Dynavax Technologies Corp (DVAX) 2018 Q1 法說會逐字稿

Good day, everyone, and welcome to the Dynavax Technologies First Quarter 2018 Conference Call.

Today's call is being recorded.

At this time, I would like to turn the call over to Ryan Spencer.

Please go ahead.

Thank you for joining us on our first quarter 2018 conference call.

With me today are Eddie Gray, CEO; Michael Ostrach, CFO; and Rob Janssen, CMO of Dynavax Technologies.

Before discussing today's topics, we need to advise that we will use forward-looking statements that are subject to a number of risks and uncertainties.

Actual results or outcomes may differ materially due to the risks and uncertainties inherent in our business, including our ability to successfully commercialize HEPLISAV-B, our ability to successfully develop and timely obtain regulatory approval of SD-101 and DV281 and other our early-stage compounds, our business collaboration and regulatory strategy, our ability to manufacture commercial supply and meet regulatory requirement, uncertainty regarding our capital needs and future operating results and profitability, and anticipated source of funds and other risks detailed in the Risk Factors section of our quarterly report on Form 10-Q filed with the Securities and Exchange Commission.

These forward-looking statements are based on the information currently available to us today, the 8th of May, 2018.

Actual results or events could differ materially.

Except as required by law, we assume no obligation to update any such statement.

We may not actually achieve the plans, carry out our intentions or meet the expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

I would now like to turn the call over to Eddie Gray.

Thank you, Ryan.

It is an exciting and busy time.

Since the beginning of the year, we have launched our first commercial product, having sought, hired and trained a highly experienced sales force.

Our product approval at the end of last year was reinforced by a unanimous recommendation from the CDC's Advisory Committee on Immunization Practices, adoption of that recommendation by the CDC and its publication in the Morbidity and Mortality Weekly Report.

This is a significant milestone for any immunization because it triggers reimbursement coverage in a significant number of plans.

We also saw FDA approval of our prefilled syringe, which is valuable as the prefilled syringe is a popular presentation with many customers.

In our immuno-oncology program, we have shown very encouraging interim data in both head and neck squamous cell carcinoma and advanced melanoma, when combining SD-101 with anti-PD-1 therapy, and we look forward to an important poster presentation at ASCO with considerably more data in melanoma patients.

To support these efforts, we also secured an attractive term loan agreement for up to $175 million.

I predict the rest of the year will only be more exciting.

Let me comment on HEPLISAV-B.

Most of you are aware that the launch of a pharmaceutical product is often an important determinant of its long-term success.

Introducing a new buy-and-build vaccine in a variety of settings, including integrated delivery networks, independent hospitals and clinics, public health clinics and other institutions, is a complex and critical process.

Establishing a solid base within institutional accounts ensures long-term, stable revenue generation with opportunity for continued growth.

So whilst we are pleased to have some product sales in quarter 1, the foundations for long-term success lie beyond that number.

Our launch strategy, as you know, is to focus all our efforts on the shift of market share from our competitors to HEPLISAV-B before moving to market-growth initiatives.

This requires strong execution of market-access objectives specific to each segment and access to customer accounts for personal promotion.

The launch of our field team was staged to coincide with the ACIP recommendation and as such, resulted in just over 1 month of activity prior to March 31.

Following publication of the MMWR by the CDC on April 19, we can confirm just 2 weeks later that HEPLISAV-B is covered by plans representing 100% of Medicare-insured lives, 74% of commercially insured lives and 60% of lives under state Medicaid plans.

This securement of positive reimbursement is a particularly critical step to a successful vaccine launch, as providers must purchase the vaccine and build the insurance plans when the vaccine is administered.

A poor experience when seeking reimbursements can set a vaccine product launch back a considerable way.

We expect most remaining insurance plans to confirm reimbursement within the next 30 to 60 days.

With reimbursements secure, our customers are able to verify appropriate coverage, and we have successfully removed the first barrier to adoption.

The decision-making process for vaccines, within the largest accounts, is most often characterized by committee approval.

The benefit of this is successful approval provides systemwide access.

