Dynavax Technologies Corp (DVAX) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Dynavax Fourth Quarter and Year-end 2004 Financial Results and 2005 outlook.

My name is Kaitlyn (ph).

I'll be your coordinator today. (OPERATOR INSTRUCTIONS).

I would like to now turn the presentation to your host, the Vice President of Corporate Communications, Ms. Jane Green.

Please go ahead.

Hello, and thanks for joining Dynavax's Fourth Quarter and Year-end 2004 Financial Results Conference Call.

Participating in today's call are Dino Dina, President and Chief Executive Officer and Deborah Smeltzer, Vice President, Operations and Chief Financial Officer.

Following this introduction, Dino will comment on the quarter and full-year results.

Deborah will review the Company's financial results for the quarter and year-end and discuss the outlook for 2005.

Dino will then provide additional commentary on the Company's performance and we'll open the call for questions.

Please be advised that statements included in this conference call that are not a description of historical facts are forward-looking statements.

The inclusion of forward-looking statements should not be regarding as a representation by Dynavax that any of its plans will be achieved.

Actual results may differ materially from those set forth in this conference call due to the risks and uncertainties inherent in Dynavax's business, including, without limitation, statements about the progress and timing of our clinical trials, difficulties or delays in development, testing, obtaining regulatory approval, producing and marketing our products, the spoken validity of patent protection for our products, competition from other pharmaceutical or biotechnology companies, our ability to control expenses and maintain strong financial position and other risks detailed in the risk factor section of Dynavax's Annual Report on Form 10-K filed on March 30, 2004, and in the section titled Additional Factors that May Affect Future Results within Dynavax's Quarterly Report on Form 10-Q filed on November 8, 2004.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates hereof.

All forward-looking statements are qualified, in their entirety, by this cautionary statement, and Dynavax undertakes no obligation to revise or update statements made during this conference call to reflect events or circumstances after the date hereof.

Now I'd like to turn the call over to Dino Dina.

Thank you, Jane.

We believe that Dynavax delivered a strong performance in the fourth quarter and that 2004 was an important year of maturation, accomplishment and progress for the Company.

Our lead programs, ragweed allergies and Hepatitis B prophylaxis, are each progressing well towards Phase 3 trials.

Our Hepatitis B vaccine showed highly positive, statistically significant results in the interim analysis of our ongoing Phase 2/3 trial.

And plans are on track to initiate the pivotal Phase 3 program around the middle of '05.

Our ragweed allergy immunotherapy demonstrated strong positive trends against the primary end point of nasal symptoms scores during the one-year interim analysis of this ongoing two-year Phase 2/3 trial.

The results prompted us to plan a supported Phase 3 trial in a pediatric indication, which is expected to start in early '05.

And plans are progressing for the initiation of a pivotal Phase 3 program in early '06.

Our asthma program is slated to begin a Phase 2b trial later in '05 and several key pre-clinical and research-stage programs are also making progress.

We have advanced our pipeline, and at the same time, appropriately managed our expenses and maintained a high level of fiscal discipline.

We made key management hires this year.

Our senior management team today possesses the skills and breadth of experience needed for Dynavax to move into its commercial phase.

Overall, we're pleased with our performance in our first year as a public company.

We're appreciative of the support of our investors and what we believe is their confidence in our ability to set and meet ambitious goals and to build a successful business.

I'd like to provide some additional perspective on the Company in a few minutes.

Now I will ask Deborah to review our quarterly and full-year 2004 results and to discuss the outlook for 2005.

Thank you, Dino.

Our financial performance for 2004 met our expectations, especially relative to cash usage.

We believe that the outlook we will provide for 2005 represents a reasonable plan for managing the Company's continuing maturation, with emphasis on funding our growing clinical programs and manufacturing activities and undertaking pre-commercial planning activities.

As of December 31, 2004, cash, cash equivalents and marketable securities totaled $65.8 million compared to $71.5 million at September 30, 2004, and $29.1 million at December 31, 2003.

As Dino mentioned, we are ensuring the Company's resources are focused on our key programs and managing our cash.

