Dynavax Technologies Corp (DVAX) 2009 Q2 法說會逐字稿

Good day and welcome to today's Dynavax conference call. Today's conference is being recorded. Participating on today's call are Dr. Dino Dina, President and CEO; Deborah Smeltzer, Vice President of Operations and CFO; and Michael Ostrach, Vice President and Chief Business Officer.

I'll now turn the conference over to Ms. Amy Figueroa for Dynavax's Investor Relations group. Please go ahead.

Thank you, Sarah. Today we announced our path for development of our lead product candidate HEPLISAV, and we reported financial results for the second quarter ended June 30, 2009. Copies of our two press releases can be found on our website at www.dynamax.com.

On today's call we need to advise that we will use forward-looking statements that are subject to a number of risks and uncertainties. These statements include the nature and timing of communications with the FDA regarding HEPLISAV, submissions of documents, potential clinical trials and funding to support these trials, and the clinical and commercial potential of our products and development.

Actual results may differ materially due to the risks and uncertainties inherent in our business, including whether and when the FDA will remove the clinical hold on HEPLISAV; whether HEPLISAV can be further developed, financed or commercialized in a timely manner without significant additional studies and difficulties in development; our ability to obtain additional financing; possible claims against us based on patent rights of others; and other risks detailed in the risk-factor section in our current SEC report.

I would now like to turn the call over to our CEO. Dino?

Thanks, Amy. On today's call I'm going to try and provide you with a corporate update and in particular to discuss our Company's strategy for HEPLISAV and the rest of the pipeline.

I want to start by recognizing the effort that our HEPLISAV team has put into this and they're looking forward to the resolution of the clinical hold in the near future. This has been an 18-month effort and a very intensive one at that.

From the time the FDA placed HEPLISAV on clinical hold and our-- after our initial response to the agency, we've had continuous and numerous productive discussions with the agency. Many of these times we have provided updates both on the safety of HEPLISAV and the (inaudible) and the possible target populations that we would address with the vaccine.

At the recent meet with the FDA, we have proposed a plan to develop HEPLISAV for adults that are less responsive to current hepatitis B vaccines as a preferred population for the next stage of development. Groups have been identified that meet both our regulatory and commercial objectives for HEPLISAV, including individuals with chronic kidney disease, adults over 40 years of age, individuals infected with HIV and individuals diagnosed with chronic liver disease. The common thread throughout these populations is that they are hyper-responsive and poorly served by existing vaccines. And as importantly, and I'll revisit this later, the fact that they are acceptable without large sales forces and well identified for their need for immunization.

Our immediate goal now is, of course, to focus our corporate efforts on resolving the FDA clinical hold in the immediate future and resuming development of how to solve this as quickly as possible.

Having said that and recognizing that the targeting of the groups that we've selected fits our purpose's goal from a regulatory and commercial point of view, we don't intend to limit our activities to populations that are in these categories and would certainly like to complete development some point in time of HEPLISAV for all target populations that are susceptible to hepatitis B immunization.

That's part of our ultimate strategy, and we'll have to follow, in time, the current steps to get back into the clinic and will be done in concert with our global strategy for HEPLISAV that is directed not only to support licensure in the US but also in Europe, Canada and the rest of the world. So resolving the clinical hold with FDA is simply a step in the process. And we will continue to work with the European and Canadian health authorities to review similar development plans that match-- will match our activities in the US.

We are ready to submit protocols to the appropriate European agencies and to help Canada. And we continue to plan the development of HEPLISAV as an international undertaking and not just [permitted] to the US.

One of the reasons for why we have spent the past 18 months working intensively on this and in somewhat suspended animation is that we remain convinced that HEPLISAV can play a key role in preventing infection from hepatitis B. We have communicated over the past months at various meetings and updated results as they became available to us. And just to remind you we presented Phase III data both at EASL and DDW. And at DDW we presented a sub-analysis of results on-- in adults over 40 from a 2,500-patient Phase III trial that we refer to as PHAST.

