Dynavax Technologies Corp (DVAX) 2008 Q2 法說會逐字稿

Good day, and welcome to the Dynavax Phase III trial data and second-quarter earnings report 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, IR Consultant. Please go ahead, ma'am.

I am Shari Annes of Dynavax's IR group. As you know, we have two topics to discuss today. First, we will provide a topline analysis of our positive Phase III clinical trial data for HEPLISAV, the enhanced hepatitis B vaccine Dynavax is developing with Merck. Second, we will discuss the financial results of the quarter ending June 30, 2008.

Participating in today's call are Dino Dina, President and Chief Executive Officer, and Deborah Smeltzer, our CFO, as well as Marty Sanders, our Chief Development Officer, and Michael Ostrach, our Chief Business Officer and General Counsel. Following my introduction, both Dino and Deborah will make comments. After that, the call will be open to your questions.

Please be advised that this conference call will include forward-looking statements that are subject to a number of risks and uncertainties, including statements related to the nature and timing of communications with the FDA regarding the current HEPLISAV clinical hold, our planned lot-to-lot consistency trial, the time of initiation of clinical testing for our universal flu vaccine, and our expected cash position.

Actual results may differ materially from those set forth in this call due to the risks and uncertainties inherent in our business, including difficulties or delay 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; achievement of our Merck agreements, collaboration objectives and obtaining regulatory approvals for HEPLISAV; the scope and validity of patent protections 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 in our SEC reports. We undertake no obligation to revise or update information herein to reflect event or circumstances in the future, even if new information becomes available.

With that, I would like to turn the call over to Dino.

Thanks. We announced today that our Phase III study of HEPLISAV met its primary endpoint. The study, which was a noninferiority trial known as PHAST, evaluated the two-dose regimen of HEPLISAV administered at zero and one month compared to a three-dose regimen of Engerix-B administered at zero, one and six months. The primary endpoint was the proportion of subjects who developed seroprotective antibodies to hepatitis B after administration.

In PHAST, 95.1% of subjects who received two doses of HEPLISAV -- the total number of that arm was 1819 -- developed antibodies to hepatitis B when measured at 12 weeks versus 81.1% of subjects who received three doses of Engerix-B -- the size of that arm was 608 subjects -- when measured at 28 weeks. The multicenter study evaluated 2427 subjects, aged 11 to 55, and in Canada and in Germany. Results from additional analysis from this trial will be presented in the future.

This result was in line with our expectations based on earlier studies, confirming the improved immunogenicity offered with our enhanced TLR9-based vaccine in a large-scale Phase III study, the key step in advancing our collaboration with Merck. This is also the first trial using the clinical product manufactured in Dynavax's own manufacturing facility in Germany, the same facility that will produce hepatitis B surface antigen for commercial vaccine.

Last March, the FDA placed HEPLISAV on clinical hold due to the occurrence of a serious adverse event in one subject who received HEPLISAV in that study -- in this study, I'm sorry. This is still in effect. The FDA, in connection with the clinical hold, requested an extensive amount of information from us to determine the safety of our product. The completion of the Phase III study is an important final step in preparing a complete response to the FDA, with the goal of having the clinical hold lifted.

Following the removal of the clinical hold, we expect to conduct a lot-to-lot consistency trial that should provide a total safety database of over 4500 subjects immunized with HEPLISAV.

With respect to other activities here at Dynavax, we are making progress on all fronts. Among the most important, we announced in July the partnering of our flu program with Novartis, a move that secures a supply of conventional trivalent flu vaccine for development of our universal flu product.

Novartis, a world leader in vaccine, has committed to provide commercial quantities of the conventional vaccine to us, whether or not they opt to codevelop the product in partnership with us. The supply agreement was key to our moving forward to clinical development with this highly differentiated product. Our plan is to enter the clinic in the second half of 2009.

Although you will hear shortly from Deborah, I want to comment on our cash position. Our revenues and ability to support programs has steadily increased over the past 24 months. We now have partnerships with Merck, AstraZeneca, Novartis and Symphony, and grants from the NIH supporting our TLR9 inhibitors and our flu program. All of these, coupled with a concerted effort to reduce our burn rate considerably, has allowed us to envision an operating plan to maintain more than two years of cash through 2008.

