In re Vical Incorporated Securities Litigation 13-CV-02628 ...securities.stanford.edu/.../201443_r01c_13CV02628.pdfCase 3:13-cv-02628-BAS-RBB Document 32 Filed 04/03/14 Page 2 of 69

Case 3:13-cv-02628-BAS-RBB Document 32 Filed 04/03/14 Page 1 of 69

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JOHNSON & WEAVER, LLP FRANK J. JOHNSON (SBN 174882) [email protected] SHAWN E. FIELDS (SBN 255267) [email protected] 110 West “A” Street, Suite 750 San Diego, CA 92101 Telephone: (619) 230-0063 Facsimile: (619) 255-1856

Lead Counsel for Lead Plaintiff

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

IN RE VICAL INCORPORATED

Lead Case No.:13-CV-02628-DMS-RBB SECURITIES LITIGATION

CLASS ACTION

CONSOLIDATED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS

DEMAND FOR JURY TRIAL

CONSOLIDATED COMPLAINT; LEAD CASE NO. 13-CV-02628-DMS-RBB


1

By and through his undersigned counsel, Lead Plaintiff Jack Roscoe

2 (“Plaintiff”) brings this securities class action individually and on behalf of a

3 class of persons (the “Class”) who purchased or otherwise acquired the securities

4 of Vical Incorporated (“Vical” or the “Company”) between November 1, 2011

5 and August 12, 2013, inclusive (the “Class Period”), and were damaged thereby.

6 Plaintiff alleges claims against Vical and certain of its officers and/or directors

7 for violations of the Securities Exchange Act of 1934 (the “1934 Act”).

8

Plaintiff makes these allegations based upon personal knowledge as to

9 those allegations concerning Plaintiff and, as to all other matters, upon the

10 investigation of counsel, which includes, without limitation: a) review and

11 analysis of public filings made by Vical and other related parties and non-parties

12 with the U.S. Securities and Exchange Commission (“SEC”); b) review and

13 analysis of press releases and other publications disseminated by certain of the

14 Defendants and other related non-parties; c) review of news articles, shareholder

15 communications, postings on Vical’s website concerning the Company’s public

16 statements; d) review of other publicly available information concerning Vical

17 and the other Defendants; and e) interviews of a number of high ranking former

18 employees of Vical who had first-hand knowledge of Defendants’ conduct and

19 their scheme to defraud the investing public in an effort to artificially inflate

20 Vical’s share price.

21 I. INTRODUCTION

22

1. Vical is a biopharmaceutical company that researches and develops

23 products based on patented DNA delivery technologies for the prevention and

24 treatment of serious and life-threatening illnesses, including cancer.

25

2. All of Vical’s potential products are in the research and

26 development phase, and the Company has never generated revenues from the

27 sale of any products. Vical earns revenue from research and development

28 1



1 agreements with pharmaceutical companies and from grants or contracts with

2 government entities.

3

3. According to Vical, its “lead product candidate” to receive approval

4 by the U.S. Food and Drug Administration (“FDA”) for eventual sale and

5 marketing to consumers has been Allovectin-7® (“Allovectin”), an

6 immunotherapy vaccine that targets cancer. For over a decade, Defendants

7 touted Allovectin as a “first-in-class immunotherapeutic” with the potential to be

8 a game changer for the treatment of melanoma and other cancers. Defendants

9 have devoted much of their efforts at Vical to marketing this “novel

10 immunotherapy” to investors and potential partners, without whose financial

11 support the Company could not survive.

12

4. However, preliminary results from a small Phase 2 clinical trial of

13 the drug left investors skeptical. As with all immunotherapies, Allovectin can

14 take several months after initial treatment to initiate a response in the body,

15 which is too long for most melanoma patients to wait. A whopping 60% of

16 patients in Allovectin’s Phase 2 trial were forced to drop out before they could

17 even complete their treatment because of disease progression.

18

5. At a crossroads, Defendants decided to change course. For their

19 Phase 3 Allovectin study, Defendants deliberately chose healthier patients who

20 stood a better chance of lasting throughout the entire trial. Based on assumptions

21 about the health of this patient population and the potential efficacy of

22 Allovectin, Defendants predicted an overall median survival rate of 18 months

23 for patients receiving Allovectin versus 11 months for patients in the control

24 group.

25

6. Vical enrolled 390 patients into this Phase 3 study between January

26 2007 and February 2010. Relying on these survival rate assumptions, President

27 and Chief Executive Officer (“CEO”) Defendant Vijay Samant declared at the

28 2 CONSOLIDATED COMPLAINT;

LEAD CASE NO. 13-CV-02628-DMS-RBB


1 close of enrollment in February 2010 that “we would expect to lock the clinical

2 trial database around mid-2011,” with results from the study to come shortly

3 I thereafter.

4

7. However, Defendants soon realized that the basic assumptions and

5 protocols underlying the Phase 3 study were fatally flawed. While Defendants

6 had initially predicted that the trial would end in mid-2011 after the “target

7 number of death events had been reached” (i.e. after a predetermined number of

8 patients had died), by mid-2011 it became clear to Defendants that the event rate

9 was so far behind schedule that the trial would not close for another two years.

10 Defendants recognized that advancements in melanoma therapy since the

11 commencement of the Phase 3 trial, including the approval of two new promising

12 treatments in 2011, were having a significant adverse impact on the trial’s ability

13 to demonstrate Allovectin’s efficacy. This material fact, which Defendants did

14 not disclose to the public, led Defendants to the conclusion that the Allovectin

15 Phase 3 trial was doomed to failure.

16

8. Internally, Defendants budgeted for failure. Shortly before the

17 beginning of the Class Period on November 1, 2011, Defendants prepared and

18 recommended to Vical’s Board of Directors a 2012 annual budget that included

19 only the bare minimum expenditures in the event of Allovectin’s success, but a

20 grave contingency plan to lay off half of the Company’s employees in the event

21 of failure. A similar budget was created for 2013.

22

9. Publicly, however, Defendants repeatedly expressed optimism about

23 the Phase 3 trial, misleading investors by reaffirming their faulty baseline

24 survival assumptions, and even increasing the survival assumption for Allovectin

25 patients from 18 months to 22.5 months. Defendants also falsely suggested that

26 the reason “we have not yet reached the target number of deaths” for the trial was

27

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1 that patients taking Allovectin were simply living longer than anyone assumed

2 possible – years and years longer.

3

10. Defendants also falsely claimed throughout the Class Period that

4 they were ramping up for significant manufacturing and commercialization of

5 Allovectin. While internally budgeting for failure, Defendants falsely told the

6 investing public that they were simply “taking advantage of this additional time

7 to advance self-preparations for [regulatory approval] filing and potential

8 commercial launch and planning for Allovectin’s success.”

9

11. As a result of Defendants’ misleading statements, Vical’s stock

10 traded at artificially inflated prices during the Class Period, reaching a high of

11 $4.69 per share on December 2, 2011. The stock price closed near this Class

12 Period high at $4.58 per share on September 25, 2012, and traded as high as

13 $4.26 on August 1, 2013, just days before the truth was revealed.

14

12. Finally, after two years of unreasonable delays and misleading

15 public statements, the truth emerged on August 12, 2013. On that day, Vical

16 announced the results of the Phase 3 Allovectin trial, which showed that the

17 vaccine failed to show an improvement over chemotherapy, and that because

18 “Allovectin simply did not provide the expected benefits,” the Allovectin

19 program would be terminated. This news sent shares of Vical stock down more

20 than 60% in a single day on heavy trading, with the stock’s price closing at

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$1.53.

22

13. As a result of the false and misleading statements disseminated by

23 Defendants, Vical stock traded at artificially inflated levels during the Class

24 Period, and Plaintiff and the other members of the Class lost money as a result of

25 Defendants’ wrongdoing.

26

14. Plaintiff’s allegations are substantiated by the extensive testimony

27 of numerous confidential witnesses (“CWs”), each of whom was a high-level




1 former insider at Vical during the Class Period with direct knowledge of the

2 events alleged herein. These CWs are identified as follows:

3

• CW1: CW1 was a senior executive in Vical’s Clinical

4

Operations department for nearly ten years until August 2013,

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during which time s/he managed significant aspects of

6

Allovectin’s Phase 3 clinical trial. CW1 had direct knowledge of

7

the Phase 3 trial’s clinical design, parameters, objectives, and

8 progress, as well as knowledge of communications with the FDA

9

by Defendants during the Class Period regarding the trial. S/he

10 worked with and reported directly to the Company’s President

11 and CEO, Defendant Samant.

12

• CW2: CW2 was a senior financial planning manager for Vical

13

for over ten years until August 2013, and reported directly to the

14

Company’s Chief Accounting Officer, Defendant Ramos,

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throughout the Class Period. CW2 assisted directly in the

16 preparation of Vical’s annual budgets during the Class Period

17 and had direct knowledge of Vical’s annual financial budgeting

18 plans and outlays during this time.

19

• CW3: CW3 worked in various lab capacities for Vical for nearly

20

20 years until August 2013, and served as a lab manager and

21 project manager throughout the Class Period. In these roles,

22

CW3 directly managed aspects of the Allovectin Phase 3 trial

23 and had knowledge of the Phase 3 trial’s clinical design,

24 parameters, objectives, and progress, as well as indirect

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knowledge of communications with the FDA by Defendants

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during the Class Period regarding the trial.

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1 II. JURISDICTION AND VENUE

2

15. The claims asserted herein arise under and pursuant to §§10(b) and

3 20(a) of the 1934 Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 (17 C.F.R.

4 §240.10b-5) promulgated thereunder by the SEC.

5

16. This Court has jurisdiction over the subject matter of this action

6 pursuant to 28 U.S.C. §1331 and §27 of the 1934 Act (15 U.S.C. §78aa).

7

17. Venue is proper in this Court pursuant to 28 U.S.C. §1391(b) and

8 §27 of the 1934 Act (15 U.S.C. §78aa) because many of the acts and practices

9 complained of herein occurred in substantial part in this District. Vical is

10 headquartered in this District and each of the other Defendants has extensive

11 contacts with California as a director and/or officer of Vical or otherwise, which

12 makes the exercise of personal jurisdiction over them proper.

13 III. THE PARTIES

14

18. Plaintiff Jack Roscoe purchased the publicly traded securities of

15 Vical during the Class Period, as set forth in the certification previously filed

16 with this Court, and was damaged as a result of Defendants’ wrongdoing as

17 alleged herein.

18

19. Defendant Vical is incorporated in Delaware and trades on the

19 NASDAQ Stock Market (“NASDAQ”) under the symbol “VICL.” The

20 Company’s headquarters are located at 10390 Pacific Center Court, San Diego,

21 CA. Vical is a company that researches and develops biopharmaceutical

22 products.

23

20. Defendant Vijay Samant (“Samant”) is and at all relevant times has

24 been, President, CEO, and a director of the Company. Samant joined Vical in

25 November 2000. Samant has also served as acting Chief Financial Officer since

26 April 12, 2013.

27




1

21. Defendant Jill M. Broadfoot (“Broadfoot”) served as Vical’s Chief

2 Financial Officer (“CFO”) and Secretary from October 2004 until her resignation

3 on April 1, 2013. Broadfoot also served as the Senior Vice President from

4 January 2009 until April 1, 2013.

5

22. Defendant Anthony A. Ramos (“Ramos”) has served as Chief

6 Accounting Officer since July 2010, and has served as the Company’s principal

7 accounting officer since April 2013. Ramos previously served as the Company’s

8 Corporate Controller from February 2005 until July 2010.

9 IV. FACTUAL ALLEGATIONS

10

A. Background

11

23. Vical was incorporated in 1987 to research and develop proprietary

12 lipid chemistry. The Company founders were initially focused on developing

13 liposomes for extended release of AZT, a treatment for patients with AIDS. In

14 1989, experiments and evaluations of lipid-based delivery of DNA led to Vical’s

15 DNA delivery patents, which form the basis of the Company’s current products.

16 This core DNA delivery technology approach designing and constructing closed

17 loops of DNA called plasmids, or pDNAs. These pDNAs contain a DNA

18 segment encoding the protein of interest, as well as short segments of DNA that

19 control protein expression. Plasmids can be manufactured quickly and cheaply,

20 and Vical has improved efficiency of gene expression and immunogenicity. The

21 benefits of the DNA delivery technologies include broad applicability,

22 convenience, safety, and repeat administration.

23

24. Vical completed its initial public offering of 2 million shares of stock

24 in 1993, and since its inception, the Company has raised total net proceeds of

25 approximately $370 million from the sale of equity securities.

26

25. The first U.S. patent on Vical’s core DNA delivery technology,

27 which formed the cornerstone of the Company’s comprehensive patent portfolio,

28 7



1 was issued in December 1996. All of Vical’s potential products are in the

2 research and development phases, and no revenues have yet been generated

3 from the sale of any products . The Company earns revenues from research and

4 development agreements with pharmaceutical companies and from grants or

5 contracts with government entities.

6

26. With no revenues having been generated from the sale of any

7 products, investors and analysts alike valued Vical’s stock almost entirely on the

8 prospects of its lead product candidate, Allovectin, a cancer immunotherapy drug

9 designed for the treatment of various solid tumors, including metastatic

10 melanomas. Allovectin is a DNA/lipid complex containing the gene encoding

11 the HLA-B7 antigen, and is designed to be injected directly into a tumor, where

12 malignant cells take it in and display the HLA-B7 antigen on their surface. This

13 antigen alerts the immune system to the presence of foreign tissue, inducing the

14 type of powerful immune response seen in organ transplant rejection.

15

27. As early as 2001, Vical referred to Allovectin as its “lead product

16 candidate,” and throughout the Class Period Defendant Samant referred to

17 Allovectin as Vical’s “lead project.” Samant repeatedly touted Allovectin to

18 investors and analysts as a “novel immunotherapy” and “first-in-class systemic

19 immunotherapeutic” with the potential to change the game for the treatment of

20 melanoma and other cancers.

