Dynavax Technologies Corp (DVAX) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Dynavax Technologies Fourth Quarter and Full Year 2018 Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Ms. Heather Rowe, Vice President of Investor Relations and Corporate Communications.

You may begin.

Thank you, operator.

Good afternoon.

Welcome to the Dynavax Fourth Quarter and Full Year 2018 Financial Results Conference Call.

With me today are: Eddie Gray, Chief Executive Officer; Rob Janssen, Chief Medical Officer; Michael Ostrach, Chief Financial Officer; and Ryan Spencer, Vice President, commercial operations.

We issued a press release this afternoon and also posted slides to accompany this presentation.

The slides can be found under the Investor Relations section of our website, under Events and Presentations.

Before we begin, I advise that we will be making forward-looking statements, including statements regarding clinical and financial information, expectations and anticipated key events.

These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially.

These risks are summarized in today's press release and are detailed in the Risk Factors section of our current 10-Q and 10-K periodic reports filed with the SEC, which we encourage you to review.

With that, I'll now turn the call over to Eddie.

Thank you, Heather, and thank you, everyone, for joining us today to review our fourth quarter and full year 2018 results.

2018 was an important year of execution for Dynavax, both for the HEPLISAV-B commercial program and our SD-101 immuno-oncology clinical program.

Our pipeline can be seen on Slide 3. The backbone of this pipeline is built on an expertise in discovering and developing TLR agonists that stimulate the immune system to prevent infectious diseases and treat cancer.

And against that backdrop, I'll now highlight key accomplishments from the past year.

First, as you can see on Slide 4, HEPLIVAV-B is poised to become the standard of care hepatitis B adult vaccine, and for good reason.

It offers clinical advantage over the competition.

Namely, it is the only 2-dose hepatitis B vaccine that has consistently protected more than 90% of adult patients, demonstrating significantly higher seroprotection rates than the market leader in head-to-head studies.

We launched HEPLISAV-B in 2018 with the 60 person field sales team, covering over 75% of the target market.

Our efforts to shift market share from our competitors are beginning to pay off, and we are establishing a solid base within institutional accounts, ensuring a future of long term, stable revenue generation.

Let me highlight some recent wins as shown on Slide 5.

Today, we reported HEPLIVAV-B net sales of $3.9 million for the fourth quarter, a little more than the estimate we provided in January.

This compares to $1.5 million for the third quarter.

We reiterate our expectation that HEPLISAV operations will be profitable by the end of the year, and we believe that over time, HEPLISAV can reach peak gross U.S. sales of around $500 million.

While we are confident with our year-end goal, we know we should still expect monthly and quarterly fluctuations, and that the rate of growth each quarter will also fluctuate.

Each large institutional customer follows a unique decision and purchase process and their associated timelines vary.

In 2019, the timing of purchases by new customer entrance are very influential.

Over time though, they make repeat orders, which settle into a more predictable pattern, thus becoming something like an annuity.

And whilst this trend is beginning in 2019, obviously, the genuine power of the annuity continues to grow over time.

So let me discuss some of the recent progresses that we've made.

In 2018, more than 1,200 individual customers purchased HEPLIVAV-B.

More than 80% of the doses sold today, which were purchased by repeat customer purchase.

As previously announced in January, HEPLISAV B became available in all of the Sam's Club pharmacy locations.

In addition, we have begun sales into 2 of the 4 top national retail pharmacy chains, and contracting efforts are underway to secure additional pharmacy partners.

These wins represent an important step toward building our pharmacy presence to ensure and support future growth in the diabetes market.

Beyond our retail pharmacy progress, we have other recent wins, including large state departments of corrections, multiple departments of Defense customers as well as State and County Health Departments through the CDC vaccine for adult program, which became operational in January.

In addition, since our November call, we've had 17 new P&T approvals within the top 100 accounts, which means we've now passed 53 of our top 100 accounts through this important point in the process.

As of last week, we've moved over 590 customers in total through P&T approval, and they represent in excess of 36% of the target market potential.

