Dynavax Technologies Corp (DVAX) 2005 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Dynavax fourth quarter and year end 2005 financial results conference call.

My name is Latisha, and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to your host for today's call, Ms. Jane Green, Vice President Corporate Communications.

Please proceed, ma'am.

Hello and thanks for joining Dynavax's Fourth Quarter and Year End 2005 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 provide a summary of the year's achievements, Deborah will review financial results for the quarter and full year, and Dino will provide additional commentary on the company's performance.

Following Dino's remarks, we'll open the call to questions.

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

Such forward-looking statements can be identified by the use of forward-looking terminology such as "we believe," "we expect," "we anticipate," or other similar terms.

These statements include without limitations statements about the progress and timing of our clinical trials, the potential timing for registration filings for TOLAMBA and HEPLISAV, the commercial opportunities that TOLAMBA and HEPLISAV represent for the company, and our options for defraying the costs associated with higher expenses we expect to incur with our maturing programs.

The inclusion of forward-looking statements should not be regarded as guarantees of future performance or a representation by Dynavax that any of the 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 uncertainties, difficulties, or delays in the development, testing, clinical trials, regulatory approval process, production and marketing associated with our products, scope and validity patent protection for our products, competition from other pharmaceutical or biotechnology companies, our ability to control expenses and maintain a strong financial position, and other risks detailed in the "Risk Factors" section of Dynavax's annual report on Form 10-K filed March 18, 2005, our quarterly report on Form 10-Q filed November 14, 2005, and our prospectus supplement filed on October 11, 2005.

You are cautioned not to place undo reliance in these forward-looking statements which speak only as of the date 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 and circumstances after the date hereof.

Now I'll turn the call over to Dino Dina.

Thanks Jane. 2005 was definitely a year of achievement for Dynavax.

We had the good fortune of being able to report positive results for our two key products, the Phase II/III trial of HEPLISAV and TOLAMBA.

We believe that these results provide strong clinical validation for our ISS-based technology and for the medical utility and commercial potential of these novel interventions.

We believe that these achievements have strengthened our leadership in the TLR space and brought additional validation to the technology itself.

We strengthened our balance sheet through a follow-on offering that brought approximately $33 million to the company.

We've also added expertise and strength to our Board of Directors with two new members, Stanley Plotkin, a highly respected vaccine expert, and Nancy Buc, former Chief Counsel for the FDA and advocate for the biotechnology industry.

We believe that 2005 marks a period of maturation and growth for Dynavax.

Following the financial review, I'll provide some additional detail on recent key events and the strategic issues that lie ahead in 2006 for us.

Now I'll let Deborah go through the financial report.

Thank you Dino.

Our financial performance for the fourth quarter and full year 2005 was in line with our expectations.

Total revenues for the quarter ended December 31, 2005 were $0.6 million compared to $2.5 million for the same period in 2004.

Revenues in the fourth quarter 2005 derived from grants awarded by the National Institute of Allergy and Infectious Diseases and by the Alliance for Lupus Research.

Revenues in the fourth quarter also reflect a decrease in collaboration revenue following the March 2005 ending of the allergy collaboration between Dynavax and UCB Farchim and the return to Dynavax of full rights to its allergy program.

For the year ended December 31, 2005 total revenues were $14.7 million compared to $14.8 million for the same period in 2004.

Total operating expenses for the quarter ended December 31, 2005 were $10.1 million compared to $8 million for the same period in 2004.

Total operating expenses for the year ended December 31, 2005 were $37.1 million compared to $31.7 million for the same period in 2004.

The increase in operating expenses is primarily due to increased clinical trial and manufacturing activities related to TOLAMBA, our ragweed allergy immunotherapy, and our HEPLISAV, Hepatitis B vaccine, as well as overall organizational growth and expenses incurred to support public company compliance requirements.

Net loss for the quarter ended December 31, 2005 was $8.8 million or $0.30 per diluted share compared to a net loss of $5.2 million or $0.21 per diluted share for the same period in 2004.

Net loss for the year ended December 31, 2005 was $20.6 million or $0.79 per diluted share compared to a net loss of $16 million or $0.75 per diluted share for the same period in 2004.

The increase in net loss for the full year 2005 resulted primarily from the increased operating expenses associated with the company's clinical programs.

As of December 31, 2005 cash, cash equivalents and marketable securities totaled $75.1 million compared to $50.7 million at September 30, 2005 and $65.8 million at the end of 2004.

