In the meantime CMV goes and creates havoc in your body and causes all kinds of problems. It is one of the leading causes of graft rejections in bone marrow transplant patients, which is the only chance that you get. So we are developing a vaccine to make sure that this CMV reactivation in these bone marrow transplant patients can be controlled by this vaccine so that the patient recovers and goes back to his normal life. Right now there is no vaccine available and the only thing that is available is an anti-viral drug, which is basically a chemotherapy, which is toxic and keeps the patient tied to the clinic. This chemotherapy has its own problems, it causes all kinds of neutropenia, blood disorders, and it also causes graft rejection.

CEOCFO: Why else are you excited about your CMV program; where are you in clinical studies?
Mr. Samant: We are doing a pivotal Phase 2 study on bone marrow transplant patients. We have taken forty patients who are CMV positive, who getting a new bone marrow, and giving them placebo, and then getting forty patients who are CMV positive and giving them the vaccine. It is the reactivation and of CMV that is already hiding in your body. We follow these patients after four injections out to twelve months and CMV normally reactivates either in the first ninety days or around the six-month period. If you can control it that long, you are home scot-free. We presented four month data after three injections and the data were very good. We are presenting the entire data after four injections and twelve months of follow-up in June/July of this year. We are confident that the data is going to be good because the trends in the four-month data were good and that would be the first time somebody has shown that in a therapeutic setting a vaccine can work. People have talked about therapeutic vaccines over the years but no therapeutic vaccine has been approved in humans. By definition a therapeutic vaccine is a vaccine that you give after the infection. The conventional vaccines or prophylactic vaccines are given to prevent infection, so I think if we do well, this will pave the path for approval for the first therapeutic vaccine in humans.

CEOCFO: It sounds like it is a disease that would affect those with leukemia as well, say if they needed a bone marrow transplant!

Mr. Samant: Most of the people with leukemia require bone marrow transplant. It is a very exciting development.

CEOCFO: You also have something going on in the animal site?
Mr. Samant: With regard to our therapeutic vaccine, before I get to the human health side, our partner Merial got the first therapeutic vaccine, which is the Holy Grail in vaccinology, approved for use in animals. They got a vaccine approved for melanoma in dogs, which was just launched in the month of January. It will be premium priced we understand, it will be an expensively priced product. You will be surprised that dogs get melanoma and it is a serious disease for them and there is nothing you can do when the dogs get melanoma. The mechanism that has been used for dog melanoma vaccine, though not identical to Allovectin-7^®, is on a similar path to our Allovectin-7^®, which pleases us because if it works in animals it should translate for good success in humans. This is partnered with the world’s largest animal health company known as Merial.

CEOCFO: Will you tell us about your H5N1 program?

Mr. Samant: The platform that we have is ideally suited to deal with any emerging pathogens. Pandemic influenza is just one of them. SARS is another, Ebola is another, West Nile is another. These are all new pathogens which we have not seen. Our technology is ideally suited for dealing with them for three reasons. First of all we can make a vaccine very quickly because we don’t need the bug itself; all we need is the recipe for the gene sequence for that bug. For example, in the H1N1 case we were the first company to make the vaccine before anyone else made it because the minute the bug was identified and the CDC published the genome of the H1N1 virus, we were able to make a vaccine and test it on animals. The second thing is our speed in making the vaccine, and the simplicity of manufacturing it, because most vaccines require capital intensive equipment. However, we produce it by simple fermentation. The third most important thing is we can keep our vaccine in a frozen state for five years where conventional vaccines only can be kept for two years. We use the same process to make any vaccine, whether we are making it for Ebola, H1N1 or SARS. With our Allovectin-7^® cancer immunotherapy, it is the same process. So that is the beauty of it. We applied this technology along with an adjuvant that we have developed known as Vaxfectin^® for H5N1 and our data was terrific. We showed seroconversion of 50% to 67% of the patients responding to that particular vaccine, whereas the government stockpiled vaccine for the bird flu generated a response of 44%. So our vaccine was even more immunogenic than what the government stockpiled. The problem is we need to demonstrate not just with H5N1; the government wants us to do more human studies. We were the first company to make the H1N1 vaccine and we are the only company to our knowledge that has actual government funding to develop this program. We are working with a group within the US Department of Defense known as Transformational Medical Technologies Initiative, or TMTI. The whole purpose of this group is to make sure that they have a platform that they can work to make three million doses against new emerging pathogens and stockpile them. Why three million doses? Because there are approximately three million people in the U.S. military. The goal is to make sure those key people are protected. It is a very manageable production volume for us. 400 million doses is beyond our current capacity, so that is the reason for the collaboration and we will be starting very shortly our swine flu study.

