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Friday, August 26, 2011 10:16:36 AM
Vical Inc. (VICL) Q2 2011 Earnings Call August 3, 2011 12:00 PM ET
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Operator
Good day and welcome ladies and gentlemen to the Vical Incorporated Financial Results conference call. (Operator instructions.) 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 Q2 2011 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, Mrs. Jill Broadfoot.
I will begin with a brief notice concerning projections and forecast. This call includes forward looking statements including financial expectations and projections of progress in our research and development programs that are subject to risks and uncertainties that could cause actual results to differ materially from those projected including the risks set forth in Vical’s annual report on form 10-k and quarterly reports on form 10-Q filed with the Securities and Exchange Commission as well as the specific risks and uncertainties noted in Vical’s news release on Q2 2011 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
Thanks you Alan and welcome to all our participants. In today’s call I’ll focus on updates for our leading development programs with TransVax® we announced last month, an exclusive worldwide license to Astellas and I’ll discuss the fact forward and broader impact of this license. With Allovectin®-7® we are approaching completion of our phase III trial in patients with Metastatic Melanoma and I’ll provide some detailed guidance on our anticipated progress.
We’ll start today with a quick review of our Q2 financial results by our CFO Jill Broadfoot and an updated cash run forecast reflecting recent developments. Jill -
Jill Broadfoot
Thank you Vijay. As we reported earlier today Q2 2011 total revenues were $800,000 compared with $2.1 million for Q2 of 2010 which reflected last year’s revenues from our [Bengay] collaboration with the US Navy and the contributions of AnGes Funding for our phase III Allovectin® trial.
Our operating expenses were lower in Q2 of 2011 compared with Q2 of 2010 primarily as a result of cost recognized in 2010 related to the [Bengay] collaboration and lower clinical trials for both Allovectin® and TransVax®.
We ended Q2 with cash and investments at approximately $45 million. In addition we expect a $25 million cash payment within the next few weeks from our recent TransVax® license with Astellas. The Astellas upfront payment of $25 million is higher then the amount we had included for projected partnership payments in our original forecast for 2011.
In addition we expect to receive payments from Astellas in 2011 for reimbursement of our costs for ongoing TransVax® related activities. As a result we have revised our guidance and are now projecting a net cash burn for 2011 of between $7 million and $12 million.
Please note that we have excluded from our 2011 guidance the $10 million milestone payment due from Astellas upon finalization of the trial design for a phase III trial of TransVax® and hematopoietic stem cell transplant recipients. We expect to receive that payment no later then the beginning of the phase III clinical trial which we expect will begin in the first half of 2012. We believe the future financial benefits of the Astellas agreement to Vical will be substantial both through the remaining development period and for the years of commercialization ahead.
With that I will turn the call back to Vijay.
Vijay Samant
Thank you Jill. We announced the TransVax® license agreement with Astellas just a few weeks ago and they became effective two weeks ago with the early termination of the hard stop [Medino] waiting period.
I’ll spend a few minutes today on a high level overview of the collaboration, provide an update on our post announcement progress and I’ll fast forward and look at the opportunities that I will bring up for Vical as a result of this new collaboration.
First of all we are delighted to have the added partner for this program. Astellas is the second largest pharmaceutical company in Japan and one of the top 20 worldwide. Even more relevant are their demonstrated success and key relationships in the TransVax® market with Astellas driving the program forward we believe TransVax® is positioned well to achieve the greatest possible commercial success. As a reminder, the early termination of the hard stop [Medino] period triggered an initial $25 million payment for Astellas which we expect to receive within the next few weeks. Finalization of the phase III trial designs will trigger another $10 million payment upfront and milestone payments through the commercial launch of TransVax® could total up to $130 million. After the launch Vical will receive double digit royalties on the net suite of products. We all try to reserve the option to co-promote TransVax® in the United States. From this point forward Astellas has agreed to bear the responsibility and cost for all TransVax® development works, for regulatory approvals and for commercialization because of substantial experience working with DNA vaccines we agree to help Astellas with manufacturing regulatory and certain development activities. Astellas has agreed to reimburse for all these efforts including the cost of our employees working on TransVax® along with any related external expenses.
Since signing the agreements we established a joint development team with Astellas and together we have hit the ground running. The initial focuses on finalizing the design of the phase III trial for the ACG transplant recipients consistent with the goal of studying the trial in the first half of 2012. The design of the phase II trial for the (inaudible) transplant recipients is being developed in (inaudible) and Astellas expects to bring in this trial in the same time frame. We believe that the TransVax® program is now well positioned for success and that Astellas has the resources and the experience to advance much more quickly then we could do on our own. Once TransVax® reaches the point of commercial launch it should be a great fit with the existing Astellas transplant business. As you probably know Astellas immunosuppressant pro has generated $2 billion in sales in the most recent Astellas fiscal year.
Astellas has presence in all key regions and is positioned well to be efficiently leveraging this new product into this market. They have well-established relationship with the transplant tier with prescribers, distributors, payers, scientific community and the key regulatory agencies. This network should increase the probability of success for TransVax®.
In our July call addressing the Astellas license agreement we described some of the initial benefits of the collaboration. I won’t repeat those today but will summarize by noting that we believe collaboration with Astellas is an important validation of our technology platform and in particular the promising clinical results observed with TransVax® in a controlled phase II trial. In addition we believe it gives Vical greater flexibility and the resources to devote to our other programs. We are evaluating our options to advance early stage pipeline to include our CyMVectinTMTM prophylactic vaccine for the prevention of maternal fetal transmission of CMV during pregnancy as well as our herpes simplex type two therapeutic vaccine and potential expanded application for Allovectin®-7® for other cancers. Our immediate attention however will remain focused on Allovectin®, an oral immunotherapy for initial plan used in metastatic melanoma.
Let me now move to Allovectin®-7®. As we noted in our earnings early this morning, we have a bigger guidance for phase III registration trial of Allovectin®-7®®. We expect to complete this treatment for a with a primary endpoint which is response rate at 24 weeks or more after randomization by Feb of 2012 and to continue marketing the secondary endpoint which is overall survival and release the top line data for both the endpoints in the second quarter of 2012. We are excited about the Allovectin®-7® program and we will take some time today to walk through the details and the prospects behind these new projections. We enrolled a total of 390 patients in our phase III trial from Jan 2007 to Feb 2010. The trial was randomized 2 to 1 with 260 patients in the Allovectin® seminar and 130 in the chemotherapy arm. Patients in the chemotherapy arm would get physician choice of (inaudible). A primary endpoint is the overall response rate at 24 weeks after randomization or later. This time element is key as it is intended to highlight the unique profile and durabilities in immunotherapy responses versus the transient nature of chemotherapy responses.
Let me remind you that in phase II trial the continuous arm was out of 127 patients for an overall response rate of 12%. If we only look at those patients in our phase II trial it would have met the eligibility criteria for a phase III trial. We had 11 responders out of 66 patients for a calculated response rate of 17%. Importantly all of the response in our phase II trial will have met the phase III primary endpoint of response rate at least 24 weeks after randomization. The median duration of response was 13.8 months but the minimum response duration was six months and the longest was more than five years and still going at the last check-up. For comparison though from a variety of melanoma patient populations historical median duration response for the (inaudible) is typically three to four months. To maximize this opportunity of meeting our primary endpoint we plan to keep the patients in study as long as possible. Our phase III protocol was designed under an SP agreement that allowed for a maximum two-year follow up period. Simply put, that means for the last patients enrolled in Feb 2010, we can count responders to Feb of 2012. That is when we expect to close the trial for the primary endpoint. Once we get to that point we close the trial, collection audit the data and lock the database. The data will then be reviewed by an independent endpoint assessment and adjudication committee or EAAC which will make a final determination of each subject’s response status. EAAC is composed of radiologists and oncologists who did not participate in the trial. The EAAC follows a charter agreed upon with the FDA and will determine which patients meet the established criteria for responses.