The increase in cash from 2004 to 2005 reflects the completion on November 10, 2005 of an underwritten public offering of 5,720,000 shares of the company's common stock at a price to the public of $6.25 per share.

The offering was made under the company's existing shelf registration statement and resulted in net proceeds to the company of approximately $33 million after payment of underwriting discounts, commissions and offering expenses.

Relative to our outlook for 2006 and as we stated in our press release today, our clinical programs are evolving.

Therefore, we believe it is prudent to defer providing financial estimates for 2006 until later in the year when we anticipate having greater visibility on our programs.

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

Thank you.

I'd like to begin my remarks with a review of the TOLAMBA program and a discussion of our clinical and regulatory activities.

We reported in January and recently confirmed at the AAAAI meeting the Phase II/III trial of TOLAMBA produced statistically significant efficacy results and achieved its safety endpoints.

In this presentation at AAAAI our principal investigator, Dr. Bill Busse, emphasized the consistency of the positive results across all major endpoints.

And I'll now briefly recap those results.

Patients that were treated with a single six week course of TOLAMBA prior to the start of the season in 2004 experienced a statistically significant change from baseline reduction in total nasal symptom scores during the two week peak season compared to placebo treated patients in the first year of the trial.

That effect was 21.2% with a p-value of 0.04 and also showed efficacy in the second year of the trial with a reduction in nasal symptom scores of 28.5% and a p-value of 0.02.

Importantly the treatment effect was achieved on top of background of antihistamine/anti-congestant use which was allowed for both arms of the trial.

The group receiving a single course of TOLAMBA also achieved a statistically significant reduction in actual total nasal symptoms scores.

That is not changed from baseline, but absolute differences compared to placebo, both in 2004 and in 2005, with respect to p-values of 0.02 and 0.04.

The group also receiving a single course of TOLAMBA achieved statistically significant reduction in major secondary endpoints such as hay fever composite score, ocular symptoms, and rhinoconjunctivitis.

The group receiving a single course of TOLAMBA achieved a statistically significant reduction in antihistamine use and decongestant use -- p-values were respectively 0.04 and 0.03.

On top of that, the safety of TOLAMBA was confirmed and favorable.

Systemic side effects were indistinguishable from placebo, there was no anaphylaxis, and local injection site tenderness was minor and transient.

To emphasize what we find so exciting about these results, let me underscore some key points.

First, this is the first successful large, well-controlled, intent-to-treat clinical trial ever performed for an allergy immunotherapy.

Unlike other studies, our subjects were not pre-selected, but represent real life heterogeneous market in which TOLAMBA will be used.

Second, we demonstrated a high degree of reproducibility and consistency across all major endpoints in this trial.

These results are also consistent with everything we've seen in our prior Phase II studies.

We have reproducibility demonstrated improvement in nasal symptoms; they decrease over time and also correlate consistently with a clear reduction in medication use.

Third, we demonstrated a very attractive safety profile throughout our clinical trials with not a single incident of serious systemic side effects or anaphylaxis.

Based on the proven safety profile of TOLAMBA we're planning to use a higher cumulative dose in our next trial.

Following conversations with many clinicians and after Dr. Bucce's presentation and with our own TOLAMBA clinical advisory board it's clear TOLAMBA results are generating widespread interest in the allergy community.

TOLAMBA is gaining recognition as a truly disease modifying promising new approach to manage allergic rhinitis.

We also recently reported that we are about to embark on a major trial of TOLAMBA using a more intensive dosing regimen with the goal of enhancing the therapeutic effect of the intervention.

At AAAAI we had a very productive meeting with our clinical advisory board concerning the design of the trial and we emerged with a strong unanimous support for intensifying the regimen and starting the trial as early as possible and in advance of the 2006 season.

We plan to conduct this trial as a multi-center well controlled study and to evaluate the results after both the 2006 and 2007 ragweed seasons.

We plan to start this trial soon in order to capture the 2006 ragweed season.

The company's goal in the meantime is to maintain an open dialogue with FDA with a goal of finalizing a registration strategy after we get the results from the first year of this trial which will be in early 2007.

We are optimistic the trial should help facilitate an expedient and efficient regulatory pathway for TOLAMBA.

We'll look forward to communicating the trial design when we announce the start of the trial which should be in the early part of April.