In the United States, the market appears to be fairly stable at around 2 million to 2.5 million adults, who are vaccinated annually against hepatitis B. Within this market are areas for growth, including increasing second dose compliance.

And once we've gained market share in retail pharmacies, a focus on diabetic patients.

In summary, as you can see on Slide 6, we believe that we're well positioned to drive sustained revenue growth.

We have a compelling commercial profile and an established concentrated market that we can convert into an annuity.

I'll now turn the call over to our Chief Medical Officer, Bob Janssen, to discuss the immuno-oncology clinical program.

Thanks, Eddie.

Our lead candidate is SD-101, our optimized TLR 9 agonist, as shown on Slide 8. We're evaluating this intratumoral TLR 9 agonist in several clinical studies to assess its safety and activity.

This includes the Phase II study in combination with the anti-PD-1 therapy pembrolizumab in patients with advanced melanoma and in patients with head and neck squamous cell carcinoma.

While the current trials are in combination with pembrolizumab, intratumoral SD-101 has systemic, single-agent activity as we demonstrated in the study of lymphoma patients.

In this study, intratumoral SD-101 induced abscopal responses in the absence of any other systemic therapy by producing regression in noninjected tumors.

We've consistently demonstrated that SD-101 has meaningful clinical benefit to pembrolizumab therapy.

As shown on Slide 9 and presented at ESMO last year, 2 milligrams of SD-101 in patients with advanced melanoma naive to anti-PD-1 therapy led to a 70% overall response rate or ORR.

There was a 68% ORR in noninjected lesions, including visceral metastases in the lung and liver.

In addition, responses appeared to be independent of PD-L1 expression in unselected samples.

We also announced encouraging early data from additional trials, including patients with melanoma refractory or resistant to anti-PD-1 therapy and patients with head and neck squamous cell carcinoma who are naive to anti-PD-1 therapy.

You can see these data on Slides 10 and 11.

The response rates were better than what were seen with pembrolizumab alone, in both trials, reported data or from 8-milligram cohorts.

We've recently completed enrollment in 2-milligram cohorts and planned to report on these data later this year.

Now importantly, the combination of SD-101 and pembrolizumab remains well tolerated with adverse events related to SD-101 being transient, mild-to-moderate, flu-like symptoms.

SD-101 and pembrolizumab are also being evaluated in a randomized investigational treatment arm for the ongoing I-SPY 2 trial for neoadjuvant treatment of locally advanced breast cancer.

The combination is being added to standard of care in the new treatment arm.

This trial is important for several reasons.

Notably, it's a controlled study.

Recall the I-SPY 2 trial is a standing, Phase II, randomized, controlled, multi-centered study with an innovative adaptive design intended to rapidly screen and identify promising new treatments in specific subgroups of women with newly diagnosed, high risk, locally advanced breast cancer.

The primary outcome measure of this study is the pathologic complete response rate, which was proposed by FDA in 2012 as a regulatory endpoint to expedite development of drugs for these types of patients.

SD-101, which can be administered directly into these lesions is well suited for this indication for which there is a high unmet need.

We look forward to seeing how SD-101 might help make available new, more effective treatments for women with advanced breast cancer.

We're also developing the TLR9 agonist, DV281, that's designed for delivery to the lung as an inhaled treatment for lung cancer or other cancers metastasizing to the lung.

You can see an overview of this program on Slide 12.

We're conducting a Phase Ib clinical trial in patients with advanced, non-small cell lung cancer to investigate the safety and tolerability of DV281 as monotherapy and in combination with nivolumab, as well to identify a recommended dose for the expansion part of the study.

Now beyond these programs, we're also conducting multiple immuno-oncology preclinical research programs, including a cancer vaccine program and a multipronged program to develop TLR7 and TLR8 agonists, both as anti-cancer agents and as vaccine adjuvants.

We're also evaluating additional candidates to leverage the HEPLIVAV-B 1018 adjuvant in other prophylactic infectious disease vaccines.

With that, I'll turn it over to Michael to discuss our financials.

