Dynavax Technologies Corp (DVAX) 2007 Q4 法說會逐字稿

Welcome to the Dynavax fourth quarter 2007 financial results conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Ms. Shari Annes, Investor Relations Consultant. Please go ahead, ma'am.

Thank you. Good afternoon and thank you for joining this call. As you know, the subject of the call is Dynavax's fourth quarter and year end 2007 financial results and guidance for 2008. Participating in today's call are Dino Dina, President and Chief Executive Officer, and Deborah Smeltzer, Vice President of Operations and Chief Financial Officer. Following my introduction, Dino will provide a summary of the year's achieve. Deborah will view financial result force the full year and after opening the call to your questions, Dino will provide a closing statement. Please be advised that this conference call will include forward-looking statements that are subject to a number of risks and uncertainties, including statements about our projected cash position and operating results.

Actual results may differ materially from those set forth in this call due to the risks and uncertainties inherent in our business, including achievement of our Merck agreement collaboration objective and milestones and regulatory approvals under our third party funding arrangement. Continuation of our third party collaboration and funding arrangements, difficulties or delays in research and development, initiation and completion of clinical trials, the results of clinical trials and the impact of those results on the initiation and completion of subsequent trials and issues arising in the regulatory process. The scope and validity of patent protection and the possibility of claims against us based on the patent rights of others, our ability to obtain additional financing to support our operations and other risks detailed in the risk factors section of our quarterly report on form 10-Q. We undertake no obligation to revise or update information herein to reflect events or circumstances in the future even if new information becomes available. In addition, with respect to the statements by Deborah Smeltzer regarding the financial outlook, I further remind you that they are forward-looking and based on current expectations. Actual results may differ materially. These statements do not include the potential impact of any equity offerings, new business collaborations, or other transactions that may be closed or entered into after today, and now I'll turn the call over to Dino Dina.

Thank you. 2007 was a year of significant achievement for Dynavax. Highlighting the year was, of course, the collaboration we announced with Merck to complete development and commercialize our enhanced hepatitis B vaccine. This agreement clearly set the commercialization path for HEPLISAV and improved the likelihood of it becoming an important addition to the market for global vaccines. With an upfront fee of $31.5 million, full funding for product development and significant milestone and royalties, we gained considerable financial resources that are being leveraged across our other product portfolio.

As part of the agreement, we are moving forward to expand our production facility in (inaudible) to meet the supply requirements of Merck once the product is launched. Our Phase 2 study of HEPLISAV in Canada and Germany has been completed. As you know, the trial compares to immunogenicity of two doses of HEPLISAV with immunogenicity of three doses of (inaudible) B. With the trial complete, we have stayed on track achieved the next milestone in the HEPLISAV program. Importantly, in mid 2008 we'll report data from this pivotal Phase 3 study.

Next I'd like to discuss TOLAMBA, our ragweed allergy immunotherapy. Based on an in-depth and pre-specified analogy of the trial, we presented an important new set of findings that we reported at our meeting last February. We showed that in the mid west we have successfully recruited individuals with measurable ragweed allergy disease, and in that geographic area we have shown statistically clinical effects of TOLAMBA much as we have seen in previously successful studies and, of course, differently from what the total study showed. Later in the year, in a presentation made at the College of Allergy, Asthma, and Immunology, we provided a detailed analysis of the data from the (inaudible) trial that significantly extended our understanding of the correlation between skin test parameters and the magnitude of ragweed allergic rhinitis symptoms in placebo treated patients.

Specifically, this analysis provided valuable insight that we used to guide the design of future clinical trials. With this extensive understanding of the [DARRT] trial, we announced in July a $30 million commitment by Deerfield Partners to restart the TOLAMBA development and the funding was also earmarked to advance our (inaudible) in peanut allergy programs to the clinic. Importantly, while Deerfield is providing at risk capital for the TOLAMBA trial, we retain all product rights moving forward. In October we started an environment exposure chamber study designed to confirm and extend the observations obtained in the [DARRT] study. We expect that the chamber study data will help design the potential future field studies of TOLAMBA, study that will increase the likelihood of enrolling patients with measurable disease and, therefore, one that will presumably show efficacy.

That study will begin in late 2008 or early 2009. Our plan is to announce results of the chamber study in the first half of this year and more specifically at mid-year. With success and the pivotal trial in place, we expect to have discussions with potential partners for commercialization of these products under very specific strategies. Before turning the discussion to Deborah, I'd like to recap a number of the years other achievements beyond these two products. In August, the NIH provided us with a follow-up grant for our universal flu program. While the grant adds to funding provided by (inaudible)over the past four years, it does not cover all of our research activities. Nevertheless, we believe that we can take this product to the clinic in early '09 and among our top priorities in '08 is finding the supply for influenza vaccine that we will use in our universal flu program. Also in August we were granted the landmark composition of matter patent covering our proprietary second generation TLR9 agonist. The issuance of this patent provides broad patent coverage for (inaudible) molecules that are completely different from our first generation molecules. Furthermore, we have pending applications in this family that we believe have the potential to expand the scope of our total coverage.