With weakness in broader markets as well as disappointing performance from biotech stocks overall, not to mention the decline in our own stock price, we believe it is critical to continue to operate at a fiscally responsible manner that provides sufficient runway for this year and next.

With that, I would like to turn the call over to Deborah for a more detailed analysis of our financial results.

Thank you, Dino. I will begin by reviewing the financial results we reported earlier today for the second quarter ended June 30, 2008. As of this date, Dynavax reported cash, cash equivalents, marketable securities and investments held by Symphony Dynamo, Inc., totaling $63.1 million. This compares to $88.2 million at December 31, 2007.

For the second quarter 2008, total revenues were $10 million compared to $1.8 million reported for the second quarter in 2007. Revenues for the six months ended June 30, 2008, were $16.3 million versus $3.8 million for the same period in 2007. The increase in revenues for the second quarter and year to date reflects the addition of research and development funding under our collaboration with Merck & Co., Inc., for HEPLISAV. The reported revenues do not include collaboration funding from Symphony Dynamo for our cancer and HCV clinical activity.

On a pro forma basis, including the collaboration funding from Symphony Dynamo, revenues were $11.4 million and $19.3 million for the three- and six-month periods ended June 30, 2008, respectively, as compared to $4.9 million and $10.4 million for the same periods in 2007.

For the second quarter 2008, total operating expenses were $16.6 million compared to $23.6 million for the second quarter 2007. Operating expenses for the six months ended 2008 were $36.5 million compared to $41.7 million for the same period in 2007. The decline in operating expenses for the second quarter and year to date resulted primarily from a reduction in clinical development costs. The operating expenses in 2007 also included a onetime license payment for the commercialization of HEPLISAV.

Excluding the onetime and other noncash charges for stock-based compensation and amortization of intangible assets, pro forma operating expenses were $15.6 million and $34.6 million for the three- and six-month periods ending June 30, 2008, respectively, compared to $17.7 million and $34.7 million for the same periods in 2007.

The net loss of $6.1 million or $0.15 per share reported for the second quarter 2008 improved from a net loss of $17.7 million or $0.45 per share for the same period in 2007. The net loss of $18.5 million or $0.47 per share reported for the six months ended 2008 was also significantly less than the net loss of $30.8 million or $0.78 per share for the same period in 2007. For the second quarter and year to date, the improvement in net loss reflected the increase in revenues, in particular revenue associated with the Merck collaboration.

Now, operator, please open the call to questions and answers.

(Operator Instructions). Bret Holley, Oppenheimer.

Congratulations on the Phase III results. I have a question -- I guess everyone else is going to ask, so I will just ask it first, if there is any update whatsoever on the Wegener's patient, and any update on timeline? Obviously, you're going to submit the Phase III data to the FDA, but I was just wondering, has the situation evolved at all?

The answer to your second question is that we are now poised to complete our response and submit it in the near future. And we are obviously working very assiduously with our colleagues at Merck to do that. At this point, any comments on the specific adverse event and its treatment and its implications are really going to be part of that response, and I can't comment specifically on them.

Okay, so let me ask another question on safety. What were the side effects? And you didn't report the side effect profile in PHAST in the topline data. Can you give us any more details regarding the overall side effect profile in the trial?

I would say that in general -- and Marty, correct me if there are any discrepancies here -- that the vaccine was well tolerated, and that the overall profile was completely in line with what we reported before.

So nothing concerning any side effects related to immunostimulation or perhaps autoimmune reactions, anything like that in the data?

The specifics of that, obviously, are the subject of FDA's inquiry and our response. So let me not answer that question at this point.

Okay. And then the last question I have is, so it appears that the efficacy is fairly substantially better. And again, obviously, I understand the fault in that statement on the statistics. But the 95% versus 81%, how close were you, if at all, to the statistically significant benefit versus noninferiority on the efficacy in the trial?