Subjects receiving two doses of HEPLISAV given over a one-month period showed a 92% protection rate, and this was compared to 75% protection rate for people receiving three doses of Engerix-B over a six-month period. This analysis showed that each time point during the trial there were statistically significant differences in seroprotection rates for subjects receiving HEPLISAV as compared to Engerix-B. And the differences were, in fact, statistically significant in every time point.

For individuals with chronic kidney disease, our experience with HEPLISAV includes an eight-month safety study and partial results from a Phase II study, which was halted by the FDA clinical hold 18 months ago. We have not previously reported data publicly from these trials but are planning to report them in the near future at the Infection Disease Society of America, in fact, on October 29th in Philadelphia. And we're looking forward to that presentation.

Now I'd like to spend some time discussing the populations that we're targeting for HEPLISAV and the activities that we intend to undertake in them.

These populations represent a sizeable high-margin market opportunity. And to-- in some specific instances, they totally are an underserved and developable upside for the market itself.

As you recall, the common understanding of hepatitis B total vaccine servable market for adult immunization is approximately $500 million annually, most of that in the United States and the main European countries, with a smaller percentage in the rest of the world. Certain segments of this market are growing quite rapidly, are easy to reach without major sales force and create an important opportunity for a product such as HEPLISAV with demonstrated clinical benefits and differential outcomes as compared to commercially available products on the market today.

To be cost-effective the vaccination regimen across the board consists of three doses administered over a six-month period. As a result of the (inaudible) immunization at six months, the compliance with the full immunization regimen is very poor. And, in fact, statistics show that only about 3% of the individuals come back for their third immunization, which means that a large proportion of people that start the regimen end up not being protected because of failure to comply with the recommended immunization schedule.

We have recently undertaken a primary research study with physicians and payers in the US and Europe. And this has revealed that the single largest concern and unmet goal in immunization is poor compliance with current immunization regimens. And that the regimen such as ours that would address the issue with two shots instead of three would be highly welcome and placed at the top of the priority, both for payers and for practitioners. This has confirmed the view that we have held all along and provides us with a very strong incentive to address those markets and bring the vaccine to completion for those populations.

In additional-- for several significant market segments, the efficacy of currently available vaccines leaves substantial room for improvement. We have reported on several occasions our results for people older than 40. And in those populations obviously the differential effect of HEPLISAV, in particular after three immunizations, is very traumatic as compared to the results obtained with commercial vaccines.

An important example of these markets is the end-stage renal disease population. This is a large and rapidly growing market with approximately 500,000 patients currently and 100,000 new patients diagnosed annually in the United States with similar numbers in Europe. And unfortunately this market is rapidly growing due to the epidemic of obesity and resulting diabetes and then end-stage renal disease that ensues those conditions.

ESRD patients are commonly vaccinated at dialysis centers or in specific specialty centers where they're treated for their kidney failure. And they receive typically up to eight doses of vaccine over a six-month period as opposed to the normal three doses for the general population. Still, many of these patients do not respond and are not seroprotected at the end of this regimen, and they undergo boosting or re-immunizations, with some of them receiving upwards of 16 doses of vaccines.

This is considered, of course, less than desirable and not very efficient. And we can address this issue not only with a much shorter regimen but with improved immunogenicity in the course of that short regimen. And you can easily imagine how this would be highly competitive and provide us with a significant advantage in this marketplace.

So we're dealing here with the typical low-hanging fruit with a market that is highly concentrated, renewable, that relies on boosters and not just newly immunized patients. And we can serve it through a very cost-effective, targeted sales distribution network or potential alliances with companies that run those centers. And all of this is being explored and has been explored in the recent past, and it's an ongoing strategic initiative that is very important to us.

In addition to ESRD patients we have looked at larger populations that share similar characteristics, including individuals infected with HIV or diagnosed with chronic liver disease, such as individuals infected with ESRD. And let me point out that the similar characteristics are not the disease, but rather their hyper responsiveness to commercial vaccines.