We expect the data collection and the audit process and the EAAC evaluation to take several months, it’s an intensive process. Based on the Feb 2012 target date we are projecting that the primary endpoint top line data should be allowed in Q2 of 2012.
I’ll now move to our secondary advocacy endpoint which is survival. Positive survival data could be a compelling factor in the approval process as well as a competitive advantage in the marketplace. In our phase II study the median overall survival was almost 19 months for Allovectin®. Among the patients who met the eligibility criteria for phase III trial, the median survival was 22.5 months. These numbers are even more impressive when you consider that more than 60% of the patients withdrew from the trial during the first cycle of treatment, most due to progressive disease. We have designed the phase III trial to allow patients to remain on study for at least two cycles to be able to treat them more times (inaudible 00:12:26) patients. For comparison the median survival for (inaudible 00:12:29) control group in recent studies in a variety of melanoma patient population typically ranges from 6 to 11 months. We have calculated the target number of overall (inaudible) needed to show up statistically significant survival advantage based on our assumptions for months of survival in the control arm and months of survival in the treatment arm. We have not yet reached that target number of overall death [ph] but expect to do so in Q2 of 2012. Remember the study is blinded to (inaudible 00:13:03).
I’m pleased to inform you that since our last call we have conformed with the FDA that we can lock the database for the response rate endpoint and proceed with the EAAC evaluation but continue to keep the trial open for survival endpoint. That allows us to keep the survival database open for several additional months without delaying the adjudication for the response rate endpoint. By the time the (inaudible) is completed we expect to be close to the target number of overall death events so the timeline for the primary and secondary points should merge at the end. Because there is no (inaudible) factors involved for survival because you’re just counting the determent traits we should be able to complete the survival analysis quickly and release the top line data for both endpoints at the same time. Again our best estimate as of today is that we should reach that point in Q2 of 2012.
We’re also looking beyond that point to Allovectin®’s potential positioning in the marketplace. We have noted before this call that Allovectin®-7® is a unique mechanism of action that could be synergistic with other Melanoma treatments, especially the recently approved (inaudible) and basic care for (inaudible) antibody. We are currently conducting a mouse study with Allovectin®-7® and an anti (inaudible) MAB in an accepted Melanoma model as a first step in evaluating this potential synergy. We expect to have results from this initial study by Q4.
Let me move onto herpes simplex. I wanted to give you a quick update as to where we stand with this program. Since our last call we presented data to scientific conferences with the latest pre-clinical data for our HSV2 vaccine. We previously reported encouraging data showing that our prophylactic vaccine protected mice against challenge of 50 times the lethal dose of herpes simplex 2 providing sterilized immunity and independent (inaudible) at both primary and latent infection sites. Our Vaxfectin® adjuvant significantly improved the vaccine’s effectiveness. Our therapeutic vaccine significantly reduced the recurrence of lesions in guinea pigs with latent infections as well as viral sharing.
We completed these studies because we wanted to make sure these are for real and we are pleased to let you know that we can form these results which are among the best ever seen for HSV2 in such a therapeutic model. The latest data shows that even a small 0.1 microgram dose of the prophylactic vaccine provided 100% protection for mice against the challenge, which is 50x the lethal dose of herpes virus. The 100 gram dose provided 100% protection of mice against the challenge of 500x the lethal dose of the pathogen. The 100 microgram dose of the prophylactic vaccine also significantly reduced virus sharing at the primary infection site, intubated virus counts at the latent infection site. Both vaccines completely prevented primary disease and recurrent disease in the prophylactic guinea pig model.
We are now working with our collaborators at the University of Washington and HSV2 clinical experts to complete the pre-clinical development and prepare this vaccine to advance into human clinical testing. HSV2 prevalence in the US alone is estimated at around 50 million. About 20%, 10 million people are asymptomatic – that presents a large potential market for a therapeutic HSV2 vaccine.
In conclusion, for the remainder of 2011 and into 2012 we expect continued progress on our independent partners programs in our TransVax® CMV program. We expect to establish and initiate a phase III trial in stem cell transplant recipients and a phase II trial in solid organ transplant recipients in the first half of 2012; and a phase III trial of our sanofi-aventis group we expect to complete treatment and follow-up for the primary endpoint by September, 2012, and to release the top line data both for primary and secondary endpoints in Q2 of 2012. Our Japanese founder AnGes is expected to initiate a multi-national phase III trial of its cytomegalovirus angiogenesis product in 2011. As a result of the formal agreement we have revised our financial guidance and now I expect a net cash run rate for 2011 between $10 million and $12 million.
That concludes are prepared comments. Operator, we’re now ready to open the call for questions from our invited participants. Thank you.
Question-and-Answer Session
Operator
Thank you, Mr. Savant. The question-and-answer session will begin at this time. (Operator Instructions.) And our first question will come from Ren Benjamin with Rodman.
Ren Benjamin – Rodman
Hi, good afternoon guys, and thanks for taking the questions and congratulations on the progress. Maybe just starting off with Allovectin®, can you remind us Vijay, who many SMB meetings have taken place and maybe how many more will take place on the way to the unveiling of the data?
Alan Engbring
We’ve reported on five of those, Ren. We have them roughly every six months so as long as the trial is open we’ll continue to do those once every six months.
Ren Benjamin – Rodman
Alan, I forgot when the fifth one was reported. When’s the next one due?
Alan Engbring
We reported the last one I believe in February so we should have one coming up relatively soon. There’s a little bit of a flux factor in those because the report doesn’t always come in the same amount of time. We wait for the report to come in.
Ren Benjamin – Rodman
And just for my understanding, in these meetings I understand that there’s not a futility analysis and it’s primarily safety, but they are unblended to the data and they can recommend that the study halt? Or is that not an option?
Alan Engbring
That is not an option. They look strictly at safety and it would only stop the trial or recommend stopping the trial for a safety problem.
Ren Benjamin – Rodman
Okay. And just switching gears real quickly to the Astellas partnership, Jill, can you just remind us how the accounting treatment of the milestones will take place in Q3? Will it be amortized over the lifetime of the deal? How should we be looking at that?
Jill Broadfoot
We’re working through that with Ernst & Young right now but preliminarily it appears that we should be recognizing the full $25 million as revenue in Q3.
Ren Benjamin – Rodman
Okay, great. And then just regarding CollategeneTM, can you give us some sort of update as to what might be happening with that program?
Vijay Samant
Well, I think right now they’re a key program. They’re actively seeking financing both from the Japanese investors and from US investors. They feel confident that they don’t want to start the trials until they feel they have sufficient money to complete the trial. As you know their cash balances, they’re very well capitalized right now to start the trial but they want to make sure that they’re sufficient there. So hopefully by the end of Q3 they’ll be in a better financial position to begin the trial.
Ren Benjamin – Rodman
Okay, and I guess just one final question regarding Allovectin®. You had mentioned that the target death rate or the number of events has not been reached. Is that in both arms, in one arm or total for the trial; and what happens if you don’t reach that target at the two-year mark?
