Dynavax Technologies Corp (DVAX) 2018 Q2 法說會逐字稿

Good day, everyone.

Welcome to the Dynavax Technologies Second Quarter 2018 Conference.

Today's call is being recorded.

At this time, I'd like to turn the conference over to Ryan Spencer, Vice President of Corporate Strategy.

Please go ahead, sir.

Thank you, and thank you for joining us on our conference call for the second quarter of 2018.

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 our other earlier-stage compounds; our business, collaboration and regulatory strategy; our ability to manufacture commercial supply and meet regulatory requirements; uncertainty regarding our capital needs and future operating results and profitability; and anticipated source of fund 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 6th of August 2018.

Actual results or events could differ materially.

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

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.

And thank you, everyone, for joining us.

The second quarter has been marked by continued progress, both in the launch of HEPLISAV-B and in our immuno-oncology development program in line with our expectations.

Our field team is working through target customers' review, committee approval and the operational processes to implement switch to HEPLISAV-B, and I'm pleased to confirm that we're beginning to see the impact of these efforts as customers elect to fully implement a switch.

At ASCO in June, we presented a significant data update from study SD-101 in combination with anti-PD-1 therapy in patients with advanced melanoma, providing continued support for the value of stimulating the innate immune response through TLR9.

Let me begin with HEPLISAV-B.

In quarter 1, I highlighted our progress, shortly after publication, of the ACIP recommendations by the CDC, and indicated that most of the remaining insurance plans would confirm coverage during quarter 2. As of last week, we have confirmed that HEPLISAV-B is covered by plans representing 100% of Medicare-insured lives, 94% of commercially-insured lives and 73% of lives under state Medicaid plans.

The majority of remaining state Medicaid plans are either in process of review in HEPLISAV-B or have some sort of unique quirk or timeline.

Our high level of reimbursement coverage obtained in such a short period of time provides confidence to our customers that we have cleared the first hurdle to broad adoption of HEPLISAV-B.

As a launch metric, we therefore deemed achieving this successfully complete, and as such, we'll no longer report on this in future calls.

We have continued to track our progress carefully amongst target customers across what we referred to as the purchase pipeline.

There are multiple steps required from initial contact to a systemwide switch, including subcommittee reviews, P&T reviews and operational steps after approval that must be complete before the full switch to a vaccine, such as HEPLISAV-B, can be affected.

Now many investors have asked us to provide examples of individual customer case studies to illustrate the time frames involved.

In addition, I've been conducting field visits myself, and so today, I will provide, hopefully, helpful examples of how customers make their decisions and the customer processes that they use that I think lead us to understand 2 things: Firstly, yes, some customers do run very complex processes, and these can be frustrating; but second, and ultimately, I think the most important understanding, is that we are seeing that the strength of the HEPLISAV-B label and how that is becoming the most powerful influencer of all in decision-making.

At our first quarter call, we indicated that 60 customers had progressed beyond the P&T position, of whom, 11 had ordered HEPLISAV-B and one customer had implemented HEPLISAV-B throughout the system.

Currently, of our larger targeted accounts, we have 219 beyond the P&T review, a threefold increase over quarter 1; of whom, 91 have ordered HEPLISAV-B, an eightfold increase over quarter 1.; and 24 customers have now fully implemented HEPLISAV-B throughout their system.

That has resulted in the $1.3 million of quarter 2 sales reported today, also a sevenfold increase over quarter 1.

At the end of quarter 1, we had 91 P&T or vaccine subcommittee meetings in the diary, among -- the quarter 2 number is now 198, promising continued strong future movement along the purchase pathway.

So let me share, as requested, some individual customer stories that help illustrate the processes our customers are going through and illustrate the work being done behind the scenes.

Now an increasing number of customers operate with strict rules around engagement of physicians and members of their P&T Committees.

In the most extreme cases, we may have a chance to meet with the pharmacy department or we may simply be required to provide product information via e-mail, but we're allowed no involvement in the evaluation of the product, and we're not allowed to try and influence the P&T Committee.

This is the clearest setting where the profile of HEPLISAV-B is such, that even in these low-touch situations, we are being successful.

For example, during quarter 2, a highly regarded major integrated delivery system just like this, which operates with a high level of institutional control, reviewed and approved HEPLISAV-B for a complete system switch.

In March, we provided a data package to the pharmacy director and then subsequently had some limited further interaction.