These groups are also less responsive to current vaccines and represent a significant underserved market opportunity for HEPLISAV that Dynavax could effectively grow. And let me emphasize the fact that as part of the existing $500 million a year market that's served by Merck GSK, these populations represent a small percentage of the total, but they are very susceptible to growth because of the ability to immunize them effectively and convenient and expediently with shorter regimens. And that we expect these populations to represent a very significant potential for-- in increased sales of our vaccine.

As we look ahead, we're committing our efforts and resources to complete the HEPLISAV program. This clearly represents a unique opportunity for us and needs to become, in the immediate future and for the next six to nine months, the highest priority in the Company.

We realize that we have not reached this stage quite as quickly and simply as we would have hoped a long time ago. But, nevertheless, the important aspect is that we have identified a path forward, and we now have an opportunity to complete this program in a timeframe that is reasonable.

This month we plan to submit clinical trial protocols and additional supported data with the goal of having the FDA remove the clinical hold in September. Part of our submissions to FDA will include protocols for future studies of HEPLISAV. And approved-- upon removal of the clinical hold we're prepared to quickly resume clinical trials in the chronic kidney disease populations.

It is proposed that this next trial, which will happen in the US and potentially in other sites in Europe and Canada, will include 600 patients diagnosed with chronic kidney disease, randomized one to one to receive three doses of HEPLISAV at zero, one and six months; or eight doses of Engerix-B, two doses each at zero, one, two and six months.

In addition, we're planning to run the required lot-to-lot consistency study that is typically required for licensure to demonstrate the consistency of our manufacturing process at the large-scale commercial production level.

At this time it is proposed that this trial in the US and potentially in other sites in Europe and Canada would include approximately 2,000 subjects over the age of 40, randomized four to one with HEPLISAV having 1,600 people and Engerix about 400 to receive two doses of HEPLISAV at zero, one month, or three doses of Engerix at zero, one and six months. This is, essentially, the continuation, extension and repeat of the efficacy pivotal study that we conducted in Europe and Canada two years ago and will complete the safety-- the immunogenicity database that we believe is going to be required for filing.

From our stockholders and our prospective ability to finance development (inaudible) is, of course, a primary issue. We will need, for sure, additional funding to complete the development. And we are very engaged in exploring all the various opportunities that are available from (inaudible) equity financing (inaudible) financing to alliances with distributors and commercialized potential strategic partners.

So there's nothing new here as compared to what was done in the past. We want to keep all of these different options open. And we'll, in fact, be exploring them actively starting now.

Regulatory paths, clarity, prior clinical data and market research validate this strategy to develop this vaccine to address the sizeable high-margin market opportunity.

We would also like now to take a minute to update you on our pipeline. We still have all the other programs working for us. And we, in particular, are focusing on those that have reached the clinical stage or are ready to go into the clinic. Clinical stage for hepatitis C and hepatitis therapies will continue to be developed as we see synergies within the context of our hepatitis franchises.

Some of the people, for example, that would be potentially served by our hepatitis C therapy are also the target for hepatitis B immunization; and, therefore, [they're crossed] to the same population, same physician groups and same payer groups.

As you recall, hepatitis C therapy is entirely funded by Symphony Dynamo agreement, and we are reviewing future development options for this second generation (inaudible) that we are using for this intervention.

We now have data from our Phase Ib study showing that the intervention is safe, well tolerated and has shown antiviral activity in small-scale studies. We are reviewing this data and will need to confirm them in somewhat larger-scale studies, which we are currently reviewing with our panel of experts and with our colleagues at Symphony.

Additionally, we've now reached the stage where hepatitis B therapy programming is ready to start the Phase Ib clinical development, and we look forward to advancing this program through the clinic.