Vijay Samant
So first of all the trial is blinded to us so we have no idea which arm the event rates are ahead or behind; we always look at the total number of deaths. So how do we predict? We come up with a number of the targeted event rates which is based on our model where we assume what the median survival is going to be in the control arm and we’re going to assume a certain median survival in the treatment arm. And based on this we predict the death event rates. And right now we are behind in terms of that target number that we’re reaching, and we expect that to reach sometime by the Q2 of this year. Hopefully those numbers earn up; if for some reason those numbers don’t earn up we’ll give you guidance sometime, hopefully Q1 of next year of where we stand – I think we should have a better understanding. But right now where I am I feel that we are pretty good to meet those numbers by Q2 of next year.
Ren Benjamin – Rodman
And just as a follow-up, you mentioned that you have a maximum follow-up time of two years. Is that irrelevant of the death rate or both have to come together?
Vijay Samant
The maximum follow-up time is for the response rate. Remember, the last patient recruited in the study February of 2010. The study has a maximum follow-up of response rate of two years and that ends in February of 2012. So any patients who may be still on the study for one of the reasons beyond February of 2012 is not counted as a responder. At February 2012 that’s it, that’s the input and all the response rates are counted, so no more data can be collected after February 2012.
Ren Benjamin – Rodman
Got it, alright. Thank you very much and congratulations.
Operator
And next we’ll go to George Farmer with Canaccord.
George Farmer – Cannacord
Hi, thanks for taking my question. With immunotherapy approaches to treating melanoma there appears to be a very strong correlation between response rate and overall survival. The primary endpoint of your trial is overall response rate at the 24 week or greater time point, so if you miss the OS endpoint but you do see some sort of overwhelming survival benefit in the patients that respond, do you think that’s sufficient for FDA approval?
Vjay Samany
Well, I can’t speculate what the FDA is going to say or what (inaudible) is going to say, but I’ll tell you one thing – with the approval of [DRY] and maybe the potential approval of the Roche [Flexicon] drug, survival is going to be an important attribute that the agencies are going to look at very carefully. And even if we meet the primary endpoint of response rate which we think we are going to, we’ll find out soon, survival is going to be a very important attribute for the competitiveness of Allovectin®-7®® in the marketplace. So it’s important to have that survival rate on our side.
And George, to remind you, the point you made before is an excellent one. If you look at our phase II data, there’s a very strong correlation unlike a lot of other cancer studies where we lack that correlation. Our responders have gone on to live very long. If you’ll remember, most of our responders, half of them were still alive at the last look, almost five or six years after the study so there’s a pretty good correlation in immunotherapy as you correctly point out between response rate and survival. So assuming that correlation holds then we should see a corresponding trend in survival as we see in response rate and vice versa.
George Farmer – Cannacord
Okay, so it’s also possible that if you don’t hit this overall survival event rate by Q2 next year you’ll just continue keeping that going and then report later in the year? Is that likely?
Vijay Samant
No, I didn’t mean (inaudible). At some point in time you’re going to have to lock the database completely and then announce both of them at the same time. That’s our goal because then we don’t want to give an opportunity for speculation of what one data versus another, and right now as it turns out we have laid the timeline of both these endpoints in terms of when they would become available which will be in Q2. I think Q2 looks like a very reasonable timeframe but you will find out.
As you know, there are three factors of why the event rates are behind. One is there’s always a lag in actually death recording by the time we get the data, or our assumption on the median survival of the control arm is different from what actually is occurring; or more importantly, the assumption of the median survival in the treatment arm is different. It’s a combination of these three factors which could be causing the delay.
George Farmer – Cannacord
Alright, thanks. Moving on to TransVax® real quickly, can you comment, Vijay, whether there should be any concern particularly in the solid organ transplant setting for concomitant steroid use and immunosuppressive agents in maybe mitigating the [immunogenesy] of TransVax®?
Vijay Samant
No, absolutely not because you know, even if steroids were used, concomitant therapy is used, let me explain to you that the patients in the (inaudible) transplant were severely compromised. You would actually wipe down their existing bone marrow and there are under severe immunosuppression in the first eight to ten weeks of post transplantation, and despite that we’re able to mount very good immune response for the first time to date. That’s part of the uniqueness of the plasmids DNA technology, that it primes the immune system and mounts those immune responses, even when the immune system is compromised. I don’t believe that should be an issue at all.
George Farmer – Cannacord
Thanks, Vijay.
Operator
Moving forward we’ll hear from Nathan Kelly with Noble Finance.
Nathan Kelly – Noble Finance
Hey guys, good afternoon. Thanks for taking the questions. Just a couple follow-ups to Allovectin®-7®®. What is the overall survival rates for the patients so far in the study without treatment?
Vijay Samant
You mean what is the overall survival rate for the patients who are getting the control arm treatment?
Nathan Kelly – Noble Finance
Basically, if these patients weren’t being treated, what would be the overall survival rates for this stage of melanoma for these patients, stage 3 and 4?
Vijay Samant
I don’t know what the survival rate would be if they were not getting treatment because most of them get treated and most of them get treated with chemotherapy as we have said previously and has been published in a variety of studies. Patients who are in stage 3 for melanoma, the data has been anywhere from seven to nine months of success. Now obviously there are a variety of studies using different patient populations, so the patients here do not have the [rumnax], so you had a month or two months to that – that could be eleven months, nine to eleven months, eight to eleven months, in that range.
Nathan Kelly – Noble Finance
Okay. And at the present time according to completing enrollment in February, 2010, do you guys have an estimated survival rate at this point?
Vijay Samant
No, we haven’t disclosed what the event rate is and what our assumptions are both in the control arm and the treatment arm. Those are confidential.
Nathan Kelly – Noble Finance
In addition to that, I know you talked about this earlier but as far as closing out the study, how many events would need to occur for you to close out the study?
Vijay Samant
Again, we have not disclosed the exact event numbers.
Nathan Kelly – Noble Finance
Okay. Alright, thanks a lot.
Operator
And moving forward we’ll hear from Nicholas Bishop with Tallinn Company.
Nicholas Bishop – Tallinn Company
Hi, good afternoon. Thanks for taking my question. I had a couple of accounting questions. One is the cash burn guidance for the year has been reduced by about $15 million while the milestone is at $25 million. So I’m wondering if you can provide any additional granularity as to what kind of expense assumptions are included in that.
Jill Broadfoot
Well, we don’t get down to the level of expense assumption but we had included some monies in our cash burn forecast at the beginning of the year for a partnership. It wasn’t as high as the $25 million. Then there’s also the cost reimbursement that [Acellus] will be providing for reimbursing us for our FTEs that are working on the TransVax® program, which is one of the reasons why we’ve left that range in there as well - $7 million to $12 million. It depends on how much work is done over the year.
Vijay Samant
I think also we in our cash flow guidance at the beginning of the year had an assumption that we were going to get some partnership revenues. Now, we got much larger upfront payments than what the original assumption was, so if you take that out that basically explains what the difference is. That’s the bottom line.
Nicholas Bishop – Tallinn Company
Okay, thanks, and then two additional questions on the finances. Have you determined yet how you will be accounting for some of the outgoing payments to some of your other partners associated with the [Estella field]? Will those be separate line items or included as a net?
Vijay Samant
It will be included as a net item, and you know, these are all… The forecast that we are giving right now has those assumptions built into it.
Nicholas Bishop – Tallinn Company
Okay. And you mentioned that the financial flexibility you now have gives you some different options going forward in terms of development programs. At this stage can you say whether your cash runway will be extended or would you expect instead to expand on dev efforts?
Jill Broadfoot
That’s what we’re deciding right now. We have the ability to move forward with, as Vijay said, with the HSV2 program which we’re getting ready to do. We also have our [Sinvectin] program but we’re in the process of making that decision right now. Luckily we have enough cash to be able to make that decision.
