Dynavax Technologies Corp (DVAX) 2006 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the First Quarter 2006 Dynavax Financial Results and Outlook Conference Call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the call over to Jane Green, Vice President, Corporate Communications.

Please proceed, madam.

Hello and thanks for joining Dynavax's first quarter 2006 financial results and outlook 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 Company's performance, Deborah will review financial results for the quarter and full year and provide outlook, and Dino will provide additional commentary on the Company's progress.

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 and other therapeutic programs 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 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, uncertainties, difficulties or delays in the development, testing, clinical trials, regulatory approval process, production and marketing associated with our products; the scope and validity of 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 on March 15, 2006

You are cautioned not to place undue reliance on 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 or circumstances after the date hereof.

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

Thank you.

I believe that the first quarter of 2006 was highly productive on all fronts.

We made substantial progress in advancing our lead clinical programs, TOLAMBA and HEPLISAV, as well as implementing a foreign strategic initiative that broadened our pipeline, brought additional resources into the Company, and strengthened our overall business.

As we reported earlier during the quarter and have discussed in other recent conference calls, the Phase II/III trial of TOLAMBA demonstrated statistically significant efficacy results against major endpoints and provided clinical validation that a single shot course of therapy with TOLAMBA is disease modifying.

We are pleased to announce that we've initiated a major safety and efficacy trial for TOLAMBA.

For easy reference, we have named this trial [DART], or Dynavax Allergic Rhinitis TOLAMBA Trial.

I'll say more about this program in a few minutes.

In recent weeks, we've also announced the acquisition of Rhein Biotech GmbH, which expands our hepatitis B vaccine pipeline and secures GMP manufacturing assets for our growing vaccine franchise.

That acquisition has been completed, and we're well along in the process of integrating the activities of our new subsidiary into our overall operations.

Just last week, we announced completion of a $60 million collaborative financing with Symphony Capital Partners to support advancement of our second-generation TLR-agonist pipeline in cancer, hepatitis B and hepatitis C therapeutics.

We're excited about the potential to accelerate progress in these programs and are confident that they will add considerable value to our company in the near term.

I will make additional comments about our programs and corporate strategy, after Deborah reviews our quarterly performance.

Thank you, Dino.

Our financial performance for the first quarter 2006 was in line with our expectations.

Total revenues for the first quarter ended March 31, 2006 were $0.3 million compared to $12.7 million for the same period in 2005.

Revenues in the first quarter 2006 consist of grants awarded by the National Institute of Allergy and Infectious Diseases and by the Alliance for Lupus Research.

Collaboration revenue for the quarter ended March 31, 2005 included accelerated recognition of $7 million in deferred revenue following the end of Dynavax's collaboration with UCB Farchim in March 2005.

Total operating expenses were $9.2 million for the first quarter 2006 compared to $8 million for the same period in 2005.

The increase in operating expenses is primarily due to increased clinical trial and manufacturing activities related to TOLAMBA, the Company's ragweed allergy immunotherapy, and its HEPLISAV hepatitis B vaccine, as well as overall organizational growth.

Net loss for the first quarter ended March 31, 2006 was $8.2 million, or $0.27 per diluted share, compared to net income of $5.1 million, or $0.20 per diluted share, for the same period in 2005.

The net loss for the quarter ended March 31, 2006 resulted primarily from a decrease in collaboration revenue and increased operating expenses associated with the Company's clinical programs.

The net loss per diluted share for the quarter ended March 31, 2006 reflects the completion of an underwritten public offering of 5.72 million shares of the Company's common stock on November 10, 2005.

As of March 31, 2006, Dynavax reported that cash, cash equivalents and marketable securities totaled $67.5 million compared to $75.1 million at December 31, 2005.

Relative to our outlook for 2005, please keep in mind that the following statements are forward-looking and are based on current expectations.

Actual results may differ materially.

Except as expressly set forth below, these statements do not include the potential impact of any equity offerings, business collaborations or other transactions that may be closed or entered into after March 31, 2006.