Looking back, I think that we have significantly advanced our TLR9 platform and Dynavax today is focused on major product opportunities. HEPLISAV, TOLAMBA and flu and the extension of these products into key franchises. In two of the key areas, we retained the rights to commercialized our products. Importantly, we entered 2008 with cash coverage of approximately two years of burn. I'll now turn the call over to Deborah to discuss the year's financial results and provide guidance for the year ahead.

Thank you Dino. First I will review the financial results we reported earlier today for the fourth quarter and year ended December 31, 2007. As of December 31, 2007, Dynavax reported cash, cash equivalence, marketable securities and investments held by Symphony Dynamo Inc. totaling $88.2 million. This compares to $86.2 million at December 31, 2006. For the fourth quarter 2007 total revenues were $9.3 million compared to $2.4 million reported for the fourth quarter in 2006. Total revenues were $14.1 million for the year ended December 31, 2007, compared to total revenues of $4.8 million reported last year. The significant increase in revenues for the final quarter and the year reflects research and development funding for the TLR9 based Hepatitis B vaccine and asthma programs that are provided by Dynavax's two collaborative pharma partners, Merck and AstraZeneca respectively. Additionally, revenues include an increase in NIH grant revenue primarily for our universal flu program. The reported revenues do not include collaboration funding from Symphony Dynamo for our cancer and HCV clinical activities.

On a pro forma basis, including the collaboration funding from Symphony Dynamo, revenues were $11.4 million for the fourth quarter 2007 compared to $6.9 million for the fourth quarter 2006. For the year ended December 31, 2007, pro forma revenues were $24.7 million compared to $14.5 million for the same period in 2006. For the fourth quarter 2007, total operating expenses were $23.3 million compared to $24.4 million for the fourth quarter 2006. For the year ended December 31, 2007, total operating expenses were $85.2 million compared to $69.8 million for the same period in 2006. The increase in operating expenses for the year resulted primarily from increased clinical development and licensing activities related to the company's product candidate HEPLISAV that was licensed to Merck in the fourth quarter of 2007, overall organizational growth, including the operations of Dynavax Europe, and reimbursable expenses related to FDI program.

The 2007 operating expenses included a one-time $5 million patent license payment for the commercialization of HEPLISAV and non-cash charges for stock-based compensation and amortization of intangible assets. Excluding one time and non-cash charges, proforma operating expenses were $22 million for the fourth quarter 2007 compared to $23.3 million for the fourth quarter 2006. For the year ended December 31, 2007, proforma operating expenses were $75.7 million compared to $61.7 million for the same period in 2006. The net loss of $12.1 million or $0.30 per share reported for the fourth quarter 2007 was less than the net loss of $16.5 million or $0.44 per share for the same period in 2006. Net loss for the year ended December 31, 2007 was $60 million or $1.51 per share compared to a net loss of $52.1 million, or $1.61 per share for the same period in 2006. For the fourth quarter, the improvement in net loss reflected the increase in revenues and particular revenue associated with the signing of the Merck collaboration. The years wider net loss was due to increased clinical expenditures and overall organizational growth offset somewhat by the significant increase in collaboration revenue.

The increase in shares used to compute net loss per share resulted from the company's equity financing activities completed in the fourth quarter of 2006. Now, I would like to provide you our financial outlook for 2008. Please note 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, new business collaborations, or other transactions that may be closed or entered into after February 19, 2008.

We begin 2008 with four primary contributions to our proforma revenues and total cash, We have two significant collaborations with pharmaceutical companies with Merck for HEPLISAV our enhanced two-dose Hepatitis B vaccine and Phase 3 and with AstraZeneca for our preclinical asthma program. In addition, Symphony Dynamo contributes to our clinical oncology and preclinical HCV programs and NIH provides significant grant funding for our preclinical flu program. We are projecting 2008 proforma revenues to be in the range of $42 to $46 million, which is a significant increase compared to 2007. We are projecting 2007 proforma operating expenses to be in the range of $80 to $88 million.