Nicholas Bishop – Tallinn Company
Okay, and then just one final quick one on Allovectin® if I could. If we contemplate the possibility that in Q2 the event rates have not quite reached the cutoff that you specified, would we then expect to see both the endpoints later? Is that the outcome? Do I understand that correctly?
Vijay Samant
I think if that indeed is the case I think first of all we should really be pleased that we are indeed behind by that point in time because that tells you that something is going on there. Obviously that’s a good situation to be in from what the eventual data output will be; it also causes a delay in terms of the (inaudible) of our data. I think our goal really has been to make sure that we get both pieces of our data, the primary and the seocondary endpoint, released at the same time.
Nicholas Bishop – Tallinn Company
Okay, thank you very much.
Operator
And next we’ll hear from Vernon Bernardino from Dawson James.
Vernon Bernardino – Dawson James
Hi, thanks for taking my question. Just first an operating expense question. So the reduce costs partly in Q2 was due to Allovectin® phase III reduced costs. Just wondering if you could describe that a little more as far as… I guess that’s a later clinical trial cost or what drove the reduced costs? And then Allovectin®-7®, the question for further clarification earlier was asked about at the two-year cutoff point. I’m just wondering if you can flesh out a little more what exactly a non-responder is. You had mentioned that regarding the situation of the patient at that time; if, for example, what is a non-responder at that point? Thanks.
Vijay Samant
Let me take the technical question first and then Jill will answer the financial question later. If in February of 2012, let’s speculate for a minute that there are five patients still under the study and they’re all stable diseased, and for some reason they go into a special protocol and continue to get Allovectin®-7® and say they respond in two months, April of 2012 – it doesn’t count. In February of 2012, if they have a stable disease that’s it, that’s where it all stops. Nothing is counted. If somebody responds, as a stable disease patient that responds after February 2012, if they go into a compassion use protocol or an individual patient compassion protocol. So that’s what that means. Is that clear?
Vernon Bernardino – Dawson James
So if that patient’s a non-responder-
Vijay Samant
If I say he has a stable disease that means he didn’t respond, yes.
Vernon Bernardino – Dawson James
That person is removed from the number of end patients in that arm?
Vijay Samant
No, the denominator always is the total number of patients in that particular arm. It doesn’t change. So if there are 260 patients in the treatment arm, that’s the number in the denominator. It’s only intent to treat, not invaluable – intent to treat.
Vernon Bernardino – Dawson James
Okay, great, that’s a better clarification – “intent to treat.” And the costs for Allovectin®?
Jill Broadfoot
Yeah, so the expenses, a year ago at this time the amount of work that we were doing on Allovectin® as well as TransVax® was much higher than the amount of work that we’re doing now. So the further you get away from that last subject in of last work there is, that’d be as the patients eventually drop off. So it’s the total clinical expenses for both of those programs that are lower this quarter than a year ago.
Vernon Bernardino – Dawson James
Okay, and then regarding the cash burn, you mentioned some of the costs in the second half of the year will be driven by reimbursement R&D and fulltime employees. I just wonder if you could provide a little bit of detail on the status of those, or there is still paperwork and so on with hard stop [Medino] and most of the costs and reimbursement will occur in Q4?
Jill Broadfoot
Well, the hard stop [Medino’s] cleared so we’re not waiting for that. It just depends upon the amount of work that we’re doing for Astellas, we’re getting ready to prepare for the phase III trial. So it’s all based upon that level of work.
Vijay Samant
We think the factor in terms of reimbursement will be much larger next year than it will be this year. Am I correct, Jill?
Jill Broadfoot
Yes, it’ll be much larger.
Vernon Bernardino – Dawson James
Okay, thank you for that detail.
Operator
Thank you. (Operator instructions.) Next we will hear from Steven Willy from Stifel Nicolaus.
Steven Willy – Stifel Nicolaus
Thank you for taking the question. Vijay, I know you talked about nondisclosure on the number of events required to unblind the trial perspectives, but can you remind us where you are on our assumption perspectives relative to both control and treatment? I know you just kind of threw out a nine month to eleven month number on the control arm.
Vijay Samant
Yeah, we have not given those publicly in terms of what our assumptions are, in terms of what the assumptions for the median survival in the treatment arm and the control arm, but you should be able to easily come up with those numbers on your own. You’re a smart guy; look at what our phase II data was on Allovectin-7® and you can look at what historically controls were. So you should be able to do that modeling yourself. I think what we don’t want to do is go patient by patient every quarter and tell you what the event rate was. I think we have gone through, we have used some outside statistical help to give us really tight guidance on how we should be modeling this so a lot of thinking is done behind this.
Steven Willy – Stifel Nicolaus
Okay, just don’t jump to conclusions on me being smart. Just trying to think about post-treatment therapy – can you remind us what’s the minimum duration of treatment that each patient was required to see? I know you guys remain blinded but do you have any insight on patients who may be seeing other therapies after chemo, after Allovectin-7®?
Vijay Samant
Well, let’s talk about this for a second; this is an important question that you’re asking. First of all as you know, we have changed the protocols here to make sure that we modified the specific criteria, that we maximized the probability of patients getting at least two cycles of treatment. So you remember, our dropout rate in that prior study was almost 62%; we want to make sure that number really goes down. That’s really the goal of the study. We don’t know what that number is, we’ll eventually find out what the number is because we are blinded to the study.
The other question you’re asking is “Hey, what is the probability of these patients from either of these two arms could have gotten into some of the other neutral entities that were being clinically tested during that period of time?” My answer to that question is if you go and look into those protocols, those were treatment-naïve protocols: the phase III protocols both for the [rostra] as well as the frontline treatment for (inaudible). So none of our patients were eligible for that, even if they were a progressor. As you know, the phase III study for second line therapy for (inaudible) actually did not allow anybody with chemo refractory to go into that study if they were involved with another protocol which was counting survival at an endpoint. Got it?
Steven Willy – Stifel Nicolaus
Got it.
Vijay Samant
So as a result, the only time any patients could have gone into a study in the United States was when the drug got approved, what, March or April of this year in the United States; and just recently in Europe although there was some preapprovals in Europe through compassionate use. But again, those compassionate use preapprovals had these restrictions. So remember, both those frontline studies were for treatment-naïve patients and the second line therapy did not allow patients to come in if they were enrolled in a chemotherapy study or a chemotherapy arm where survival is counted as an endpoint. So these are very finely designed studies, so I don’t think, whatever occurs after March of 2007 is randomized.
Steven Willy – Stifel Nicolaus
Okay, and then just lastly on the accounting front – the $25 million that fits in Q3, is that net of any outgoing payments that are associated with fulfilling milestone (inaudible) and royalty applications? Or is that $25 million that’s going to hit?
Jill Broadfoot
Yeah, ultimately it will be net.
Steven Willy – Stifel Nicolaus
Okay. So those numbers aren’t netted out then.
Jill Broadfoot
The $25 million we expect to recognize as revenue and any offsetting expenses to any other license fees or any other costs will be recognized at the same time the revenue is recognized.
Steven Willy – Stifel Nicolaus
Net of the revenue payment?
Jill Broadfoot
It depends on what the expenses are, but they’ll be recognized at the same time.
Vijay Samant
I think the burn rates already take care of the payments though.
Jill Broadfoot
Yeah, the burn rate reflects everything.
Steven Willy – Stifel Nicolaus
Okay, it’s just me trying to I guess gauge what percentage of that $25 million is going out as opposed to just hitting in terms of a lump sum. But I appreciate the answers and thanks very much.
Operator
If there are no further questions I will now turn the call back over to Mr. Samant.
Vijay Samant
Well, thank you very much for attending this call. We look forward to seeing you all in the near future. Thank you.