We anticipate that total revenues for 2006 should be in the range of $5 million to $7 million deriving from the Company's existing grants and anticipated service contract revenue from Rhein Biotech GmbH.

We anticipate that total operating expenses for 2006, including approximately $3 million of non-cash stock compensation, should be in the range of $49 million to $53 million, driven primarily by costs associated with advancing our clinical programs in ragweed allergy and hepatitis B vaccines, which are expected to increase in the second half of 2006.

We, therefore, anticipate that our loss from operations for 2006 should be in the range of $41 million to $47 million.

This excludes operating expenses incurred by Symphony Dynamo.

In the second quarter of 2006, we anticipate recording onetime cash-based charges of approximately $17 million due to the Rhein Biotech GmbH acquisition and the structuring fees associated with the formation of Symphony Dynamo, including associated legal expenses and banking fees for both transactions.

The Company believes that Symphony Dynamo will be treated as a variable interest entity under FASB Interpretation Number 46, "Consolidation of Variable Interest Entities," resulting in the consolidation of Symphony Dynamo's operating activities within Dynavax's financial statements.

Symphony Dynamo's expenses are expected to be principally included in the Company's R&D expense.

Accordingly, the portion of the Company's net loss attributed to Symphony Dynamo will be separately identified to reflect the losses borne by Symphony Dynamo's investors.

We anticipate that the Company's consolidated cash, cash equivalents and marketable securities should be approximately $20 million at the end of 2006.

This includes the impact of the aforementioned $17 million in onetime transaction charges.

Investments held by Symphony Dynamo are in addition to the Company's cash and are expected to include the balance of cash net of program expenses plus any additional capital contributions made during 2006.

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

Thank you.

As we've recently held conference calls to discuss in detail the strategic rationale for the Rhein Biotech acquisition and for the Symphony financing, I will forgo discussing these initiatives in detail here.

I want to bring everybody up-to-date on our TOLAMBA program and our hepatitis B vaccine programs, HEPLISAV and SUPERVAX.

We're happy to report that we've initiated a major safety and efficacy trial for TOLAMBA as planned.

The DART study is large, multi-center, placebo-controlled trial in up to 700 ragweed allergic subjects, aged 18 to 55, randomized into three arms -- the prior regimen using the recently completed Phase II/III trial, a new high-dose regimen, and placebo.

The prior regimen consists of six injections over six weeks in a dose escalation of 1.2, 3, 6, 15, 21 and 30 micrograms.

The high-dose regimen consists of six injections over six weeks in a dose escalation of 3, 9, 30, 30, 30, 30 microgram That is four times 30 micrograms following the initial ramp-up.

The primary endpoint of the trial is reduction in total nasal symptom scores in the high-dose arm compared to placebo after the second ragweed season, which will be competed at the end of 2007.

Approximately 40 centers are participating in the trial, and the level of enthusiasm among the centers is high.

We are confident that enrollment will take place efficiently and rapidly and that treatment will be completed well in advance of the beginning of the 2006 ragweed season.

We're appreciative of the broad support that we are enjoying with the allergy community, and especially from our clinical advisory board members who are instrumental in providing valuable input into this study design.

The design for this three-year trial includes an interim analysis following the 2006 ragweed season, which will likely take place in early 2007.

The interim analysis will provide safety and efficacy data, but we are not planning to use this interim analysis as a basis for terminating the study after the first season.

By early 2007, we anticipate having a large and substantial data set for TOLAMBA.

The key components will be one-year and two-year safety and efficacy data from the recently completed Phase II/III trial; data derived from following subjects in the Phase II/III trial for an additional third-year through this upcoming ragweed season; the primary endpoint data from the trial in ragweed allergic children, which is currently underway; and one-year data from the 2006 ragweed season in the DART study that just started.

We anticipate that in early 2007 this large database, which could potentially include approximately 1,000 treated subjects, could provide a foundation for determining the potential timeline to registration.

Our goal is to be able to provide greater visibility on our regulatory strategy for TOLAMBA, after we unblind those studies.

