Dynavax Technologies Corp (DVAX) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Dynavax Technologies First Quarter 2019 Conference Call.

As a reminder, this conference call is being recorded.

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

You may begin.

Thank you, operator.

Good afternoon.

Welcome to the Dynavax First Quarter 2019 Financial Results and Corporate Update Conference Call.

With me today are Eddie Gray, Chief Executive Officer; Michael Ostrach, Chief Financial Officer; Rob Janssen, Chief Medical Officer; and Ryan Spencer, Vice President of Corporate Strategy and Commercial Operations.

Before we begin, I advise you that we will be making forward-looking statements today, including statements regarding clinical and financial information, expectations regarding HEPLISAV-B, including the amount and timing of sales, revenue and profitability; rates of adoption and reorder; commercial profile; and anticipated key events, including the timing related to clinical studies and regulatory reviews as well as decisions on our oncology program.

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 all to review.

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

Thanks, Heather, and thank you all for joining us today to review our first quarter 2019 results.

We are pleased with our progress this quarter.

HEPLISAV-B is indeed starting the transformation of adult hepatitis B prevention and progressing to become the standard of care in the United States.

It is the only 2-dose hepatitis B vaccine that has consistently protected more than 90% of adult patients.

Today, we reported HEPLISAV-B net sales of $5.6 million for the first quarter, which was in line with our expectations.

This compares to net sales of $3.9 million for the fourth quarter of 2018.

We reiterate our expectation that HEPLISAV-B operations [will] be profitable in the fourth quarter.

We define HEPLISAV-B operations to include cost of product sales, all sales and marketing and medical expenses.

Furthermore, we believe that over time, HEPLISAV-B can reach peak growth U.S. sales of around $500 million.

Let me highlight some recent progress.

We continue to make important HEPLISAV-B commercial achievements, which help contribute to our revenue numbers.

These include: We achieved sales into 3 of the top 4 national retail pharmacy chains, and contracting efforts are underway to secure additional pharmacy partners.

More than 1,450 individual customers have purchased HEPLISAV-B since its launch.

Only 4% of the doses sold to date were sold to customers who have not subsequently reordered after at least 45 days.

15 of the top 20 integrated delivery networks have made HEPLISAV-B available to order.

557 of the targeted 1,420 accounts have made HEPLISAV-B available to order, representing 50% of the targeted adult hepatitis B market.

And 164 of our top 300 targeted customers have ordered HEPLISAV-B.

In summary, we believe that we are well positioned.

We do have a compelling, clinical and commercial profile and an established concentrated market.

Whilst institutional customers are indeed complex and take time to convert, once they do convert to HEPLISAV-B, we then see them making repeat orders that we expect to continue in the future.

Additional HEPLISAV-B achievements include the following: In March, we announced that the European Medicines Agency has expected our Marketing Authorization Application to review HEPLISAV-B.

This marks the beginning of the regulatory review process for HEPLISAV-B in the European Union, and we expect to hear the outcome of that review during 2020.

In May, we announced the enrollment of the first patients in an open-label, single-arm study of HEPLISAV-B in adults with end-stage renal disease or initiating or undergoing dialysis.

The study is designed to establish the appropriate regimen for use in dialysis patients.

Michael will go into more detail on our financial position shortly, but I first want to emphasize that we are focused on the management of our expenses.

The bulk of our 2019 expenses are planned for HEPLISAV-B as we continue to build strong foundations for the ongoing launch.

Our current immuno-oncology spend is focused on completing ongoing studies, and we won't be making any new commitments in immuno-oncology until we determine the outcome of our efforts to partner these programs.

Based on these outcomes, we would expect to be making decisions on our oncology programs by midyear.

Speaking of immuno-oncology, at ASCO, in June, we have 3 poster presentations detailing Phase 1b/2 combination study of SD-101 and pembrolizumab for patients with advanced melanoma and for patients with recurrent metastatic head and neck squamous cell carcinoma.

At the recent AACR annual meeting in April, we presented Phase 1b data on inhaled DV281 TLR 9 agonist.

Key highlights from the clinical data to the presentation concluded the following: First, in the safety study, 2 doses of DV281 monotherapy, followed by combination with nivolumab was well tolerated.

Secondly, inhalation of DV281 led to dose-dependent target engagements measured by induction of interferon-regulated genes at all evaluated dose levels.

And thirdly, DV281 plus nivolumab demonstrated early signs of antitumor activity in a heavily pre-treated group of patients.

With that, I'll now turn the call over to Michael for a description of the financials.

Thank you, Eddie.

Further details regarding our financial results can be found in the condensed statements of operations and summary balance sheet data that were attached to the press release issued this afternoon.

Net product revenue for HEPLISAV-B in the first quarter of 2019 was $5.6 million compared to $0.2 million for the first quarter of 2018.