21

28. Immunotherapies were relatively unknown to the cancer treatment

22 world when Vical began developing and testing Allovectin, and were greeted

23 with skepticism by the clinical community because of the unique challenges

24 posed by such therapies. Unlike traditional chemotherapy, which directly and

25 immediately attacks cancer cells, immunotherapies “train” the body’s immune

26 system to initiate its own response to cancer cells, in a sense teaching the body

27 how to attack the cancer on its own. This type of mechanism takes time to begin,

28 8



1 and it can often be several weeks or months before a patient’s body begins to

2 respond to the immunotherapeutic value of the drug. Because of the amount of

3 time needed for the immunotherapy to take effect, such drugs are only indicated

4 for relatively “healthy” cancer patients with a stable enough immune system to

5 withstand months of non-responsive treatment while the drug initiates its

6 response.

7

29. Vical repeatedly struggled to convince investors, analysts, and

8 potential partners that a “novel immunotherapy” treatment like Allovectin, which

9 took much longer to initiate a response than traditional chemotherapy and

10 therefore was appropriate only for the “healthiest” cancer patients, could both

11 demonstrate sufficient efficacy against traditional chemotherapy options in

12 clinical trials, and find commercial success among its much smaller population.

13

30. These problems were made evident in Vical’s Phase 2 Allovectin

14 trial, which evaluated the efficacy of a high-dose (2mg) treatment regimen for

15 certain patients with stage III and stage IV melanoma. The trial began in 2001

16 and completed enrollment in 2003. Vical deliberately restricted the trial to

17 melanoma patients with relatively “healthy” immune systems to give Allovectin

18 the greatest chance of success. However, even with these restrictions, more than

19 60% of the trial’s patients were forced to drop out of the trial before they could

20 receive the complete Allovectin dosage, because their disease had progressed

21 (worsened) before the drug could take effect. Of the few patients who remained

22 in the study, the data showed that the trial had a total of 15 responders among the

23 127 patients receiving the full dose (11.8%), with four patients having complete

24 responses and 11 having partial responses. These results, while promising, could

25 not be adequately compared to traditional chemotherapy options because the

26 Phase 2 trial did not have a control arm.

27

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1

31. Given the mixed results and challenges of Allovectin’s Phase 2 trial,

2 Vical continued to struggle to convince investors and potential partners to

3 believe in the drug. Nevertheless, after receiving detailed guidance from the

4 FDA after the end of the Phase 2 trial, the Company completed a Special

5 Protocol Assessment (“SPA”) with the FDA for a Phase 3 trial of high-dose, 2

6 mg, Allovectin for certain patients with stage III or stage IV melanoma. The

7 SPA specified the trial objectives and design, clinical endpoints and planned

8 analyses expected to be needed for product approval.

9

32. The SPA, which was created entirely by Vical, restricted enrollment

10 in the Phase 3 trial to stage III and stage IV melanoma patients who one market

11 analyst noted was among the “healthiest melanoma patients ever [to enter a

12 cancer study] . . . on the melanoma severity scale, the patients in the Allovectin

13 study are much less sick than patients enrolled in other melanoma studies and

14 should be expected to live a long time with their disease. Vical’s phase III study

15 excludes melanoma patients with cancer that spread to their brain or liver,

16 requires patients to have normal LDH, good performance status and be

17 chemotherapy naïve. Melanoma with these baseline characteristics are relatively

18

healthy.”

19

33. The SPA also called for enrollment of approximately 375 patients,

20 which was slightly less than half the size of similar Phase 3 melanoma trials.

21 The SPA also called for a 2:1 randomization, with two-thirds of enrolled patients

22 receiving Allovectin in the treatment arm and one-third of patients receiving their

23 and their doctors’ choice of two traditional chemotherapy alternatives, DTIC or

24 TMZ.

25

34. The SPA also mandated interim reviews every six months for

26 safety, but no interim reviews for efficacy. Interim efficacy analyses are

27 considered standard for Phase 3 cancer trials, but are relatively expensive to




1 conduct. However, as one competitor company realized during the course of a

2 parallel Phase 3 clinical cancer trial, conducting interim efficacy analyses can

3 ultimately save a company from wasting millions of dollars on a drug that clearly

4 will not work. According to CW1, Pfizer was conducting a parallel Phase 3

5 clinical trial on a cancer immunotherapy that used the same basic molecule as

6 Allovectin, but discontinued the trial in 2008 after an interim efficacy analysis

7 showed that the study was futile.

8

35. The SPA also described the Phase 3 trial’s two efficacy endpoints,

9 or signposts to determine whether Allovectin worked. The primary endpoint was

10 objective response rate at 24 weeks to two years, which measured how many

11 patients showed a positive response to treatment starting 24 weeks after the final

12 round of treatment and continuing for up to two years after the final round of

13 treatment. As Defendant Samant explained at a November 14, 2012 Credit

14 Suisse Healthcare Conference, this endpoint was “designed to capture the

15 advantages of immunotherapy. The primary endpoint in the study is response

16 rate, and we’re measuring response rate between six months and two years, six

17 months after randomization. So anybody who responds in the first six months is

18 not counted. And logically in chemotherapy most patients respond in the first six

19 months and they go on to progress. So our measurement starts at the optimal

20 peak of the benefit of our [immuno]therapy.”

21

36. The secondary endpoint for the trial was overall survival, which

22 measured how long patients survived after receiving treatment. For obvious

23 reasons, this endpoint has always been more important to patients and investors.

24 As CW1 admitted, s/he would have preferred that the secondary endpoint of

25 survivability would have been the primary, because “that [survival] is the one

26 that everyone cares about.”

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1

37. In 2006, Vical entered into an agreement with AnGes MG, Inc.

2 (“AnGes”) for a modest $22.6 million funding commitment to fund the Phase 3

3 clinical trial. Around the same time, CW1, a senior manager in Vical’s Clinical

4 Operations department, began his/her work on the clinical aspect of the Phase 3

5

trial.

6

38. In January 2007, Vical and AnGes announced the start of the Phase

7 3 clinical trial for Allovectin. Robin M. Jackman, the General Manager and Vice

8 President of Vical, said: "We are delighted to begin the comparative trial of

9 Allovectin-7 and the conventional drug. We have not had any new drugs for the

10 past 15 years and so Allovectin-7 is a long-awaited drug. With the durable

11 response rate at 6 months, we can look forward to the fast expedition of the drug

12 on the market."

13

39. Between January 2007 and February 2010, Vical enrolled 390

14 patients into the Phase 3 trial, with 260 participating in the Allovectin arm and

15

130 participating in alternative treatments, referred to as the “control arm.” All

16 the data was blinded to Vical but not to the patients, their doctors, or the FDA.

17 In February 2010, Defendant Samant stated that: “We are excited by how this

18 trial has progressed, and we want to make sure we allow enough time for the data

19 to mature. Based on this information today, we would expect to lock the clinical

20 trial data base around mid-2011 .” During 2010, Defendant Samant continued to

21 repeat a target date of mid-2011 for the end of Allovectin’s Phase 3 trial data.

22

40. By all accounts, the SPA was designed and structured by Defendant

23 Samant with the purpose of conducting a complex, multi-year Phase 3 clinical

24 cancer trial as cheaply as possible. These cost cutting measures included

25 enrolling only half the number of patients typically enrolled in such trials, not

26 including interim efficacy analyses (which Samant himself admitted during the

27 Class Period was designed to keep costs down), and setting response rate as the




primary endpoint rather than overall survival, which was a more critical

measurement of Allovectin’s success but also more expensive to effectively

I monitor.

41. CW1 acknowledged that a natural tension exists between the CEO

of a company attempting to launch a new drug onto the market like Vical, and

the people charged with running the clinical studies. But this tension was ever-

present and palpable at Vical. CW1 stated that Samant was “very concerned”

about time and cost – “everything was time and cost.” 1

42. CW1 observed that cost was the reason survivability was a

secondary endpoint to response rate, mainly because survival is such an

expensive endpoint to track. The time and money involved to track overall

survival typically substantially exceeds the analysis of response data, which is

generally obtained much earlier. S/he said that if companies could conduct trials

“without tracking survival at all” they would.

43. Response rate data generally, and in the Allovectin Phase 3 trial in

particular, is more quickly and cheaply obtained than overall survival data

because response rate data has a definitive endpoint. For example, the Phase 3

trial only tracked response rate data from patients for a maximum of two years.

The last patient completed treatment in February 2010, meaning that all of the

response rate data would have been collected and available for adjudication no

later than February 2012. By contrast, overall survival data required continuous

monitoring and follow up with patients, potentially for years, until the target

number of death events had been reached (i.e. until a certain, predetermined

number of people in the study had died).

1 CW2, a senior manager in Vical’s Financial Planning & Analysis department, confirmed Samant’s aggressively cost-conscious nature, observing that he sometimes cut areas so much that it caused people to voice opposition despite Samant’s reputation as an egotist who demanded his management team to be “yes men.”

13 CONSOLIDATED COMPLAINT;


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44. CW1 confirmed that the Phase 3 response rate data was available

2 and ready for adjudication by early 2012. CW1 also confirmed that Vical could

3 have begun adjudication of the data immediately without waiting for the

4 secondary overall survival endpoint to be reached (which by that point it had

5 not). S/he explained that the data for each endpoint was collected in two separate

6 third-party databases, and that there was no prohibition in the SPA or from the

7 FDA preventing Vical from reviewing and releasing this top-line primary

8 endpoint data as soon as it was available without waiting for the secondary

9 endpoint data.

10

45. However, CW1 confirmed that Defendants refused to authorize

11 adjudication of the primary endpoint data when it was available. CW1 also

12 stated that there was no good reason given to him/her or any other member of

13 Vical management to explain why Vical did not review and disclose the data

14 from the primary endpoint as soon as possible. CW1 emphasized that this data

15 was the most crucial part of the study, because the Allovectin trial would be

16 deemed a failure by the FDA if the response rate primary endpoint was not met.

17 In fact, as CW1 explained, if Allovectin failed to show improved response rate

18 (the primary endpoint) but still succeeded in demonstrating improved overall

19 survival over the chemo alternatives (the secondary endpoint), Vical would still

20 be relegated to a conclusion that Allovectin had failed, and would have to start

21 all over again to design and seek capital for a new study. Therefore, it would be

22 critically important for the Company and its investors to know as soon as

23 possible if the primary endpoint had been met.

24

46. However, Defendants improperly delayed the locking, adjudication,

25 and release of this primary endpoint data for nearly two years, because by the

26 time this data was available for adjudication, Defendants knew or recklessly

27




1 disregarded that the Phase 3 trial was a failure. Two facts within Defendants’

2 I control alerted them to the failure of the Phase 3 trial.

3

47. First, Defendants learned by the middle of 2011 that their baseline

4 assumptions for median overall survival rate, assumptions which largely dictated

5 success or failure of the trial, were faulty. Defendants made baseline

6 assumptions that patients in the control arm would have a median survival rate of

7 9-11 months, and that patients in the treatment arm would have a median

8 survival rate of 18 months. On the basis of these assumptions, and knowing that

9 the trial treatment period would end in February 2010, Defendants projected and

10 represented to the investing public that they would reach their target event

11 number of deaths approximately 18 months later, or in “mid-2011.”

12

48. However, by mid-2011, Defendants knew that the target number of

13 death events had not been reached, and in fact that the trial was far behind

14 schedule in reaching the target number of death events, meaning that far fewer

15 people were dying than originally projected. While this news was clearly good

16 for the patients enrolled in the trial, it was not good news for Vical and

17 Defendants, because it signaled that the baseline assumptions they made and on

18 which they based their study were faulty. In fact, the target number of death

19 events by mid-2011 was so far behind schedule that it would not be reached for

20 another two years, until August 2013.

21

49. Defendants Samant and Broadfoot had direct knowledge of the

22 number of death events throughout the Class Period. Samant, Broadfoot, and

23 other executives collected and analyzed data regarding death events every “three

24 to four months.” As Samant explained at one point during the Class Period, “Jill

25 [Broadfoot], myself and my team look at the [death event] data on a rolling four-

26 month average basis and we have an idea of what the slope of the event rate

27

that’s occurring.”




1

50. Falling behind the target number of death rates in a trial can signal

2 one of three things: 1) patients in the treatment arm were living longer than

3 expected, 2) patients in the control arm were living longer than expected, or 3)

4 patients in both arms were living longer than expected. In this Phase 3 trial,

5 Defendants knew by at least mid-2011 that the delay here was caused by option

6 3: patients in both arms were living longer than expected. As CW1 explained,

7 various developments in prolonging the life of melanoma patients around the

8 world in the years following the commencement of the Phase 3 trial and known

9 to Defendants during the Class Period almost certainly resulted in improved

10 response rates and longer life spans. In particular, recent advancements in

11 chemotherapy treatment that were available to patients in the control arm but that

12 were not considered in Defendants’ baseline survival assumptions likely helped

13 control arm patients respond better to treatment and survive longer.

14

51. Knowledge of these recent advancements in chemotherapy

15 treatment available to control arm patients also led Defendants to recognize that

16 their control arm response rate assumptions were materially flawed. Defendants

17 initially projected that the control arm would achieve only a 4% response rate

18 through chemotherapy. However, this assumption was based solely upon a failed

19 phase 3 study of Genta’s Genasense compared to chemotherapy, which was not a

20 good comparator for multiple reasons. First, the patient population in that study

21 was significantly sicker and had more negative baseline prognostic factors than

22 the Allovectin patient group, including brain and liver metastases and elevated

23 levels of LDH, and therefore would be expected to have a lower response rate.

24 Second, this trial took place before advancements in melanoma therapy were

25 readily available to cancer trial patients, unlike the Phase 3 Allovectin group

26 here.

27




1

52. Second, Defendants knew that FDA approval of two new chemo-

2 alternative melanoma therapies in 2011 would likely have a negative effect on

3 the Phase 3 trial. CW1 also explained that Defendants were keenly aware of the

4 FDA approval of two new melanoma drugs – Yervoy in March 2011 and

5 Zelboraf in August 2011 – that radically altered the landscape for melanoma

6 treatment. These drugs became immediately available to all patients in the

7 Allovectin study, which Defendants recognized would have a detrimental effect

8 on the Phase 3 trial by improving the response rates and increasing the lifespans

9 of patients in both the treatment and control arms.

10

53. Indeed, CW1 explained that at the time the Allovectin protocols

11 were established for participant profiles, based upon known statistical data and

12 other profiles, there were no other melanoma therapies other than chemo on the

13 market. CW1 stated s/he was “damn lucky” that Vical enrolled the last Phase 3

14 patient in February 2010, a year before Yervoy or Zelboraf had been approved,

15 because had enrollment still been ongoing once other treatments were approved,

16 s/he would not have been able to convince anyone else to participate.