I will now discuss our HEPLISAV hepatitis B vaccine program.

Since the acquisition of Rhein Biotech and our gaining full control over manufacturing and commercialization activities, we've made significant progress in streamlining our regulatory and commercial strategy for this program.

Initially, we had sketched out a plan to pursue a two-pronged hepatitis B vaccine strategy for SUPERVAX and HEPLISAV, designed to segment the global marketplace and target differentiated products or target markets and populations.

Today, we believe that the most expedient route to the market and the most rational strategy for achieving commercial success is to focus our developmental activities and the majority of our resources on exploiting HEPLISAV's demonstrated superiority over conventional hepatitis B vaccine in both the young and older adult populations and its significant potential in the worldwide dialysis market.

We will continue the development of SUPERVAX as a two-dose vaccine for commercialization in developing countries.

We plan to initiate a large-scalePhase III safety and efficacy trials for HEPLISAV in the second half of 2006 in young adults, under age 40, and plan to conduct these trials in US, Europe and Canada.

We anticipate that these trials will enroll approximately 3,500 subjects and would be designed to compare two-dose HEPLISAV to GlaxoSmithKline's three-dose Engerix-B or equivalent.

The dose ranging Phase I dialysis trial that is currently ongoing in the US should yield some safety data later this year.

In parallel with our large-scale Phase III program, we plan to initiate a second trial in dialysis populations, also to begin in the second half of '06, designed to yield dose safety and efficacy data.

This would be a Phase II program that we would conduct in Europe and/or Canada.

The Phase III trial of HEPLISAV that is currently underway in older adults in Asia is continuing and is anticipated to yield data later in '06 that will be included in our safety database for the product and will support our filings.

Assuming that all of these strategies proceed according to plan, we'd have the safety efficacy and lot to lot consistency database for HEPLISAV of several thousand subjects that could support our first regulatory filling, which we anticipate could be accomplished in the first half of '08.

To support our HPV vaccine strategy and ensure that our regulatory and commercial strategies are aligned, we have recently added expertise to our commercial group with the hiring of a director of marketing with 10 years of commercial experience in the vaccine industry, in addition to the team that already exists in Dusseldorf.

We have a high level of confidence that focusing our resources on developing HEPLSAV, which has clear potential to represent a new standard of care in hepatitis B prophylaxis, will create maximum value for Dynavax.

With the acquisition of manufacturing capabilities that will enable us to fully control vaccine production and with the addition of vaccine and hepatitis clinical development and marketing experts, who are focused on advancing HEPLISAV to the global marketplace most expediently, we believe that we have the team in place to implement a solid commercial strategy for this product in the near term.

Now, looking to the programs that we are now funding from Symphony Dynamo.

We plan to add these programs to our ongoing discussions about Company progress and keep you informed of important milestones.

As we stated in our conference call last week, in our cancer program in solid tumors, we anticipate initiating clinical trials later in 2006.

Our goal in Hepatitis B and Hepatitis C therapy is to initiate clinical programs in most of them.

We hope to have more to say about these programs, as the year progresses.

In conclusion, I'd like to express my confidence that the strategy we've put in place over the last few months, have added depth and breadth to our pipeline, have strengthened our business, and sharpen our focus on what we believe will build value in the Company.

We believe that we're investing selectively in programs that have significant therapeutic and commercial potential, and that by extending our pipeline we will increase opportunities to establish alliances that will further add value to the Company.

We have a lot of productive and creative activity going on within the Company, and we believe that this expansion of our products opportunities will increase our chances for success.

We're optimistic about these opportunities, and we will keep you informed of our progress.

We've now completed our report, and we'll like to open the call to questions.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Bret Holley with CIBC.

Please proceed.

Hi.

Let's get some additional information on the strategic or rational for HEPLISAV in the US and the EU and SUPERVAX in the developing countries.

I'm not sure everybody understands the basis for that decision.

I was just wondering if you could give some more information on that decision.

We have a large body of clinical information that relates to both programs in the Phase II mode.