The downside is the committee processes and timelines are fixed.

However, I'm delighted that the profile of HEPLISAV-B, along with the experience of our field team, has allowed us to penetrate a significant proportion of our target accounts in rapid time and begin to move HEPLISAV-B through the process of review and adoption.

Within those first 60 days, we have confirmed that accounts representing over 15% (sic) [50%] of our addressable market have either already held or have scheduled committee review meetings for the evaluation of HEPLISAV-B.

This is a tremendous accomplishment in such a short time.

Once the decision to purchase is made by the respective committees and we become part of an institution's formulary, subsequent steps include set up of electronic medical records, depletion of existing inventory and communication of changes in vaccination policy to physicians and nurses amongst all the logistical efforts.

Experience with our earliest adopters so far suggests it generally takes them about 6 to 8 weeks to proceed from a decision, or a positive decision, to the actual ordering of the product.

As we speak, we have 60 individual customers that have already provided P&T Committee approval of HEPLISAV-B, of whom 11 have progressed to purchase HEPLISAV-B and 1 who has completed the full journey and implemented HEPLISAV-B right throughout their system.

As a result, our expectations remain unchanged.

The purchases will start slowly but accelerate quarter by quarter as we support these customer reviews and adoption of HEPLISAV-B.

Let me move on to the immuno-oncology program.

Now the key to an effective immuno-oncology therapy is becoming clearer.

Firstly, you must efficiently enable the immune system to recognize the cancer, which is the objective of checkpoint inhibitors.

And where that's not enough, you must also enhance the response through activation of T cells.

The latter is the intent of our toll-like receptor biology.

In preclinical and clinical trials, our TLR 9 agonist has been shown to trigger T cell activation through the induction of cytokines and maturation of dendritic cells.

TLR 9 is found in every active immune system, which means virtually anybody is a likely responder.

Think about HEPLISAV-B for example.

Out of 10,000 patients that have been vaccinated in clinical trials, only a handful of subjects did not respond and go on to develop protection.

Our clinical trial program will show that the stimulating in immune response at the correct dose and with the correct combination product can meaningfully impact tumor burden in a durable way.

To date, in these early-phase trials, with a limited number of patients, our adverse events have been transient in nature, not dissimilar to a flu infection.

This tolerability profile will be of considerable benefit in a combination setting.

At the recent AACR Annual Meeting, we presented interim data from the Phase Ib/II clinical trial investing -- investigating SD-101 in combination with KEYTRUDA, Merck's anti-PD-1 therapy.

The data represented the initial response rates in 18 patients with head and neck cancer who were naïve to anti-PD-1 treatment.

Based on this early readout, 6 of 18 patients achieved the response, a 33% overall response rate.

And for evaluable patients, those that had at least one scan on the study, the rate was 38%.

Although it is difficult to draw strong conclusions from the early phase trials when comparing separate studies, a 33% ORR seems to compare favorably with a 15% response rate reported for pembrolizumab alone in this same population.

Complementing this data in head and neck cancer, we presented longer-term durability data in advanced melanoma patients.

Whilst also a small set of patients, both anti-PD-1 treatment naïve and experienced were included.

Original safety and response data were presented for these patients at ASCO last year, where we showed the response in 7 out of 9 naïve patients and 2 out of 13 anti-PD-1-experienced patients.

86% of the initial 7 responses in advanced melanoma patients naïve to treatment were ongoing after a median of 18 months.

Among these patients, the median progression-free survival, duration of response and overall survival had not yet been reached.

The 2 responses in the refractory cohort achieved a partial or stable disease response for at least 10.5 months.

Again, these limited data appear to be improvements over the reported results for KEYTRUDA alone.

We will continue expanding on this dataset during the year.

At ASCO this June, we will be presenting clinical and translational data on over 50 melanoma patients, including comparison of the 2 doses being studied in order to select a dose for a registrational trial.

In addition to presenting a poster, we have been invited to take part in a poster discussion session that will highlight a handful of the posters from the melanoma skin cancer session at ASCO and discuss the data in context, focused on its application to clinical practice and future research.