Dynavax reported a net loss of $5.2 million for the quarter ended December 31, 2004, or $0.21 per share compared to a net loss of $5.2 million or $2.83 per share for the same period in 2003.For the year ended December 31, 2004, net loss was $16 million or $0.75 per share compared to $18 million or $10.04 per share for the comparable period in 2003.

The net loss per share for the fourth quarter and year ended December 31, 2004 reflects the increase in common shares outstanding as a result of the Company's initial public offering in February 2004.

Total revenues for the fourth quarter ended December 31, 2004 were $2.5 million compared to $700,000 for the same period in 2003.

For the year ended December 31, 2004, total revenues were $14.8 million, compared to $800,000 for the comparable period in 2003.

The increase in revenue is due to the Company's collaborative agreement with UCB Pharma in ragweed and grass allergies, which was initiated in 2004, and biodefense grants awarded by the National Institute of Allergy and Infectious Diseases.

Total operating expenses were $8 million for the fourth quarter 2004 compared to $5.3 million for the same period in 2003.

Operating expenses for the year ended December 31, 2004 totaled $31.7 million as compared to $18.6 million in the comparable period for 2003.

The increase in operating expenses is primarily due to increased clinical trial activities in the Company's ragweed allergy and Hepatitis B vaccine programs, as well as pre-clinical work associated with government grants for biodefense programs.

This increase also reflects higher expenses associated primarily with the expansion of our management team and additional costs associated with being a public company.

With respect to the outlook for 2005, please note that the following statements do not include the potential impact of equity offerings, business collaborations or other transactions that may be closed or entered into during 2005.

We anticipate that the Company's cash, cash equivalents and marketable securities should be in the range of $30 to $33 million at the end of 2005.

We anticipate that operating expenses for 2005, excluding non-cash stock-based compensation expense should be in the range of $39 million to $43 million, driven primarily by the increase in clinical development activities related to the Company's ragweed, Hepatitis B and asthma programs.

We anticipate that revenue for 2005 will be in the range of 7 to $9 million.

The difference between revenue in 2004 and 2005 primarily reflects collaboration revenue recorded in 2004 for start-up of the Phase 2/3 AIC clinical trial.

Now I'd like to turn the call back to Dino.

Thanks.

I'll highlight what I believe were the Company's key accomplishments this year and offer some perspective on our plans for 2005. 2004 was a decisive year in our company's history, beginning with our IPO in February that provided additional financial resources on which to advance our pipeline.

We conducted two large-scale Phase 2/3 clinical programs and demonstrated favorable results in the interim analysis of both.

We believe that these programs represent large near-term commercial opportunities for the company and provide clinical validation for the broad applicability of our ISS-based approach to understanding and treating immune system disorders.

We believe that our major challenges at this point are typical for a product-focused company in late-stage clinical development.

To ensure the pivotal Phase 3 trials for our HBV vaccine and our ragweed immunotherapy are well managed, to complete manufacturing and commercial planning for these two product candidates and to ensure that we have adequate financial resources to fund our growing pipeline.

We're putting significant effort into all these activities and here are some of the details.

I will start with AIC for ragweed allergies.

Just to recap, the goal of AIC is not simply to treat symptoms, but to change the underlying disease process.

The ongoing Phase 2/3 trial is a two-year 462 patient study, and the primary end point is nasal symptom scores at the end of two years with secondary end points in medication use and quality of life.

We performed an interim analysis after the first year with the goal of providing a rational basis on which to implement a pivotal Phase 3 program.

We believe the interim analysis of the Phase 3 trial, completed in December '04, showed clearly positive trends relative to the primary end point of nasal symptom scores after that first season, as well as a clearly positive benefit in medication use.

We're pleased with the outcome as it supports our advancing to a pivotal Phase 3 program.

It also strengthens our belief that our ISS-based approach can reprogram the immune system and that we are now in a position to apply the approach to other allergies, including peanuts and cedar.

We plan to complete the ongoing Phase 2/3 program as planned and analyze results following in the 2005 ragweed season.

