16:30: Vital Therapies, Inc.(VTL) Q3 2014 Earnings Conference Call November 13, 2014 4:30 PM ET

Albert S. Kildani - Vice President of Investor Relations and Business Development Terence E. Winters - Co-Chairman and Chief Executive Officer Michael V. Swanson - Chief Financial Officer Duane Nash - Executive Vice President and Chief Business Officer Robert A. Ashley - Executive Vice President, Chief Technical Officer Jan Stange - Chief Medical Officer

Steve Byrne - Bank of America Merrill Lynch Y. Katherine Xu - William Blair & Company Kevin Dai - Canaccord Genuity Inc.

Good day, ladies and gentlemen, and welcome to the Vital Therapies Inc., Third Quarter 2014 Earnings Conference Call. My name is Jasmin and I’ll be your operator for today. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. And now, I’d like to turn the conference over to your host for today, Mr. Al Kildani, Vice President of Investor Relations and Business Development. Please Proceed.

Thank you, Jasmin. Good afternoon, my name is Al Kildani, Vice President of Investor Relations and Business Development. Thank you for joining Vital Therapies' management team on our conference call to discuss the Company's financial results for the third quarter 2014 ended September 30. On today's call, are several members of the Vital Therapies Senior Management, including Dr. Terry Winters, Co-Chairman and Chief Executive Officer; Michael Swanson, our Chief Financial Officer; Dr. Duane Nash, Executive Vice President and Chief Business Officer; Rob Ashley, Executive Vice President and Chief Technical Officer and Jan Stange, Chief Medical Officer. Before we begin, we would like to remind you that we will be making forward-looking statements on this call such as statements related to the timing and conduct of our clinical trial programs and expected top line data release, cash runway and plans and objectives of management for future operations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual events or results to differ materially, including the risk that our clinical trials program is delayed or is ultimately unsuccessful. Please refer to our SEC filings for a more detailed discussion of the risk factors that could cause actual events or results to differ materially. The forward looking statements on this call are based on information available to us as of today's date and we disclaim any obligations to update any forward-looking statements except as required by law. And with that, I would now like to introduce Dr. Terry Winters, Vital Therapies' Co-Chairman and CEO.

Thank you, Al. Good afternoon everyone and thank you for joining us. Welcome to our inaugural quarterly earnings and update call. In these calls, we plan to remind you of our business, and update you on the status of our clinical development and other newsworthy items, summarize our financial performance and then open the call up for questions. I would like to begin with a brief overview of the Company. We are developing ELAD, a bio-artificial liver which incorporates a unique allogeneic cellular therapy and could improve survival in the various kinds of acute liver failure. Our corporate highlights include strong parts clinical data, two Phase III trials underway, key trial results due next year, orphan status in the U.S. and EU for ELAD. A strong competitive position and a plan to commercialize directly without partners. I will l now review some of the key recent development. Our first Phase III trial, VTI-208, is a randomized, controlled, open label survival study in acute and in alcohol induced liver decompensation began enrollment in March 2013. As of yesterday, 175 of the targeted 200 subjects have been enrolled. And the trial is on plan to complete enrollment around the end of this year with a minimum follow up period of 90 days, we should be to announce top line results in the second quarter of 2015. Of the 51 sites open for enrollment in the United States, the United Kingdom, Spain, and Australia, 39 have enrolled at least one subject. The independent data and safety monitoring board for the trial has been meeting regularly to review safety and at each meeting, has recommended that the trial continued. Our second Phase III trial, VTI-210, is a randomized, controlled, open label survival trial in acute alcoholic hepatitis patients who have failed steroid therapy. With…

Thanks, Terry, and good afternoon, everyone. We ended the third quarter with cash and cash equivalents of $79.1 million, the driver, as Terry mentioned, we further strengthened our financial position with a completion of a follow on offering subsequent to the end of the quarter, selling 2,050,000 shares of our common stock at a price to the public of 17.50 per share. We received net proceeds of approximately 33.4 million after underwriting discounts and commissions from the follow on offering. Based on our current business plan and with these funds, we believe that our existing cash and cash equivalents will be sufficient to fund our operations into the fourth quarter of 2016, assuming we do not begin building any significant commercial infrastructure. As Terry mentioned, this should take us through the completion of enrollment and receipt of top line data from all three of our clinical trials. In connection with the following on offering, all of our executive officers, directors, and certain of our stockholders which includes our largest beneficial stockholder, entered into a lockup agreement with the company. The lockup continues except with the prior written consent of our Board of Director through the date of issuance of our press release that includes the top line data from the VTI-208 Phase III clinical trial. Between the follow on offering and our IPO in the second quarter, we have raised gross proceeds of $98 million through the sale of 7,225,000 common shares at a weighted average price to the public of $13.56 per share and we currently have 23.8 million shares of common stock outstanding. Turning briefly to summarize our results for the quarter and the nine months ended September 30, 2014, the Company reported a net loss of $12.8 million for the quarter and $33.7 million for the nine-month period. This compared to a net loss of $7 million and $22.5 million in the corresponding quarter and nine-month period of 2013. The increase in the net losses in 2014 is compared to 2013 which is primarily associated with an increase in Phase III clinical trial activities. Please refer to our press release issued earlier today, and our Quarterly Report on Form 10-Q for more details on these financial results. With that, I would like to turn to back over Terry.