We recorded product revenue from sales at the net sales price, which includes our estimates of product returns, charge backs, discounts, rebates and other fees.

Cost of sales - products for the first quarter was $1.8 million compared to $0.2 million for the first quarter of 2018.

Included in this item are fill, finish and overhead costs of HEPLISAV-B incurred after FDA approval.

A higher percentage of HEPLISAV-B inventory sold in 2019 used components manufactured after FDA approval compared to 2018 when most of the expense associated with products sold was expensed to R&D prior to approval.

We are expecting our cost of sales of HEPLISAV-B will increase in future periods as we produce and then sell inventory that reflects the full cost of manufacturing the product.

Research and development expenses for the first quarter of 2019 were $21.2 million compared to $19 million for the first quarter of 2018.

The increase reflects additional personnel and clinical trial expense for ongoing development of SD-101 and DV281 in earlier-stage immuno-oncology programs.

Selling, general and administrative expenses for the first quarter was $18.3 million compared to $16.9 million for the first quarter of 2018.

This increase was due primarily to additional personnel in support of HEPLISAV-B commercial activities.

The net loss for the first quarter was $39.7 million or $0.62 per basic and diluted share compared to a net loss of $39 million or $0.63 per basic and diluted share for the first quarter of last year.

Cash, cash equivalents and marketable securities totaled $183.2 million at the end of the quarter, March 31, 2019, compared to $145.5 million at December 31, 2018.

In March, we exercised our option to draw down $75 million of non-dilutive capital under our existing term loan with CRG.

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

Thanks, Michael.

Let me discuss our expectations for upcoming milestones.

We are entering 2019 with good HEPLISAV-B sales momentum and anticipate increased revenue from HEPLISAV-B during the year.

In the third quarter, we expect to complete enrollment in the HEPLISAV-B post-marketing study.

We also continue to investigate opportunities to broaden the use of our 1018 adjuvant, which makes HEPLISAV-B so effective [into additional] next-generation vaccines.

We're collaborating with the Serum Institute of India to develop and improve hepatitis vaccine.

And as I mentioned, within immuno-oncology, we have 3 poster presentations on updated SD-101 data at ASCO in June.

We are looking forward to what we believe will continue to be a busy and exciting year.

Before turning it over to the operator for questions, I'd like to take a moment to thank our Board, our employees as well as our investigators and all the patients, of course, who are participating in our trials.

I will now open it up to questions.

(Operator Instructions) Our first question comes from Anupam Rama with JPMorgan.

This is Matt on for Anupam.

So just 2 from us.

First one on HEPLISAV, and so for the remaining pharmacy partners and delivery networks that are not yet on board, just kind of wondering what the gating factor is to getting those contract arrangements in place?

And then secondly, on DV281, can you just let us know what some of the key points or feedback from KOLs you received on the recently presented data set at AACR?

Okay, Matt, thank you very much.

So I think in terms of customers and gating factors, I will ask Ryan to perhaps give some examples of the process and how we're responding to what we find in the marketplace and making adjustments to deal with these big complex customers.

Yes, thanks, Matt and Eddie.

For the retail pharmacy in particular you highlighted, this is a process where basically we need to go through and engage each of them individually for first contract.

That's a bit different than IDNs and hospitals you also referred to.

And so on that side, group purchasing organizations are the primary mechanism for contract relationships with hospital systems and IDNs.

And we have tremendous coverage of group press purchasing organizations and hospital networks.

So I wouldn't suggest that we are not -- or in a position where we're not able to be accessed via a contract by IDNs and hospitals.

That's a different discussion as far as when they choose to add us to their formulary or choose to purchase HEPLISAV.

Back to the retail pharmacy side, that is actually a fairly streamlined process to get -- going forward with the contracts.

Like we said, we're in contract with 3 of the top 4, but I don't see a ton of barriers other than continuing to move through the negotiation process in getting the top 10 squared away over the course of the year.

And Rob, perhaps you can address the question of feedback or description on the DV281 AACR poster.

Yes, the feedback we got from KOLs of AACR was very positive.

The first part, to Phase I study, the question about safety is key.

It's can you inhale a stimulant safely in terms with -- for somebody with lung cancer?

We demonstrated that you can.

It's very well tolerated.

We didn't see any cases of pneumonitis.

In addition, we got positive feedback on the tumor doubling time, on efficacy, on early signs of efficacy that we're seeing, including long-term stable disease, for example, and changes in tumor doubling time.

So we also had a couple of comments that, "Hey, that's a very exciting method of delivering your drug." And a lot of comments about, "We're eager to see how do you develop this."

(Operator Instructions) Our next question comes from Brian Abrahams with RBC Capital Markets.

This is Beau Miller on for Brian.

So 2 questions from me.

One on HEPLISAV and another on SD-101.

I guess, first on HEPLISAV.