Within the next couple of months, and assuming clearance from the FDA, we also plan to initiate the supported Phase 3 early intervention trial in children, designed to prevent seasonal allergy [inaudible] symptoms and the progression to asthma.

This will be a U.S.-based, multi-center trial in about 280 children, aged 6 to 15, with a primary end point of reducing hay fever symptoms and a secondary end point of preventing progression to asthma symptoms.

We plan to start immunizations in March '05 and administer boosters in 2006 and 2007.

We will perform an analysis, based on the primary end point, after two years.

Assuming a positive outcome, this trial should enable us to establish efficacy in an additional target population, which we would need for product approval, and be extremely valuable in expanding the potential labeling for the AIC product.

We also plan to initiate a large-scale pivotal trial in '06.

This trial will be designed as a 2-year multi-center, U.S.-based trial with upwards of 800 patients.

We will conduct an interim analysis after one year, which, if positive, could allow the early submission of a DLA in late 2007.

Assuming a positive outcome after 2 years in the pediatric early intervention trial, those data could be included in our DLA filing as well.

We intend to move this whole program forward as expeditiously as possible and talk with FDA shortly about these plans.

We're very excited about the potential of AIC and are fully committed to getting the Phase 3 program up and running.

Our relationship with UCB Pharma is gaining clarity.

Our two companies are reviewing the collaboration, and we feel optimistic about achieving a mutually favorable outcome in the near term.

We're sympathetic with the fact that UCB's strategic priorities have changed and have evolved following their acquisition of Celltech, and their commitments in the allergy space are being reexamined.

We are confident that our discussions with UCB will be completed quite soon.

Now I'd like to move to the Hepatitis B vaccine.

We have twice demonstrated superiority over Engerix-B, the industry standard HBV vaccine produced by GlaxoSmithKline, in terms both of the rate and durability of seroprotection.

We are on track to initiate the broad-based Phase 3 program this year.

Around the middle of the year, we plan to initiate the Phase 3 trial in approximately 400 older adults, aged 40 to 70 years.

This trial will compare safety, seroprotection and antibody [inaudible] in two groups, one treated with Engerix-B and the other one treated with our vaccine.

Study centers will be located in Singapore, Taiwan, Korea and the Philippines.

We also plan to start a pivotal Phase 3 trial in younger adults, aged 11 to 39, in Canada and Europe.

Our original plan was to follow the immunization schedule used in our earlier Phase 2 trial and compare three shots of Engerix-B, administered at 0, 2 and 6 months, with two shots of our vaccine administered at 0 and 2 months, with a placebo following at 6 months.

Before we start the second pivotal Phase 3 trial, we are going to do a small study to compare the immunogenisity (ph) vaccine administered at 0/1 months versus a 0/2 months regimen.

If our assumption is correct, and we can show superior levels of protection after one month, then we will use the 0 and 1 month regimen in our second pivotal Phase 3 trial.

This would result into a demonstration of even greater superiority benefit in terms of convenience and compliance as compared to Engerix-B, and have an even more commercially attractive product.

We will plan to start the second pivotal trial after we have seen the results of this small study, most likely in the first quarter of '06, rather than right at the end of '05.

This minor change in timing should not affect our regulatory timeline.

Our goal is still to submit our first regulatory filing following the completion of the older adult study, which could potentially take place in late '06.

We could then submit our second regulatory filing following the completion of the Canadian and European studies in '07 as originally planned.

We also plan to complete the ongoing Phase 2/3 clinical trial in older adults.

The primary end point is seroprotection 4 weeks after the third injection, and we're following subject to an additional 5 months to assess outcome after a full year.

We anticipate being able to present the primary end point results in the first half of '05, most likely at an appropriate industry conference.

We're very excited about the health benefits and commercial potential of the Hepatitis B vaccine.

We're in the process of developing a detailed, commercialization plan for this product and we believe that our strategic opportunities exist in Asia, Canada and Europe.

Our initial commercialization activities will target these markets, which today are fragmented, but represent significant initial opportunities for a superior product.

Our analysis of the U.S. market is also evolving and we believe that there may be opportunities to penetrate this large market by targeting underserved populations.