In July, we received confirmation that HEPLISAV-B was approved and in the electronic management system of this customer was included a prompt that HEPLISAV-B is preferred over the competitor product and all new patients after August the 1st should be started on HEPLISAV-B.

This is a good example of a systemwide success in what we would consider a key account that simply took a length of time, determined solely by the customer's internal process, but of course, once implemented, will provide significant long-term value for Dynavax.

It's also a good example of a general three -- theme, which we are increasingly seeing emerging from our customer contacts.

They do recognize the value of the product and advise us to be patient, ensuring that a switch will happen once the appropriate steps are complete.

More than once, we have heard the phrase, "It's a case of when, not if."

Now in some cases, we are more involved with moving our customers through the process.

Another exciting example, a top 10 value customer, who has reviewed HEPLISAV-B and has communicated an intent to move forward with the full system switch.

After their decision to move to HEPLISAV-B, we must now complete the process of working through the contract arrangements, not directly with the customer, but with the customer's third-party group purchasing organization.

Before the individual sites can begin to order, we must first complete a separate GPO contract and have our distribution partners load all the outlets of this large national customer into their systems to facilitate ordering at the appropriate price.

This is another good example of a big success that then required additional work with third parties before we will see the sales activity.

Obviously, we are focused on completing all tasks in a rapid manner.

But in some cases, some of the rate-determining steps are in the hands of the other entities.

Now some accounts simply have their own individual peculiarities.

So in a prison facility, for example, in one of our major cities, both the staff and the inmates are vaccinated.

For HEPLISAV-B to be available to staff involves a physician review, a P&T committee and the purchasing approval process, all of which reflects that the vaccine is paid for by the relevant city authorities.

For HEPLISAV-B to be available to inmates, the process involves a different physician review, an alternate P&T Committee and a different purchasing approval process.

As in this case, the vaccine is eventually to be drawn from the CDC contract.

So 2 people, same building, same vaccine, 2 completely separate approvals must be navigated by our local account manager.

My final illustration is actually a further piece good news received recently regarding our award to supply, to the CDC, vaccine for adults.

A contract which is awarded annually for doses covering a approximately 150,000 patients.

In April of each year, the CDC issues a request for proposal for companies to supply a percentage of these doses at specified discounts.

The final contract was awarded effective July the 1st, and I'm pleased to say we've been allocated the full amount of our bid.

Now like all our other big institutional customers, the CDC has specific requirements about the initial setup of all the electronic pager links to facilitate customer ordering, receipt of delivery by a preferred supplier and the facilitation of payments.

We are now working hard with the CDC on this and expect to have all the elements in place to allow health departments to begin ordering in October, coinciding with when the annual federal funds are allocated.

This is a good example of a process which stretches from initial contact in March, submission in April, decision in July and sales in October.

So what I hope these stories do is provide the extra color that investors asked for, but in doing so, I hope that they also help illustrate that the strength of the HEPLISAV-B label will take it to be the new standard of care.

But it is a vaccine, the process is not representative details physician, physician writes prescription for patient, patient takes prescription to retail pharmacy, job done.

So the launch of HEPLISAV-B is going very well and in line with our expectations.

We are confident that the clinical advantages of HEPLISAV-B are driving the long-term success of the product.

We expect 2018 sales to continue to accelerate, particularly in the fourth quarter of this year, with a significant kick in 2019, leading to HEPLISAV-B being cash-generative by the fourth quarter of 2019.

Let me move on to oncology.

Quarter 2 has also a busy period for our oncology programs.

We are currently running 2 trials with our TLR9 agonists in combination with anti-PD-1 therapies.

Our SYNERGY trial is a Phase II trial combining SD-101 with pembrolizumab and includes patients with both advanced melanoma and advanced head and neck, experienced and naïve to anti-PD-1 therapy.

Additionally, we are also enrolling our Phase I safety study combining DV281, an inhaled TLR9 agonist, with anti-PD-1 therapy in patients with non-small cell lung cancer.

During quarter 2, we provided significant data updates at key meetings in both head and neck and melanoma patients naïve to anti-PD-1.

At AACR in April, we presented data from SYNERGY, showing encouraging response rates, higher than those expected with pembrolizumab monotherapy in advanced head and neck cancer.

We had an overall best response rate of 33%.

And the combination therapy was well tolerated with no dose-limiting toxicities observed.

Additionally, we provided an update of our data in 69 advanced melanoma patients naïve to anti-PD-1 at ASCO in June.