Operator
Ladies and gentlemen, this concludes our conference for today. You may now disconnect.
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does anyone follow VICL
Operator
Good day and welcome ladies and gentlemen to the Vical Incorporated Financial Results conference call. (Operator instructions.) 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 Q2 2011 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, Mrs. Jill Broadfoot.
I will begin with a brief notice concerning projections and forecast. This call includes forward looking statements including financial expectations and projections of progress in our research and development programs that are subject to risks and uncertainties that could cause actual results to differ materially from those projected including the risks set forth in Vical’s annual report on form 10-k and quarterly reports on form 10-Q filed with the Securities and Exchange Commission as well as the specific risks and uncertainties noted in Vical’s news release on Q2 2011 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
Thanks you Alan and welcome to all our participants. In today’s call I’ll focus on updates for our leading development programs with TransVax® we announced last month, an exclusive worldwide license to Astellas and I’ll discuss the fact forward and broader impact of this license. With Allovectin®-7® we are approaching completion of our phase III trial in patients with Metastatic Melanoma and I’ll provide some detailed guidance on our anticipated progress.
We’ll start today with a quick review of our Q2 financial results by our CFO Jill Broadfoot and an updated cash run forecast reflecting recent developments. Jill -
Jill Broadfoot
Thank you Vijay. As we reported earlier today Q2 2011 total revenues were $800,000 compared with $2.1 million for Q2 of 2010 which reflected last year’s revenues from our [Bengay] collaboration with the US Navy and the contributions of AnGes Funding for our phase III Allovectin® trial.
Our operating expenses were lower in Q2 of 2011 compared with Q2 of 2010 primarily as a result of cost recognized in 2010 related to the [Bengay] collaboration and lower clinical trials for both Allovectin® and TransVax®.
We ended Q2 with cash and investments at approximately $45 million. In addition we expect a $25 million cash payment within the next few weeks from our recent TransVax® license with Astellas. The Astellas upfront payment of $25 million is higher then the amount we had included for projected partnership payments in our original forecast for 2011.
In addition we expect to receive payments from Astellas in 2011 for reimbursement of our costs for ongoing TransVax® related activities. As a result we have revised our guidance and are now projecting a net cash burn for 2011 of between $7 million and $12 million.
Please note that we have excluded from our 2011 guidance the $10 million milestone payment due from Astellas upon finalization of the trial design for a phase III trial of TransVax® and hematopoietic stem cell transplant recipients. We expect to receive that payment no later then the beginning of the phase III clinical trial which we expect will begin in the first half of 2012. We believe the future financial benefits of the Astellas agreement to Vical will be substantial both through the remaining development period and for the years of commercialization ahead.
With that I will turn the call back to Vijay.
Vijay Samant
Thank you Jill. We announced the TransVax® license agreement with Astellas just a few weeks ago and they became effective two weeks ago with the early termination of the hard stop [Medino] waiting period.
I’ll spend a few minutes today on a high level overview of the collaboration, provide an update on our post announcement progress and I’ll fast forward and look at the opportunities that I will bring up for Vical as a result of this new collaboration.
First of all we are delighted to have the added partner for this program. Astellas is the second largest pharmaceutical company in Japan and one of the top 20 worldwide. Even more relevant are their demonstrated success and key relationships in the TransVax® market with Astellas driving the program forward we believe TransVax® is positioned well to achieve the greatest possible commercial success. As a reminder, the early termination of the hard stop [Medino] period triggered an initial $25 million payment for Astellas which we expect to receive within the next few weeks. Finalization of the phase III trial designs will trigger another $10 million payment upfront and milestone payments through the commercial launch of TransVax® could total up to $130 million. After the launch Vical will receive double digit royalties on the net suite of products. We all try to reserve the option to co-promote TransVax® in the United States. From this point forward Astellas has agreed to bear the responsibility and cost for all TransVax® development works, for regulatory approvals and for commercialization because of substantial experience working with DNA vaccines we agree to help Astellas with manufacturing regulatory and certain development activities. Astellas has agreed to reimburse for all these efforts including the cost of our employees working on TransVax® along with any related external expenses.
Since signing the agreements we established a joint development team with Astellas and together we have hit the ground running. The initial focuses on finalizing the design of the phase III trial for the ACG transplant recipients consistent with the goal of studying the trial in the first half of 2012. The design of the phase II trial for the (inaudible) transplant recipients is being developed in (inaudible) and Astellas expects to bring in this trial in the same time frame. We believe that the TransVax® program is now well positioned for success and that Astellas has the resources and the experience to advance much more quickly then we could do on our own. Once TransVax® reaches the point of commercial launch it should be a great fit with the existing Astellas transplant business. As you probably know Astellas immunosuppressant pro has generated $2 billion in sales in the most recent Astellas fiscal year.
Astellas has presence in all key regions and is positioned well to be efficiently leveraging this new product into this market. They have well-established relationship with the transplant tier with prescribers, distributors, payers, scientific community and the key regulatory agencies. This network should increase the probability of success for TransVax®.
In our July call addressing the Astellas license agreement we described some of the initial benefits of the collaboration. I won’t repeat those today but will summarize by noting that we believe collaboration with Astellas is an important validation of our technology platform and in particular the promising clinical results observed with TransVax® in a controlled phase II trial. In addition we believe it gives Vical greater flexibility and the resources to devote to our other programs. We are evaluating our options to advance early stage pipeline to include our CyMVectinTMTM prophylactic vaccine for the prevention of maternal fetal transmission of CMV during pregnancy as well as our herpes simplex type two therapeutic vaccine and potential expanded application for Allovectin®-7® for other cancers. Our immediate attention however will remain focused on Allovectin®, an oral immunotherapy for initial plan used in metastatic melanoma.
Let me now move to Allovectin®-7®. As we noted in our earnings early this morning, we have a bigger guidance for phase III registration trial of Allovectin®-7®®. We expect to complete this treatment for a with a primary endpoint which is response rate at 24 weeks or more after randomization by Feb of 2012 and to continue marketing the secondary endpoint which is overall survival and release the top line data for both the endpoints in the second quarter of 2012. We are excited about the Allovectin®-7® program and we will take some time today to walk through the details and the prospects behind these new projections. We enrolled a total of 390 patients in our phase III trial from Jan 2007 to Feb 2010. The trial was randomized 2 to 1 with 260 patients in the Allovectin® seminar and 130 in the chemotherapy arm. Patients in the chemotherapy arm would get physician choice of (inaudible). A primary endpoint is the overall response rate at 24 weeks after randomization or later. This time element is key as it is intended to highlight the unique profile and durabilities in immunotherapy responses versus the transient nature of chemotherapy responses.
Let me remind you that in phase II trial the continuous arm was out of 127 patients for an overall response rate of 12%. If we only look at those patients in our phase II trial it would have met the eligibility criteria for a phase III trial. We had 11 responders out of 66 patients for a calculated response rate of 17%. Importantly all of the response in our phase II trial will have met the phase III primary endpoint of response rate at least 24 weeks after randomization. The median duration of response was 13.8 months but the minimum response duration was six months and the longest was more than five years and still going at the last check-up. For comparison though from a variety of melanoma patient populations historical median duration response for the (inaudible) is typically three to four months. To maximize this opportunity of meeting our primary endpoint we plan to keep the patients in study as long as possible. Our phase III protocol was designed under an SP agreement that allowed for a maximum two-year follow up period. Simply put, that means for the last patients enrolled in Feb 2010, we can count responders to Feb of 2012. That is when we expect to close the trial for the primary endpoint. Once we get to that point we close the trial, collection audit the data and lock the database. The data will then be reviewed by an independent endpoint assessment and adjudication committee or EAAC which will make a final determination of each subject’s response status. EAAC is composed of radiologists and oncologists who did not participate in the trial. The EAAC follows a charter agreed upon with the FDA and will determine which patients meet the established criteria for responses.