These populations may include pre-hemodialysis patients, HIV-positive subjects and other populations with compromised immune systems who are in need of fast, effective protection.

This would also include professionals in healthcare and law enforcement and others who can't afford to wait 6 months to achieve suboptimal levels or achieve suboptimal levels of seroprotection.

As you know, we have a long-term supply contract with Switzerland-based Berna Biotech that includes the commercialization option.

Our companies are at the early stages of discussing this option.

Depending on the outcome of those discussions, there may be an opportunity to explore additional relationships with companies that could be beneficial to us in target markets of interest.

We believe that our vaccine has the potential to be a superior, highly different shaded product and solidify our commercial strategy in this area is the key goal for this year.

Our third major clinical program is in asthma, where we administer ISS alone directly to the lung, take advantage of allergens that are already resident in the lung to stimulate the protective immune response.

In preclinical studies we've shown that ISS alone can inhibit the key features of asthma, and we've demonstrated the safety in pharmacologic activity of this therapy in Phase 2a studies in humans.

We believe that the key advantage of our approach is that it has the potential to be a completely new treatment that changes the underlying immune deserver (ph) itself.

We believe this approach could be of value, particularly in asthmatics with moderate to severe disease where it could be used in combination with symptomatic treatments, such as inhaled corticosteroids, bronchodilaters and leukotrienes.

Our goal is to initiate a Phase 2b study in the second half of '05.

As these programs are yet unpartnered, we're beginning to explore the options of structuring collaboration that would enable us to defray late-stage development expenses and, at the same time, retain significant commercial upside.

There is also a lot more in our early preclinical pipeline about which we are quite excited, such as our work on thiazolopyrimidines and immunoregulatory sequences platforms.

But as these programs are in the early stage, I'll wait to talk about them until they're a bit further along.

In terms of upcoming value drivers, we anticipate the following.

In AIC, we plan to initiate the supported Phase 3 trial in children in the first quarter.

We plan to finalize the pivotal Phase 3 trial design with the FDA later this year, and we will conduct the second year of the Phase 2/3 trial and monitor subjects through the '05 ragweed season.

We anticipate having final results from this trial in early '06.

In Hepatitis B, we plan to initiate the first pivotal Phase 3 trial in older adults in Asia in the middle of '05, and then to initiate the second pivotal Phase 3 trial in younger adults in Canada and Europe in early '06.

We plan to complete the current Phase 2/3 clinical trial and look for an appropriate venue in which to present results from the same trial in the first half of '05.

We plan, then, to initiate the Phase 2b study in asthma in the second half of the year, and we plan to develop a commercialization strategy for the Hepatitis B vaccine ex-U.S. market and continue to refine our thinking about the U.S. market itself.

We plan to complete the review of the UCB/Dynavax relationship.

Should that review result in our regaining full rights of our seasonal allergy program, we will plan to create a new development and commercialization strategy, based either on the decision to repartner the program or to pursue it independently.

In conclusion, I'd like to thank the employees of Dynavax for delivering an excellent performance in '04, thank the board for their continued support in counsel and thank our investors for their confidence.

Now, operator, I'd like to open the call for questions.

(OPERATOR INSTRUCTIONS).

Your first question sir comes from Charles Duncan of JMP Securities.

Good afternoon, Dino and folks.

Congratulations on a good first year of progress.

I had a couple of questions with regard to this coming year, financial assumptions.

Can you help us understand, what would be the impact on R&D expenditure if UCB walked away from the collaboration and you had to fund the rest of the development for ragweed alone?

We can't predict the outcome of the UCB discussions at this point in time.

We're still in the process of undertaking those.

And when that is complete, we will be in a position to talk to you about what the total impact is.

But your financial guidance, in terms of R&D expenditures, assume that ongoing, or current collaboration would continue in its current form?

We do not anticipate any impact during 2005.

Okay.

The nature of our discussions with UCB has been really quite congenial and friendly.

So, we have no reason to believe that, whatever the outcome, which, as Deborah said, we're not in a position to really anticipate, at this point, the key aspects of the ongoing trials and other aspects that are part of our contractual agreements would be followed whether we continued or even if we were to terminate.