We continue to expect initiation of a Phase III study in melanoma by the end of the year.

Further updates on melanoma-naïve patients, melanoma progresses in head-and-neck naïves have been submitted to the ESMO meeting in the fall.

Data from the DV281 dose escalation study for safety remains on track to report by the end of the year.

I will now turn the call over to Michael Ostrach, our CFO, to review our financial results for the quarter.

Michael?

Thank you, Eddie.

Good afternoon, everyone.

Today, I'll review our quarterly financial results and current financial position for the first quarter of 2018, because this is the first quarter in which we are recording product revenues, I'll also explain how the new U.S. accounting policy governing revenues applies to us.

We plan to conduct financial results conference calls each quarter going forward.

We will not be providing sales or other financial guidance today and will not until we have adequate experience to do so reliantly.

With only 6 weeks in the field and a complex adoption process that Eddie has outlined, the data from which to make reliable projections are insufficient at this time.

A new accounting standard for revenues became effective this year, coincident with our first year of commercial sale.

The new standard is called ASC Topic 606, Revenue from Contracts with Customers.

Those of you who are familiar with the former standard may recall that most new launches for young commercial companies inevitably led to so-called sell-through revenue accounting, which meant revenues would not be recorded until there was a history of actual returns and chargebacks and other fees sufficient to be a reliable indicator of what the net revenue would be.

The new standard encourages so-called sell-in revenue accounting, requiring us to estimate a net from gross sales, taking into account returns, chargebacks, discounts and other contracted variable consideration to the extent that it's probable that a significant reversal in cumulatively recognized revenue will not incur in the future.

We launched our sales team in late February and recorded net product sales of $165,000 for the quarter, representing the net revenue we have estimated we will recover from sales of HEPLISAV-B after all adjustments such as discounts and returns are realized.

Actual amounts we ultimately receive may differ from these estimates, and if actual results do vary from our estimates, we'll adjust revenues and earnings in the period as variances become known.

In making these estimates, we use the best information available to us, which is limited at this time and thus these amounts may not be representative of the net we'll achieve in the future.

Cost of product sales was $205,000 for the quarter and consists of fill, finish and overhead costs for HEPLISAV-B vials incurred only after FDA approval.

Prior to approval, all costs related to manufacturing HEPLISAV-B were charged to R&D expense in the period incurred.

And so at approval, we had already expensed a considerable portion of the cost to a range of approximately 1 million dose equivalent, and that's why our cost of product sales of HEPLISAV-B were low for the quarter and will increase in future period, as we've reduced and then sell inventory that reflects the full cost of manufacturing.

R&D expenses for the quarter were $19 million compared to $16.3 million in the first quarter of 2017.

The overall increase reflects increased compensation and personnel costs related to the ongoing development of SD-101, DV281 and earlier stage oncology programs, costs associated with resuming operating activities at our Düsseldorf production facility and cost associated with manufacturing of prefilled syringes prior to approval.

Selling, general and administrative expenses for the first quarter were $16.9 million compared to $6.5 million in the first quarter of last year.

The increase is due to an overall increase in HEPLISAV-B sales marketing and commercial activities, including full deployment of the contract sales force, cost to plan those marketing studies and consultants for commercial development services.

We used $39.4 million of cash during the quarter, consisting of just under $30 million for operating activities and $9.5 million in fees in respective patent licenses relating to HEPLISAV-B.

We expect quarterly operating expenses to increase somewhat from the first quarter, each quarter during 2018, as we increase commercial and manufacturing activities and expand clinical trial activity.

However, actual quarterly results may not reflect the perfectly assumed curve and will depend on the timing of when large expenditures become due.

At March 31, we had $250.8 million of cash and marketable securities.

That balance includes the proceeds from the initial $100 million tranche of the $175 million loan financing we concluded in February.

This strong financial position should support both HEPLISAV-B launch and continued advancement of the immuno-oncology program with several opportunities for realization of the value we're creating within these 2 businesses.

I will now turn the call over to the operator for questions.

(Operator Instructions) We'll take our first question from Brian Abrahams with RBC Capital Markets.