We expect the data collection and the audit process and the EAAC evaluation to take several months, it’s an intensive process. Based on the Feb 2012 target date we are projecting that the primary endpoint top line data should be allowed in Q2 of 2012.
I’ll now move to our secondary advocacy endpoint which is survival. Positive survival data could be a compelling factor in the approval process as well as a competitive advantage in the marketplace. In our phase II study the median overall survival was almost 19 months for Allovectin®. Among the patients who met the eligibility criteria for phase III trial, the median survival was 22.5 months. These numbers are even more impressive when you consider that more than 60% of the patients withdrew from the trial during the first cycle of treatment, most due to progressive disease. We have designed the phase III trial to allow patients to remain on study for at least two cycles to be able to treat them more times (inaudible 00:12:26) patients. For comparison the median survival for (inaudible 00:12:29) control group in recent studies in a variety of melanoma patient population typically ranges from 6 to 11 months. We have calculated the target number of overall (inaudible) needed to show up statistically significant survival advantage based on our assumptions for months of survival in the control arm and months of survival in the treatment arm. We have not yet reached that target number of overall death [ph] but expect to do so in Q2 of 2012. Remember the study is blinded to (inaudible 00:13:03).
I’m pleased to inform you that since our last call we have conformed with the FDA that we can lock the database for the response rate endpoint and proceed with the EAAC evaluation but continue to keep the trial open for survival endpoint. That allows us to keep the survival database open for several additional months without delaying the adjudication for the response rate endpoint. By the time the (inaudible) is completed we expect to be close to the target number of overall death events so the timeline for the primary and secondary points should merge at the end. Because there is no (inaudible) factors involved for survival because you’re just counting the determent traits we should be able to complete the survival analysis quickly and release the top line data for both endpoints at the same time. Again our best estimate as of today is that we should reach that point in Q2 of 2012.
We’re also looking beyond that point to Allovectin®’s potential positioning in the marketplace. We have noted before this call that Allovectin®-7® is a unique mechanism of action that could be synergistic with other Melanoma treatments, especially the recently approved (inaudible) and basic care for (inaudible) antibody. We are currently conducting a mouse study with Allovectin®-7® and an anti (inaudible) MAB in an accepted Melanoma model as a first step in evaluating this potential synergy. We expect to have results from this initial study by Q4.
Let me move onto herpes simplex. I wanted to give you a quick update as to where we stand with this program. Since our last call we presented data to scientific conferences with the latest pre-clinical data for our HSV2 vaccine. We previously reported encouraging data showing that our prophylactic vaccine protected mice against challenge of 50 times the lethal dose of herpes simplex 2 providing sterilized immunity and independent (inaudible) at both primary and latent infection sites. Our Vaxfectin® adjuvant significantly improved the vaccine’s effectiveness. Our therapeutic vaccine significantly reduced the recurrence of lesions in guinea pigs with latent infections as well as viral sharing.
We completed these studies because we wanted to make sure these are for real and we are pleased to let you know that we can form these results which are among the best ever seen for HSV2 in such a therapeutic model. The latest data shows that even a small 0.1 microgram dose of the prophylactic vaccine provided 100% protection for mice against the challenge, which is 50x the lethal dose of herpes virus. The 100 gram dose provided 100% protection of mice against the challenge of 500x the lethal dose of the pathogen. The 100 microgram dose of the prophylactic vaccine also significantly reduced virus sharing at the primary infection site, intubated virus counts at the latent infection site. Both vaccines completely prevented primary disease and recurrent disease in the prophylactic guinea pig model.
We are now working with our collaborators at the University of Washington and HSV2 clinical experts to complete the pre-clinical development and prepare this vaccine to advance into human clinical testing. HSV2 prevalence in the US alone is estimated at around 50 million. About 20%, 10 million people are asymptomatic – that presents a large potential market for a therapeutic HSV2 vaccine.
In conclusion, for the remainder of 2011 and into 2012 we expect continued progress on our independent partners programs in our TransVax® CMV program. We expect to establish and initiate a phase III trial in stem cell transplant recipients and a phase II trial in solid organ transplant recipients in the first half of 2012; and a phase III trial of our sanofi-aventis group we expect to complete treatment and follow-up for the primary endpoint by September, 2012, and to release the top line data both for primary and secondary endpoints in Q2 of 2012. Our Japanese founder AnGes is expected to initiate a multi-national phase III trial of its cytomegalovirus angiogenesis product in 2011. As a result of the formal agreement we have revised our financial guidance and now I expect a net cash run rate for 2011 between $10 million and $12 million.
That concludes are prepared comments. Operator, we’re now ready to open the call for questions from our invited participants. Thank you.
Question-and-Answer Session
Operator
Thank you, Mr. Savant. The question-and-answer session will begin at this time. (Operator Instructions.) And our first question will come from Ren Benjamin with Rodman.
Ren Benjamin – Rodman
Hi, good afternoon guys, and thanks for taking the questions and congratulations on the progress. Maybe just starting off with Allovectin®, can you remind us Vijay, who many SMB meetings have taken place and maybe how many more will take place on the way to the unveiling of the data?
Alan Engbring
We’ve reported on five of those, Ren. We have them roughly every six months so as long as the trial is open we’ll continue to do those once every six months.
Ren Benjamin – Rodman
Alan, I forgot when the fifth one was reported. When’s the next one due?
Alan Engbring
We reported the last one I believe in February so we should have one coming up relatively soon. There’s a little bit of a flux factor in those because the report doesn’t always come in the same amount of time. We wait for the report to come in.
Ren Benjamin – Rodman
And just for my understanding, in these meetings I understand that there’s not a futility analysis and it’s primarily safety, but they are unblended to the data and they can recommend that the study halt? Or is that not an option?
Alan Engbring
That is not an option. They look strictly at safety and it would only stop the trial or recommend stopping the trial for a safety problem.
Ren Benjamin – Rodman
Okay. And just switching gears real quickly to the Astellas partnership, Jill, can you just remind us how the accounting treatment of the milestones will take place in Q3? Will it be amortized over the lifetime of the deal? How should we be looking at that?
Jill Broadfoot
We’re working through that with Ernst & Young right now but preliminarily it appears that we should be recognizing the full $25 million as revenue in Q3.
Ren Benjamin – Rodman
Okay, great. And then just regarding CollategeneTM, can you give us some sort of update as to what might be happening with that program?
Vijay Samant
Well, I think right now they’re a key program. They’re actively seeking financing both from the Japanese investors and from US investors. They feel confident that they don’t want to start the trials until they feel they have sufficient money to complete the trial. As you know their cash balances, they’re very well capitalized right now to start the trial but they want to make sure that they’re sufficient there. So hopefully by the end of Q3 they’ll be in a better financial position to begin the trial.
Ren Benjamin – Rodman
Okay, and I guess just one final question regarding Allovectin®. You had mentioned that the target death rate or the number of events has not been reached. Is that in both arms, in one arm or total for the trial; and what happens if you don’t reach that target at the two-year mark?
Vijay Samant
So first of all the trial is blinded to us so we have no idea which arm the event rates are ahead or behind; we always look at the total number of deaths. So how do we predict? We come up with a number of the targeted event rates which is based on our model where we assume what the median survival is going to be in the control arm and we’re going to assume a certain median survival in the treatment arm. And based on this we predict the death event rates. And right now we are behind in terms of that target number that we’re reaching, and we expect that to reach sometime by the Q2 of this year. Hopefully those numbers earn up; if for some reason those numbers don’t earn up we’ll give you guidance sometime, hopefully Q1 of next year of where we stand – I think we should have a better understanding. But right now where I am I feel that we are pretty good to meet those numbers by Q2 of next year.