17

54. The significant impact of these newly approved drugs on the

18 Allovectin trial was exacerbated by the fact that approximately half of the

19 patients enrolled in the Phase 3 trial were enrolled during the last year of

20 enrollment (February 2009-February 2010). Under the protocols of the study,

21 these patients were relatively healthy when they entered the study and were

22 almost certainly healthier than most of the earlier enrolled patients by the time

23 Yervoy and Zelboraf hit the market. Thus, half of the patients in the Allovectin

24 trial had been in the trial for less time and were relatively healthier when they

25 gained access to two new therapies proven to improve response rate and life

26 expectancy. These drugs were equally available to patients in the treatment and

27 control arms.




1

55. Defendants immediately recognized the problems these drug

2 approvals caused for the Allovectin trial. CW1 said that Vical “hit a speed

3 bump” during the Phase 3 trial when Yervoy was approved in March 2011.

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56. Defendants recognized by at least mid-2011 that the SPA protocols

5 were flawed, that Allovectin was likely to miss its primary endpoint (objective

6 response rate at 24 weeks), and would therefore not get FDA approval.

7 However, they did not disclose this material fact to the investing public. Rather,

8 they attempted a hail mary and approached the FDA about changing the SPA’s

9 endpoints. In particular, according to CW1, Samant and Broadfoot jointly

10 submitted a request to the FDA in 2011 to allow Vical to flip its two endpoints

11 for the Phase 3 Allovectin trial. In other words, after recognizing that the

12 primary response rate endpoint was not likely to be met, Defendants requested

13 that the secondary endpoint of overall survival be changed to the primary

14 endpoint. Had the FDA granted this request, Defendants would have had a more

15 legitimate basis for delaying the release of the already available response rate

16 data until the overall survival endpoint data was available. The FDA declined

17 the request. These material facts were never disclosed to investors.

18

57. CW3, a lab and project manager at Vical who worked on the Phase

19 3 trial during the Class Period, corroborated CW1’s testimony. S/he confirmed

20 that Vical wrote the SPA that governed the Phase 3 trial because “that is the way

21 it works.” CW3 confirmed CW1’s testimony that it was well known within

22 Vical that many variables to improve overall longevity with melanoma had come

23 into the market during the study that likely improved the overall survival rate of

24 both arms and may have damaged the study. S/he also confirmed that Samant,

25 Broadfoot, and others approached the FDA sometime after the approval of

26 Yervoy in March 2011 about changing the order of endpoints in the Phase 3

27 SPA, so that survival would be primary response and response rates secondary.




1

58. CW3 also provided additional information regarding Defendants’

2 possible motives for secretly requesting this change from the FDA. According to

3 CW3, there was speculation within Vical that many of the patients in the control

4 arm who did not initially respond to chemotherapy then began taking one of the

5 two newly approved melanoma treatments in 2011, either Yervoy or Zelboraf.

6 This speculation, if true, would have devastated Allovectin’s chances for success

7 on the primary response rate endpoint. As discussed above, the response rate

8 endpoint was specifically designed to begin measuring response six months after

9 treatment ended because immunotherapies like Allovectin normally take that

10 long to initiate a response, whereas chemotherapy will initiate a response (if at

11 all) within the first six months. Therefore, many control patients for whom

12 chemotherapy did not initiate a response may have then begun taking one of the

13 two newly approved drugs, both of which showed significant response rate

14 success. Any such control arm patients who responded to either the Yervoy or

15 Zelboraf treatment after chemo failed them likely would have shown up in the

16 data as to have a response rate during that six month to two year treatment

17 window, thus skewing the response rate data in favor of the control arm. While

18 these newly approved drugs certainly were also available to patients in the

19 Allovectin arm, they likely would have waited longer to begin such treatment

20 while waiting for the longer Allovectin immunotherapy to kick in. Thus, any

21 response rate benefit later derived from Yervoy or Zelboraf may have been

22 recognized outside of the two year response rate window.

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59. CW3 also observed in his/her position at Vical and potential second

24 motive for seeking to flip the endpoints, as well as to delay release of the trial

25 data for as long as possible. While the internal assumptions at Vical during the

26 Class Period were that the response rate endpoint might not be met because of

27 the introduction of new melanoma treatments, s/he understood in his/her position

28 19



1 that once all the data was in regarding overall survival, Allovectin was in a

2 virtual tie with the chemo therapies it was tested against for survival. CW3 had

3 numerous internal conversations with co-workers that the longer the study went

4 on the better the chance Allovectin could demonstrate statistical separation

5 between those on the “chemo arm” and those on the “Allovectin arm” at the tail

6 end of the trial period. Importantly, CW3 noted that, despite his/her senior

7 clinical position at Vical and with the Allovectin study, s/he did not know what

8 the actual target number of death events was at any point during the trial, and

9 speculated based on conversations with co-workers that the trial may have been

10 deliberately extended past the time it took to reach the predetermined target

11 number in order to give Allovectin a greater chance of showing “statistically

12 significant improvement” over chemo for overall survival.

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60. CW3 also noted that it was well known throughout all levels at

14 Vical that if the Company failed either endpoint in the Allovectin study it would

15 be financially devastating to Vical.

16

61. Defendants’ knowledge and anticipation of the likely failure of the

17 Phase 3 trial by mid-2011 is substantiated by the annual financial budgets created

18 by Defendants during the Class Period. According to CW2, a senior manager in

19 Vical’s Financial Planning and Analysis department, s/he and other members of

20 the financial planning team prepared proposed annual budgets in September or

21 October for the following fiscal year. Defendants Samant and Broadfoot

22 reviewed these budgets and then presented them to the Board of Directors for

23 approval. CW2 stated that the 2010 budget fully anticipated successful results

24 for the Phase 3 trial, and the 2011 budget (prepared in September-October 2010)

25 contained a modest contingency plan for the potential event that Allovectin

26 would fail. Overall, however, the 2011 budget still projected success.

27




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62. However, the 2012 budget – prepared in September-October 2011

2 just before the start of the Class Period – was radically more pessimistic. CW2

3 specifically discussed a significant “contingency plan” for the 2012 budget with

4 Defendant Ramos, who in consultation with Defendants Samant and Broadfoot

5 recommended to Vical’s Board of Directors a contingency plan to lay off 50% of

6 Vical’s workforce should the Phase 3 study fail. As part of preparing this plan,

7 CW2 explained that a marketing budget was established for the first time, which

8 Vical would use to market other products during 2012 in preparations for

9 Allovectin’s failure. In other words, Defendants started preparing for failure of

10 Allovectin so that they could lessen the impact of such disastrous news with

11 optimism about other drugs. The planning continued into 2012 while Defendants

12 were delaying delivering the news to the market. CW2 explained that the 2013

13 annual budget – prepared in September-October 2012 and recommended to the

14 Board of Directors by Defendants Samant, Broadfoot, and Ramos – contained

15 similar “contingency plans” for a 50% layoff and a marketing budget to push

16 other drugs in Vical’s pipeline.

17

63. By contrast, CW2 stated that both the 2012 and 2013 budgets

18 contained only “minimum” expenditures for ramping production facilities,

19 equipment and staff in preparation for the event of Allovectin’s success. Such a

20 revelation is telling. CW2 added that s/he has had significant previous

21 experience with other biotechnology companies that ramped up sales forces and

22 manufacturing capacities during the late stages of Phase 3 clinical trials well

23 beyond what Samant and Broadfoot authorized at Vical during the Class Period.

24

64. These “minimum” expenditures bely Defendants’ numerous Class

25 Period statements that Vical expected to release successful Phase 3 trial data in

26 mid-2012 or mid-2013, and instead demonstrate that Defendants knew or were

27 nearly certain that Allovectin would fail.




1 B. Defendants’ False and Misleading Statements

65

On November 1, 2011, Defendants issued a press release and filed 2

Form 8-K with the SEC announcing financial results for the third quarter of 2011

ended September 30, 2011. The press release included the following statements:

Anticipated program highlights include: Allovectin ®

In the company's Phase 3 registration trial of Allovectin ® in patients with metastatic melanoma, enrollment was completed in February 2010. The protocol allows a maximum two-year treatment and follow-up period for the primary endpoint (response rate at 24 weeks or more after randomization), so the last patients must complete treatment by February 2012. Data collection and independent adjudication for the primary endpoint is expected to require several months. The secondary endpoint (overall survival) will continue to be monitored during the primary endpoint adjudication process. Top-line data for both endpoints is expected in the second quarter of 2012 .

66. On the same day, Defendants Samant and Broadfoot participated in

an earnings conference call with market and industry analysts. Samant said the

following at the conclusion of his prepared remarks:

I complete my discussion on Allovectin by reviewing the timeline as updated last quarter. We expect to complete treatment and follow-up for the primary endpoint, which is response rate by Feb of 2012, and to continue monitoring for the secondary endpoint overall survival up to the release of top line data, which we expect to occur in the second quarter of 2012.

67. The market reacted favorably to this news, with the price of Vical’s

stock rising 8.3% on higher than average volume to close at $3.27 on November

2, 2011. This gain was sizeable compared to the 1.27% gain by the NASDAQ

and 0.52% gain by the Russell 3000 Pharmaceuticals index on the same day.

68. These statements were false and misleading when made because: a)

Defendants knew the secondary endpoint overall survival data would not be

reached by the second quarter of 2012, as evidenced by Samant’s and

Broadfoot’s regular review of the death event data in 2011 and their knowledge

of increased survival rates in the study as a result of other improved melanoma

therapies; and b) Defendants planned to delay the results of the trial for as long

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as possible and had no plans to release either the primary or secondary endpoint

data in the second quarter of 2012.

69. At the end of his prepared remarks, analysts grilled Samant about

important and undisclosed aspects of the Phase 3 trial:

Canaccord Hi, good afternoon. Thanks for taking my questions. Hey, Vijay, can you – do you have any evidence as to how many patients, if any, in either the Phase II or the Phase III trial went on to subsequent Yervoy therapy after disease progression?

Vijay Samant - President and Chief Executive Officer All right, let me walk through. First of all, in Phase II, -- I spent almost seven plus years now, there was no Yervoy in existence at that time. It was partly in a preclinical state, so, to our knowledge none, because the study was completed very long time ago. Let’s talk about our Phase III study. Okay? When our Phase III study was conducted, obviously the frontline therapy for Yervoy was been conducted. The second line therapy for Yervoy was been conducted. And also the Roche-Plexxikon drug front-line therapy was also been conducted in the same time. Our study started in Jan of 2007, approximately. Okay? Both those frontline studies for the Roche drug and Yervoy required treatment in eye patients. So, during the conduct of those studies neither of our patients, in either of the arms, the chemo arm or the Allovectin’s arm, would progress couldn’t enter those studies because they were for treatment – patients, got it.

George Farmer - Canaccord Yes.

Vijay Samant - President and Chief Executive Officer So the first time anybody could have got Yervoy in the United States was – is some time in the April-May timeframe when it was formally approved. And then in Europe much later is approved a second line therapy and you just heard about the knees issue, so I don’t know what – how widespread usage is. So it was allowed in the April-September timeframe, that’s four years after the start of our study.

George Farmer - Canaccord Okay. I saw it Vijay. I thought that the Yervoy entry criteria just stipulated that patients had to be chemo-naïve?

Vijay Samant - President and Chief Executive Officer No, treatment-naïve. Look up the New England Journal of Medicine article, okay. I will send you the article. Both the studies, both the Roche, Plexxikon drug was treatment naïve and their study was treatment-naïve.

George Farmer - Canaccord Okay.



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Vijay Samant - President and Chief Executive Officer And the second-line therapy for Yervoy, which was for chemo-refractory patients had a specific clause that patients who are involved in other studies bare with survival with the end point were not eligible to enter in those studies. So neither of our chemotherapy drug or the Allovectin arm from our study could have gotten in till after these drugs were approved and those drugs were approved in April in the United States, September/October in Europe. In fact, the Yervoy is only approved second-line therapy in Europe. So that’s four years after our study started. Remember our last patient was recruited in the study in Feb 2010. That means these drugs were approved almost 15 months after our last patient was recruited.

Canaccord Okay.

Vijay Samant - President and Chief Executive Officer And if you assume, let me finish, now you got me going here. Now if you assume that the chemo patients die very quickly in the chemotherapy arm and our study started in Jan 2007, so a lot of our patients had progressed way before these drugs got approved and went on to other therapies, okay. We don’t have specific patient-by-patient determination who got what.

Noble Financial Hey, guys. Thanks for taking the questions today. Just a quick question on the patient group in the Phase III study, you indicated that the overall survival for these patients is 7 to 11 months. Would it be that the profile of these patients being a healthier profile without the HDL – liver mets and so forth compared to the Phase II would have a higher rate of survival on average? Could you just talk about that a little bit?

Vijay Samant - President and Chief Executive Officer We don’t know, right. If you look at all the – this was a full disclosure of what data is out there. But if you look, majority of the literature, it’s between about 8 and 9 months, okay. I think it’s – I don’t know whether it’s a (indiscernible) study. I can send you the recently published data. We believe that eight or nine months is what chemo gets and you would add about two plus months to, it will be an 11-month range for the kind of patients we are treating with. That’s our guess, but that’s the assumption that we have made in our statistical calculations for our survival endpoint. But there is no specific data available for our patient population.


Defendants knew that Yervoy and other recently approved melanoma drugs were

having an impact on the Phase 3 study; b) even if the trial began in 2007,

Defendants knew that half of the study’s patients did not enroll until the final

year (between 2009 and 2010) and thus had not necessarily “progressed way

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1 before these drugs got approved”; and c) Defendants knew their control arm

2 overall median survival assumptions were faulty and could not be relied upon.

3

71. On November 4, 2011, Defendants filed Form 10-Q with the SEC

4 reporting the Company’s results for the third quarter of 2011 ended September

5 30, 2011, signed by Defendant Broadfoot and certified by Defendants Samant

6 and Broadfoot, which under the section titled “Recent Events” with the

7 subheading “Continued Progress in our Melanoma Program” included

8 substantively similar statements to the ones in the press release above regarding

9 positive data results for Allovectin.