With this added to our clinical pipeline we intend to continue to leverage our scientific expertise for our partner programs, which include our asthma program with AstraZeneca and the TLR9 and 7 inhibitor programs for (inaudible) new and (inaudible) diseases, which is partnered with GSK. These partnerships represent a unique opportunity for us to continue to work with leading pharmaceutical companies and represent, of course, also an integral component of our current revenues. And we count on them to be part of our future success, and we remain fully committed to them.

And as we've reported previously a reversal flu vaccine represents the state of the (inaudible) approach and influenza prevention. We have demonstrated effectiveness in (inaudible) experiments. And we have determined that it's, in fact, ready to go into the clinic, and we're currently reviewing our plan, in fact, to advance in those-- in that direction.

It's now time for Deborah to give you our update on the financial results for second quarter. And I will pass on the mic to her.

Thank you, Dino. Turning to our financial results for the second quarter as of June 30, 2009, Dynavax reported cash, cash equivalents, marketable securities and investments held by Symphony Dynamo, which we collectively refer to as total cash of $53 million. This compares to $60.5 million at March 31, 2009.

Total revenues were $15.9 million for the second quarter 2009, compared to $10 million for the second quarter 2008. For the six months ended June 30, 2009, total revenues were $35.2 million, compared to $16.3 million for the same period of 2008.

The significant increase in revenues was primarily attributable to the recognition of non-cash deferred revenue following the announcement of the termination of the Merck & Company, Inc., collaboration for HEPLISAV. We completed the accelerated recognition of this HEPLISAV-related non-cash deferred revenue in the second quarter 2009.

On a pro forma basis, which includes collaboration funding from Symphony Dynamo and excludes the non-cash deferred revenue from the Merck collaboration, revenues were $3.7 million for the second quarter 2009, compared to $10.8 million for the second quarter 2008. And were $8.3 million for the six months ended June 30, 2009, compared to $18 million for the same period in 2008.

Total operating expenses were $13 million for the second quarter 2009, compared to $16.6 million for the second quarter 2008.

For the six months ended June 30, 2009, total operating expenses were $28 million, compared to $36.5 million for the same period in 2008. This decrease in operating expenses for 2009 was primarily due to a reduction in clinical development costs associated with HEPLISAV and the discontinuation of development for our TOLAMBA ragweed allergy program.

On a pro forma basis, excluding the non-cash charges for stock-based compensation and amortization of intangible assets, operating expenses were $12.1 million for the second quarter 2009, compared to $15.6 million for the second quarter 2008. And they were $26.3 million for the six months ended June 30, 2009, compared to the $34.6 million for the same period in 2008.

Net income was $4.1 million or $0.10 per share for the second quarter 2009, an improvement from a net loss of $6.1 million or $0.15 per share for the second quarter of 2008.

For the six months ended June 30, 2009, net income was $9.2 million or $0.23 per share, compared to a net loss of $18.5 million or $0.47 per share for the same period in 2008. The improvement in net loss for 2009 is due to the recognition of non-cash deferred revenue and a decrease in total operating expenses.

Looking forward we believe we will be in a better position to provide you with our financial outlook for 2009 later this year after we have heard back from the FDA and determine the timing, scope and funding for HEPLISAV's future development.

I would now like to turn the call over to the operator who can open the call for your questions. Sarah?

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Bret Holley with Oppenheimer & Company.

Hi, there. It's actually [Matt Lowe] in for Bret today. I've just got a few questions. I guess the first one is the additional supported data that you have to provide to the FDA, I'm just wondering if you could give some detail on what exactly that is. And am I correct in thinking that there would also need to be a separate trial in HIV patients and chronic liver disease patients? And would they need to be run against a comparative of them?

Well, let me start to your first question. I think that we've touched upon what the submissions consist of, which are the protocols for the trials that we intend to do. And there are a large number of documents that we (inaudible) [meantime] the FDA has-- is aware of and are now going to be officially on their books. But there is nothing that goes beyond what we described to you that would be relevant to the removal of the clinical hold that represents a specific concern, if that's what you're asking.