Ren Benjamin – Rodman
And just as a follow-up, you mentioned that you have a maximum follow-up time of two years. Is that irrelevant of the death rate or both have to come together?
Vijay Samant
The maximum follow-up time is for the response rate. Remember, the last patient recruited in the study February of 2010. The study has a maximum follow-up of response rate of two years and that ends in February of 2012. So any patients who may be still on the study for one of the reasons beyond February of 2012 is not counted as a responder. At February 2012 that’s it, that’s the input and all the response rates are counted, so no more data can be collected after February 2012.
Ren Benjamin – Rodman
Got it, alright. Thank you very much and congratulations.
Operator
And next we’ll go to George Farmer with Canaccord.
George Farmer – Cannacord
Hi, thanks for taking my question. With immunotherapy approaches to treating melanoma there appears to be a very strong correlation between response rate and overall survival. The primary endpoint of your trial is overall response rate at the 24 week or greater time point, so if you miss the OS endpoint but you do see some sort of overwhelming survival benefit in the patients that respond, do you think that’s sufficient for FDA approval?
Vjay Samany
Well, I can’t speculate what the FDA is going to say or what (inaudible) is going to say, but I’ll tell you one thing – with the approval of [DRY] and maybe the potential approval of the Roche [Flexicon] drug, survival is going to be an important attribute that the agencies are going to look at very carefully. And even if we meet the primary endpoint of response rate which we think we are going to, we’ll find out soon, survival is going to be a very important attribute for the competitiveness of Allovectin®-7®® in the marketplace. So it’s important to have that survival rate on our side.
And George, to remind you, the point you made before is an excellent one. If you look at our phase II data, there’s a very strong correlation unlike a lot of other cancer studies where we lack that correlation. Our responders have gone on to live very long. If you’ll remember, most of our responders, half of them were still alive at the last look, almost five or six years after the study so there’s a pretty good correlation in immunotherapy as you correctly point out between response rate and survival. So assuming that correlation holds then we should see a corresponding trend in survival as we see in response rate and vice versa.
George Farmer – Cannacord
Okay, so it’s also possible that if you don’t hit this overall survival event rate by Q2 next year you’ll just continue keeping that going and then report later in the year? Is that likely?
Vijay Samant
No, I didn’t mean (inaudible). At some point in time you’re going to have to lock the database completely and then announce both of them at the same time. That’s our goal because then we don’t want to give an opportunity for speculation of what one data versus another, and right now as it turns out we have laid the timeline of both these endpoints in terms of when they would become available which will be in Q2. I think Q2 looks like a very reasonable timeframe but you will find out.
As you know, there are three factors of why the event rates are behind. One is there’s always a lag in actually death recording by the time we get the data, or our assumption on the median survival of the control arm is different from what actually is occurring; or more importantly, the assumption of the median survival in the treatment arm is different. It’s a combination of these three factors which could be causing the delay.
George Farmer – Cannacord
Alright, thanks. Moving on to TransVax® real quickly, can you comment, Vijay, whether there should be any concern particularly in the solid organ transplant setting for concomitant steroid use and immunosuppressive agents in maybe mitigating the [immunogenesy] of TransVax®?
Vijay Samant
No, absolutely not because you know, even if steroids were used, concomitant therapy is used, let me explain to you that the patients in the (inaudible) transplant were severely compromised. You would actually wipe down their existing bone marrow and there are under severe immunosuppression in the first eight to ten weeks of post transplantation, and despite that we’re able to mount very good immune response for the first time to date. That’s part of the uniqueness of the plasmids DNA technology, that it primes the immune system and mounts those immune responses, even when the immune system is compromised. I don’t believe that should be an issue at all.
George Farmer – Cannacord
Thanks, Vijay.
Operator
Moving forward we’ll hear from Nathan Kelly with Noble Finance.
Nathan Kelly – Noble Finance
Hey guys, good afternoon. Thanks for taking the questions. Just a couple follow-ups to Allovectin®-7®®. What is the overall survival rates for the patients so far in the study without treatment?
Vijay Samant
You mean what is the overall survival rate for the patients who are getting the control arm treatment?
Nathan Kelly – Noble Finance
Basically, if these patients weren’t being treated, what would be the overall survival rates for this stage of melanoma for these patients, stage 3 and 4?
Vijay Samant
I don’t know what the survival rate would be if they were not getting treatment because most of them get treated and most of them get treated with chemotherapy as we have said previously and has been published in a variety of studies. Patients who are in stage 3 for melanoma, the data has been anywhere from seven to nine months of success. Now obviously there are a variety of studies using different patient populations, so the patients here do not have the [rumnax], so you had a month or two months to that – that could be eleven months, nine to eleven months, eight to eleven months, in that range.
Nathan Kelly – Noble Finance
Okay. And at the present time according to completing enrollment in February, 2010, do you guys have an estimated survival rate at this point?
Vijay Samant
No, we haven’t disclosed what the event rate is and what our assumptions are both in the control arm and the treatment arm. Those are confidential.
Nathan Kelly – Noble Finance
In addition to that, I know you talked about this earlier but as far as closing out the study, how many events would need to occur for you to close out the study?
Vijay Samant
Again, we have not disclosed the exact event numbers.
Nathan Kelly – Noble Finance
Okay. Alright, thanks a lot.
Operator
And moving forward we’ll hear from Nicholas Bishop with Tallinn Company.
Nicholas Bishop – Tallinn Company
Hi, good afternoon. Thanks for taking my question. I had a couple of accounting questions. One is the cash burn guidance for the year has been reduced by about $15 million while the milestone is at $25 million. So I’m wondering if you can provide any additional granularity as to what kind of expense assumptions are included in that.
Jill Broadfoot
Well, we don’t get down to the level of expense assumption but we had included some monies in our cash burn forecast at the beginning of the year for a partnership. It wasn’t as high as the $25 million. Then there’s also the cost reimbursement that [Acellus] will be providing for reimbursing us for our FTEs that are working on the TransVax® program, which is one of the reasons why we’ve left that range in there as well - $7 million to $12 million. It depends on how much work is done over the year.
Vijay Samant
I think also we in our cash flow guidance at the beginning of the year had an assumption that we were going to get some partnership revenues. Now, we got much larger upfront payments than what the original assumption was, so if you take that out that basically explains what the difference is. That’s the bottom line.
Nicholas Bishop – Tallinn Company
Okay, thanks, and then two additional questions on the finances. Have you determined yet how you will be accounting for some of the outgoing payments to some of your other partners associated with the [Estella field]? Will those be separate line items or included as a net?
Vijay Samant
It will be included as a net item, and you know, these are all… The forecast that we are giving right now has those assumptions built into it.
Nicholas Bishop – Tallinn Company
Okay. And you mentioned that the financial flexibility you now have gives you some different options going forward in terms of development programs. At this stage can you say whether your cash runway will be extended or would you expect instead to expand on dev efforts?
Jill Broadfoot
That’s what we’re deciding right now. We have the ability to move forward with, as Vijay said, with the HSV2 program which we’re getting ready to do. We also have our [Sinvectin] program but we’re in the process of making that decision right now. Luckily we have enough cash to be able to make that decision.
Nicholas Bishop – Tallinn Company
Okay, and then just one final quick one on Allovectin® if I could. If we contemplate the possibility that in Q2 the event rates have not quite reached the cutoff that you specified, would we then expect to see both the endpoints later? Is that the outcome? Do I understand that correctly?