These Phase II data focused on the comparison of 2 doses in combination with KEYTRUDA, 2 milligrams of SD-101 or 8 milligrams of SD-101.

In this analysis, 2 milligrams clearly outperformed 8 milligram with an overall, response rate of 70% and 6 months progression-free survival of 76%.

Importantly, we also noted that the positive -- a positive response in PD-1 -- PD-L1 negative patients at baseline was 8 out of 10.

We've expanded enrollment to include this 2-milligram regimen in all of the arms of the SYNERGY study, including both melanoma and head and neck patients who have previously received anti-PD-1 therapy.

Looking forward to the second half of the year, we will have the opportunity to provide updates on our progress.

We are pleased to report that 3 abstracts have been accepted at ESMO in October.

We have completed targeted enrollment and will present the initial Phase II data for all of the melanoma patients naïve to anti-PD-1 therapy, which includes about 15 more patients at 2-milligram, but recognizing that not all 50 may have reached the second scan at that point.

Additionally, we will present interim data in both head and neck naïve to anti-PD-1 and melanoma patients with prior experience of anti-PD-1 therapy.

With the promising results generated by SD-101 in melanoma and early encouraging results of head and neck, we look forward to assessing these additional data with our clinical partner, Merck, and plan to meet with the FDA this summer to discuss design of a Phase III trial.

This meeting and the expanding clinical data set will allow us to

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partnership options, expansion of tumor types under study and selection of the best options for progression into Phase III.

We expect to be able to identify our specific path forward for you by year end once these results and discussions mature.

Our CFO, Michael Ostrach, will now describe our quarter 2 financial results.

Thank you, Eddie.

Today, I'll review our financial results and financial position for the second quarter of 2018.

Before I review the quarterly financial results, I'll remind you all we had adopted the updated accounting standard called sell-in revenue accounting, which requires us to calculate net from gross sales, taking into account returns, chargebacks, discounts and other contracted variable considerations to the extent, which probable, a significant reversal in recognized revenue will not occur in the future.

In the second quarter, we recorded net product revenue of $1.3 million, representing a net revenue we've estimated will recover after all such adjustments.

Since actual results vary from estimates, we'll adjust revenues and earnings in the period the variances become known.

And in making these estimates

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still a bit limited and thus may not be representative of the [amount we will] achieve in the future.

Cost of product sales was $5.2 million for the quarter ended June 30, and consists of certain fill, finish and fixed overhead costs for HEPLISAV-B vials incurred after FDA approval, but primarily costs relating to the excess capacity at the Dusseldorf manufacturing facility, which is associated with resuming operations after receiving FDA approval of HEPLISAV-B and approval of our prefilled syringe presentation.

Research and development expenses for the quarter ended June 30, were $16.3 million compared to $14.8 million in the second quarter of '17.

The overall increase in 2018 reflects increased compensation and related personnel costs related to our ongoing development of SD-101, DV281 and earlier stage oncology programs; cost associated with resuming operating activities at the Dusseldorf production facility; and cost associated with manufacturing of prefilled syringes, in each case, prior to regulatory approval.

Selling, general and administrative expenses for the second quarter was $15.7 million compared to $5.6 million for the second quarter of 2017.

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

We used $34.7 million of cash during the quarter for operating activities.

Quarterly operating expenses should remain in that range in the third and fourth quarters as commercial and manufacturing activities have reached full expected levels and as we plan for expanded clinical trial activities.

However, actual quarterly results will depend on timing of when large expenditures become due.

At June 30, we had $216 million of cash in marketable securities.

In addition, we have access at our option to an additional $75 million to loan financing we concluded in February.

This strong financial position will support both the HEPLISAV-B launch and continued advancement of the I/O programs for several opportunities for realization of value we're accreting within each of these 2 businesses.

I'll now turn the call over to the operator to open for questions.

(Operator Instructions) We'll hear first today from Phil Nadeau with Cowen and Company.

I guess first, just a couple on HEPLISAV.

Can you talk a little bit about how many target accounts you have?

So you say 291 of your larger customers.

Can you give us some sense of what proportion of the larger customer group that represents?

Is that a small fraction or a big fraction?

So the total number of ones that we would put into that sort of bucket is about 2,000 in total.

So the number, that sort of P&T, at or beyond, is reflective -- is a percentage of that.

If I look at the total number of that group (technical difficulty) we've identified the sort of key clinical contact that we need to interact with is about 70%.