Two questions.

One on HEPLISAV and one on 101.

I guess, on HEPLISAV, appreciate all the specific and detailed metrics, and I'm sort of curious, how consistent is the process and the timeframe from initial interaction to conversion?

Are there key organizations that might come onboard first or those that might come onboard later?

Just wondering if we should be thinking about this as a gradual purchasing curve, or whether there are, perhaps, key accounts that treat broad numbers of individuals that could take longer to get through this process?

So I don't think there are any particular standout customers for you to look for, Brian.

The market is characterized by quite a large number of, sort of, medium-sized accounts, some are, obviously, a little bigger than others.

I think in terms of timing, I think I indicated that our earlier experiences, committee approval through to purchase seems to about sort of 6 to 8 weeks.

I think, in many ways, the biggest time factor is really, do we turn up just before a P&T Committee meeting is scheduled, or have we just missed 1, and there isn't another 1 for 3 months?

That's probably, at this point in time looks the biggest determinant of the entire process.

That's very helpful.

And then on SD-101, just given the evolving data, how are you benchmarking overall response rate expectations for checkpoint inhibitors alone in treatment-naïve melanoma?

Is there a bar that you've set for yourself in terms of moving forward with either of the doses into Phase III?

And then, I guess, as an extension of that, are there Phase III designs that you could potentially deploy that would, I guess, reduce the inherent risk of proceeding based on open-label data with some recent historical uncertainty as to what PD-1s alone confirm?

I'll ask Rob Janssen to respond to that.

So our bar is other combinations, so the approved combination with (inaudible) so for an ORR that's in the mid-50s.

So I think we'll look at something probably over 50% as an ORR that we would want to achieve to be able to move forward.

There are designs that we are thinking about right now in terms of the Phase III trial.

We're already thinking about it.

And there are designs because of that uncertainty of, this is a -- we don't compare to (inaudible) monotherapy to the historical trial data.

There are designs where we can accumulate some of those data in an adaptive design, for example, for Phase III trial.

We haven't made any final decisions about our trial design at this point.

Got it.

And maybe just, if I could squeeze one last one in.

Would you guys proceed into Phase III without a collaboration partner, or would that be a gating factor?

I think, as a general rule, if you're in any negotiation with a company considerably larger than yourselves and all of the available potential partners are significantly larger than ourselves, then you may prefer a partnership.

But you should always be ready to walk away.

But I think it's fair to say that as we look at the landscape here, our preference would be to have a partner.

We'll go next to Joseph Thome with Cowen and Company.

I guess, the first one on SD-101.

When talking about the Phase III trial initiation, on the Phase III trial initiation, I guess, what still remains gating on that?

Are there FDA communications that need to happen or meetings that need to be scheduled?

And I noticed that you said only in melanoma first, what are the timeline for maybe entering pivotal study for head and neck and the expectations there?

In terms of the melanoma trial, we're looking to start that by the end of the year.

There are ongoing discussions, partner discussions as well as study design discussions right now.

Nothing's really gating it.

I think's it's going to take that amount of time to get such a large trial going anyway.

In terms of head and neck, we are looking at data as it comes in, and I think we would be looking to start a Phase III in head and neck sometime early next year, I would think.

Great.

Excellent.

And then just one question on the HEPLISAV launch, if I can.

I guess, based on your early marketing attempts, are you identifying maybe specific subsets of patients that are most amenable or seem to have the most unmet need for HEPLISAV, and has that changed any of your attempts at marketing it to the population?

No, we've covered, I would say, customers in every possible segment.

And I think the sort of very positive response that we're indicating today has been highly consistent across all patient types.

We'll go next to Katherine Xu with William Blair.

Do you plan to institute price increases for HEPLISAV?

Well, we don't have any plans to do so at the moment, no.

And we've only just launched.

Going forward, annually?

I -- the honest answer is we will concentrate our first efforts on ensuring that we have market share.

We will have a look at what the impact in the market is at things like discounts and the feedback from our customers about the benefit they're getting from the improved profile of HEPLISAV-B.