CEOCFO: Why are we starting a swine flu study right now?
Mr. Samant: The reason is practice makes perfect. We did H5N1 and now we can show the TMTI people that we can do H1N1, and we can go from there and continue to move forward. We should get the flu trial completed in the first half of this year. This would be funded by the U.S. government. That is what the whole emerging technology platform is. People are saying, “well H1N1 was mild, oh we can relax.” I am telling you a new pandemic strain is going to come, and it is going to be nastier than what we saw this time. I am confident that this will happen because three things are occurring, the crowding of people, domestic animals, and domestic birds, which is a perfect set-up for creating a new bird flu or swine flu pathogen which can move among humans.

CEOCFO: Well that kind of crowding was there 20 years ago, what has changed and why should we worry?
Mr. Samant: First of all the crowding was there twenty years ago, but the crowding has become more intense, because there are more people in those countries. Second, we should worry because more people from those countries are traveling here that didn’t travel twenty-five years ago. Planes are landing from China, India, Malaysia, Indonesia, into this country every day. We have a global economy now. People never used to travel as much internationally. In India, flu is a year-round disease. That is where our technology is going to be very important and with a quick reaction, we can make our product in six to nine weeks as opposed to six to nine months.

CEOCFO: What is so important about this Vaxfectin^®, I don’t fully understand it?

Mr. Samant: I mentioned to you our adjuvant known as Vaxfectin^®. Adjuvants are very important in vaccines because if the vaccine is not working well enough, it makes it work better. Or if the vaccine is working well, it allows you to use a lower dose of the vaccine. Why is that lower dose important? That means that if one dose is required for one person, with the adjuvant I may be able to reduce that to one-tenth of a dose. Therefore, I can then increase the availability of the vaccine ten-fold. We have shown Vaxfectin^® with the currently licensed influenza vaccine has the ability to increase immunogenicity by a factor of 200 in mice and that means you can take one million doses and spread it to 200 million people if it was translated to humans. You have to make sure the adjuvant is reasonably safe, and that it doesn’t cause all kinds of side-effects and reactions in human beings. So that is the reason we have taken Vaxfectin^® in humans and so far it has been well tolerated. We wanted to develop it for several other applications. This is a synthetically developed adjuvant, so it has no products derived from animals or humans, which are hard for the FDA to accept. The other interesting thing is that no adjuvant has been approved in the last 50 years other than just recently for GSK, so there is a big opportunity to bring this new adjuvant technology. We own a lot of intellectual property on Vaxfectin^® going beyond 2020. It works with DNA vaccines; it works with conventional vaccines; it works with proteins, so we are pretty excited. It could be an independent value driver for the company.

CEOCFO: How is Vical doing financially today and are you looking to raise additional funds?

Mr. Samant: Financially we are in great shape. We had close to $60 million in cash after the recent warrant exercises. We have burned historically in the 20’s, so we have at least two plus years of cash. We are being conservative when we say two years of cash. We have no immediate desire to raise money, but we are always open to opportunistic raises if the stock price does well. So the answer is we are open to financing, but there is no pressing need for financing at this stage. We have opportunities for partnerships on some of our programs, which could lead to cash coming into the company that would prevent dilution caused by selling more shares. We are hopeful that one or two such partnerships will happen in the next twelve months. We are in a strong position, and we have no debt. We have no personal or professional lawsuits within the company. We are a well-managed company from a financial perspective.

CEOCFO: What would you like to say to readers in closing?

Mr. Samant: This technology has taken a long time to develop, we are on the cusp of breakthroughs and this is the year for Vical. We have a number of programs going on. We have three programs in Phase 3, one program in Phase 2, this technology platform for dealing with emerging pathogens and of course don’t forget our Vaxfectin^® adjuvant could be an independent value driver for the company. So look out; this is Vical’s year.

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This technology has taken a long time to develop, we are on the cusp of breakthroughs and this is the year for Vical. We have a number of programs going on. We have three programs in Phase 3, one program in Phase 2, this technology platform for dealing with emerging pathogens and of course don’t forget our Vaxfectin^® adjuvant could be an independent value driver for the company. So look out; this is Vical’s year. - Vijay B. Samant

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