Thanks, Mike. To summarize, this is a very exciting time at Vital Therapies, because we had a unique cellular therapy approach to address large unmet need in acute liver failure in our ELAD bio artificial liver. We also have significant milestones on the horizon including Phase III top line data projected to be available in the second quarter of 2015 and we are continuing to execute on clinical trial enrollment and we will provide periodic updates on our progress. Lastly, and probably most importantly, we have an experienced and deeply committed management team. With that, we will open the call up to your questions in addition to Mike, joining me for the Q&A portion of our call, are Dr. Duane Nash, our EVP and Chief Business Officer, we have Robert Ashley, our EVP and Chief Technology Officer, Dr. Jan Stange, our Chief Medical Officer, and Michael Swanson, our CFO. Operator, you could please provide instructions and open up the call for questions.

[Operator Instructions] And your first question comes from the line of Steve Byrne. Please proceed.

Terry, you mentioned just a few moments ago that you recently had a review of the data by the - I think you said the data monitor - the data safety monitoring committee. Is - did they also look at efficacy and was that essentially a futility analysis?

As I understand it, they are only looking at safety but, Jan, could you expand, please. Mr. Dr. Jan Stange.

Yes, they are only looking for safety data.

Yes, so if we - go back three months, you had 140 patients in the study, can you comment on how many of them are still alive?

No, Steve, we do not know that number.

With respect to the enrolling criterion and what you’ve learned so far in this study, would you say that your criteria are consistent with what you might view as the ultimate addressable population or do you believe your enrolling criteria might be overly stringent?

Well, I think in any survival trial, we have to be very careful on the population that you enroll, you got to choose them to be sick enough to die if not treated and yet no so sick that you can't help them. And so I think they are just the population is quite a bit narrow around the addressable population.

Okay. Thank you.

Duane would you like to expand on that?

Sure, I think Steve, yes, so thanks for the very thoughtful question. So obviously, when you design a trial, you need to look for events and so in enriching our population for events, we are looking at particularly sick population. And I don't know if Jan wants to comment, but we have a lot of confidence that this enrollment criteria will lead to that population.

Yes, the population reflects the arm of our Phase II clinical trial where we have success in the past and we think we have the right population.

And Jan, could you just comment on what you are seeing in terms of the average liver size that is coming in to the study and versus what you would view as a more normal liver size?

Steve I will just jump in, we haven't disclosed that. We - because of the open label nature of the study, we are essentially blinded to what is going on so we haven't been analyzing that and we do have criteria thought to make sure that patients are only coming in with inflamed livers and we hired Jan in large part, to police those criteria and so we have a lot of confidence that these are inflamed livers coming in. But unfortunately, we don't have the number that you are looking for.

Okay, thank you.

And your next question comes from the line of Katherine Xu. Please Proceed.

Hi, good afternoon. I was just wondering, the effect of the STOPAH study, if steroids is not really doing anything from this very big study. First of all, I guess is how broadly applicable this is with UK data and of this data, because it's UK. And it is widely acceptable in the near future, how would that impact your 210 design? And is it possible that 208 would also satisfy Europe? That would be the - I guess, the best alternate outcome. But I just wanted to understand how - what kind of potential outcomes there could be?

That is a very good question, Katherine, and we are still obviously looking at the implications but I would like to ask Robert Ashley to expand on that a little bit.

Hi, Katherine. Yes, it's a very interesting question, of course, I think the most important outcome of the STOPAH study is that now, the prednisolone or pentoxifylline improved survival at 90 days and one-year in this population and so it is clearly still a huge unmet medical need for treating this population. If you look at the criteria that were presented at the AASLD earlier around this week, then the average MELD in these patients was around about 21, that kind of order of magnitude. And as you know, we are aiming for a somewhat more sick patient population than that. They did present data showing that if you apply the Lille criteria to that population, you discriminated a population with a much higher mortality rate and so that helps to validate the design we have with VTI-210. And perhaps, the fact that steroids didn't have a long-term benefit might enable us to expand the population in VTI-210 a little but we are - sort exploring that option. Whether this population is applicable outside of the United Kingdom, I would say so, this population was enrolled based on the same types of enrollment criteria and Maddrey discriminant function and so on that we and others have used so I think these populations are broadly applicable. And as far as the last part of your question, whether this would mean that VTI-208 would be sufficient for approval in Europe and I don't know the answer to that. We haven't approached the European agency obviously yet to talk about that.

And your next question comes from the line of John Newman. Please proceed.

Hey guys, this is Kevin Dai actually in for John Newman, and the question I have is in regards to your disposable cartridges, can you comment on the production yield for these cartridges and also if you guys are seeing any failure rates with these cartridges as well? Thanks.

Kevin, hi, a very good question. The cartridges are produced in our plant in San Diego and we have actually been very pleased with the quality and volume of production of the cartridges for the clinical trials. Now, our general assumption of the on spec production is about 90% and I'm happy to tell you that we have been running at a rate well in excess of that and we are very pleased with the production of the - especially the quality of the cartridges that are being produced for the trials

Okay, great. And then so in terms of - about 90% then, then we think of it as more of like a 10% failure rate? Is that how we think of it?

That is the way around, yes, I could have put it the other way around. Exactly, we are running at considerably less than a 10% failure rate. And we are talking about the cartridges as they are produced in the plant. Okay.

Okay, okay. Okay, great. Thank you so much.

Okay.

[Operator Instructions] And there are no remaining questions at this time; I would now like to turn the call back over to Terry for any closing remarks.

Okay, well thanks, everyone for joining us on this inaugural quarterly conference call. It is quite a milestone for us. We look forward to updating you on future calls and in the meantime, if you've got any further questions, please do not hesitate to contact any of us. I think we can now sign off. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.