Thanks, Rob.

Details regarding our financial results can be found in the press release we issued this afternoon as well as Slides 13 and 14, and they're posted on our website for today's call.

Net product revenue for HEPLISAV-B totaled $3.9 million for the fourth quarter and $6.8 million for the full year 2018.

Revenue from product sales is recorded as the net sales price, which includes estimates of product returns, chargebacks, discounts, rebates and other fees.

Cash, cash equivalents and marketable securities totaled a $145.5 million at December 31, 2018, compared to $191.9 million at December 31, 2017.

We are planning to borrow $75 million from our non-dilutive term loan agreement during this quarter to support commercial efforts and advance our immuno-oncology platform.

Selling, general and administrative expenses for the fourth quarter totaled $16.4 million compared to $9.3 million for the fourth quarter of last year.

Full year 2018 SG&A expenses were $64.8 million compared to $27.4 million in 2017.

These increases are primarily due to full implementation of HEPLISAV-B sales, marketing and commercial activities, including deployment of our contract sales force, which we're converting to an internal sales force in the next month, implementation of post-marketing studies and retention of consultants for commercial development services.

The net loss for the fourth quarter was $40 million or $0.64 per share compared to $27.4 million or $0.45 per share for the fourth quarter of last year.

And the net loss for the 12-month period was $158.9 million or $2.55 per share compared to $95 million or $1.81 per share for last year.

I'll now turn the call back to Eddie for his closing remarks.

Thank you, Michael.

So we are entering 2019 with good momentum and anticipate solid growth for the company.

For upcoming milestones, firstly, our HEPLIVAV-B post-marketing study.

The study was initiated in August and is recruiting at the expected rate with full enrollment targets for the third quarter.

In addition, we are assessing markets beyond the United States and plan to file an MAA in Europe for HEPLIVAV-B in the first half of this year.

We are also investigating opportunities to broaden the use of the 1018 adjuvant, which makes HEPLIVAV-B so effective, into additional next-generation vaccines.

We are collaborating with the Serum Institute of India to develop an improved pertussis vaccine and plan to begin a clinical study of a prototype vaccine later this year.

On the partnership front in immuno-oncology, we are in discussions with a number of pharmaceutical companies to explore the broadening and deepening of our immuno-oncology clinical program, and these discussions are a priority activity for the management.

The current expansion of our clinical data set will inform important strategic choices, including partnership options, expansion of tumor types and selection of the best options for progression into registrational studies.

As such, in the course of discussions with prospective partners regarding Phase III programs, we may find partners with capabilities and products that will enhance and broaden the TLR9 clinical program and have an interest in supporting the initiatives that we would plan to take forward on our own as well.

So whilst I cannot guide to any timing or specific form of arrangement, because each discussion is different depending on the current assets and interests of each potential partner, we are committed to being thoughtful and diligent in determining the best path forward to drive value for our shareholders.

Our lease partnering discussions are still ongoing.

There are plans that we can conduct on our own.

For these, we will prioritize tumor types that we believe have a high likelihood of responsiveness to our mode of action and a clear feasible and affordable pathway to approval.

These include -- following the assessments of results from the 2-milligram cohorts that we have -- sorry, excuse me, following assessing the results from the 2-milligram cohorts, we plan to start 2 studies of SD-101 in combination with anti-PD-1 in the second half of the year.

Firstly, a seamless Phase II-III first-line study in patients with head and neck cancer.

Compared to first-line melanoma, the bar for demonstrating clinical benefits in head and neck is lower and the competitive field less crowded.

And secondly, a Phase II-III study in patients with melanoma, resistant or refractory to anti-PD-1 therapy.

And finally, a trial that will include multiple HPV associated malignancies, including anal, rectal and gynecological cancers is also planned for the second half of the year.

As with head and neck cancer, although pembrolizumab is approved or active in these indications, there remains significant need for increased responses that SD-101 has provided in other cancers.

As indicated earlier, whilst these may form the basis for a Dynavax only plan, we are incorporating these into our discussions with potential partners as that remains our priority activity.

