Dynavax Technologies Corp (DVAX) 2006 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second quarter 2006 Dynavax financial Results conference call.

My name is Eric and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS]

I would like to now like to turn our presentations over to our host for today's call, Miss Jane Greene.

Please proceed.

Hello, and thanks for joining Dynavax's second quarter 2006 financial results conference call.

Participating in today's call are Dino Dina, MD, 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 year-to-date, and Dino will provide additional commentary on the company's progress.

Dino's remarks we will open the call for questions.

Please be advised that this conference call will include forward looking statements, including without limitations, potential therapeutic and commercial potential of Tolamba and anticipated regulatory strategies for Tolamba, plans to initiate a pivotal phase III trial for Heplisav and clinical trials in solid tumors, intellectual property matters and the potential for continued development of existing clinical programs.

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; risks relating to the progress and timing of its current and anticipated clinical trials, difficulties and delays in developing, testing and manufacturing products to support clinical development plans, the scope and validity of patent protections for product candidates, competition from other companies working with ISS technologies and products, and the ability to obtain additional financing, operations, and other risks detailed in the "Risk Factors" section of Dynavax's annual report on Form 10-K and quarterly report on Form 10-Q.

All forward-looking statements were made as of the date hereof, and Dynavax undertakes no obligation to revise or update information provided in this conference call.

Now I will turn the call over to Dino Dina.

Thank you.

I believe Dynavax had a very productive second quarter.

We implemented an innovative financial transaction with Symphony Capital Partners designed to advance our second generation (inaudible) pipeline.

We have already seen the benefits of these collaborative financings.

We now have the funds to implement the broad clinical program in solid tumors which is on track to begin later in 2006, and to begin to plan for (I&D) enabling activities for our hepatitis B and hepatitis C therapies in 2007.

We also completed the acquisition of Rhein Biotech and established Dynavax Europe as our European base of manufacturing operations.

The integration of our business is proceeding and as noted in our price release and we are seeing some strengthening of our revenue base from Dynavax Europe contract service business.

The initiation of the Tolamba DARTT Study has been a strong success.

Enrollment exceeded our expectations relative to the speed and number of the study subjects; 738 subjects were enrolled in this study in less than eight weeks, which enabled us to close enrollment early.

Based on feedback we received from study investigators, we believe that strong investigator and patient interest in Tolamba as a potentially disease modifying allergy intervention as well as Tolamba safety profile were important factors in accelerating enrollment in the trial.

In the parts of the country where (inaudible) [prevalent] safety (inaudible) begins towards the middle to the end of August.

We remain on track to begin a large-scale multinational pivotal Phase 3 study for (inaudible) 2006.

Right now, I asked Deborah to review the quarter's financial results.

Thank you, Dino.

As Dino noted during the second quarter 2006, Dynavax completed two significant transactions designed to expand the company's operations and advance this early-stage pipeline.

These transactions as well as the related charges are reflected in the company's financial statements and I will describe them in my remarks.

In short, during the second quarter 2006, Symphony Dynamo received $20 million of the $50 million funding commitment.

The results of operations of Symphony Dynamo are included in the consolidated results of Dynavax since the date of formation.

The results of operations of Rhein are included in the consolidated results of Dynavax since the date of the acquisition.

One-time cash payments totaling approximately $17 million were made during the quarter relating to these transactions.

Total revenues for the second quarter ended June 30, 2006 were $0.5 million compared to $1.0 million for the same period in 2005.

Revenues in the second quarter 2006 consisted of services and license fees from Dynavax Europe for the first time and grants awarded by the National Institute of Allergy and Infectious Diseases and by the Alliance for Lupus Research.

Total revenues for the six months ended June 30, 2006 were $0.8 million compared to $13.7 million for the same period in 2005.

Collaboration revenue for the six months ended June 30, 2005 included accelerated recognition of $7.0 million in deferred revenue following the end of Dynavax's collaboration with UCB Farchim in March 2005.

Total operating expenses were $18.5 million for the second quarter 2006, compared to $10.0 million for the same period in 2005.

Total operating expenses for the six months ended June 30, 2006 were $27.7 million compared to $18.0 million for the comparable period in 2005.

Total operating expenses in the second quarter 2006 increased by $8.5 million, which included a one-time charge of $4.2 million for acquired in-process research and development resulting from the April 2006 acquisition of Rhein, and $4.3 million from ongoing operating expenses.

The growth in ongoing operating expenses resulted primarily from increased activities related to the Company's lead product candidates Tolamba and Heplisav, as well as the expansion of the Company's operations from Dynavax Europe and programs funded by Symphony Dynamo.

Reimbursable expenses related to the Symphony Dynamo programs were $2.0 million for the three and six months ended June 30, 2006, as reflected in loss attributed to non-controlling interest in Symphony Dynamo, Inc. in the Company's Condensed Consolidated Statement of Operations.