The trial is likely to be somewhat larger than the recently completed Phase II/III trial and it will have three arms -- the new regimen, the current regimen and placebo.

The trial will be designed as a two-year trial but we will only dose subjects in the first year prior to the start of the ragweed season and there will be no booster.

By early 2007 we should have a large substantial, and we hope, convincing data set for TOLAMBA to discuss with FDA.

Let me remind you what the components are going to be.

We'll have one year and two-year safety and efficacy data for the trial that we just completed.

We're following patients for a third year and, therefore, we will have data from that follow-up for the very same Phase II/III trial.

We will have primary endpoint data from the second year of the trial in ragweed allergic children including over 300 subjects and one year data from the new trial that is about to start utilizing the more aggressive intense dosing regimen as compared to the current regimen.

We believe that in early 2007 this expanded database which could potentially include well over 1,000 subjects will provide a compelling portrait of the benefits of TOLAMBA for the allergy community and provide a strong foundation for discussion with the FDA about the potential timeline to registration.

While most of our company news of late have focused on TOLAMBA, I'd like to remind everyone that HEPLISAV, our Hepatitis B vaccine, currently in Phase III is also moving ahead.

In 2005 we reported positive results from our Phase II/III trial in older adults showing superiority over the industry standard vaccine, relative both to the level and durability of protective effects.

We're building a large compendium of positive HEPLISAV data that we believe underscore our confidence that HEPLISAV has the potential to offer an important prophylactic alternative, especially to underserved population who are difficult to immunize.

We're currently doing a lot of work internally to gain increasing clarity on the market opportunity HEPLISAV represents and to determine what may be the most expedient route to registration.

As we've discussed, we plan to focus on those populations with weakened or compromised immune systems for whom achieving protection of Hepatitis B infection is critical and who do not respond well to conventional vaccines.

In the fall of 2005 we initiated a Phase I trial in pre-dialysis patients and we plan to conduct additional trials in other populations such as HIV and HCV positive individuals as well.

In the meantime, we're also working hard to clarify our relationship with Berna Biotech so that we can bring greater definition to our HEPLISAV commercial strategy.

Now that the acquisition of Berna by Crucell is completed we hope to bring some clarity to this situation in the near term.

I'm pleased to report that we've recently added a new member to our management team who will be responsible for directing the HEPLISAV program as well as overseeing our earlier stage anti-viral oncology programs.

Eduardo Martin joined the company on March 1 as Vice President Clinical Development.

Eduardo brings to Dynavax global biotechnology and pharmaceutical industry experience in clinical development and medical affairs in various therapeutic areas, including Hepatitis B, Hepatitis C, immunology, pulmonology and oncology.

Prior to joining Dynavax, Eduardo was Vice President of Medical Affairs at Intermune and prior to that was Vice President of Medical Affairs and Medical Director at Cyclone.

Eduardo received his M.D. from Federal University of Rio de Janeiro in Brazil and his Ph.D. from Oxford.

Eduardo has only been on board for a short while but we're already benefiting from his broad regulatory and clinical development experience and we're definitely happy to have him at Dynavax.

An additional change in our management team is the fact that Dan Levitt, who joined the company in 2003 as Chief Medical Officer, is stepping down from this position.

Dan will remain with the company long enough to ensure that the upcoming major safety and efficacy trial for TOLAMBA is initiated and running smoothly and he will coordinate with Eduardo to work together to ensure a smooth transition for the TOLAMBA program.

Dan has had a long and distinguished career in the pharmaceutical and biotechnology industry and has been responsible for many successful drug development projects including HEPLISAV and TOLAMBA.

After many years serving in-house in various companies, directing strategy and operation of clinical development, medical affairs, regulatory affairs, pre-clinical research and development and biotechnology manufacturing, he would now like to focus his professional activities mainly on strategic issues.

As Chief Medical Officer at Dynavax for the past three years, Dan has made a major contribution to our company.

He's brought focus to our development activities and has built an experienced, professional and talented development organization.

Our entire company appreciates Dan's contribution to our success.

I know that he will look forward to watching the continued successful progress of TOLAMBA and HEPLISAV.

In conclusion, I'd like to thank all of the employees of Dynavax for delivering a very successful 2005.

I speak for everyone in saying that we are eager and ready to face the challenges and opportunities of 2006.

We take pride in what we've accomplished.