I think we will report the details of that with the complete data. You are right, that the result is really quite impressive. Let me comment before I get to questions that while we do not have a formal explanation for the obviously low seroproduction in the Engerix arm, that that may be related to be verified with the demographics of the population enrolled in this study, which was skewed towards the older-than-40 population.

Katherine Xu, Credit Suisse.

I just wanted to follow up -- there are no other SAEs from the PHAST study. Is that so?

Marty?

This is something we should probably report fully in a future presentation.

But there were no other SAEs of the nature of Wegener's in the HEPLISAV arm, I think we can state that.

That is a correct statement. We can say that. Studies this large always have a variety of SAEs, and I can say that there is nothing like the Wegener's case in the remainder of the data set.

Okay. And then Dino, could you review for us, if the clinical hold is lifted, you just mentioned you're going to do the lot-to-lot consistency trial, and also other trials that you need to do to complete the HEPLISAV package.

You know, clearly, with this discussion still to happen with FDA and an end-of-Phase-II meeting in the works, if the clinical hold is lifted, it would be premature for me to comment on the specific structure of a program to complete this. It's been our assumption and our plan, conjointly with Merck, that completing a trial that could include three consecutive lots and satisfy FDA's requirement for a safety database in excess of 3850 people has been our starting assumption. How that is going to be modified, if at all, after the clinical hold is lifted I can't say at this point in time.

(Operator Instructions). Derek Jellinek, SIG.

I am kind of concerned with the safety. Obviously, you said there is no Wegener's, but can you kind of comment -- what were the safety concerns? Were there any dropouts? Were there any discontinuations?

I can't comment on that at this point, in that I haven't seen the detailed database.

We don't have the full data set ready to do that type of analysis. We only have a preliminary analysis at this point.

And the preliminary analysis showed you what as far as safety is concerned, outside Wegener's?

As I mentioned earlier, everything is in line with what we have seen before. The vaccine is very well tolerated.

Okay. And as far as getting back to I think Bret's question about the statistics, obviously, was this statistically significant? I am looking at the prior Phase III, with the three-dose regimen in difficult-to-treat patients, and I think you had about 100% seroprotection versus around 70% seroprotection with Engerix. So, obviously, this trial didn't work -- it didn't seem as robust as the previous study. Am I looking at that correctly?

I don't think so. Let me try and explain. The previous trial, at the same endpoints that were used for this one, showed 98% seroprotection versus 72%, or whatever the number was that you mentioned. Taking into account the variability in demographics, the different geographical areas and other factors, I think that we are very much in line with what was expected in the population of the kind that was enrolled in this study.

Okay. And on the complete response, Dino, when do you think you'll have that submitted to the agency?

The near future, I think is the correct definition.

Okay, and maybe one more question, if I may, about -- maybe just to Deborah. Obviously, with the partnership with Merck, are there any milestones attached to this Phase III? I am assuming there would be.

We really haven't commented on the specifics. So we need to refer you to the financials.

Okay. One more quick question, outside HEPLISAV. On the Phase I hep B therapy trial and the Phase I colorectal, any timing as far as data release on those?

I think that those will be next year. So we don't have a much more precise view of that at this point in time.

There are no further questions in the queue. I would like to turn it back over to today's speakers for any closing comments.

Thank you. So this is our second positive report in a couple of weeks. And that is a nice change from how we started the year and continued it through the first quarter. So we are very pleased that this result brings us one step closer to submitting to the FDA a complete response to the information they requested when they imposed the clinical hold. As I said, the defining word here is the near future. We hope to be in a position to report the filing and conclusion of that effort in the not-too-distant future, and soon thereafter to resume clinical development of this product.

In the interim, we are proceeding to advance our Symphony-funded programs, as well as our own hepatitis B therapy clinical programs. Additionally, we are moving towards the clinic in flu with Novartis and in asthma with COPD with our partner AstraZeneca.

We look forward to updating you on all of these initiatives, and remain confident in the power of TLR9-based approach. Thank you for your attention, and good afternoon.

And once again, that does conclude today's conference. We thank you for your participation. Have a great day.