Net loss for the second quarter ended June 30, 2006 was $15.3 million, or $0.50 per diluted share, compared to net loss of $8.6 million, or $0.35 per diluted share, for the same period in 2005.

The increase in net loss for the quarter ended June 30, 2006 was due primarily to increased operating expenses associated with the Company's clinical programs and the non-recurring charge for acquired in-process research and development.

Net loss for the six months ended June 30, 2006 was $23.4 million, or $0.77 per diluted share, compared to $3.5 million, or $0.14 per diluted share, for the same period in 2005.

As of June 30, 2006, Dynavax reported that cash, cash equivalents and marketable securities totaled $41.7 million compared to $75.1 million at December 31, 2005.

In addition, the Company reported $19.0 million in investments held by SDI.

Cash, cash equivalents and marketable securities declined over the six-month period in 2006, due to the one-time cash payments totaling approximately $17 million associated with the Rhein acquisition and the formation of Symphony Dynamo, Inc., and $16 million of net cash used for ongoing operations.

Now I would like to turn the call back to Dino.

Thank you.

We have recently held conference calls to discuss in detail the strategic rationale for Rhein Biotech, acquisition then for Symphony Financing that supports our cancer, hepatitis B and hepatitis C therapeutic programs.

So I will forego discussing those initiatives in today's call.

We will discuss some key operation on strategic aspects of the business that illustrates the progress that we are making.

I'll focus for a minute on Tolamba.

Tolamba is a key asset in our pipeline.

We believe that Tolamba represents a major change in the management of allergic rhinitis, moving away from symptomatic treatments and toward long-term disease modification.

In our studies conducted to date, with only six weeks of therapy, we have observed substantial and statistically significant therapeutic effect in the first year, which increases in the second year with no additional drug therapy.

Thus, Tolamba is the first disease-modifying agent here in the market for allergy treatment.

Our investigators and allergy key opinion leaders agreed that Tolamba represents a new class of therapy for allergy and should not be considered simply as a replacement for conventional allergy immunotherapies.

The truly innovative aspect of Tolamba is its ability to reprogram the immune system and change the allergic disease state.

Despite the advanced stage of Tolamba clinic development as an allergic rhinitis therapy, we have only just begun to explore and understand its full capabilities, including the longevity of its treatment effect and its effect on slowing progression to more severe disease sequelae including asthma.

We anticipate conducting first market studies that will further define the (inaudible) of Tolamba effectiveness, and its effect on the development of new sensitivities, including other allergies.

We continue to be gratified by our investigative support of the Tolamba clinical program.

Some of the most well known and influential allergists in the country are members of our clinical advisory board, and they provide us with important insights into the role of Tolamba, that Tolamba could play in their practices.

There are several potential patient segments appropriate for Tolamba therapy.

The first and most obvious of course is the severe immunotherapy users.

For a certain minority of severe allergic patients, traditional immunotherapy is currently standard of care.

These patients are desensitized against multiple allergens which are problematic to them.

Should Tolamba reach the market it could replace the ragweed component in their disease, and they could continue to use it to help manage their other sensitivities.

Moderate to severe patients for immunotherapy is not the preferred option --represents the vast majority of patients, however, traditional immunotherapy is far too inconvenient and difficult to comply with to receive the relatively modest benefit, require multiple trips per week or month to the physician's office for the treatment itself.

These patients however, are still highly symptomatic and uncomfortable during the allergy season and allergies would be likely to target Tolamba therapy towards this group.

Getting then to mild to moderate patients, Tolamba has the potential to reduce the progression to more serious allergy sequelae in asthma on top of providing symptom relief.

Physicians treating patients with mild to moderate allergies would be motivated to use Tolamba to prevent the development of those more serious diseases downstream.

The allergists, with whom we have worked most closely, do not see Tolamba simply as limited to using only the severe population.

They see broad potential use within the full scope of their practices and would welcome having a new therapeutic option to offer to their patients.

This means Tolamba would enable them to better serve their current patients and to expand their practices.

This is consistent with our commercial assumptions, that as the new potentially breakthrough therapy Tolamba introduction onto the market would result in an expansion of the overall allergy market, consistent with the experience in many other therapeutic categories.

The rapidity with which the Tolamba DARTT Trial enrolled and the demand that drove expansion of the trial to 738 patients, are evidence of strong interest on the part of the investigators and patients in exploring getting access to new allergy therapies that are disease modifying not just symptom management.

Just to recap then our clinical strategy for Tolamba, DARTT is a two-year multi-center placebo controlled study in 738 ragweed allergic subjects, age 18 to 55 years, randomized into three arms.

An arm representing those in regimen used in our phase two or three studies that we just reported upon, higher total dose regimen and then the third arm; the placebo.

Subjects received six injections over six-weeks prior to the start of 2006 ragweed season and that pilot is being completed right now.