10

72. The market again reacted favorably to this news, with the price of

11 Vical’s stock rising 8.12% on trading volume more than twice the Class Period

12 median to close at $3.73 on November 4, 2011. This gain was sizeable

13 compared to the 0.44% loss by the NASDAQ and 1% loss by the Russell 3000

14 Pharmaceuticals index on the same day.

15

73. These statements were materially false and misleading for the same

16 reasons as discussed in paragraph 68.

17

74. On November 9, 2011, Defendant Samant presented to a group of

18 investors at a Credit Suisse Group Healthcare summit. He opened by explaining

19 that, “[t]he majority of my presentation is going to be focused on Allovectin-7

20 because this is a major event driver for us in the next six to 12 months.” Samant

21 then described the projected results for Allovectin in the Phase 3 “efficacy

22 endpoints” in comparison to conventional therapies. Defendant Samant noted

23 that the objective response rate, measured at six months and beyond, is

24 historically about 4% for dacarbazine, was 12% for Allovectin in the Phase 2

25 trials, and “[b]ased on the trial redesign we have done, we expect that number

26 to go to about 17%” for Allovectin in Phase 3 .

27




75. In the same presentation, Defendant Samant also told investors that

for the other important efficacy endpoint, overall survival, the Company also

anticipated successful results for Allovectin. Defendant Samant compared the

historical median for dacarbazine of about nine months with the Phase 2

Allovectin result of 18.8 months, and stated: “ We expect based on the changes

what we have done the survival to be around 22.5 months” for Allovectin in

Phase 3.

76. These statements were materially false and misleading when made

because Defendants knew their baseline response rate and overall survival

assumptions for Phase 3 were faulty and could no longer be relied upon.

77. Defendant Samant further encouraged investors by touting the

Company’s other collaborations, but noted that “the key milestone is Allovectin-

7 in the middle of next year [2012].”

78. Samant also discussed other aspects of the Phase 3 trial:

So, where do we come with the timeline? So, let’s go through this very carefully, because investors are asking, when are we going to get the data. Our trial started in Jan of ’07, last patient renewal was in Feb of 2010. We have to follow every patient for up to two years. So, if the last patient was enrolled or the last patients were enrolled in Feb of 2010, the two-year follow-up goes to Feb of 2012, because we have patients still on study at the end of two years and they have not responded and they go and respond after two years, we can’t count them. So, the drafted [ph] date for response rate is Feb of 2010. At that point in time, we have all the data to calculate the objective response rate or the overall response rate.

We need to clean the data for a couple of months. Then we have to get the data adjudicated, and that takes us towards the end of second quarter or sometime in the second quarter. We have been fortunate that we have been allowed to log that component of the database, but continue to collect the survival database separately, and our goal is to make sure that we collect the survival date in parallel. So, by the middle of next year, we will have both the data points, the event rates reached. Now, the event rates are running behind schedule, which I have said before, and they are behind schedule.

We are projecting that we will reach our target event rate by the middle of the year, but we really have no granularity right now



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because in this business, you can get a lot (inaudible) in the month of December. So, I think the best projection that we will be able to give you at this stages would be the middle of the year, but at Feb earning call, we will probably give you a very specific direction into where we are standing. But right now, we are behind schedule as I said in my earnings call before, which is good for the patients but bad for the investors, because they are all anxiously waiting for when this data is going to be available.

And that could be because, a, the control arm is living longer or the treatment arm is living longer or both, but remember our study is 2:1 randomized and collects the number of patients get Allovectin-7. A number of people asked, well, are these people during the trial got any of the new drugs? Both the studies for Yervoy and Zelboraf, which were conducted in parallel by using treatment-naïve patients, go to the New England Journal of Medicine article.

So, none of our patients were eligible at that point of time to get those drugs. These drugs were approved in the May-July-September period. Remember, our last patient was enrolled at Feb of 2010. These drugs are not widely available. So, any impact during the conduct of the trial of these drugs is likely very low. Post-approval, only Allovectin-7 patients who have lived long enough, they have gone into and gotten those drugs, but the study is randomized . That’s the reason the study is randomized.


because: a) Defendants knew that the target death events would not be reached

by the second quarter of 2012; b) Defendants had no intention of locking,

adjudicating, and releasing the bad response rate data by the middle of 2012; c)

Samant had no reasonable basis to imply that longer survival rates in the trial

meant that Allovectin was outperforming the control arm merely because “our

study is 2:1 randomized” towards Allovectin; and d) Samant had no reasonable

basis to imply that he knew whether Allovectin or control arm patients were

receiving recently approved follow on therapies such as Yervoy in greater

numbers, and in fact falsely stated that only Allovectin patients were eligible to

receive such treatment when he knew otherwise.

80. On January 5, 2012, Defendants filed Form 8-K with the SEC for

the purpose of updating aspects of the description of the Company’s business.

The Additional Disclosure to the Form 8-K included the following disclosure:

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Enrollment in our Phase 3 registration trial of Allovectin® in patients with metastatic melanoma was completed in February 2010. The protocol allows a maximum two-year treatment and follow-up period for the primary endpoint (response rate at 24 weeks or more after randomization), so the last patients must complete treatment by February 2012. Data collection and independent adjudication for the primary endpoint are expected to require several months. The secondary endpoint (overall survival) will continue to be monitored during the primary endpoint adjudication process. Top-line data for both endpoints is expected in mid-2012 .

81. This statement was materially false and misleading for reasons

similar to those discussed in paragraph 68.

82. Yet as time went on, the delay in releasing the results of the

Allovectin Phase 3 study continued. Defendants continued to push back the

target date for locking the database.

83. On February 8, 2012, Defendants issued a press release and filed

Form 8-K with the SEC announcing financial results for the last quarter and full

year 2011 ended December 31, 2011. The press release also revealed for the first

time that:

In the company's Phase 3 registration trial of Allovectin® in patients with metastatic melanoma, enrollment was completed in February 2010. With a maximum two-year treatment period, the last patients will receive their final treatments in February 2012. Based on the latest available information on overall number of deaths, the company expects to reach the target number of death events for the secondary endpoint (overall survival) in late 2012. Data collection and independent adjudication for the primary endpoint (response rate at 24 weeks or more after randomization) will be conducted in parallel, and top-line data for both endpoints is expected to be released in late 2012.

84. This statement signaled the first time that Defendants publicly

admitted they had no intention to adjudicate the response rate data as soon as it

was available in February 2012, but instead intended to improperly delay the

adjudication of such data until it could be analyzed in parallel with the overall

survival data. Nevertheless, the statement continued to be materially false and

misleading when made because: a) Defendants Samant and Broadfoot, having

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access to the target death event data, knew that the secondary overall survival

endpoint data would not be available by late 2012; and b) Defendants planned to

delay the results of the trial as long as possible to allow and had no plans to

release either the primary or secondary endpoint data in 2012.

85. On the conference call with analysts on February 8, 2012,

Defendant Samant discussed the Allovectin trial and strongly suggested that the

results would be positive and that the next step would be production and

marketing of Allovectin. Defendant Samant made the following statements, with

the knowledge and agreement of the other Defendants:

I will start today with our Phase III Allovectin Program and the timing guidance we updated this morning. . . . Our goal is to announce both the endpoint of the top line data at the same time. For the survival endpoint, we are tracking the overall number of death events, but we are blinded to the number of events per study. Based on the trial enrolment history and the assumed survival times for both onto the study, we had expected to reach the target number of death events by mid 2012. But the subjects in our trial continue to live longer than we had assumed on the basis of our Phase II results in historical chemotherapy trail results. Based upon the latest information received, we now believe that late 2012 is the most realistic projection of reaching the target number of death events. Of course we are often asked if the delay in reaching the target number of death events is a good sign or a bad sign. What we can say – what we can say with certainty that we are blinded to the results until the trail is complete, but we can say that reaching the target number of death events sooner than expected would be not encouraging. We're taking advantage of this additional time to advance self preparations for BLA filing and potential commercial launch and planning for Allovectin's success . In the manufacturing and regulatory areas for example, we are completing our commercial [ph] process characterization proceeding to validation of our manufacturing process as well as analytical validation. This will include producing consecutive conformance laws and commercial skills to demonstrate consistency and comparability with clinical launch to finalize the expiration date. We are also upgrading our data management systems in preparing for our electronic BLA submission. And our commercial preparations, we are securing our supply and distribution



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networks including validation of our selective contract, fill finish contract, manufacture operations, developing a comprehensive launch plan, detailed activity such as BLA submission, publication strategy, rising reimbursement, branding, distribution, identification of KOLs who’ll support Allovectin-7. Some of these activities will extend beyond year-end, but we intend to make good progress by the time the data is released with the goal of filling the BLA at the earliest opportunity. I'll finish the Allovectin-7 update by confirming our timeline so there’s no confusion. Later this month, final treatment will end for any subjects still on study. We can then proceed with the final data collection audits, lock the database for the primary end-point and conduct the independent end-point assessment and adjudication. In late 2012, we expect to reach the target number of death events at which point will un-blind the data and release the top line results from both the primary and secondary end-points. We’ll continue to provide status reports in our quarterly conference calls.


Defendants failed to disclose that they were delaying the release of top-line

results because they knew that the Phase 3 trial was a failure; and b) according to

CW2, Defendants Samant, Broadfoot, and Ramos approved an annual budget for

2012 that did not include any of these significant development and

manufacturing ramp up activities but instead only “minimum” expenditures for

such a ramp up, combined with a significant and deep cutting “contingency

plan.”

87. Market and industry analysts hounded Samant for answers about the

additional delay to releasing the Phase 3 clinical data:

Canaccord Capital Hi, it’s George Farmer. Thanks very much.

Vijay, can you kind of give us a little bit more guidance as to what’s going on? Why is this timing pushed out yet again until the end of 2012? And is it possible that this could extend into 2013 given the fact that the trial had completed enrolment some time ago? What’s going on here? What are you guys missing in order to give us a better handle on the timeframe?

Vijay Samant - President and Chief Executive Officer Well, as I’ve told you in the last call that we will be updating the guidance in Feb of 2012. And we wanted to make sure we have experienced in the months of December and Jan.



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And the way we look at it is the monthly event rates are misleading, we normally learn them by three or four months and see what kind of average we’re getting on a rolling three or four months basis because that’s a good indication of how we’re approaching our target. And we find that the leg is rolling three, four months average is below what we have seen previously.

And that’s why we updated the guidance because we know we’re not going to meet it by the middle of the year. And I think we feel sufficiently confident at this stage based on this rolling three, four month average that we’ve taken, that we should be achieving the goal by the year end.

We will keep you posted if anything changes. But I think we are on track right now.

George Farmer - Canaccord Capital Okay. And is there any harm in un-blinding the response rate data with 40S?

Vijay Samant - President and Chief Executive Officer There is none. But if you remember, right now, survival as you know, the response rate is the primary end-point and survival at the secondary end-point, both of them kind of go hand-to-hand. As you know, the response rate data is not in our hand.

Credit Suisse Hi. Thanks for taking the question. So, can you remind us what your assumptions were for survival in the control arm? And then, I guess, on a related note, can you share with us anything you know or thoughts about how the availability of Zelboraf and Yervoy could be impacting things?

Vijay Samant - President and Chief Executive Officer Excellent question, Adam. Okay. First of all, to give you a reminder of what the – our assumptions were, our assumptions were that the control arm which gives the (inaudible) level about 11 months and the patient’s arm would leave 18 months, which is the lower bound of our number.

Okay. Remember, we have made number of changes in the phase of the study. And then based on, if you take a look at what we’re doing here, we expect that number to be around 22 months or north of 22 months. So, I think those assumptions are pretty conservative. Okay. So, those are the assumptions and that’s where the modeling was done.

Now, your question was what impacted these two drugs have in the study?

The compassion used, there was not a lot of uptake [ph], so I don’t think any of our – so, if you assume that the chemo arm progress sooner and died sooner, and the Allovectin arm stayed longer, the



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problem really is some of the Allovectin of in-patients would have gone.

But I don’t know. We have no idea which patient post-approval are getting what, but that’s the reason the study is randomized. However the study is randomized two to one, so you can draw your own conclusions.

Cowen and Company Good morning. I just had a question on the Allovectin Phase III study, Vijay. I understand, maybe from an investor relation standpoint you’re intention to group together the primary and secondary endpoints as far as timelines. But given the unpredictability here and overall survival and from a corporate planning standpoint, I would assume you would rather know and not waste your time and money on, say, preparing for the BLA filing or for pre-commercial activities in the event that that primary end-point was not achieved?

Vijay Samant - President and Chief Executive Officer I think the agency will – has a – has not told us directly and directly everybody knows that survival is going to be very important element of the study, okay. Because given the fact that the landscape has changed since the original SBA was approved, two drugs have been approved survival.

So, we’re going to have to come up with survival data besides meeting the primary end-point. Okay. So – in order for us to get a good label. So, both those end-points are very important to us, okay. And how the agency is going to look at both the end-points collectively, it remains to be seen. And as I've said earlier, where we are right now, I don’t think the timing between those end-points is hugely apart because of the adjudication, that activity that needs to go on that there is any much to get to announcing one single end-point end out of the other.

Cowen and Company Well, maybe you’re highly confident in meeting the primary end-point, or response to the end-point. But on the off chance that that misses, then aren’t you kind of wasting time and effort?

Vijay Samant - President and Chief Executive Officer Absolutely not. I think we did – we do miss the end-point, the question is how far we missed the end-point? Whether we hit the homerun on survival and had a P value of 0.00, whatever the number is, and show a significant change between control (inaudible) widely separated. I mean that’s really the ultimate proof of the success of the study, okay?

Rodman Hi. Good afternoon and thanks for taking the questions and congratulations on the progress. Just regarding Allovectin, can you – have you disclosed or can you tell us what the target death events are?



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1 Vijay Samant - President and Chief Executive Officer No, we have not.

Leerink Swann Lastly, if the overall survival end-point is the most important, should the primary end-point be changed to overall survival? Just in the case in the event that response rate is not hit, then you would technically have a negative study even if the survival...?

Vijay Samant - President and Chief Executive Officer The challenge here is we are so late in the study trying to change anything. We don’t want the agency to feel that we know something about the study, okay? So we are blinded from the study.

Unfortunately, all these new drugs that are approved very recently in the last six, nine months and trying to change an SPA, it’s not a one-month deal, it takes six to nine months.