We also plan to report additional SD-101 clinical results and developments at major meetings, including the 2-milligram cohort data, I mentioned earlier.

And finally, at AACR, we will present the safety results from our Phase I dose escalation study of DV281 in combination with nivolumab.

We plan to initiate a multiple cohort Phase II study later this year.

We look forward to what is sure to be a busy and exciting year.

And before taking questions, I shall hand over to the operator to take us through that.

Thank you.

(Operator Instructions) Over first question is from Anupam Rama with JPMorgan.

Just following up on one of your comments there, Eddie, on expansion of the data set to inform potential partnership options.

Are there any specific pieces of the data, potentially thinking about durability and survival, that may come at ASCO at those points of interest?

And then one on HEPLISAV.

You mentioned that the customer retention rate is pretty high with [HEPLISAV] doses being from repeat customers.

So on this 20% that are or so -- that are from first-time customers, are those because the customers haven't had time to reorder?

Or have they -- there is no patient demand?

Or have they chosen another vaccination regimen to go with?

Thank you, Anupam.

The line was breaking up there.

So I'm just going to clarify to make sure we have the right question.

The first question I think was around durability data later in the year, and the second one was about the balance between first customer orders and multiple orders in the HEPLIVAV data, is that correct?

That's correct.

And qualifying those first-time orders, what kind of customers they are?

Right you are.

Rob, can you comment on the evolution of our durability data and when we're expecting to see further data?

Yes, the last durability data we presented was at ESMO.

We do anticipate presenting at ASCO.

This is in the PD-1 naive melanoma population, which will be -- essentially, an additional 6 months of follow-up.

We have fully enrolled all those patients at this point.

So they are in follow up.

I'm anticipating that we -- I trust, we'll have medium follow-up in the 2-milligram group potentially in 10 to 12 months.

Ryan, could you address the HEPLISAV please?

Yes.

The -- focusing on the 20% becomes difficult.

Obviously, there's different reasons why customers haven't had a chance to have repeat orders.

Some, like you mentioned, will be first time, and if they stock in for a month, you can't expect them to have a repeat order yet.

They have different stocking practices, which could be multiple months.

And in fact that those numbers were based on doses, not actual customers.

We have a situation like in I-SPY 2, not specifically, but we had a rather large customer who took on initial stocking order that hasn't had a chance to reorder yet either.

So that actually is a big part of the 20%.

So I think the 80% is a number to focus on.

As far as having a telemetric that is meaningful to show that customers do purchase HEPLISAV and do reorder at the 20% fall, which is a very expected range for a scenario where we are continuing to build new customers every month.

And I think, Anupam, I think it -- what we're trying to help investors understand is the growth over time in customers who are converting either wholly to HEPLIVAV or converting greater proportions of their business to HEPLISAV over time, and one can see that in a high rate of continued ordering but also recognizing that by maintaining 20% in new at this point in time, we're feeding new customers in that.

So we're -- the sort of the machine of annuity, if I may call it that way, is being fed with new customers.

So I think we quite liked the 80/20 at this point in time ensuring that both parts of the development of the business are advancing.

Our next question is from Joseph Thome with Cowen and Company.

I'll start with one on HEPLISAV.

I know the experiences, it's obviously pretty early, but do you have any real world compliance or safety data yet?

Or is you are seeing that are surprising or is everything pretty similar to what we saw in clinical study?

And then maybe on DV281, have you reached that maximum tolerated dose that you believe you are going in to take into expansion cohorts?

Or will you do that by the time of the AACR presentation?

Okay.

So Rob, perhaps you can comment on the compliance or safety data for HEPLISAV.

And then on 281, again, if you can comment, but I'm guessing, given our experience in SD-101 and what we've seen in terms of efficacy pattern, we're not necessarily targeting maximum tolerated dose within DV281 anyway.

But taking those two questions, if you will.

Yes.