With respect to the HIV population, the-- we will indeed have to conduct a small trial in that population. This is not on the critical path to approval. It's simply to identify a specific regimen and demonstrate an ability to-- of the vaccine to immunize that population for ultimately the right purposes.

Okay. That's great. Thank you very much.

Thank you. (OPERATOR INSTRUCTIONS) Our next question comes from Al Leong with Biotech Stock Research.

Hi, everyone. Congratulations.

Thank you.

You know, I've got a couple of questions. Now, the first one you may have gone over and I was a little too dense, and the second one has to do with your HPV antigen.

On the first one I was curious what your preference was in terms of going forward with an approval pathway.

And by the way, just a note, I'm sorry to hear that you see me as an older adult now. You said adults over 40, right?

Me and a number of other people. Thank you.

I was kind of surprised when that was brought to my attention.

So the other part is-- okay, so are you planning on the approval package-- it may be early, but would you be going down, like, an approval for one indication first? Like all of us old folks are you going to go through a number of indications and put it all part of the approval package at the same time?

It is our goal to consolidate that into a single path; and, therefore, to be approved for older, various populations at the same time.

Oh, okay. So I can see the need for-- you're probably looking for a partner.

The other one is-- you know, the HCV antigen has been really difficult to get an immune response. You've got some indications out in Phase I. I wonder if you could provide some color about how you're able to look at some-- hoping for some success where others have failed.

The answer is very simple. We don't use any antigens, so this is the TLR9 based (inaudible).

Oh, that's right.

And it relies, in part, on the fact that, as you know, TLR9 antigens are very strong inducers of alpha interferon. So with respect to that single characteristic, our intervention is very similar but not identical to the use of alpha interferon. In addition to that, we have shown that there are other immunomodulatory activities that this molecule carries out into the clinical studies. And while we cannot directly measure those activities in detail, we believe that they may translate into a very positive effect from a therapeutic point of view. We do not have any efficacy data yet that has emerged from these small studies. But the ability to-- of the regimen that we've used to inhibit lateral replication and reduce lateral load as compared to a placebo is very clear.

Oh, right. Sorry about the brain blast there.

It's okay.

Okay. Thanks. I'll get back in the queue.

All right.

(OPERATOR INSTRUCTIONS) And our next question comes from Walter Jack with Life Science Equity.

Dino and the rest of the group there, congratulations for your patience and persistence on this. My question is are you actually going here for a special protocol assessment or something less formal?

Well, first of all, thank you for congratulations. We don't hire anybody, in fact, at Dynavax that doesn't have patience or persistence because they wouldn't last very long. And so we've had natural selection with respect to those characteristics. We need to add speed to the equation if we want to succeed, and we're certainly committed to that.

We-- it's not difficult to have SPAs for vaccine development. However, as you can imagine, after 18 months of relentless effort to define a path forward, we would certainly hope that what we've achieved with FDA is the equivalent if an informal one of an SPA in that we do have agreement on the populations that would be addressed on the regimen, on the follow-up period and everything else that would be part of an ultimate submission. And while there is never any guarantee that other issues may not emerge in the course of the conduct of these clinical trials, we are, at this point, fairly comfortable that we have a good understanding to be verified in the next couple of months or so.

Great. Well, thank you and best of luck moving ahead.

We'll need luck as well, indeed. Thank you.

And with no further questions in the queue, Dr. Dina, I'll turn things to you for any additional or closing remarks.

Well, thank you all that have participated in this call. We believe that what we've communicated to that-- today represents the starting point for rebuilding momentum for the Company. We're committed to that and we intend to carry out our plans for HEPLISAV and the rest of our pipeline vigorously and with a strong sense of commitment.

Obviously you should feel free to contact us with additional questions or for clarification if any are necessary. And you can be sure that we'll be in touch. Bye.

And that does conclude today's presentation. Thank you for your attendance.