We have promising late stage products that are advancing in development.

We have generated positive results in these programs that validate our core ISS technology.

We believe that these products have the potential to establish new standards of care in their respective markets and that they represent significant commercial assets for our company.

Dynavax's early stage pipeline includes promising young programs that are deserving of investment and we are in the process of finding ways to exploit their potential.

In 2006 we will increasingly focus our attention on solidifying our commercial planning for TOLAMBA and HEPLISAV.

We also believe that these and other programs represent valuable partnering assets, establishing validating partnerships is a key strategy for our company.

In short, I believe there is considerable value resident in Dynavax and we intend to exploit it.

Operator, we're now ready for the questions and we'd like you to open up the call for those questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Charles Duncan with JMP Securities.

Please proceed.

Hey.

Congratulations folks on a pretty interesting year and thank you for taking my call.

Dino, I had a quick question with regard to the number of patients that you talked about having had exposure to TOLAMBA by, say, mid-year next year.

Can you help us run through that?

You said there was a total of approximately 1,000 patients.

Does that include the number of patients that you expect to enroll in your, well, perhaps Phase III trial that you're starting right now?

Let me try and be a bit more precise.

What I meant was that we will have well in excess of 1,000 people in the trial.

The trials include placebos.

And you're correct in thinking that the total number I was referring to, which will probably be well above 1,000, includes the 462 people of the Phase II/III trial, the 313 kids in the pediatric trial, plus the new patients who we expect to enroll in our major trial that we're about to start.

Dino, would it be crazy of me to be thinking about the prospects for you perhaps filing on, say, the first year worth of data, if you got pretty interesting results out of the trial that you're starting right now, when you combine the results with all the others?

Well, let me go back to the language I used in my report, which I think is the appropriate one.

We believe that the collective weight of the data that we're going to have at that point in time, and everything we know today, obviously makes us hope that the entire data set will be confirmed and, therefore, that we will have positive outcomes in the pediatric trial and in the first year of the trial we're about to initiate, will give us the appropriate momentum for having a very meaningful discussion with FDA about a registration pathway.

I don't think it would be prudent or crazy to state today whether that would lead to a filing or some additional work, but I think that our visibility to a timeline and a specific approach to filing is going to be greatly increased by the availability of those data.

So it's going to be a data driven answer?

Data always helps.

Yes.

So -- question on the third year follow up for the trial that you just reported two-year on.

What do you think could happen with those patients after three years that you didn't see at two?

Well, I think that if I had an ability to predict that I'd be in good shape.

What I think we'll be looking for, and what I think the question is is twofold.

One is we had a potential partial negative impact of the booster if you take the data at face value.

While not statistically significant, 13% effect is definitely lower than 28.5 or 29% effect.

And if that is due in fact to lymphocyte trafficking and a diversion of beneficial cells from the nose to the periphery, I think there would be a legitimate anticipation based on previous trials and the mechanistic explanation that those patients would show increased efficacy in the following year.

I think that that would add a lot of clarity and make everybody feel more comfortable with what happened with the booster itself.

It's not a result that we're going to rely upon, but it's a result that will be of great interest to the allergy community.

In addition, the key question that I'd like to see answered is whether the boosting effect of pollen season-over-season is going to translate into increased efficacy in Year Three for the group that was only treated for one season and whether we can measure, and we'll be monitoring that as a side issue, a potential impact on other allergens.

And that would be, of course, very valuable.

Let me make then one last point, which is that if you look at what happened in our first trial in the U.S. at Johns Hopkins in 2001 and '02, and what happened in Canada, and what has been reproduced in this trial, we have consistently seen the placebo group have increased symptoms in the second year of the trial as compared to the first year of the trial.

And we have shown that our intervention prevents that.

If we were able to show that that trend continues in the third year of the current trial and we can present that, along with data that we'll be obtaining from the pediatric trial, I think that the statement to the effect that we can prevent the evolution of disease and the onset of more severe symptoms is going to be incredibly valuable and underlying how different this intervention is from other interventions in that it's truly not only disease modifying, but disease preventing.

And those are the key questions that we hope to be able to answer.

Keep in mind as a cautionary note that we're asking people de novo to participate in a third season and they weren't enrolled to last that long.

And as a result we might have some attrition.

It is our hope that that's going to be evenly distributed among groups and that we're not going to have a bias.