Ragweed symptoms will follow then over the 2006 and 2007 ragweed season.

The primary endpoint is reduction in total nasal symptom scores in the higher total dose arm, compared to placebos during the second 2007 ragweed season.

The trial designed includes terminologies to be conducted in early 2007, following the completion of the 2006 ragweed season.

We anticipate the data from the DARTT in terminology is positive combined with the safety and efficacy data from the recently completed two-year phase 2/3 trial and from an ongoing trial in ragweed allergic children could provide sufficient patient data for determining potential timeline to registration.

Following receipt of the data in the first quarter of 2007, we plan to seek an opportunity to confer with FDA about the Tolamba regulatory strategies.

I will now discuss our Heplisav program.

We are on track to complete the ongoing Phase 3 trial in older adults conducted in Southeast Asia.

We anticipate having data from that trial late in the fourth quarter of 2006.

These data will be according to broaden the efficacy and safety database for Heplisav.

Plans for initiating our large-scale pivotal Phase 3 Heplisav trials are well underway.

We anticipate that these large-scale trials will be conducted in Canada, the U.S. and Europe and will include safety and efficacy endpoints, as well as to lots of consistency data.

The trials are likely to start first in Canada, followed by the U.S. and Europe.

In the Safety and Efficacy Trial, we plan to compare two doses of Heplisav administered on a zero and one month schedule versus three doses GlaxoSmithKline [Centrex B] administered on a zero, one and six month schedules.

Because of the large number of subjects to be included in these trials, we anticipate having results in the first half of 2008.

Our Heplisav (inaudible) initiative is also taking shape.

The phase 1 trial in subjects with end stage renal disease is proceeding and we anticipate beginning to see some initial data from that trial later in the fall.

We plan to initiate the phase 2 trials in the fourth quarter of 2006 that would run concurrently with the completion of the phase 1 trial.

We continue to believe that SERD population represents a significant commercial opportunity for Heplisav and we are optimistic that we will be able to demonstrate the clear and meaningful clinical benefit for this important population.

In addition, our cancer program is progressing well.

The phase 2 investigator sponsored trial in non-Hodgkin's lymphoma should reveal some additional data towards the end of the year.

We made significant progress in designing clinical development plans for our cancer and hepatitis programs, and we are in the process of selecting tumor types that we want to study in our cancer program and have strong clinical rationale.

And we remain on tract to initiate those trials later in 2006.

Similarly, hepatitis B and hepatitis C therapy programs are also progressing.

We continue to expect that we will initiate clinical programs from these candidates in the first half 2007.

In conclusion, I believe that the strategic initiatives we complete in the second quarter have considerably strengthened the company.

With the establishment of Dynavax Europe we have secure control of supply and gained full ownership of Heplisav rights.

With the establishment of Symphony Dynamo, we secured the funds necessary to advance our cancer, hepatitis B and hepatitis C therapies to key decision points that should enable us to increase the value of these programs and partner them as appropriate.

Tolamba and Heplisav are moving ahead according to plan.

Before I end my remarks, and we open to Q&A, I would like to discuss a recent development in our patent Interferon proceedings.

You may remember that we provoked an interference with a colleague patent based on our belief that Dynavax founders were the first to invent the use of IFF in combination with allergens to treat allergies.

In December 2003, the PTO established interference with Dynavax as the senior party.

Interference was directed to a small subset of claims in a single (inaudible).

In March 2005, the PTO surprised us and our attorneys with a decision in the interference which did not address the merits of the case, but rather dismissed it on a technical legal ground based on the timing of Dynavax filings of its claims and request for interference.

We thought this was wrong and appealed the dismissal.

We learned recently the Federal Circuit Court of Appeals upheld the PTO decision.

We were once more surprised by this outcome and believe it is [fair use] error at changing the law.

This view is consistent with experts opinion in the field, feel that the implications for the interference process are dangerous and impractical.

Some of these experts have been clear about the negative press this decision represents and support our decision to appeal it.

We plan to file a motion for reconsideration and re-hearing on [that] which means we could be heard by the entire Federal Circuit Court of Appeals and not just the original panel of judges.

So, what does this mean for Dynavax's business?

We believe the impact of this decision, whatever its final outcome is not material to Dynavax's business or to Tolamba.

Tolamba has broad patent protection.

If Dynavax ultimately loses the appeal, the question of who invented first remains outstanding and Dynavax will have other avenues open to pursue this issue.

So, while we are disappointed by this outcome we are not concerned.

There are many exciting and positive developments taking place in the company.

We are focused on execution and implementation; we have created a well-staffed pipeline of promising clinical and preclinical programs.

At this point, our goal is twofold; stay focused on our areas of expertise including to develop our key assets and at the same time, increase opportunities for clinical success and enhance the value of the assets we have for partnering.