And I think at this stage trying to change anything and change the primary and secondary end-point will – first of all, raise a lot of questions. I think the agency knows. We have told them the data is blinded. They know the conduct of the trial. The data is going to stand on its own legs, okay.


because: a) Defendants Samant and Broadfoot knew that the overall survival data

endpoint would not be reached “by the year end”; b) contrary to the assertion that

the response rate data “go hand-in-hand” with the overall survival data and “is

not in our hand,” CW1 explained that as of February 2012, the response rate data

was available to Vical, was maintained in a separate database from the overall

survival data, and could have been reviewed and adjudicated separately from the

overall survival data; c) Defendants knew or recklessly disregarded that their

baseline assumptions of overall survival for the control and treatment arms were

faulty; d) Defendants knew or recklessly disregarded that the control arm patients

were just as likely – if not more likely – to seek and receive treatment from one

of the newly approved drugs, and it was misleading to suggest that any problems

associated with introduction of these drugs to the study “really is some of the

Allovectin of in-patients would have gone”; e) Defendants had no reasonable

basis to suggest to investors that the longer overall survival of patients in the 33


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study indicated that Allovectin was working simply because “the study is

randomized two to one [for Allovectin], so you can draw your own conclusions”;

f) the suggestion that “the timing between those end-points is [not] hugely apart

because of the adjudication” falsely indicated that the adjudication of the

already-available response rate data would take until the end of the year to

complete and that by that time the overall survival data would be available,

neither of which was true; g) as CW1 confirmed, FDA approval of Allovectin

was expressly conditioned on meeting the primary response rate endpoint, and

Samant’s unequivocal answer that the study would “absolutely not” be a failure

if this endpoint was not met was false; and h) suggesting that Vical would not

change the endpoints “so late in the study” because “we don’t want the agency to

feel that we know something about the study” was false because Defendants did

request the FDA to switch the endpoints.

89. On February 27, 2012, Samant presented to a group of investors at

the Citi 2012 Global Healthcare Conference, where he made the following

statements:

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

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



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


Defendants knew by this time that their baseline survival rate assumptions were

faulty and could not be relied upon; b) Defendants had no plans to audit and

adjudicate the response rate data by March 2012 or to complete the adjudication

by the end of 2012, but instead planned to delay adjudication as long as possible;

c) the target death event was rate was not behind schedule “because we made

certain tactical improvements in the study,” but because the baseline assumptions

made regarding survival rate were faulty; and d) it was misleading to suggest that

the delay in the event rate would improve the outcome of the study because

Defendants knew increased survival rates likely were shared among both arms of

the study.

91. On March 15, 2012, Defendants filed the Company’s annual report

for 2011 on Form 10-K with the SEC, which was signed and certified by

Defendants Samant and Broadfoot. The Form 10-K included the following

statements:

Allovectin ® is a plasmid/lipid formulation containing the DNA sequences encoding HLA-B7 and 132 microglobulin, which together form a MHC Class I complex. We believe injection of Allovectin® directly into tumor lesions directs a local, regional and systemic immune response against metastatic tumors through several mechanisms. In HLA-B7 negative patients, a vigorous allogeneic immune response may be initiated against the foreign MHC class I antigen. In all patients, 132 microglobulin may reconstitute normal class I antigen presentation and/or increase tumor antigen presentation to the immune system. In any patient, an innate pro-inflammatory response may occur that induces tumor responses following intralesional injection of the pDNA/lipid complex. The goal of all three of these mechanisms is to initially cause recognition of the tumor at the local site to allow a then-sensitized immune response to recognize un-injected tumors at distant metastatic sites.



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In 2001, we began a high-dose, 2 mg, Phase 2 trial evaluating the Allovectin® immunotherapeutic alone for patients with stage III or stage IV melanoma, who have few other treatment options. The high-dose Phase 2 trial completed enrollment in 2003. The data showed that the trial had a total of 15 responders among the 127 patients receiving the high dose (11.8 %), with four of the patients having complete responses and 11 having partial responses. Data were recently updated after long-term follow-up. The Kaplan-Meier estimated median duration of response was 13.8 months, and all responses were durable with a range of 6 months to 77 months. The updated Kaplan-Meier median survival was 18.8 months. The safety profile was excellent with no reported Grade 3 or Grade 4 adverse events associated with Allovectin®.

Based on detailed guidance received from the U.S. Food and Drug Administration, or FDA, in an End-of-Phase 2 meeting, we subsequently completed a Special Protocol Assessment, or SPA, with the FDA for a Phase 3 trial of high-dose, 2 mg, Allovectin® for certain patients with recurrent Stage III or Stage IV melanoma. The SPA-agreed protocol specifies the trial objectives and design, clinical endpoints, and planned analyses expected to yield data that will support a license application for product approval.

Enrollment in the Phase 3 trial began in December 2006 and has involved more than 100 clinical sites. Patients could have been previously treated with surgery, adjuvant therapy, and/or biotherapy, but could not have been previously treated with chemotherapy. The patients were randomized on a 2:1 basis with 260 patients treated with Allovectin® and 130 treated with their physician’s choice of either of two chemotherapy agents, dacarbazine or temozolomide. The primary endpoint is overall response rate that compares the two trial arms for objective responses that are ongoing or commence at 24 weeks or more after randomization. The study will also evaluate safety and tolerability as well as survival as secondary endpoints. The trial is currently in the final stages of patient follow-up, data collection and analysis, which is expected to be completed in late 2012 .


Defendants failed to disclose that they were delaying the release of top-line

results because they knew or recklessly disregarded that the Phase 3 trial was a

failure; and b) according to CW2, Defendants Samant, Broadfoot, and Ramos

approved an annual budget for 2012 that did not include any of these significant

development and manufacturing ramp up activities but instead only “minimum”

expenditures for such a ramp up, combined with a significant and deep cutting

“contingency plan.”

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93. Once the last patients received their final treatments in February

2012, there was no reason for Defendants to continue to delay results regarding

the study data. But rather than revealing the study results, Defendants continued

to move the goal posts and push back the target dates, and continued to mislead

Vical’s shareholders.

94. On May 2, 2012, Defendants issued a press release and filed Form

8-K with the SEC announcing financial results for the first quarter of 2012 ended

March 31, 2012. The press release included the following statements:

In the company's Phase 3 registration trial of Allovectin ® in patients with metastatic melanoma, enrollment was completed in February 2010. With a maximum two-year treatment period, the last patients received their final treatments in February 2012. The final post-treatment safety follow-up visits for these patients were completed by the end of March. . . . In the company's Phase 3 registration trial of Allovectin ® in patients with metastatic melanoma, the company expects to reach the target number of death events for the secondary endpoint (overall survival) in late 2012. Data collection and independent adjudication for the primary endpoint (response rate at 24 weeks or more after randomization) will be conducted in parallel, and top-line data for both endpoints is expected to be released in late 2012 .


for the same reasons as those discussed in paragraph 84.

96. On the same date, Defendants filed Form 10-Q with the SEC

reporting the Company’s results for the first quarter of 2012 ended March 31,

2012, signed by Defendant Broadfoot and certified by Defendants Samant and

Broadfoot. The Form 10-Q did not contain any additional statements regarding

Allovectin’s Phase 3 trial results.

97. Additionally on May 2, 2012, Defendants Samant and Broadfoot

participated in an earnings conference call with market and industry analysts.

Samant made the following opening remarks:

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I will begin with an update on our Phase 3 Allovectin program for patients with metastatic melanoma. Allovectin is our lead program. We are excited by our progress to-date in approaching the trial completion. We believe we have designed an excellent trial to highlight the patient benefits of immunotherapy compared with chemotherapy. We believe we have selected the right set of patients to demonstrate the benefits of immunotherapy. We believe our trial execution and data collection are well-managed, and definitely designed a data adjudication process for the primary endpoint, and believe the trial is adequately powered to demonstrate statistical significance on both the primary and secondary endpoints, and finally we expect to release the top-line data from both the endpoints by the end of the year.

As a reminder, we enrolled 390 subjects starting in Jan of 2007, ending in Feb 2010. Our trial allowed up to two years of treatment, so the last patients enrolled could have received treatment until Feb of 2012, as long as they had stable disease or partial responses. Those last patients enrolled completed their final treatments in Feb, and they completed their last post-treatment safety follow-up visits by the end of March, so the treatment stage of the trial is now complete. We are currently finishing the final data audits to verify that all the patient records are complete and correct. We expect to complete the data collection and the audit process for the primary efficacy endpoint response rate by the end of this month. That clears the path for completion of our independent endpoint assessment and adjudication process for our response rate endpoint. This process is two distinct steps, radiology and oncology, and they are conducted sequentially. They are pretty comprehensive steps.

For the radiology step, the goal is to agree on each patient’s target lesion measurements based on the following process. Two radiologists independently review each (inaudible) and document each lesion measurement. If the measurements are not in agreement, a third radiologist reviews both the assessments and chooses the read from the one radiologist that in his judgment is the most accurate. This process is repeated for the patient at each scan point, so that’s a significant amount of work. Now remember, we have almost 390 patients, and that results in about several thousand scans, so this is a pretty labor-intensive process, and takes a long time.

After the radiological evaluation is finalized, that data, along with physical measurements and totals of visible lesions, ultrasound imaging, patient medical histories and other supporting document information is provided to three oncologists, who together conduct the final evaluation. This assistance, as required by the radiologist who was the adjudicator, based on patient-by-patient analysis, they will carefully determine which subjects met the primary endpoint of clinical response rate at 24 weeks or more after randomization, which subjects had stable disease and which subjects progressed during the course of the trial.

Throughout this process, they remain blinded as to whether each subject was the treatment arm or the control arm. This assessment and adjudication process is expected to take several months, and



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as you know there’s a lot of logistics involved in scheduling the radiologists and oncologists, these are very important experts in logistics and bring them together is not very easy. So, that’s why it’s a time-intensive process besides the intensity of the scans that they look at. The results will remain blinded in a third-party database until we reach the trigger for the second endpoint of survival. Analysis of the database for secondary endpoint survival is relatively simple. The key number for each patient is the time from randomization into the trial until death. For the survival endpoint we are tracking the overall number of testaments for the trial but we are blinded by the number of events for the study arm. The databases for two efficacy endpoints are separate and will be processed separately. The results will remain blinded until both are finished. We expect to announce the top-line results for both efficacy endpoints simultaneously by late 2012.

What else is going on with Allovectin-7? A number of things are going on, both in the manufacturing front and the commercial front. We are advancing our preparations for a daily filing and potential commercial launch for Allovectin-7, as covered in our last quarterly call. Since then, we have reviewed chemistry, manufacturing and controls for Allovectin-7 in the pre-BLA (CMC) meeting with the FDA. The objective of this meeting was to conform the acceptability of our plans for transition to promotional production, and we are pleased with the outcome. So, all aspects of the Allovectin program are advancing well. We are excited with both the progress and the potential.


because: a) Defendants did not think the study was well powered to demonstrate

statistical significance on both endpoints but knew or recklessly disregarded that

the study was a failure; b) Defendants knew that the target death events would

not be reached by the end of 2012 and had no intention of releasing any data by

that time; c) the lengthy description of the adjudication process misleadingly

suggested that the process was more arduous than it was and could take up to a

year, when in reality this represented yet another false justification for delaying

the release of the already available primary endpoint data; and d) according to

CW2, Defendants Samant, Broadfoot, and Ramos approved and recommended

an annual budget that did not include the significant manufacturing and

commercialization ramp up described above.

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99. Analysts again questioned Samant about the changing goal posts

and delayed release of the Phase 3 data:

Cowen & Company Thanks for taking my question. Vijay, on Allovectin, it sounds like you’re spending a considerable amount of time and money to adjudicate the primary end point response rate, which seemingly is less relevant to the regulatory agencies these days. I guess I’m wondering two things. One, if you’ve had any discussions with the FDA about simply changing the primary end point to overall survival? And two, does it actually make sense to spend the money to adjudicate a response rate? It seems like the BLA is going to focus more on survival.

Vijay Samant We had to spend money on adjudication data because, remember, the [SPA] is still valid with the agency and [inaudible] the primary endpoint. If we don’t adjudicate it, we will be in violation of the FDA.

Credit Suisse Great. Thanks for taking my question. I guess we’re not keeping it to one. One question I have is on overall survival, since you gave us the update, what have you been seeing in the event rates since that gives you the confidence that we’re still looking at a late-2012 release? And then in terms of the physical power, just to be clear, if we move to the lower end of the published range on the Allovectin and the upper end of the comparator arm, you still think that there would be enough power for significance?

Vijay Samant So the first question is, what gives you the confidence that we will reach the event rate that we – which we have already described to you what it is by year end. The answer is, you know, we look at – Jill, myself and my team look at the data on a rolling four-month average basis and we have an idea of what the slope of the event rate that’s occurring. And based from that, we feel fairly confident right now that we’ll reach the event rate by year end unless something happens remarkable in the next two months and nobody dies. But you know, that’s unlikely to happen. Right now we’re targeting toward – also, you need to understand that goal we have targeted for event rate, if we need to complete plateau, then we will reach basically a point of demonstrating the drug and there’s no need for initial event rate. So I think we’re fairly confident that year end 2012 should be a reasonable timeframe.

Obviously, we have done a variety of analysis in terms of assuming a control arm living longer or the people are living lower, and we feel pretty confident that indeed, the study has adequate power to meet the endpoint. But let me remind you on the Allovectin 7 [inaudible]. The duration is 18 months and that’s pretty conservable function. If you just [inaudible] in the Phase II study, the [inaudible] that we had in the Phase II study, the chemo naive



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patients that we had, that number’s 22.5 months. But now you add to the fact that the modifications that we have done in that Phase III study and the modifications of the Phase III study are that they modified the resist criteria’s. So basing from that, more patients are going to – remember, drop-off rate in the Phase II study was almost 70% - 62%. Right, Alan, 62%. 62% drop-off rate. We modified the resistant criteria’s for the [inaudible] patient at least two cycles even if a lesion shows up. So more patients will be getting Allovectin 7 in that Phase III study. So we expect that number of 22.5 months to be even better. So you know, we have looked at both the upper bounds of the Allovectin arm, the upper bounds of the treatment arm, the lower bounds of the Allovectin arm and the lower bounds of the treatment arm and you know, within the bounds of our process, we think the study is adequately fine.


because: a) Samant failed to disclose that Vical had requested to switch the

endpoints with the FDA; and b) Defendants knew that their baseline assumptions

for overall survival were faulty, particularly now that the trial had been closed for

26 months.