We began 2008 with $88 million in total cash, which is defined as cash, cash equivalence and marketable securities including cash held by Symphony Dynamo. We estimate that this provides Dynavax with approximately two years of operating cash. At the end of 2008, we are projecting total cash to be in the range of $40 to $44 million without the addition of proceeds from any equity offerings, new business collaborations or other transactions that may be closed or entered into after today. Now operator, we would like you to open the call to questions and answers.

Thank you. (OPERATOR INSTRUCTIONS) We'll take our first question from Bret Holley with Oppenheimer & Company.

Hi. Thanks for taking my questions. I have a question about any additional market research you've done following the Merck deal on the commercial advantages of two-dose HPV vaccine versus three-dose vaccine. Do you have any additional information on that?

Well, I think that some of the key aspects of what we looked into we tried at the stage preliminary are that there are some significant upsides to Hepatitis B market that have the potential for expanding that market in a significant way. One that is not immediately obvious but it's built into a two-dose regimen versus a three-dose regimen is that by selling two doses for the price of three and having much better compliance with two doses than three. You collect more money per regimen than you would on a three-dose administration. And so we expect that to boost revenues from Merck's current mark share simply on a per patient basis in a measurable way. Beyond that, of course, we expect I'm sure Merck shares the view that the competitive advantage of the vaccine will provide inroads and increased market share as compared to today where Glaxo has a significant proportion of those sales, and then finally there has been repeated efforts to bring universal adult immunization to the U.S. as a public health policy which has so far not been brought to fruition, but we believe that the recent appearance of data showing immunity wanes in a proportion of the population that was immunized as infants and is now reaching adulthood that this has a good chance of becoming a reality, in which case the market will be transformed in a very dramatic way. Now keep in mind that these are thoughts and strategies that we are developing and that, in particular universal immunization, isn't going to be a fact until it occurs and it's adopted as policy at the government level.

I guess follow to that, Dino, you said two for the price of three. Does that kind of give us a general ballpark of where you are thinking of pricing HEPLISAV?

I used that as an example but I believe that that's probably something that Merck will consider seriously to ensure market penetration. But we don't have visibility today to their final pricing strategy.

I guess my last question is is there any possibility given the comment about the waning efficacy of the existing vaccines is that the FDA is going to be somewhat more interested in seeing longer term immunicity data from either faster and any of the trials you have ongoing?

Well, longevity of the responses is being documented over reasonable period of time. If you take into account that it's now taking roughly 15 to 20 years to see waning of immune responses from those original immunizations, it is not clearly in the cards that it is going to be part of the pre approval package, but we expect that we would follow people to show enhanced duration as part of our marketing effort.

Thanks very much.

We'll take our next question from Katherine Xu with Credit Suisse.

Hi. Good afternoon. Just to follow up on Bret's question with regard to HEPLISAV, what right now do you know about pricing let's say in young adults if it's being paid by insurer versus in heart immunized population such as ESRD patients versus if the policy brings about the universal adult immunization in a government setting if government buys it what the pricing will be.

I believe that in general prices are pretty uniform across the board in the U.S. and that they are on paper in order of magnitude $150 or up to $160 per regimen. There are some discounts that are applied to that. I can't tell you exactly what they are because we don't have that information. And typically there are variations on a country to country basis. Those prices are approximately one-half to two-thirds across European countries. So I'm not aware today of any different shaded prices across different categories. What happens in the difficult immunized population, such as ESRD, is that, as you know, there are double dose regimens that are being used that bring the total number of immunization for someone who doesn't respond up to 16 shots which makes them the cost per individual patient or revenues per individual patient much higher.

Great. I have a number of other questions just to get an update from you since your prepared remarks were fairly brief. So the next one is on TOLAMBA. Can you elaborate on the chamber study design dosing and I guess timing is around mid-year.

Yes. I confirmed that and the study design is in line with what we've done in the field. It compares immunized group to a placebo group. The immunization regimen and dose are those used in the high dose arm of the [DARRT] study which provided insight that we used to design the study. So there are no changes there. And the major difference as compared to field studies we've done so far are two levels. One is that patients are screened by challenge and, therefore, only patients that meet certain criteria of symtomology are enrolled into the study that ensures that we have disease. And then, of course, the exposure is artificially induced by injecting pollen into the air in a closed environment, which is the chamber, and this is done by in the calibrated mode that is fully validated and highly reproducible. You end up with a study that allows you to look at a typical primary end point which is the adopted end point in this study of comparing placebo to treated group after treatment and that is how the study is going to be evaluated for success, but it also allows you to do non-parametric analysis which is extremely useful, including comparing placebo to themselves to get the sense of the size of the placebo effect and then treated group to themselves in terms of how many people improved versus how many did not and those will give us a much better insight into how the studies perform and potentially provide some key suggestions in terms of deciding how big a study and how to enroll the field study that would follow.