I believe at this point, operator, we are open to questions.

[OPERATOR INSTRUCTIONS]

First question comes from the line of Bret Holley with CIBC World Markets.

Please proceed.

Yes, hi Dino.

I wanted to followup on a comment that you made on the mild to moderate patients for Tolamba and how Tolamba might actually prevent disease progression.

How would you test that clinically in order to potentially get that on the label for the drug?

I think that the initial data showing that already available to us.

All three studies we performed to date, Johns Hopkins study, the Canadian study and then the Phase 2-3 study, that we reported in March, have all shown that year over year, patients get worse in the placebo group in year two, as compared to year one and that the treated group received not only a benefit, but does not progress proportionately.

That explains also why we consistently seen an improvement in efficacy in the second year and further reduction in medication use in year two as compared to year one.

So, the fundamental observation is already there and we count on confirming it in this larger study that we just initiated and completed enrollment for.

The formal first look at disease progression is taking place in our pediatric studies, where the primary endpoint is nasal symptoms score at the end of the second year.

But there is a third year of followup to see if we can in fact differentiate progression to asthma and other severe sequelae, such as sinusitis and otitis media, in those children over the course of three years.

So, the key question that the trial is trying to address of course, is whether we can do that and actually whether disease progression and the number of events that can be measured in a target population is sufficient to enable us to study the phenomenon mean populations of 200 or 300 kids, as we are doing currently.

It could very well be that we will have to go to larger and longer-term studies to formally prove the point.

But I think the fundamental observation is already there.

At this point obviously, I cannot comment on how we would specifically get labeling for that, because we need to have more precise discussions with FDA on the subject.

OK, so that is the secondary point of the pediatric trial essentially, the two-year point.

Right.

OK, so you would not anticipate that you would have that kind of claim on the initial label, should the current clinical trial plan become positive at the end of the trials?

I think that given the fact that these were not defined as key and primary endpoints in the studies, our ability to specifically claim an impact on progression might not be possible in the context of the initial filings.

As I said, we need to review this more closely and in particular we need to see the data from these large-scale studies before we can comment definitively on that.

Great, thank you very much.

Your next question comes from the line of Alan Leong with Biotech Stock Research.

Please proceed.

Thanks for taking my question.

How close are you to your cash (inaudible)?

I think prior guidance is that you would have at the end of the year.

Should I be surprised to see financing before 2006 ends?

We have stated all along that we are exploring options for how to add to that cash balance, so we will continue to work on those efforts and we would expect in fact with those types of efforts to have greater than $20 million at year end.

OK

More specifically, we have commented all along that we intend to be opportunistic about equity financing.

We have no degree of enthusiasm for diluting the company at its current valuation and we are pursuing a parallel number of different options that are exemplified in the Symphony Dynamo operations that brought in non-diluted financing for specific programs; partnershipsof course.

And we have commented on the fact that we have active discussions essentially for every single application of the technology that is available to us today, ongoing without trying to predict specific timelines or success rates.

We expect to continue those efforts and hopefully bring them to fruition.

Then we have a significant effort ongoing also in securing additional grant monies for our government supported programs, which includes influenza and flu.

So, we believe that the answer to maintaining a good cash position for the company is going to come from multiple approaches and not just simply going out and selling stock.

I would also clarify as well that the $20 million cash balance that we have provided as guidance does not include the funds that are set aside for the Symphony Dynamo Program.

Right.

Thanks.

One other question, forgive me because my earpiece went out for about ten seconds at the end.

Did you provide an update on whether any of the Dynamo products would get into the clinic in 2007, or is that really something to talk about after the Tolamba and Heplisav results return?

Actually, I specifically commented on the fact that we are still on target to start our key Phase 2 studies in cancer, at least one of them before the end of the year.

In 2006 and that we expect to be able to put in the clinic the Hepatitis B and Hepatitis C program in the course of 2007.

Thanks much.

I will be revisiting you back in late August.

Okay.

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

Please proceed.

Hi.

Dino, could you give us some color on the partnership discussions for Heplisav as well as Tolamba?

I do not think it would be prudent on my part to comment beyond what I have already said.

I think that we have specific initiatives in those areas; they are included in our efforts and as you well know, predicting the outcome of business negotiations with large biotech or large pharma is not an art that is easily mastered.

I will abstain from making predictions.

Sure, okay.

Another question, so with to date, with regard to DARTT, are there any concerning signals in safety or any other aspects that have surfaced?

Well, keep in mind that we are of course blinded with those limitations; the answer is no.

Thank you.

Ladies and gentlemen, we are showing no more questions at this time.

Well, thank you all very much for participating then.

We are looking forward to talking to you in the upcoming set of presentations we are going to have at various meetings and enjoy the rest of your summer.

Thank you for your participation in today's conference.

This concludes our presentation.

You may now disconnect, have a good day.