101. On May 15, 2012, Defendant Samant presented to investors at the

Bank of America Merrill Lynch Health Care Conference, where he made the

following comments:

Allovectin-7 something that we’ve been working for very long time, we’re pretty excited the pivotal data from this program will be coming out by the end of this year.

* * *

So what are the statistical parameters on this trial has been designed. There are two endpoints, objective response rate and survival. Under the objective response rate, we have to show a 10% absolute difference between both arms. We believe that the number that we expect in the control arm at six months and beyond in the chemotherapy arm will be less than 4%, and the secondary endpoint is survival. And here the control arm assumption is 11 months. The historical data that has been published for this patient population treating the (Inaudible) is anywhere from six to nine months.

* * *

We have used the upper end of that number to take into account the healthier patients of 11 months. Our upper bound for the treatment arm is about 18 months. And it’s power to detect about 90% part to detect that survival difference between both arms. We expect the



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median number for the treatment arm to be more than 22 months based on our Phase 2 data. So there is a plenty of room even the control arm does slightly better, but I am going to talk more about that in a minute.

So the question comes up, let me backup for a second. The study is now almost five plus years, by the end of 2012 will be six years right. Am I right, Alan, you are six years. That’s 72 months and we still have not reached the target inventory that we are talking. So the patients are living longer. Why the patients living longer because may be the treatment arm is living longer, maybe the control arm living longer. I want to get a little more into it because people repeat asking me questions regarding that. So could the control arm be living longer? Dacrabazine as I told you historical data, you can look at the Chapman article it’s on our website it’s 6 to 9 months, okay we have used a median survival of 11 months, does it have any synergy that new therapies the answer is no, chemotherapy and new immunotherapy has no synergies.

Our patients going on getting new immunotherapy after they progress, the likelihood is no body even if they did, that could impact survival in that arm. Remember those drugs were approved, the Yervoy was approved in the United States in May 2011 and Zelboraf is approved in September 2011, long after our study started. So there would be number of control arm patients progressing in getting that drugs is very small, but let’s assume indeed they are getting it and that could impact the control arm survival. So fair enough, that could be an impact on the control arm.

Now let’s look at the treatment arm. The original number that we showed the mean was 18 months but those patients were chemo-naïve, chemo-refractory, bio-refractory as you know we’re using only chemo-naïve patients in the phase III study. If you take just the chemo-naïve in the Phase II the number is about 22.5 months. Now superimposed on that the fact that we have modified RECIST criteria that patients will getting at least two cycle of the treatment, more Allovectin should impact that survival. So that should move that number 22.5 months further north. And then we’ve shown at least in animal models that CTLA ipilimumab synergies with Allovectin-7 that should further impact that number. So the number could be greater than 22.5 months.


because: a) Defendants knew the data from the trial would not be coming out by

the end of the year; b) Defendants knew that the baseline response rate and

overall survival assumptions on which they based the Phase 3 trial were faulty,

particularly given that two new melanoma treatments with significant response

rate efficacy had been available for over a year and that the study itself had been

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closed by that time for over 26 months; c) the fact that chemotherapy and the

newly approved melanoma treatments lacked synergies was irrelevant to whether

chemo patients in the control arm would seek and out respond to these new

treatments; and as a result d) Defendants had no reasonable basis to suggest that

the newly approved melanoma therapies would have no impact on the control

arm, and indeed knew or recklessly disregarded that these therapies likely had a

greater impact on the control arm than the treatment arm.

103. Analysts again pressed Samant for answers about the continued

delays in the release of Phase 3 data:

Bank of America Merrill Lynch But in terms of the actual event rate, I guess maybe if you just take a big step back, when you first started the study, how long have you planned the study to go? And where are you versus that initial estimate?

Vijay B. Samant - President and Chief Executive Officer Well, it’s a great question. And the original game plan and Alain will correct me if I make a mistake. It was the middle of 2011 when we talked we’ll have the data, then we postponed it to the end of 2011, then it was again postponed to the middle of 2012, and now saying it’s the end of 2012. So it’s almost a 18 to 24 months of postponement from the original target.

Bank of America Merrill Lynch And I guess what is there other than telling you that patients are living longer. Do you have a sense of what the progression rates look like or response rates in the study?

Vijay B. Samant - President and Chief Executive Officer No, we have no idea what the progression and response rates. All we have also anecdotally we have is that we do ship Allovectin so we have general idea of how Allovectin shipped out, but we don’t have any ideas patients specific usage.

We know one of the most interesting things is that, since the study finished recruiting the last patient in Feb 2010 and the maximum follow-up for the patient is about two years. The follow-up of the patient would have been Feb 2012. Our expectation was that by September, October most of the patients would have progressed, unfortunately it was not the case.

We had patients all the way to Feb 2012, so we couldn’t, that tells you that patients are on treatment till the very end, okay. Obviously we are blinded to what arm they are in, but I doubt that dacarbazine patients stay on dacarbazine for two years.



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Bank of America Merrill Lynch And is there any data for the kind of patients that you have in your study to give us a sense of whether 11 months is the right number or maybe it should be 15 months. How do you get confidence throughout that number?

Vijay B. Samant - President and Chief Executive Officer We have a lot of confidence. First of all, we have done an exhaustive review of the literature Rachel and first of all, there is no patient group, which mimics our patient population. Having said that, the best number that’s published and you guys can look at the data yourself is a number where there is a 13-month survival in the dacarbazine arm, but the LDH numbers like.8X or.9X and as you drop starting the LDH number, the survival indeed improves, but there are two data points, which we have not published, which gives us a lot of confidences.


Samant improperly suggested that he knew Allovectin was working because he

knew that the drug was still being shipped out; and b) Samant improperly

suggested that he knew Allovectin was working because “we had patients all the

way to February 2012” and that those patients likely did not receive

chemotherapy for the full two years.

105. On May 31, 2012, Defendants filed Form 8-K with the SEC

announcing that on May 24, 2012, Vical’s Amended and Restated Stock

Incentive Plan was amended to increase the aggregate number of shares of

common stock reserved for issuance under the plan by 3,000,000 shares.

106. On August 1, 2012, Defendants issued a press release and filed

Form 8-K with the SEC announcing financial results for the second quarter of

2012 ended June 30, 2012. The press release included the following statements:

In the company's Phase 3 registration trial of Allovectin ® in patients with metastatic melanoma, data collection for the primary endpoint (response rate at 24 weeks or more after randomization) is completed and independent adjudication is ongoing. The company expects to reach the target number of death events for the secondary endpoint (overall survival) in late 2012, and to release top-line data for both endpoints as soon as practical after that .

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107. This statement was materially false and misleading when made

because: a) Defendants Samant and Broadfoot, having access to the target death

event data, knew that the secondary overall survival endpoint data would not be

available by late 2012; and b) Defendants planned to delay the results of the trial

as long as possible to allow and had no plans to release either the primary or

secondary endpoint data “as soon as practical” after the data was received.

108. On the same day, Defendants Samant and Broadfoot participated in

an earnings conference call with market and industry analysts. Samant offered

the following prepared remarks:

I’ll begin today with an update on our lead program, Allovectin, which is approaching completion of a pivotal Phase 3 trial of metastatic melanoma.

We completed the last follow-up visits in March of 2012 and completed the final data audits by the end of May.

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

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

To estimate survival for the Phase 3 Allovectin treatment round, we looked at the most relevant subset from the Phase II study again. The chemo naive patient subgroup which met the current trial criteria had a median survival of 22.5 months. As a reminder, we modified the RECIST criteria for Phase III, which allows more patients to receive Allovectin. Most of them will receive at least two



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cycles of treatment, which should potentially help increase the survival for the Allovectin sub-arm. In addition, we reported a mouse study showing synergy between Allovectin and the mouse equivalent of YERVOY. If that synergy translates to humans, we would expect patients from our Allovectin arm to derive greater benefit from YERVOY than these patients from the control arm.

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


because: a) the survival rate of Allovectin patients in the Phase 2 clinical trial

was a clearly irrelevant comparison to estimating the survival rate of

chemotherapy patients in the Phase 3 control arm; b) Defendants refused to

consider or alter their baseline assumptions of control arm survival rate with

respect to the newly approved FDA drugs although they knew and internally

discussed the likely positive impact they had on control arm survivability; c) by

contrast, it was misleading to raise the survival rate assumption of the treatment

arm based on a small and inconclusive animal study; and d) Defendants knew

that their baseline assumptions were simply faulty and that the entire study was

based upon unsound assumptions, particularly given that by the time these

statements were made the trial had been closed for 30 months and Defendants

knew the target number of death events was far from being reached.

110. Samant then had the following exchange with Eric Schmidt from

Cowen & Company:

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



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

Eric Schmidt - Cowen & Company Not quite the school that your daughters attended, but not bad either.

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

111. This last statement was materially false and misleading when made

because, as confirmed by CW1, Defendants knew that FDA approval was

conditioned on success on the primary response rate endpoint, and thus it did not

“all depend[] on the quality of the data in the end” with respect to whether “we

meet one endpoint versus the other.”

112. On August 8, 2012, Defendants filed Form 10-Q with the SEC

reporting the Company’s results for the second quarter of 2012 ended June 30,

2012, signed by Defendant Broadfoot and certified by Defendants Samant and

Broadfoot. The Form 10-Q did not contain any additional statements regarding

Allovectin’s Phase 3 trial results.

113. In November 2012, Vical announced that the time frame for results

was delayed yet again, with results now anticipated in the third quarter of 2013.

114. On November 7, 2012, Defendants issued a press release and filed

Form 8-K with the SEC announcing financial results for the third quarter of 2012

ended September 30, 2012. The press release included the following statements:

In September 2012, the company conducted a comWehensive sweep of all active clinical sites in its Phase 3 Allovectin melanoma trial to eliminate any time lag in death event reporting. The sweep



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confirmed that the target number of events has not been reached. It also confirmed the steady progress towards that goal. Based on the moving average monthly event rate, the company has revised its projection for reaching the target number of death events to mid- 2013. With immunotherapy like Allovectin ®, the treatment impact may occur much later than with chemotherapy, in which case the greatest separation between the two survival curves could occur at later time points. Waiting to achieve the target number of death events will provide improved statistical power for the evaluation of the survival endpoint.

The company also is extending the schedule for independent adjudication of data for the primary endpoint (response rate at 24 weeks or more after randomization) to allow as thorough a review as possible. The databases for both endpoints will remain blinded until the target number of death events is reached and results for both endpoints will be released simultaneously.


because Defendants were not extending the schedule for adjudication “to allow

as thorough a review as possible,” but were instead deliberately delaying the

release of the primary endpoint data as long as possible because they knew the

data would demonstrate failure. These statements merely were another false

justification by Samant for continuing to move the goalposts with respect to

known faulty data.

116. Defendants Samant and Broadfoot also participated in an earnings

conference call on November 7, 2012 to discuss the Q3 2012 results. Samant

made the following comments in his prepared remarks:

I am sure you all saw announcement earlier this morning changing our timeline guidance for the release of Allovectin data. We had been predicting that we would reach the targeted number of death events in late 2012, we are now projecting that we will reach the targeted number a few months later. I want to spend sometime this morning reviewing the details, the rationale behind this change.

Independent adjudication of the primary endpoint is in progress, but not yet complete. This additional time that we now have to collect the remaining survival data will allow the committee members to complete this process as thoroughly as possible. Just as a reminder, the adjudicators remain blinded throughout this process as stated previously our goal is to align both the response rate and survival databases and to announce the results simultaneously.



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because: a) Defendants Samant and Broadfoot knew much earlier that the target

number of death events would not be reached until mid-2013; and b) the delay of

the adjudication of the primary response rate data was due to Defendants’

deliberate delay of the release of the data and did not have anything to do with

collecting remaining survival data to “allow the committee members to complete

this process as thoroughly as possible,” because as CW1 confirmed, the data for

the two endpoints was separate and independent from each other.

118. Analysts again pressed Samant for answers about the delay in

releasing the primary endpoint data and Vical’s baseline assumptions for Phase

3:

Unidentified Analyst Can you talk a little bit about when do you think the adjudications for the primary end point might be completed.

Vijay Samant - President & CEO You know I don't want to give a timeline, all I can tell you is first of all it’s a good question that you are asking, the adjudication process is also taking a little longer than we originally thought because we didn't realize how complex it is, this is not a standard adjudication of radiological scans, there are two components to it.


because the delay in the adjudication of the response rate data was due to

Defendants’ deliberate refusal to begin the adjudication process when the data

was first available in February 2012, as confirmed by CW1.

120. On November 14, 2012, Samant participated in Credit Suisse’s 2012

Healthcare Conference, where he presented to potential investors. He made the

following remarks:

Now, this study is designed to capture the advantages of immunotherapy. The primary endpoint in the study is response rate, and we’re measuring response rate between six months and two years, six months after randomization. So anybody who responds in the first six months is not counted. And logically in chemotherapy



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most patients respond in the first six months and they go on to progress. So our measurement starts at the optimal peak of the benefit of our therapy .

And the secondary endpoint is overall survival, but as you know with the approval of two new drugs now Yervoy and Zelboraf and now the PD-1s behind them, survival is going to be very important endpoint and we believe that based on some of the data we’ve shown on Phase II that is everything goes well, that’s going to be an important efficacy market that we’ll have to demonstrate. I’m going to talk more about that in a minute.

So what’s going on here, likely the control arm is living longer? The answer is probably yes. We have slightly healthier patients. And the fact that our new therapies that are becoming available and maybe the patients are getting new therapies and maybe they’re living longer. But let me remind you during the conduct of the study, we doubt any of our parents got any of these frontline therapies, the first time these therapies are available in the U.S. was May and September, our last patient was recruited in Feb of 2010, so half of patients hopefully were dead by the time these new therapies were available.