Got it.

Okay.

And then second question is, as you've gone through the P&T process and the physician reviews and -- not sure if that involved in that, have there been any accounts that have actually turned down HEPLISAV?

That have said, "We're not interested?" Or so far, has anyone who's gone through a full review given approval?

Very few.

I'm -- I only know the details of one, which actually was a bit like my first example.

It was one of these ones where we were allowed no contact with any of the clinical people.

It was just a lead through pharmacy.

The pharmacy put forward a sort of case and come back to sort of indicate that -- I think it was a clinician within the system, wasn't comfortable with the idea that they weren't getting 3 doses into all of their people.

So there's now a sort of a go-back-around because I think it's very clear to everybody else that they aren't getting 3 doses into everybody.

So yes, you get the odd one, where -- particularly, where we can't get in the door, where -- and we have not been successful.

But they're very few and far between so far.

Got it.

That's great.

That's very helpful.

And then just one last question on ESMO.

Can you remind us what new data you hope to present at ESMO?

What will be different versus what we've already seen?

So the ESMO data, we have submitted 3 requests.

The first one is an update on melanoma naive that we believe will have about another 15 or so patients in addition to the ASCO.

We're going to try and get as many of those 15 into the second scan as we can.

But looking at the time lines, I don't think we'll have all of them to second scan at that point.

They -- ESMO have declared that one late breakup.

So we will get whatever the time lines are for late breakup, we'll get it in and at that point, they'll make a decision on the format.

We have submitted an update on the head and neck data.

So at ESMO, we did, I think, 17 -- or at...

At AACR.

AACR, I beg your pardon.

At AACR, we did about 18 patients at 8 milligrams.

For ESMO, it will be the full cohort of 8 milligrams, which is about 25 or 26.

We would hope to have about 10 or 12 2 milligrams in that data as well.

That's been accepted for a poster description.

And then we also submitted an abstract on melanoma progressors, and it's been accepted for a poster presentation.

All of the patients in that group will be 8 milligrams.

We'll go next to Anupam Rama with JPMorgan.

Maybe I could ask a question on ESMO and, in particular, how we should be thinking about that refractory population update in melanoma.

What would kind of get you excited here relative to the competition?

And I know we won't see any [8 mg] -- won't see any 2 mg patients, sorry, at the conference.

But should we be thinking about you guys dosing patients at 2 mg in this population as well?

Yes, the -- you're quite right.

The ESMO data for progressors will not have any 2 milligrams.

Originally, on the basis of key opinion leadership and really, I think, just the general belief that progressor patients needed everything you could throw at them, particularly given that they'd all previously failed on PD-1s.

We only went forward with 8 milligrams originally, and we presented on the very -- a small original set, I think 19 patients if my memory serves me correct, and we had a response rate of about 18%.

So this will be an update with more patients at 8 milligrams.

But given the magnitude of the difference in naives between 2 and 8, we have taken the view that it would be silly now not to go back to progressors and explore whether 2 will also make a difference there.

So we've just completed all our protocol updates and reviews, and we will be starting to enroll 2-milligram patients, I think, this week we'll start.

Yes, this week.

And from RBC Capital Markets, we'll move to Brian Abrahams.

Congrats on all the progress with the HEPLISAV-B reimbursement and engagement.

So I guess my first question is on HEPLISAV-B.

Just wondering what proportion of commercial payers that you're engaged with maybe have preexisting contracts within the vaccine space that would impact hepatitis B?

And I'm sort of wondering how meaningful those barriers might be and what you need to do, if anything, to overcome that?

Well, ultimately, Brian, I don't think I can give you a percentage.

I think it's fair to assume that most customers have some form of contractual arrangement for, before we came along, for the supply of either Engerix or Recombivax depending on whether they were primarily sort of GSK followers or Merck followers.

And clearly, in the absence of Merck from the marketplace sort of late last year, the sort of contracting arrangement looks a little different than it did before.

Previously, I think most customers, as I say, tended to buy a suite of things from one company or the other.

But obviously now there's a lot of customers who are buying Engerix sort of individually in a slightly off contract way because they weren't traditionally Engerix customers before.

They were Recombivax customers before.

So it's all a bit mixed up at the moment.

But in some form or another, most customers have a contract for supply of one of the older vaccines.

Does that answer -- I'm not sure I've answered your question.

Have I answered that question?