Vijay Samant
I think if that indeed is the case I think first of all we should really be pleased that we are indeed behind by that point in time because that tells you that something is going on there. Obviously that’s a good situation to be in from what the eventual data output will be; it also causes a delay in terms of the (inaudible) of our data. I think our goal really has been to make sure that we get both pieces of our data, the primary and the seocondary endpoint, released at the same time.
Nicholas Bishop – Tallinn Company
Okay, thank you very much.
Operator
And next we’ll hear from Vernon Bernardino from Dawson James.
Vernon Bernardino – Dawson James
Hi, thanks for taking my question. Just first an operating expense question. So the reduce costs partly in Q2 was due to Allovectin® phase III reduced costs. Just wondering if you could describe that a little more as far as… I guess that’s a later clinical trial cost or what drove the reduced costs? And then Allovectin®-7®, the question for further clarification earlier was asked about at the two-year cutoff point. I’m just wondering if you can flesh out a little more what exactly a non-responder is. You had mentioned that regarding the situation of the patient at that time; if, for example, what is a non-responder at that point? Thanks.
Vijay Samant
Let me take the technical question first and then Jill will answer the financial question later. If in February of 2012, let’s speculate for a minute that there are five patients still under the study and they’re all stable diseased, and for some reason they go into a special protocol and continue to get Allovectin®-7® and say they respond in two months, April of 2012 – it doesn’t count. In February of 2012, if they have a stable disease that’s it, that’s where it all stops. Nothing is counted. If somebody responds, as a stable disease patient that responds after February 2012, if they go into a compassion use protocol or an individual patient compassion protocol. So that’s what that means. Is that clear?
Vernon Bernardino – Dawson James
So if that patient’s a non-responder-
Vijay Samant
If I say he has a stable disease that means he didn’t respond, yes.
Vernon Bernardino – Dawson James
That person is removed from the number of end patients in that arm?
Vijay Samant
No, the denominator always is the total number of patients in that particular arm. It doesn’t change. So if there are 260 patients in the treatment arm, that’s the number in the denominator. It’s only intent to treat, not invaluable – intent to treat.
Vernon Bernardino – Dawson James
Okay, great, that’s a better clarification – “intent to treat.” And the costs for Allovectin®?
Jill Broadfoot
Yeah, so the expenses, a year ago at this time the amount of work that we were doing on Allovectin® as well as TransVax® was much higher than the amount of work that we’re doing now. So the further you get away from that last subject in of last work there is, that’d be as the patients eventually drop off. So it’s the total clinical expenses for both of those programs that are lower this quarter than a year ago.
Vernon Bernardino – Dawson James
Okay, and then regarding the cash burn, you mentioned some of the costs in the second half of the year will be driven by reimbursement R&D and fulltime employees. I just wonder if you could provide a little bit of detail on the status of those, or there is still paperwork and so on with hard stop [Medino] and most of the costs and reimbursement will occur in Q4?
Jill Broadfoot
Well, the hard stop [Medino’s] cleared so we’re not waiting for that. It just depends upon the amount of work that we’re doing for Astellas, we’re getting ready to prepare for the phase III trial. So it’s all based upon that level of work.
Vijay Samant
We think the factor in terms of reimbursement will be much larger next year than it will be this year. Am I correct, Jill?
Jill Broadfoot
Yes, it’ll be much larger.
Vernon Bernardino – Dawson James
Okay, thank you for that detail.
Operator
Thank you. (Operator instructions.) Next we will hear from Steven Willy from Stifel Nicolaus.
Steven Willy – Stifel Nicolaus
Thank you for taking the question. Vijay, I know you talked about nondisclosure on the number of events required to unblind the trial perspectives, but can you remind us where you are on our assumption perspectives relative to both control and treatment? I know you just kind of threw out a nine month to eleven month number on the control arm.
Vijay Samant
Yeah, we have not given those publicly in terms of what our assumptions are, in terms of what the assumptions for the median survival in the treatment arm and the control arm, but you should be able to easily come up with those numbers on your own. You’re a smart guy; look at what our phase II data was on Allovectin-7® and you can look at what historically controls were. So you should be able to do that modeling yourself. I think what we don’t want to do is go patient by patient every quarter and tell you what the event rate was. I think we have gone through, we have used some outside statistical help to give us really tight guidance on how we should be modeling this so a lot of thinking is done behind this.
Steven Willy – Stifel Nicolaus
Okay, just don’t jump to conclusions on me being smart. Just trying to think about post-treatment therapy – can you remind us what’s the minimum duration of treatment that each patient was required to see? I know you guys remain blinded but do you have any insight on patients who may be seeing other therapies after chemo, after Allovectin-7®?
Vijay Samant
Well, let’s talk about this for a second; this is an important question that you’re asking. First of all as you know, we have changed the protocols here to make sure that we modified the specific criteria, that we maximized the probability of patients getting at least two cycles of treatment. So you remember, our dropout rate in that prior study was almost 62%; we want to make sure that number really goes down. That’s really the goal of the study. We don’t know what that number is, we’ll eventually find out what the number is because we are blinded to the study.
The other question you’re asking is “Hey, what is the probability of these patients from either of these two arms could have gotten into some of the other neutral entities that were being clinically tested during that period of time?” My answer to that question is if you go and look into those protocols, those were treatment-naïve protocols: the phase III protocols both for the [rostra] as well as the frontline treatment for (inaudible). So none of our patients were eligible for that, even if they were a progressor. As you know, the phase III study for second line therapy for (inaudible) actually did not allow anybody with chemo refractory to go into that study if they were involved with another protocol which was counting survival at an endpoint. Got it?
Steven Willy – Stifel Nicolaus
Got it.
Vijay Samant
So as a result, the only time any patients could have gone into a study in the United States was when the drug got approved, what, March or April of this year in the United States; and just recently in Europe although there was some preapprovals in Europe through compassionate use. But again, those compassionate use preapprovals had these restrictions. So remember, both those frontline studies were for treatment-naïve patients and the second line therapy did not allow patients to come in if they were enrolled in a chemotherapy study or a chemotherapy arm where survival is counted as an endpoint. So these are very finely designed studies, so I don’t think, whatever occurs after March of 2007 is randomized.
Steven Willy – Stifel Nicolaus
Okay, and then just lastly on the accounting front – the $25 million that fits in Q3, is that net of any outgoing payments that are associated with fulfilling milestone (inaudible) and royalty applications? Or is that $25 million that’s going to hit?
Jill Broadfoot
Yeah, ultimately it will be net.
Steven Willy – Stifel Nicolaus
Okay. So those numbers aren’t netted out then.
Jill Broadfoot
The $25 million we expect to recognize as revenue and any offsetting expenses to any other license fees or any other costs will be recognized at the same time the revenue is recognized.
Steven Willy – Stifel Nicolaus
Net of the revenue payment?
Jill Broadfoot
It depends on what the expenses are, but they’ll be recognized at the same time.
Vijay Samant
I think the burn rates already take care of the payments though.
Jill Broadfoot
Yeah, the burn rate reflects everything.
Steven Willy – Stifel Nicolaus
Okay, it’s just me trying to I guess gauge what percentage of that $25 million is going out as opposed to just hitting in terms of a lump sum. But I appreciate the answers and thanks very much.
Operator
If there are no further questions I will now turn the call back over to Mr. Samant.
Vijay Samant
Well, thank you very much for attending this call. We look forward to seeing you all in the near future. Thank you.
Operator
Ladies and gentlemen, this concludes our conference for today. You may now disconnect.
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