What does waiting help? Okay treatment impact of immunotherapy, normally occurs late that are late responders, okay. There is a long tail effect and which cause late separation of the Kaplan and Marcos and that has a huge impact on the P value and on the statistics. And we’re doing a small study, a single study and it’s going to be hard to repeat the study because the standard of care has changed and we need to make sure, we need to put good P value with a couple of zeros in front on the table in order for us to make this a very useful drug for the treatment of melanoma.


because: a) Samant had no reasonable basis to claim that none of “our patients

got these frontline therapies,” when in fact he knew that many patients had

access to them; b) Samant’s suggestion that these new melanoma treatments had

no significant impact on the Phase 3 study because “half of the patients were

hopefully dead by the time these new therapies were available” was misleading

because Defendants knew that at least half of the trial’s patients enrolled during

the final year of enrollment (2009-2010) and thus were likely not dead; and c)

Defendants conducted regular sweeps and reviews of the death event rate data

and would have known whether half of the patients were dead by the time

Yervoy became available in March 2011. 50

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122. On January 10, 2013, Samant participated in J.P. Morgan’s 31st

Annual Healthcare Conference, where he presented to potential investors. At

one point Samant falsely called the response rate “the second endpoint.” He

made the following misleading remarks:

So, these are the two ends points. There is 90% power to detect a 10% difference in response rate. It’s 90% power to detect, the survival difference between 18 and 11 months. 18 was based on our phase 2 data, 11 based on the historical survey that we did on the (inaudible). The number of six to 11 months, we pick 11 because we have healthy set of patients.

So, what’s going on? Can the control arm be living longer? Maybe, because the standard of care of treating patients has improved, maybe the number is slight higher than 11 months. Do we expect synergy with the new therapies under (inaudible)? And the answer is no. Somebody may ask, well, Vijay wait a minute. When you are conducting the trial, there was (inaudible) studies were going on, maybe they were getting you, after they progress from your study they were getting this drug. The answer simply no because if you go again to the New England General Medicine articles, those were in treatment naive patients and even in the chemo refractory you couldn’t recruit a patient if it was enrolled in a study were survival is the end point.

The first time EP was available was in the March-April-May time period 2011, in the US in September for (inaudible) that is four and half years after our study started. Compassionate news to our knowledge was minimal. So, yeah there may be some synergy but only 65 patients need to die to reach median survival in this group.

123. These statements were materially false and misleading because they

improperly downplayed the known effect of newly approved melanoma therapies

on the Phase 3 study.

124. On February 6, 2013, Samant and Broadfoot participated in an

earnings conference call with market analysts to discuss Vical’s Q4 2012 results.

Broadfoot made the following prepared remarks regarding the Company’s ramp

up plans for 2013:

Our first half projection include preparations for success in the Allovectin trial, especially long lead time activities needed to support a timely BLA filing. We are maintaining aggressive schedules within our manufacturing, clinical and regulatory



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department and refining our plans for commercialization, balancing fee versus expenditures. While pursuing these activities vigorously, we are deferring staffing increases and large expenditures on commercialization activities until after we see the results.


because according to CW2, Defendants Samant, Broadfoot, and Ramos approved

an annual budget for 2013 that did not include any of these significant

development and manufacturing ramp up activities but instead only “minimum”

expenditures for such a ramp up, combined with a significant and deep cutting

“contingency plan.”

126. Defendant Samant also stated in prepared remarks that “the

independent adjudication of the data for the primary endpoint is advancing on

schedule.” This statement was false because “on schedule” originally meant

mid-2011, and then Q2 2012, and then mid-2012, and then late 2012, and then

“as soon as practical” after late 2012.

127. On February 15, 2013, Defendants filed the Company’s annual

report for 2012 on Form 10-K with the SEC, which was signed and certified by

Defendants Samant and Broadfoot. The Form 10-K included the following

statements:

Enrollment in the Phase 3 trial began in December 2006 and has involved more than 100 clinical sites. Patients could have been previously treated with surgery, adjuvant therapy, and/or biotherapy, but could not have been previously treated with chemotherapy. The patients were randomized on a 2:1 basis with 260 patients treated with Allovectin® and 130 treated with their physician’s choice of either of two chemotherapy agents, dacarbazine or temozolomide. The primary endpoint is overall response rate that compares the two trial arms for objective responses that are ongoing or commence at 24 weeks or more after randomization. The study will also evaluate safety and tolerability as well as survival as secondary endpoints. The trial is currently in the final stages of patient follow-up, data collection and analysis, which is expected to be completed in 2013 .


because Defendants failed to disclose that the response rate portion of the trial,

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the data for which had been available for a year, was only now in the “final

stages of patient follow-up, data collection, and analysis” because Defendants

were deliberately delaying the process for as long as possible before having to

release known adverse data.

129. On March 15, 2013, Defendants filed Form 8-K with the SEC

announcing that Defendant Broadfoot was resigning from Vical effective April 1,

2013. The Form 8-K also stated that:

Pursuant to the terms of the separation agreement, Ms. Broadfoot’s last day of employment will be April 1, 2013 and she will be entitled to receive severance benefits consisting of continued base salary payments and the payment of health insurance premiums for a period of 12 months, plus a payment equal to her cash bonus paid in the previous year. Ms. Broadfoot will also receive accelerated vesting on all her unvested stock awards as if she had remained employed by the Company for 12 months from the date of termination. In addition, the post termination exercise period for Ms. Broadfoot’s stock options will be extended to 12 months. In exchange for the severance benefits, Ms. Broadfoot provided the Company with a general waiver and release of claims. The Company’s obligation to pay the severance benefits will also be subject to certain confidentiality, non-solicit and non-competition obligations.

130. On May 9, 2013, Defendants issued a press release and filed Form

8-K with the SEC announcing financial results for the first quarter of 2013 ended

March 31, 2013. The press release included the following statements:

The company is approaching completion of a Phase 3 registration trial of its investigational immunotherapy, Allovectin ®, vs. chemotherapy in patients with metastatic melanoma.

A survival data sweep conducted in March 2013 confirmed that the target number of death events for the secondary endpoint (overall survival) should be reached in mid-2013.

The independent assessment and adjudication process for the primary endpoint (response rate at 24 weeks or more after randomization) is advancing through final audits and quality checks, and the company expects the adjudicated response data to be locked in July 2013.

Data for both endpoints will remain blinded in separate third-party databases and be securely transferred to Vical and unblinded

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simultaneously. Top-line results for both endpoints are expected to be released during the third quarter of 2013.


reason as discussed in paragraph 128.

132. On May 9, 2013, Samant and Ramos participated in an earnings

conference call with market analysts to discuss Vical’s Q1 2013 results. Samant

made the following prepared remarks:

We made an important announcement today, that we expect to complete the analysis and release top line results for both endpoints simultaneously during the third quarter 2013. Let me began and kind of walk you through our Allovectin program and get to that timeline.

In our last quarterly conference call we discussed the importance of waiting for survival data to mature. I’ll focus today on our recent progress and our path forward.

Meanwhile, the independent assessment and adjudication process for the primary endpoint is also approaching completion at our response rate database vendor. We expect data entry and final quality checks to be completed in the coming weeks, which will allow the adjudicated response data to be locked in July.


reasons discussed in paragraph 128.

134. On May 10, 2013, Defendants filed Form 10-Q with the SEC

reporting the Company’s results for the first quarter of 2013 ended March 31,

2013, signed by Defendant Ramos and certified by Defendant Samant. The

Form 10-Q did not contain any additional statements regarding Allovectin’s

Phase 3 trial results.

135. On May 14, 2013, Samant presented to investors at the 2013 Bank

of America Merrill Lynch Health Care Conference, where he made the following

prepared remarks:

The Phase 3 study, which is under SPA is a multinational open-label trail in 90 clinical centers, 390 subjects, 260 in the Allovectin arm, 130 in the dacarbazine or temozolomide arm. The study started in Jan of 2007. The last patient was enrolled in Feb 2010.We have a two-year treatment horizon, so that’s almost Feb 2012 when the last patient came off. The trial is almost getting six plus years, okay,



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approaching close to seven years unheard of, okay, and there are other competing trials such as the Amgen trial, which started several years later than us and probably completing in on the same time in a pretty much similar population. So, our patients are indeed staying on this trial longer. The stage III/IVMelanoma patients again are the same. The only thing they are chemo-naive as supposed to they were a mixed-bag of patients in Phase II study, and again the maximum treatment period is two years, important study.

A quick update on the endpoint. We completed survival sweep in March 2013. The nitrogen expert panel of really eminent oncologist and people who have lot of cancer experience including melanoma and based on that we have concluded that we’ll reach our target events by the middle of the year.

The response rate of adjudication as I said was completed in May. The adjudication – adjudicative response to data will be locked in July and we expect the top-line results to be released in the third quarter.

136. He then had the following exchange with moderator Tanya Joseph:

And do you have a view on what survival is on that you considered to be clinically meaningful or do you communicated that?

Vijay Samant - President and CEO Well if you look at what you saw in the study that Yervoy did the survival advantage is about two plus month in the front line study and maybe correct me somebody about three to four months. So it’s not even three plus months in the other study. We hope with the way the study has gone back long that if we are successful that we are actually able to double or shown a better advantage than that because if you got to win, we got to win big. Okay so we’ll find that.

137. The market reacted extremely favorably to Samant’s bullish and

misleading statements. The price of Vical’s stock increased 5.51% to close at

$3.64 on May 14, 2013, compared to a 0.74% gain by the NASDAQ and a

1.22% gain by the Russell 3000 Pharmaceuticals index on the same day.

138. These statements were materially false and misleading when made:

a) for the same reasons discussed in paragraph 128; b) because Defendants had

no reasonable basis to believe that the Allovectin trial would result in success,

particularly after two years’ worth of delays in reaching the target death events;

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and c) Samant had no reasonable basis whatsoever to claim a “double or . . .

better advantage” of Allovectin of the control arm.

139. As recently as August 1, 2013, when the Company announced

results for the second quarter of 2013, Defendants continued to misleadingly

claim that the Company anticipated success through Allovectin. On that date,

Defendants issued a press release and filed Form 8-K with the SEC announcing

financial results for the second quarter of 2013 ended June 30, 2013. The press

release stated in part:

Top-line results from the company's Phase 3 registration trial of Allovectin®, previously projected for release in the third quarter of 2013, are now expected to be released in August.

Following today's scheduled conference call, as described below, and extending until the release of top-line results, the company will enter a self-imposed quiet period during which time company management will not be interacting substantively with the investment community.

140. During the conference call with investors on August 1, 2013,

Defendant Samant made the following statements:

I'll begin today with a quick status updates on our Allovectin program, we've been driving the development of this investigation immunotherapy over a long period of time. And everyone at Vical is personally and professionally invested in the outcome, if results are positive Allovectin has the potential to become a first in class treatment alternative intended for outpatient administration with local injections designed to induce a systemic immune effect, we all hope for the best.

Our goal is to release topline results during the month of August. Immediately after this conference call, we'll enter into a self imposed quiet period and we'll not be interacting substantially with the investment community until the topline results are released. As a result, we've cancelled our scheduled public presentations through the end of August, we appreciate your cooperation and understanding during this period and we look forward to the announcement of Allovectin results.

141. Samant also had the following exchanges with analysts during the

call:

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As we said, nothing has changed in our assumptions because sweep is a primarily involved in collection of data. So it should not have any impact on our assumptions and the control endpoint. As we said, the original assumptions which are in the trial design, 11 months of the control arm, and 18 months were treatment arm.

We've said periodically that we believe that knowing what's occurred in the field that number could be anywhere in the 12 to 14 months range and we feel very comfortable that if that's been control arm based on our prior Phase 2 data, the trial results will play out positively, but it all will be unblinded very shortly. So you will be able to see it all when that occurs. There are no changes in assumptions at this stage.

And given that you'll be going into quite period, I guess just one last chance to sort of get your thoughts if we think about a metrics of overall survival and response rate, I mean obviously I guess there are four outcomes, two of which are very obvious. Sort of how you think about the two intermediate outcomes or maybe one endpoint hits and the other doesn't?

Vijay Samant - President and CEO Well, all depends I know what you're saying, if we meet one and don't meet the other, we don't meet both. I think first of all, the primary, the most important endpoint of the result of what occurred in the landscape of survival now. Okay, we have to beat survival; we have to show statistical significant survival. There is no ifs or but about that and the rest of them depends on where you are with the trend, where you are with the number.

And if assuming that it was positive, what other indications would you consider developing Allovectin?

Vijay Samant - President and CEO I think it's an excellent question Howard as we have said that this is a -- if this therapy is successful and indeed the results meet what we expect them to be and it shows the kind of safety profile that we have seen in Phase 2, this is a genetic vaccine for all kinds of solid tumors.

142. The news that Allovectin’s Phase 3 trial results would soon be

released, combined with Defendants’ false and misleading statements about the

trial’s prospects for success, directly affected the market. The price of Vical’s

stock increased 10.36% on trading volume more than six times the Class Period

median on August 1, 2013, to close at $4.26, the highest closing price for the

stock in nearly a year. This return was outsized compared to the 1.36%

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NASDAQ return and 0.65% Russell 3000 Pharmaceuticals index return on the

same day.


because: a) Defendants knew their baseline assumptions were faulty and could

not be relied upon; and b) Defendants knew that the Phase 3 trial results would

show that Allovectin was not effective, and would not become a “first in class

treatment alternative.”

144. The Company’s website continued to tout Allovectin, noting in a

section describing Vical’s highlights that “Allovectin-7 ® has advanced through

full enrollment in a pivotal Phase 3 trial in patients with metastatic melanoma

and is positioned to become the company’s first independent product.” 2

C. The Truth Emerges: Allovectin is Not Effective

145. On August 12, 2013, the Individual Defendants caused Vical to

issue a press release announcing that Allovectin had failed to demonstrate

effectiveness in the Phase 3 trial, and that the Company was terminating the

Allovectin program. The release provided in part:

SAN DIEGO, Aug. 12, 2013 (GLOBE NEWSWIRE) -- Vical Incorporated (Nasdaq: VICL) today announced top-line results from a Phase 3 trial of Allovectin ® (velimogene aliplasmid), an investigational intratumoral cancer immunotherapy, in patients with metastatic melanoma. The 390-subject trial failed to demonstrate a statistically significant improvement vs. first-line chemotherapy for either the primary endpoint of objective response rate at 24 weeks or more after randomization or the secondary endpoint of overall survival. Trial data will be further analyzed and detailed results will be submitted for publication.

"We are disappointed that the trial did not meet either the primary or secondary efficacy endpoints, even though we believe it was well-designed and well-executed," said Vijay B. Samant, President and Chief Executive Officer of Vical. "Based on this outcome, we are terminating the Allovectin ® program and focusing our resources on our infectious disease vaccine programs."