Yes, it sounds like there's some variability and that's not necessarily any sort of consistent barrier is what I'm hearing.

Is that right?

No, it wasn't -- yes, it was more consistent before, but Merck being out of stock has rather thrown that into (inaudible) flux.

Got it.

And I'm wondering, are you getting any sort of pushback on pricing or overall structure with respect to HEPLISAV?

No.

I mean, everybody asks us about the price.

But again, I think the combination of the profile of the product and the recognition that an awful lot of customers recognize that -- in all of those patients in whom they've only gotten 2 doses of Recombivax or 2 doses of Engerix, they are, in fact, wasting a lot of money.

We're getting a very open response to our value message, the fact that over their total patient population, they'll be doing much better.

And that argument has been extremely well accepted.

I do expect, as time goes by, we are going to see particularly perhaps in the public sector where the absolute limit -- the money they have available is itself a limit.

They may well push back a bit on the price.

But again, it's a bit like we were saying earlier about P&T Committee review.

We get the odd pushback or reverse.

But at this moment, it's very small, I have to say.

Got it.

One more question on 101.

Can you give us your latest thoughts on how high you would prioritize having a partnership before moving toward into Phase III, I guess how -- what the optimal structure might be there?

And just sort of curious if we should be thinking about those discussions as kind of being pretty far along, or if that's something that would really more wait until you're through the end of Phase II, have some regulatory clarity and perhaps some updated data before really engaging those sorts of discussions ahead of a Phase III start.

I'll hop back in the queue.

Okay.

Well, there's a few questions in there.

I think the first thing to say is that anybody who wanted to talk to us about SD-101 as potential partners have been interested in what the outcome of the description with the FDA will be, wanted to see the additional patients particularly in melanoma or in head and neck come through to sort of reinforced, continued good performance.

And I think therefore we need to see those things sort of play out before any such conversations would get really, really serious.

I think we are taking a view that in terms of the sort of philosophy of partnership, if I may put it that way, that we recognize with this data in Phase II, we're starting to look at some decisions which bring a whole different order of magnitude to the ones we've been involved in so far in oncology in the sense that studies that we've conducted so far, particularly given we had been receiving KEYTRUDA for free, [was meant] studies that we elect to do to this point have been, I don't know, $8 million to $10 million perhaps.

If we start looking at Phase III studies particularly in some of the larger indications, we're looking at an excess of $100 million.

In addition, we think this data is also playing out in a way that we should be interested in really deepening and broadening the activity on SD-101 at this point.

And that -- it really brings you to the point I opened with that the orders of magnitude we're facing here are very different from the ones we've historically dealt with.

As a consequence, I think, to explore our ability to go down that path, we do think that a partnership approach to get that breadth and that depth would be the best way to go.

Now if such a partnership blossoms, available in a format that was appropriate and beneficial to Dynavax shareholders and we were going forward on our own, then clearly the prioritization we might put around melanoma Phase III or head and neck Phase III or whatever may well be different if we're going down this path on our own.

We'll hear now from Katherine Xu with William Blair.

I just want to make sure I heard this right.

So Eddie, did you say you have about 2,000 accounts and you have contacted or contracted 70% of them so far versus 50% last call?

No, I -- what I said was we have about 2,000 that we consider to be sort of the main accounts.

We have established contact with 90% of them.

We've identified who is and made contact with the person we believe is the key clinical contact to help us through the process in 70% of those cases.

And then the numbers that have progressed past P&T are the numbers I gave in the presentation.

Got it.

All right.

And then when do you exactly book the revenue?

Michael, when do we book revenue?

When we sell to the distributor.

Okay.

All right.

And then with regards to SD-101, so you go to the FDA and talk about the 2 milligrams versus 8 milligrams.

Do you think you've got enough data to select a dose going forward, let's say, at front-line melanoma?

And do you think the FDA would ask you for further dose optimization data?

Well, I mean, clearly, the point of going to the FDA is to find out what their position is, and it's probably not terribly helpful and beneficial to guess what their response would be.

I think all we would say is that originally when we set off down this path, we did determine the numbers that we were collecting on the basis of the FDA telling us what they would like to see and giving sort of general guidance.

So one would hope that when we go back, the numbers will be sufficient.

I think it's -- we all know, don't we, outside of the FDA that the world is trying to get its head around some failures in this sort of field, IDOs and other areas.

And whether or not the FDA's thinking have sort of moved on or evolved in response to some of the other things that's happened, time will tell.