Based on an analysis of what's required to bring the programs to completion and our ability to generate a reasonably sized safety [inaudible - background noise] database, we've decided to concentrate our efforts on the vaccine that provides the most competitive edge toward those countries, in which we can price it correctly.

And those are Europe, the US and Canada.

So we are consolidating our approach into HEPLISAV to be able to generate data in and across the various populations that represent our targets, which include the professionals that need to be immunized in the age group 18 to 40.

People older than 40 that are more difficult to immunize in the dialysis groups and the related groups that are HCV and HIV infected that we've always targeted.

SUPERVAX has a comparable immunogenicity in young adults and has the competitive edge that would allow us to price it competitively in emerging countries.

And we would like to keep those approaches clearly delineated and separated and optimize our first penetration of the world markets on that basis.

Great.

Thanks very much, Dino.

Your next question comes from the line of Katherine Xu with Pacific Growth Equities.

Please proceed.

Thank you.

Just following up to Bret's question.

So if you develop HEPLISAV towards different populations in the US and Canada, you know, how do you deal with the pricing differential issues in young adults versus the high-risk population?

We remain committed to pricing competitively with existing products.

So fundamentally, we would continue with our approach of pricing two doses of HEPLISAV on the -- in the same general price range as three doses of Engerix and/or Recombivan.

And we are assuming that the price differentiation for the difficult to immunize populations would be derived from the larger number of doses and larger amounts of vaccine used in dose.

As you know, we have a dose response study underway in dialysis patients.

We already know that older then 40 require three injections instead of two, and we intend to complete our program by defining the specific regimen in the total amount of vaccine to be used in those target populations.

Yes.

But I thought, previously, in young adults, let's say, it's $60 per dose or something like that.

And then for dialysis patients, you probably could go to a couple of hundred dollars per dose.

And then that differential is quite a few more times than just 2 versus 3.

Yes.

We realize that.

And we will have to determine what the optimal regimen is in dialysis patients.

And I guess it's our current expectations that we will have to match the approach that has been taken with other vaccines, although that remains clearly to be demonstrated.

And then we will end up using potentially the equivalent of 6 doses to immunize dialysis patients.

But take that as a hypothesis, and then keep in mind that we remain committed to a pricing strategy that is on a regimen basis rather then on a per dose basis.

Okay.

Another question is on the TOLAMBA new trial.

So what are the statistical assumptions for the interim?

The statistical assumptions for the interim -- we have not discussed, but you can compare the size of this trial to the size of our Phase II/III Trials and draw your own conclusions.

We've clearly powered it for success.

Okay.

And we've discussed this a little bit before but could you, sort of, talk about it again?

On the intensified regimen versus the boosting, they are two different ways of trying to get higher immune responses.

And could you just elaborate on the differences?

The immunogenicity of an intervention is typically related to the amount of antigens that's used and the adjuvant, of course, that is present for conventional vaccines.

I think that the response curve that we have obtained in our Phase II studies clearly indicated that we were obtaining optimal immunogenicity with doses that were above 3 to 6 micrograms with the beginning responses at 1.2 micrograms.

I think that the regimen that we have adopted in our high-dose schedule, which amounts to approximately twice the total amount of allergen that's used in the previously adopted regimen, addresses the issue of seeing what happens if you hit the immune system repeatedly with a high-dose intervention, hence the four 30-micrograms interventions.

And we do not have any data on the regimen of that type, yet.

So this is an open question and one that this trial will answer.

Okay.

And lastly, what is the ICH guideline again for the number of patients required?

The ICH guidelines required a minimum of 1,500 people exposed to the drug.

We're not -- we haven't included, of course, the smaller numbers that were present in earlier small studies.

But there is no doubt that that's part of our testing commercial lots for consistency.

We will have the ability to accumulate several hundred more individuals, and we expect that to happen in the course of '07.

Okay.

Thank you.

You're welcome.

[OPERATOR INSTRUCTIONS]

Sir, there are no questions in the queue at this time.

So thank you everybody for participating, and we'll keep you posted on our progress.