2 This statement remained on Vical’s website as of August 21, 2013.

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146. In a conference call with investors later the same day, Defendant

Samant continued to defend the false and misleading statements about Allovectin

made by Defendants, claiming that:

We truly believed in the potential of this program based on our promising Phase 2 and earlier results, we were preparing for successful advancement through the regulatory approval process and towards the commercial launch. And so we are very deeply disappointed with the results announced this morning that our Phase 3 trial of Allovectin failed to beat either the primary or secondary efficacy endpoints. We believe our trial was well designed to demonstrate a response rate and survival benefit for Allovectin compared with chemotherapy. We believe the results are clear and conclusive, with no margin for alternative interpretation. Allovectin simply did not provide the expected benefits, we do not see a feasible path forward for Allovectin, and we are therefore terminating the program.

147. On this news, shares of Vical stock fell more than 60% in a single

day on heavy trading, with the stock’s price closing at $1.53, a decline of more

than 67% from the Class Period high of $4.69 per share on December 2, 2011.

148. The full scale failure of the Allovectin Phase 3 trial, and of the

Defendants’ fraud in concealing this failure from the investing public for nearly

two years, was detailed in Vical’s November 18, 2013 presentation of the full

data from the trial. The results were not even close. For the primary response

rate endpoint, only 4.6% of patients in the Allovectin arm responded to

treatment, compared with 12.3% in the control arm . For the secondary overall

survival endpoint, the median survival rate in the Allovectin was 18.6 months,

compared with 24.1 months for the control arm.

149. This final analysis also confirmed what Defendants knew but failed

to disclose during the Class Period: that the newly approved melanoma therapy

Yervoy had a significant impact on the study. The analysis showed that 17% of

patients in the Allovectin arm and a whopping 30% of patients in the control arm

received Yervoy as a follow-on treatment after completing the Phase 3 treatment.

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150. One Wall Street analyst succinctly summarized the final results of

the Phase 3 study thusly:

Vical's skin cancer "vaccine" allovectin-7 also ended up putting patients in harm's way, according to detailed results from a phase III study presented at a medical meeting on Monday night. Vical announced the failure of the allovectin study in August.

Allovectin caused tumors to shrink in 4.6% of patients compared to 12.3% of patients treated with chemotherapy used as a control. The difference was actually statistically significant against allovectin.

Why safety monitors allowed the allovectin study to continue even though patients were clearly being harmed was not explained. In a secondary analysis, the median overall survival of patients treated with allovectin was 18.6 months compared to 24.1 months for patients treated with chemotherapy.

The results of the allovectin melanoma study were delayed for years, which Vical and its supporters believed was due to the vaccine helping patients live longer.

On Monday, we learned skin cancer patients were actually better off without allovectin. Enrolling in Vical's clinical trial and getting randomized to receiving allovectin was bad for skin cancer patients.

Adam Feuerstein, The Street, Two Drugs, Designed to Help Patients, Actually Hurt Them , November 19, 2013 (available at http://www.thestreet.com/story/12115378/1/two-drugs-designed-to-help-patients-actually-hurt-them.html).

151. The foregoing statements by Defendants concerning, inter alia, the

Company’s current business and financial condition, future prospects for

approval of Allovectin, and the Company’s future success, were each materially

false and misleading when made. These statements were materially false and

misleading when made because Defendants failed to disclose the following true

facts which were known to Defendants or recklessly disregarded:

(a) The Phase 3 trial of Allovectin showed disappointing results long

before the results were revealed to investors;

(b) The announcement of Allovectin’s Phase 3 trial results was

deliberately delayed to avoid revealing the truth to the market; and

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(c) Based upon the above, Defendants lacked a reasonable basis for

2 their positive statements about the Company and its outlook, including

3 statements about its ability to launch Allovectin.

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152. Rather than disclose these critical facts to investors, Defendants kept

5 silent throughout the Class Period while the Company’s stock traded at

6 artificially inflated prices. Yet after Defendants were forced to reveal the truth,

7 the Company’s shares were hammered by massive sales, sending them down

8 over 60%.

9 V. ADDITIONAL ALLEGATIONS REGARDING SCIENTER

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153. As alleged herein, Defendants acted with scienter in that they knew

11 that the public documents and statements issued or disseminated in the name of

12 the Company were materially false and misleading; knew that such statements or

13 documents would be issued or disseminated to the investing public; and

14 knowingly and substantially participated or acquiesced in the issuance or

15 dissemination of such statements or documents as primary violations of the

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federal securities laws.

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154. As set forth elsewhere herein in detail, Defendants participated in

18 the fraudulent scheme alleged herein by virtue of their receipt of information

19 reflecting the true facts regarding Vical, their control over, and/or receipt and/or

20 modification of Vical’s materially misleading misstatements, and/or their

21 associations with the Company, which made each of them privy to confidential

22 proprietary information concerning Vical.

23 VI. LOSS CAUSATION

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155. During the Class Period, as detailed herein, Defendants made or

25 caused to be made a series of materially false or misleading statements about

26 Vical’s financial condition and business prospects. These material misstatements

27 and omissions created an unrealistically positive assessment of Vical in the




1 market, and caused Vical’s publicly traded securities to be overvalued and

2 artificially inflated during the Class Period.

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156. Defendants engaged in this scheme to deceive the market through a

4 course of conduct that operated as a fraud or deceit on Class Period purchasers

5 by widely disseminating the false and misleading statements to securities

6 markets, investment analysts, and the investing public, which caused Plaintiff

7 and the other members of the Class to purchase Vical’s stock at artificially

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inflated prices.

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157. When the truth concerning Vical’s business prospects was revealed

10 and Defendants’ prior misrepresentations and fraudulent conduct became

11 apparent to the market, the price of Vical stock fell substantially, resulting in

12 significant damages to Plaintiff and the other members of the Class.

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158. If the truth about Vical had been revealed earlier, Plaintiff and the

14 other members of the Class would not have purchased Vical stock, or would

15 have purchased the publicly traded securities only at lower prices.

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159. Defendants’ conduct, as alleged herein, proximately caused

17 foreseeable losses to Plaintiff and the other members of the Class.

18 VII. PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET DOCTRINE

19 160. At all relevant times, the market for Vical’s common stock was an

20 efficient market for reasons including, inter alia, the following:

21 a. Vical’s common stock met the requirements for listing, and was

22 listed and actively traded on the NASDAQ exchange, an automated and highly

23 efficient market;

24 b. As a public securities issuer regulated by the SEC, Vical filed

25 periodic reports with the SEC and the NASDAQ;

26 c. Vical regularly communicated with public investors through the

27 regular dissemination of press releases, which were widely distributed through




1 the media, and also communicated with the public through presentations and

2 investor conference calls; and

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d. Vical was followed by financial securities analysts who wrote and

4 distributed publicly available reports regarding Vical stock.

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161. As a result of the foregoing, the market promptly incorporated

6 current information regarding Vical from all publicly available sources and

7 reflected such information in the price of Vical common stock. Under these

8 circumstances, a presumption of reliance applies, as all purchasers of Vical

9 securities during the Class Period suffered similar injury through their purchase

10 of Vical securities on the market at artificially inflated prices.

11 VIII. NO SAFE HARBOR

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162. The statutory safe harbor provided for forward-looking statements

13 under certain circumstances does not apply to any of the allegedly false and

14 misleading statements set forth in this complaint. Many of the specific

15 statements pleaded herein were not identified as forward-looking statements

16 when made.

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163. To the extent that there were any forward-looking statements, there

18 were no meaningful cautionary statements identifying important factors that

19 could cause actual results to differ materially from those in the purportedly

20 forward-looking statements. Alternatively, to the extent that the statutory safe

21 harbor could apply to any forward-looking statements pleaded herein,

22 Defendants are liable for those false forward-looking statements because at the

23 time each of those forward-looking statements was made, the particular speaker

24 knew that the particular forward-looking statement was false, and/or the forward-

25 looking statement was authorized and/or approved by an executive officer of

26 Vical who knew that the statements were false when made.

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IX. CLASS ACTION ALLEGATIONS 1

164. Plaintiff brings this action as a class action pursuant to Rule 23 of 2

the Federal Rules of Civil Procedure on behalf of the Class, consisting of all 3

persons who purchased or otherwise acquired Vical publicly traded securities 4

during the Class Period. Excluded from the Class are Defendants, the officers 5

and directors of the Company at all relevant times, members of their immediate 6

families and their legal representatives, heirs, successors, or assigns, and any 7

person, firm, trust, corporation, or other entity related to or affiliated with any 8

Defendants. 9

165. The members of the Class are so numerous that joinder of all 10

members is impracticable. During the Class Period, Vical’s securities were 11

actively traded on the NASDAQ, and the Company had over 86 million shares of 12

common stock issued and outstanding. While the exact number of Class 13

members is unknown to Plaintiff at this time and can only be obtained through 14

appropriate discovery, Plaintiff believes that there are thousands of members in 15

the proposed Class. Record owners and other members of the Class may be 16

identified from records maintained by Vical or its transfer agent and may be 17

notified of the pendency of this action by mail, using the form of notice similar 18

to that customarily used in securities class actions. 19

166. There are questions of law and fact which are common to the Class 20

and which predominate over questions affecting any individual Class member. 21

The common questions include, inter alia, the following: 22

a. whether Defendants violated the 1934 Act; 23

b. whether statements made by Defendants to the investing public 24

during the Class Period misrepresented material facts about the business, 25

operations, future prospects and management of Vical; 26

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1 c. whether Defendants’ statements omitted material facts necessary to

2 make the statements made, in light of the circumstances under which they were

3 made, not misleading;

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d. whether the price of Vical securities was artificially inflated; and

5 e. the extent to which members of the Class have sustained damages

6 and the proper measure of the damages.

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167. Plaintiff’s claims are typical of the claims of the other members of

8 the Class as all members of the Class are similarly affected by Defendants’

9 wrongful conduct.

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168. Plaintiff is an adequate representative of the Class, has retained

11 competent counsel experienced in litigation of this nature, and will fairly and

12 adequately protect the interests of the Class. Plaintiff does not have any interests

13 adverse to the interests of the Class.

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169. A class action is superior to all other available methods for the fair

15 and efficient adjudication of this controversy since joinder of all members of the

16 Class is impracticable. Furthermore, as the damages suffered by the individual

17 Class members may be relatively small, the expense and burden of individual

18 litigation make it impossible for members of the Class to individually redress the

19 wrongs done to them. Plaintiff anticipates that there will be no difficulty in the

20 management of this litigation as a class action.

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COUNT I

22 For Violation of §10(b) of the 1934 Act and Rule 10b-5

23 Against All Defendants

24 170. Plaintiff incorporates by reference and realleges each and every

25 allegation contained above, as though fully set forth herein.

26 171. During the Class Period, Defendants disseminated or approved the

27 false statements specified above, which they knew or deliberately disregarded

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1 were misleading in that they contained misrepresentations and failed to disclose

2 material facts necessary in order to make the statements made, in light of the

3 circumstances under which they were made, not misleading.

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172. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that

5 they:

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(a) employed devices, schemes and artifices to defraud;

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(b) made untrue statements of material fact or omitted to state material

8 facts necessary in order to make the statements made, in light of the

9 circumstances under which they were made, not misleading; or

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(c) engaged in acts, practices and a course of business that operated as a

11 fraud or deceit upon Plaintiff and others similarly situated in connection with

12 their purchases of Vical common stock during the Class Period.

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173. Plaintiff and the Class have suffered damages in that, in reliance on

14 the integrity of the market, they paid artificially inflated prices for Vical publicly

15 traded securities. Plaintiff and the Class would not have purchased Vical

16 publicly traded securities at the prices they paid, or at all, if they had been aware

17 that the market price had been artificially and falsely inflated by Defendants’

18 misleading statements.

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COUNT II

20 For Violation of §20(a) of the 1934 Act 21 Against All Defendants

22 174. Plaintiff incorporates by reference and realleges each and every

23 allegation contained above, as though fully set forth herein.

24 175. The Individual Defendants acted as controlling persons of Vical

25 within the meaning of §20(a) of the 1934 Act. By virtue of their positions with

26 the Company, and ownership of Vical stock, the Individual Defendants had the

27 power and authority to cause Vical to engage in the wrongful conduct

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complained of herein. Vical controlled the Individual Defendants and all of its

employees. By reason of such conduct, Defendants are liable pursuant to §20(a)

of the 1934 Act.

X. PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment as follows:

A. Determining that this action is a proper class action and certifying

Plaintiff as a class representative under Rule 23 of the Federal Rules of Civil

Procedure and Plaintiff’s counsel as class counsel;

B. Awarding to Plaintiff and the members of the Class damages,

including interest;

C. Awarding to Plaintiff the costs and disbursements of the action,

including reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and

expenses; and

D. Granting such equitable/injunctive or other and further relief as the

Court deems just and proper.

XI. JURY DEMAND

Plaintiff demands a trial by jury.

Dated: April 3, 2014 JOHNSON & WEAVER, LLP FRANK J. JOHNSON SHAWN E. FIELDS

/s Frank J. Johnson FRANK J. JOHNSON

110 West “A” Street, Suite 750 San Diego, CA 92101 Telephone: (619) 230-0063 Facsimile: (619) 255-1856 [email protected] [email protected]

Lead Counsel for Lead Plaintiff



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PROOF OF SERVICE

I am employed in the County of San Diego. I am over the age of eighteen

years and am not a party to the within entitled action. My business address is

110 West “A” Street, Suite 750, San Diego, California 92101.

On April 3, 2014, I served a copy of the following:

1) Consolidated complaint for violation of the federal securities laws.

[X] BY ELECTRONIC ACCESS: I hereby certify that the foregoing was filed electronically with the Clerk of the Court to be served by operation of the Court’s electronic filing system upon all parties on the electronic service list maintained for the within entitled action.

I declare under penalty of perjury under the laws of the United States of

America that the foregoing is true and correct.

Executed on April 3, 2014, at San Diego, California.

/s Frank J. Johnson FRANK J. JOHNSON

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Documents

In re Vical Incorporated Securities Litigation 13-CV-02628 ...securities.stanford.edu/.../201443_r01c_13CV02628.pdfCase 3:13-cv-02628-BAS-RBB Document 32 Filed 04/03/14 Page 2 of 69