But surely you've developed, Dino, a best case/worst case scenario depending on your perspective.

And your modeling does not include any impact in '05, it's irrespective of the scenario is what you're telling us?

Correct.

Okay.

And then the second thing is, recently GlaxoSmithKline had some data or an announcement that they received approval for Fendrix, which is their Hepatitis B vaccine with a new adjuvant system.

They also state that they've got higher, more rapid, longer lasting seroprotection.

Could you help us understand that with regard to the dynamics of that market?

Have you seen any data as to the performance of that system and how does your system stack up to it?

Yes and no.

I think that my first comment would be that, the fact that Glaxo chose, as a dominant player, to develop a second-generation vaccine is a reflection of what I would assume is their own perception that their vaccine works very poorly in the target populations that are more difficult to immunize.

And that is, in fact, the indication for which this second-generation vaccine was licensed.

I think it's sort of intriguing that there was no mention of the differential immunogenisity..

We've been specific about the size of the improvement that we've been able to produce and I can only rely, in commenting on that, on some of the earlier data that were published in a summary way by Glaxo, which would indicate that their adjuvant and vaccine, which was just licensed, is clearly less potent than the one that we have under development, probably by a factor of 2 or so.

I have not seen the final data that would be present in their filing, and as you, I'm left somewhat perplexed by the fact that there was no specific mention of the improved immunogenisity, just a generic statement.

Okay.

Then final question, Dino, is, as you congeal your thoughts with regard to the commercialization of HBV, do you expect to be able to announce something this year or do you think there's a better value or a higher value trying to form a corporate collaboration for the commercialization of that product?

I see the process evolving in several steps, some of which might be doable this year.

As you know, we have a production supply agreement with Berna that contemplates an option for them to commercialize.

We have just started and are making some progress in discussing how that option would come to bear.

And once we have a more precise idea of how that unfolds, then we would be in a better position to look at other alternatives, beyond Berna, for specific parts of the world.

I'll answer, in advance, the question about the United States.

I think that it's going to be key for us to refine our strategic thinking and reach some firmer conclusions before we can proactively seek potential commercial outlets in the United States, which would include our own commercialization along with the possibility of using some of the key players that are already present in that market.

Okay.

But you're not ruling out, obviously, moving into the U.S. markets with that backing.

Not only are we not ruling it out, we're reviewing, proactively, the possibility of doing that in a reasonable time frame.

It would, of course, by definition, be somewhat behind Asia and Canada and Europe, but not by far.

Okay.

Thanks, Dino.

(OPERATOR INSTRUCTIONS).

Sir, I'll hand the call back to you.

That was the final quest - I'm sorry.

You have a follow-up from Charles Duncan of JMP Securities.

Sorry.

I was being polite.

I actually had another question that's related to the pediatric Phase 3 supportive trial in ragweed.

Can you help us understand what the risks would be to the regulators for starting that trial and what you think, if any, if there's any signal value for you getting the go-ahead to start that program?

Well, as you know, we have an open IND in the United States and we've performed a 460-people study.

We performed a study with a current regimen in children and have obtained definitive and quite convincing safety data.

It was a small study.

And so, fundamentally, the process moving forward is one of filing the protocol and proceeding.

We don't expect specific obstacles in moving forward.

There is always, of course, the possibility that FDA may ask questions or fundamentally might want to see some additional data.

But we are quite comfortable with the fact that the safety profile of the drug, the age groups we're tackling and numbers are all in line with experiences already behind us.

And therefore, we're not proposing anything that's radically new.

Including dosing, either levels or exposure?

The regimen has been fully tested in children down to age 7.

Okay, thanks.

(OPERATOR INSTRUCTIONS).

Okay, sir.

I'll hand the call back to you.

That was the final question.

Well, I'd like to thank everybody for participating.

And, as usual, feel free to call us if additional questions occur to you later, and we'll be happy to help with whatever information we might be able to provide.

Ladies and gentlemen, that concludes the conference call.

You may now disconnect.