With respect to compliance, we don't have data at this point with compliance and the post-marketing studies, we're doing with Kaiser in Southern California, they will be looking at that when they analyze the data, but that will be in 1 year or 2. The other thing with respect to safety, we aren't seeing we do get individual reports of safety events.

And we're not seeing anything out of the ordinary, nothing that we haven't seen in the past.

With respect to the MTV for DV281, we are right now, enrolling and about to complete enrollment in our highest dose cohort and we certainly will be looking at whether we reach a MTV, as Eddie mentioned, it's -- we think, it's probably unlikely that we'll meet EMT-- -- that we'll find an MTV.

Our next question is from Katherine Xu with William Blair & Company.

This is Roland on for Katherine.

2 questions for me.

First, which is more likely at this point for SD-101, a partner for a Phase III study in metastatic melanoma or going on your own, in a smaller indication, such as head and neck?

And second, do you still expect to be operationally ready to enter Phase III studies by the end of the first quarter?

So I think the idea of interest in melanoma naive from a partnership point of view and the relative interest on that in comparison to us going alone on head and neck or anything else, really differs from partner to partner.

So it's very difficult for me to be specific.

And obviously, I'm not in a position today to talk in detail about individual conversations.

So I think we -- as I think I said in my comments, we do take the partnership discussions, as confidential as they are, in a very high-priority manner.

We do find when we're talking to these customers that they -- each individual discussion is driven by multiple factors and they're different in each case.

Each company has its own assessment of market opportunity.

How different segments or different tumor types fit into their own portfolio, their own [tired lines], perhaps even what they are trying to achieve or not achieve with their own PD-1.

So I can't really provide a general answer to that one.

In terms of Phase III, as Rob's indicated, we are currently collecting all the final 2-milligram data on head and neck and on melanoma refectory.

We're putting in place all the preparations and ready to go forth with Phase III further decisions that we take subject to partnership discussions.

But I think it's probably more unlikely that we would see any final decisions made on that until we see the full 2-milligram data in those 2 studies.

Is that fair, Rob?

Yes.

Okay, thank you.

(Operator Instructions) Our next question is from Brian Abrahams, RBC Capital Markets.

This is Bert on for Brian.

So as you've now reached the inflection point with HEPLISAV-B sales, are there any additions to or modifications in your approach that's being implemented to increase uptake on the remaining formularies that you're targeting?

And then we'd also be interested in your current thoughts and plans for potentially expanding the label for HEPLISAV into younger patients, including newborns.

Okay.

On the commercial purchase, can you deal with that Ryan, please?

Sure.

No, I wouldn't say there's massive differences, but we are constantly learning from our interactions with the marketplace and making adjustments to how we approach customers and how we can obviously always improve the efficiencies and the effectiveness of each interaction.

I -- but from what -- I believe the point of question is, is there a larger strategic change?

We're not making major changes to the field structure.

There are some minor elements based on our learnings and engagement strategies, but no major changes to our approach to the marketplace.

On the issue of expanding HEPLISAV use.

I think when one looks at vaccination of infants for hepatitis B, there are two important things to remember.

Firstly, infant immune systems remain far more responsive to the traditional alum adjuvants than adults.

And so the significant difference and benefit that we can bring to adults in the marketplace isn't as readily available in childhood vaccination.

Secondly, hepatitis B in children is very rarely given as a monovalent vaccine.

It's -- it forms a component part of multi-dose vaccines.

I think we've always felt that it's unlikely even if we're able to deliver a slightly better hepatitis B response that public policy, would switch out of these multivalent vaccines to get the slightly better hepatitis B response in children and create some degree of uncertainty in the rest of the vaccination schedule.

So for those reasons, I think we have always felt it unlikely that we would ever see a pediatric vaccination, and I think that's still where our heads are.

I'm showing no further questions at this time.

I would like to turn the call back over to Eddie Gray, Chief Executive Officer, for closing remarks.

Thank you.

I would really just like to thank everybody for joining us today and for your continued interest in support of Dynavax.

We very much look forward to updating you on future calls as to our progress through 2019.

Thank you very much for your time today.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the program, and you may now disconnect.