For example, by losing more placebos than treated people, which is a risk and we'll have to keep a close eye on the total numbers.

So the ability to generate data at this point is dependent on how many people we'll be able to retain.

Okay.

That is interesting.

Let me ask one more question before I hop back in queue with regard to the R&D spending.

I appreciate that a lot of things are up in the air, but I guess providing some kind of a range would be helpful or at least some of the assumptions that you're inputting there.

Are you anticipating any partnering?

Is that one of the things that is in the air?

Is the size of the trial in the air?

What are some of the key inputs to being able to provide R&D guidance?

Well, let me refer you [back] to the last quarter of the year as an ongoing burn rate that I think you can start with because that is on solid ground.

We are planning modest growth for the company from a personnel point of view, so there will be some impact at that level, although I don't expect that to be major.

And the new trial we're doing is somewhat larger in our expectations than the trial we completed but not by a factor of two.

We're reserving judgment in terms of really giving more precise guidance because there are a number of activities that we're pursuing which include partnering, but I'm not trying to provide any invisibility until completion of anything at this point in time.

That we would like to follow for a while longer while we're putting in place also some of the key activities both for TOLAMBA and HEPLISAV and we would prefer to be more precise rather than second-guess at this point where we're going to be.

But if you looked at your current cash balance, would you just say that that's good for a certain amount of time plus or minus?

We're not planning to spend more than $75 million a year if that's what you're asking.

Okay, good.

Thanks.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Katherine Xu with Pacific Growth Equities.

Please proceed.

Hi.

Thank you.

Just curious about the HEPLISAV studies.

SO Dino, you sounded like you're not initiating the second Phase III HEPLISAV study in healthy and young adults, but you're more focusing on the special populations at this moment?

I actually didn't say that.

What we're doing is to design a set of activities moving forward with Eduardo now on board that are going to allow us to move the programs forward as effectively as possible.

And I think what's particularly urgent in our minds and hence the emphasis is the fact that we see a lot of value in the difficult to immunize populations.

We've been explicit about the fact that that's the high value market for us.

And we need to go beyond the Phase I study that we have in place and I was simply emphasizing the fact that that's where our attention is right this minute.

I hope to be able, again, to be more precise about the plans for TOLAMBA in the immediate future after Eduardo has had a chance to settle in and actually continue the planning that we have been doing all along.

Sorry.

I'm not still - not quite clear.

So I thought that previously the basis for the HEPLISAV BLA would be the two big Phase III studies, one in adults - in difficultto immunize adults, the other one in younger people so that you got a broad label and then you add in the Phase 1 studies, let's say in dialysis patients or HIV/HCV patients, to sort of include that in the label.

I mean, is that changed or --?

It isn't changed in principal.

We are, as I said, trying to refine that strategy in particular with respect to the specific trials, number of patients and database that would be required for the difficult to immunize population.

Okay.

Does that mean that the potential filing of BLA for HEPLISAV in second half of 2007 would be delayed somehow?

I don't have a specific comment about that right now until I see a more definitive plan.

Okay.

And with Dan leaving, are you going to look for a Chief Medical Officer or Dr. Eduardo would step in and take Dan's position?

I think that we are recruiting right now.

How exactly we're going to configure positions is going to depend a lot on the candidates that we're going to be able to bring in.

The starting point is that Eduardo is both capable and in a position to support the entire spectrum of clinical development.

We definitely intend to bring in a senior person with product development expertise to coordinate our whole set of activities.

Whether the specific title is going to be CMO or something else I don't know yet because it will depend on the kind of person we find.

But keep in mind that the core of our development team, which moved over here from [Chiron] with me many years ago with Stephen Tuck and Gary Van Nest and Bob Kauffman as Chief Scientific Officer is in place and then we brought really very pertinent expertise on board with Eduardo, so I think we're on solid ground.

Okay.

Thank you.

[OPERATOR INSTRUCTIONS] There are no questions at this time.

I will now turn the call over to Mr. Dina for closing remarks.

Well, thank you very much for participating in this call.

We realize that we've been somewhat vague on certain issues and we will try to clarify those as soon as possible.

There are very specific reasons for us to follow that path which I've tried to explain as well as I could.

So we will continue our dialogue with you and keep you posted of our progress in all of these areas.

Thanks again for participating in the call.

Thank you for your participation in today's conference.

This concludes the presentation.

You may all disconnect.

Have a good day.