And then in the future, obviously, we will, on a regular basis, address the question about whether charging the appropriate price.

And then with regards to the partnering strategy for SD-101, is it going to be a more comprehensive kind of partnership that would encompass all potential indications, or is it geographical?

Can you give us some color on that?

No, I think it's -- we're not really in a position to comment on partnership discussions at this point in time.

So there's some sentiments on intratumoral injections.

So it's becoming a more feasible or popular with TLR9s and the same classes.

But there is some sentiments saying there's some doctors just don't like it.

It's not quite practical in practice.

Can you comment on that?

I think -- I'll ask Rob to comment.

I think the only thing I would say so far is, we've experienced very little difficulty in the conduct of our clinical trials.

Rob, would you...

Yes.

No, I think what we've seen over time, since now we've been doing this for 4 years, over 4 years, what we've seen is a gradual acceptance of the intratumoral approach.

When we first started our lymphoma trial several years ago, it took a while to get some of those physicians comfortable with doing intratumoral injection.

Our subsequent stage, we just haven't seen that at all.

The PIs, investigators we've brought on have been very eager to do it.

So if you could indulge me one last question, can you just comment on the competitive landscape?

So there are few TLR9 agonists in clinical trials, in particular in melanoma as well, and then this same class, which is the intratumoral injection as well that are coming up behind you.

Any thoughts on positioning and defensive strategies?

I think, as a general statement, I think we would feel that in this field, we have a leadership position at this point in time in terms of number of patients that we have in our studies, the breadth across those naïve and progressive patients.

And I think the clarity that we have been able to provide around the tolerability profile means claiming a leadership position at this point in time is reasonable and appropriate.

All tasks going forward and -- including strong execution of the sort of the plans Rob's made reference to is all about maintaining that position going forward.

(Operator Instructions) We'll go next to Elemer Piros with Cantor.

I'd like to ask you about the ASCO presentation.

Eddie, you mentioned that there's going to be a greater than 50 patient cohort in melanoma that would be presented.

What would be the minimal exposure to drug of these patients?

What it's -- what would be the cutoff there?

Cut off the treatment?

(inaudible) well, we'll be reporting scan data on patients who have a first scan in Day 64 and then in (inaudible) obviously.

But I think the majority of these patients on the trials are trying to say have had second scans at Day 127.

Yes.

Actually, most of the patients have now had at least the Day 127 scan.

We will be showing some people who just had one scan.

I see.

Okay.

And maybe a bean-counting question for Michael.

Michael, how could we think of extending the new line item in the P&L, cost of sales, amortization of intangible assets?

Is it a constant number, or is it a function of revenues and cost of goods?

The amortization of intangible is the valuation of these licensed obligations we have, the present value of them.

In fact, they consist of the payments remaining to Merck for our hepatitis B sublicense.

Okay.

And it's reasonable to assume that it is on a constant schedule?

Yes.

Some types (inaudible).

Yes, some types do.

No, no.

It's just 2 remaining payments of $7 million next year and the year after.

Next year and the year after.

Okay.

So it's not a quarterly number, is it?

No.

It is a noncash -- it is the accounting for a cash payment that's made once a year.

Which you should expect to see amortized radically over the period of the licensed term.

And at this time, I would like to turn the call back over to Eddie Gray with any additional or closing remarks.

Thank you.

The progress we have made since the beginning of the year in both of our commercial effort as well as clinical development give us a great deal to be excited about, and as I said, this is going to be an increasingly exciting time.

We look forward to providing ongoing updates and would encourage you to review the updates in data on SD-101 in advanced melanoma once it has been presented at the ASCO conference in Chicago on June 4. We'll also be hosting an analyst and investor reception and presentation that evening, following the conclusion of our poster discussion session.

We will be joined by one of our investigators, Dr. Toni Ribas and plan to review the poster data and provide an update on our immuno-oncology program.

For those unable to attend, we will be webcasting the event.

We would like to thank you all again for joining us today and wish you all a good afternoon.

This does conclude today's conference.

We thank you for your participation.

You may now disconnect.