So basically there is just one dose regimen in this study, just one arm of TOLAMBA which is a high dose in --

Correct.

And you are going to at least the plan is to partner TOLAMBA after the chamber study but before the Phase 3?

The timing is a bit tight in that we anticipate turning the whole thing around in roughly six months. As you know, we have fairly advanced discussions prior to our stumbling accident at the beginning of '07 and we have continued to cultivate those discussions and maintained contact with various key interested parties. We've also put a lot of thought into how this could be partnered and we've discussed essentially three key options. One that would rely on a conventional out licensing deal that probably our least favorite one in that we would like to retain significant market presence for these products if it's successful. Second one that could potentially split the indication along a very clear line separating adult interventions in highly specialized allergy practices which we could definitely market and sell ourselves versus the pediatric indication that would rely on a much broader penetration of physicians in the field and, therefore, would need a much greater sales force. A typical example of a (inaudible) like that along different lines is obvious that Merck which is promoted by their pediatric vaccine sales force.

So I think that we have a definite possibility there with a number of companies that have pediatric sales force that would be interested in this. So we'll do our best to -- and then the final option I'm sorry is the classical biotech option. There is a small but emerging and very well defined market for TOLAMBA Europe and we have received some inquiries about the possibility of providing European rights. We haven't been able to really push that much further in that we do need the data to gain additional credibility in our negotiations in that value, but we will certainly move very quickly on all of these directions when the data becomes available. We are not excluding the possibility of using a distribution sales force to -- to help sell the product along with us. We'll have to see where we gain most traction. But I wouldn't like to be bought into a time frame that goes exactly from the minute we get the data to the minute we start the trial in that it might take a little bit longer to get the right view.

The European ragweed population is a lot smaller though. I mean --

It's smaller but nevertheless significant in terms of total market value because it affects the entire southeast region of France along the valley. The entire region of northern Italy, which is north of (inaudible) specifically all the way from Torino to the ocean and then the entire the new watershed which includes Austria, the Czech Republic, Slavakia, Hungary, and part of the lower Eastern Europe. So in terms of total population, it's by no means as large as the United States but it is considerable.

Okay. Great. If I could move to the of universal flu program. Apparently you need to find a collaborator or pattern in manufacturing of a conventional flu vaccine for you to actually piggyback your solution to. What kind of partnership do you have in mind right now? What kind of structure can we expect?

I think that we are looking at two possible outcomes and one would be a straight partnership and there again given the innovation that we put into this program, we would definitely aim at retaining significant market presence in the United States, in particular because flu is really not sold through a conventional sales force. Goes mostly to institutions, government institutions, companies then through conventional distribution by specialized distributors. So in that context we believe that we could play a key role both in strategic marketing and selling the vaccine. So that would be our aim. We are also contemplating, because there is some interest in the field and we are getting some favorable responses, getting into a supply agreement whereby we would purchase vaccine from one of the existing manufacturers and potentially trade the game some distribution rights for Europe, if that were necessary and desirable. So we have some flexibility and we are pursuing different avenues. It's too early to say and give you guidance in terms of where we expect to land.

Okay. Great. That's very helpful. And could you provide some update on the Hepatitis B and colon cancer studies? Those are in Phase 1.

Yes. We are continuing the development of our cancer indication. I think that we have reported the Phase 1 study, but we'll probably do so at not so distant point in the future. I think that the data is sufficiently interesting to encourage us to move forward. We are continuing in colorectal cancer and we are reviewing the possibility right now of continuing either with (inaudible) or second generation oligo that has enhanced properties and we haven't reached a final decision on that yet. And we are also continuing and starting to put together a follow-up to the Phase 1 study that we completed in Hep B therapy which will now move from an uninfected healthy individuals into infected individuals and we anticipate having that study under way probably starting before the end of the year.

You haven't presented the healthy volunteer data yet, right?

No, we have not.

Great. That's very helpful. Thank you for taking so many of my questions.

We'll go to Brian McCarthy with Merriman Curhan and Ford.

Hi. Thank you. Actually, my questions at this point have been answered. Thank you.

Very efficient. Thank you.

(OPERATOR INSTRUCTIONS) Next we'll go to Derek Jellinek at Susquehanna.

Yes. Thanks. I think I do have some questions. So maybe, Dino, if you can review for us where you currently are in HEPLISAV. What kind of studies are ongoing and planned? I know there is an immunogenicity study and safety study. When will those be reporting out? Wasn't it a big upside for that program in high-risk patients the ESRD. When is that trial for Phase 2 going to commence?