But we -- what we've done so far

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methods to it.

We didn't make the numbers up.

But we will see when we have the meeting with the agency whether that's sufficient or whether their heads have moved.

Katherine?

Yes.

And lastly, would you mind giving an update on DV281?

Yes, DV281 is going through its dose escalation.

Recruitment has been extremely good.

We've been very happy with that.

It was our intention to have the safety data available by the end of the year.

At the moment, we look as if we're [smack on the line] for that.

Can we expect any efficacy from that?

Well, I think -- I'm not sure whether you and I have had this conversation before, Katherine, but we -- with the inhaled product, we've sort of administered it in a sort of dosage regimen that we wouldn't normally employ, giving doses of DV281 alone before introducing the PD-1 just to sort of ensure that we could kind of see safety alone as well as in combination.

Therefore, we've always said we don't really -- we haven't been measuring or using the study to measure efficacy in any kind of programmed way.

Clearly, if we see individual patients with good efficacy stories, we'll share them with people.

But we haven't -- we haven't run the trial as an efficacy collecting sort of event, let's put it that way.

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

What I'd like to ask, Eddie, is in the press release you mentioned that of the 91 accounts that have progressed to purchase, of them 24 have implemented the use of HEPLISAV throughout their system.

Is the other the remainder is in the process of implementing it throughout the system?

Or are they implementing it in some regions but keeping the older vaccines in other regions?

I just wanted a little clarity here, please.

They're in -- primarily, they're in the process somewhere between P&T Committee and the full switch, recognize that some customers are high control and they give their individual physicians no scope.

I gave an example today where people are prompted and told that from April 1, the switch will happen.

Some customer groups, their culture is a little less controlled.

And in that instance, we also have to engage -- it's made fully available throughout the system, and we engage with physicians as to why they should choose HEPLISAV.

We knew that when we started out.

We sized our sales force to take account of that.

And certainly, on the basis of the response we've been getting to the clinical profile of the product at this point, we expect that to be a very engaging and positive interaction when we have it in those systems.

And do you think that by ESMO, or by the end of the year perhaps, that we would have visibility on whether you are making a commitment to put SD-101 into a Phase III trial?

Well, I think the -- I think as I tried to explain, I think the idea of what our Phase III choices are varies very much around a partnership.

So clearly, I would hope that both of those could move as quickly as possible.

But I'd be loathe at this point in time to try and put a date on it.

We do know anybody who's wanted to talk to us about SD-101, who's interested in the outcome of the FDA discussion, anybody who's wanted to talk to us about SD-101 would like to see the further 15 patients data come in.

So I think these 2 things go hand-in-hand.

Okay.

And maybe just a housekeeping question for Michael.

Michael, so I'm trying to understand the cost of goods here.

Is this an initial bolus in terms of the $5 million in this quarter?

Or is it an ongoing level fixed cost that would have to -- you would have to surpass [and beat] sales to generate cash-positive cash flow?

Once we [turn] -- I mean, right now we've been bringing the plant back after we shut it down during the FDA review.

And so until we make commercial batches, which we're about to proceed to be doing, those fixed cost as a portion -- a portion of the fixed cost was put through expense rather than put into inventory.

But shortly going forward, these expenses will all go into inventory, and you'll see it there come through there rather than through the expense line.

I see.

And I noticed that R&D and SG&A both came down a little bit sequentially.

Anything to read that -- read into that?

I know that the R&D will probably pick up again especially in 2019.

(inaudible) SG&A went up significantly primarily due to S.

G&A, I thought that sequentially it was down from like $17 million to $15.7 million?

(inaudible) sequentially, yes.

That's just the timing.

It's just timing of relatively large for our size payment that just happened to come through at the end of the quarter.

Yes, so -- but that's normal fluctuation.

So I think of the overall spend of now up from 29.9 to [34.7], I think we're approaching sort of a steady state at this point because both SG&A are up to anticipated levels and the clinical trials are increasing a bit, but not significantly [beyond] the current level in terms of costs.

Okay.

And with that, I would say thank you to everybody for attending the call today.

As we've indicated, I think the second quarter has marked excellent continued progress both of the launch of HEPLISAV-B and the immuno-oncology development programs and both have done so in line with our expectations.

We look forward to continuing on both of those lines and talking to you again at the end of the third quarter.

Thank you all very much.

That does conclude today's conference.

Again, thank you all for joining us.