So as I mentioned in my brief update, we have completed the Phase 3 study in Canada and Europe and we will be reporting data from that study later on. We have also completed our Phase 2 study in Canada and it's now in the follow-up period. We will also report those data roughly in the same time frame, hopefully by mid-year, and then we are still reviewing and in the final stages of configuring the immunogenicity consistency study in the U.S. along with our collaborators at Merck and will need to review that with FDA next. So that's in the works and will be starting hopefully in the very near future.

I see. So currently mid '08 you said then?

Yes.

Right. On TOLAMBA, have you guys learned any more on how important they are for vaccine exposure?

Nothing more than what we reported at the college. So I would refer you back with what we said there which is the mid west has consistently provided the cleanest change from baseline and appearance of ragweed allergy symptoms in the appropriate season as compared to the south where we do not see the clean change from baseline and the eastern seaboard where we do see a very clean change from baseline but levels of pollen and incidence of disease are much lower.

So maybe you can incorporate that into your Phase 3 design. I know, Dino, you said you don't want to get boxed in to actually telling a time frame.

We've been very explicit about the fact that geographical consideration and selection would be critical to the success of the next study. I'm allowing myself to be boxed into that one.

I was going to go on to say not to be boxing on that deal. Now learning what you know from the previous study, would you commence Phase 3 without a partner?

Well, let me reserve judgment on that. That would depend on a number of circumstances but in principal our company commitment is to do so, assuming, of course, we can afford to and the data emerging from the current study will be convincing enough to make us decide to take that risk.

Okay. Maybe one more question on non-Hodgkins lymphoma. I know you had an ongoing Phase 2. Any time when that phasing report out or currently planned studies on that indication?

The data has been fully reported so I don't have anything to add to that. As you recall, they indicated on the responder analysis basis, which I advise you to take with a grain of salt, of course, we have a very dramatic extension of the time to progression which more than doubled in that population. So one of the key difficulties that we've encountered in continuing in that vein is that with the adoption of long-term reduction therapy and maintenance therapy in the U.S. we shifted the time to progression from the nine months that we saw in the original study to multiple years and, therefore, that study would not be doable in the context of our current Symphony arrangement.

So plans this year to take that forward?

Right now we don't have any plans to take that forward, although we are still looking at the potential for doing additional studies but those would have to be outside of the U.S.

Okay. Understandable. Maybe I have one for Deborah as well. Q4 your collaborative revenue line. How much came from in from AstraZeneca?

We don't report by partners specifically, but it was the minor component of that. The bulk did come from the Merck collaboration signing.

I have amortization over five years. Obviously it was a shorter time frame than that. What exactly was it?

We report in our 10-K when it's filed the revenue recognition rules that we would use for the Merck collaboration will go over the full life of the partnership, which includes the manufacturing period. So, in total, we are anticipating that will be roughly 14 years that we'll recognize the revenue for the partnership.

14 years. Okay, great. Thank you very much.

We'll take our final question from Alan Young with Biotech Stock Research.

Hi, Dino. I noticed a discussion about the new drug, [SD101] entering th clinic in Phase 1. Can you provide color about what it is for our audience and maybe even the type of indications for which you might aim it at if it's successful in Phase 1.

We haven't commented on that study. I would just say to try to answer a piece of your question that using healthy volunteers in the main aim is to clear the way for both cancer and Hep C.

Is the new drug covered under the composition of matter patent that you mentioned?

I believe that the composition of matter patent that I mentioned in the text was actually one covered our (inaudible) molecules, but we do have patent applications that will cover the class C type of molecules when they issue. But since they haven't issued yet, we don't know the ultimate scope of those is going to be.

I appreciate it. Also to Deborah and Shari, hope to see you all at some opportune time in the future.

Mr. Dina, there appears to be no further questions at this time. I'll turn the conference back over to you for any additional or closing remarks.

Thank you. In '07 I think that there has been a significant change in the culture of the company and a better definition of its business strategy driven to a large extent by the completion of the Merck deal which remind you provides very significant source of cash both short-term, mid-term and long-term. As a result of that, we can now afford to look at the development of some of our key programs in a product focused way and move forward on that basis trying to create an operating company. Only HEPLISAV so far has been partnered, and you'ver heard through the discussion a number of opportunities very interesting schemes that we can apply to both TOLAMBA, if it's successful, and flu which we expect to be successful. So we'll be moving in '08 with our primary focus on taking this progress forward on our own and then identifying the appropriate commercialization partners at inflection points that we are going to have to reach in order to get full valuation for those programs. So I'd like to thank you for participating in the call today and we look forward to updating you on our progress throughout the year. Thanks.

That concludes today's conference call. We appreciate everybody's participation, and have a good day.