What degree does the clinical differentiation of HEPLISAV versus other competitor vaccines play in your discussions with hospital decision-makers' choice on whether or not they choose to include HEPLISAV on their formulary?

And I guess how can you translate that into orders?

And then I guess on that point, too, can you speak to the recently initiated study of HEPLISAV and Engerix on hemodialysis patients and to what degree that could help differentiate HEPLISAV even further?

Okay.

Thanks, Beau.

So I think, central to the success of HEPLISAV and to the fact that it will be the standard of care in the future is undoubtedly the clinical benefits of the product.

And I think we are absolutely seeing that in all of our customer interactions.

And I think as we go through the formal process of engaging these big, complex customers, the very high success rate that we're seeing through the P&T Committee part of the process where, of course, [data] that the primary assessment of the clinical benefit of the products being made, we're really seeing that in action.

Slightly ironically, the clinical profile and the benefits of the product is then contributing to -- as we move further into the -- into getting these customers to go through the process of ordering the product.

The clinical benefit of the product in the short-term makes our challenge a little more difficult.

Although, in the long term, it will establish why we'll be the standard of care for our generation.

Because the fact that one of the key component parts is the fact that we're a 2-dose vaccine rather than a 3-dose vaccine, actually increases the workload upon these institutions in making the change.

Ryan, perhaps you can add a little -- few examples maybe to give a sense of why that's the case?

Yes, I think the key -- and getting back specifically to your question around the degree of clinical differentiation and translating that to orders, I mean, frankly, it is the clinical differentiation that's going to make this products successful.

We are not approaching the market as a contracting play like the other brands were using it as a commodity.

So it's that degree of differentiation that we're hanging our hat on completely, and it is what's supporting our continued belief that we'll eventually be the standard of care.

As it relates to the last point Eddie made around the process, a 2-dose product is a change from a 3-dose product and including the time frame.

And that means that all organizations have to not only recognize the clinical value but they have to deal with the fact that they're switching [on extreme] on some patients.

So there's protocol that they've written on interchangeability, electronic medical records that have to be -- or systems that have to be updated to be able to handle the 2-dose logic so that after 2 doses, a series can be deemed to be complete.

So that just goes back down to, I think, to the point Eddie was making, which is our clinical variation is not just in sort of protection rates but in our dosing regimen as well.

So it's look in both directions, and that causes some operational complexity like -- that has to be navigated as well.

Yes.

I think here's the thing to reflect on here as well although is that, as I say, whilst we find that frustrating in the short-term, it consistently, both in terms of what people say to us, but also seeing the amount of effort organizations go through to introduce HEPLISAV, our conviction that once people move to HEPLISAV, they will not be moving away grows with every customer, I think.

And then on the -- I guess on the hemodialysis study, I guess how does that fit in to your customer base?

Is that targeting hospitals already on order?

I guess what is the rationale behind that study?

Well, I think the first thing to remember is that these patients are already in our label, and so this study is not about seeking additional patient populations.

We already have these patients in our label.

But if you look at the label for all hepatitis B vaccines for these patients, there is -- these patients, generally speaking, require a different introductory dosing regimen than others, and we're really using the study to explore what the appropriate starting regimen is for HEPLISAV in these patients.

Rob, have I summarized that accurately or would you like to add anything?

Yes.

No, I think the key differentiation here is like the 2-dose vaccine, we're looking at a 4-dose regimen over 16 weeks compared to

Engerix, which is a 4 double-dose regimen, that's 8 doses over 24 weeks.

I think we're excited about it because our 3-dose regimen in CKD patients had a seroprotection rate of about 90%.

In dialysis patients in the Engerix label, their seroprotection rate is 67%.

Not completely comparable, but we do anticipate a much higher seroprotection rate.

So I think it's an exciting study.

So I think the way to look at this study is that it's a practical means of giving helpful information to providers on a patient population that is already in our label.

And then I guess on SD-101, can you speak more specifically to what we should expect to see in terms of data at the ASCO conference in both PD-1-resistant melanoma in the head and neck setting?

And I guess how are those data helping to guide your decisions on potential next steps for the program?

So Rob, perhaps you can address this.

And I think it's probably also worthwhile addressing in your comments that the abstracts were done back in January or February and so we probably advise people to not bother too much -- spend too much energy on the abstracts and wait for the posters, would that be fair?

Yes, clearly, the challenge always with these data are the abstracts are submitted months before they're presented, so the abstracts generally, actually in most of the cases in our experience, don't reflect what's on the posters.

We will be providing data on patients in the melanoma refractory population, patients who receive 2 milligrams, unfortunately those data are still relatively immature, not all those patients have had 2 scans by the time we'll be presenting data.

We also will be presenting data on the melanoma-naive population.

We're continuing to follow those patients.

We'll have updated PFS data and/or our data actually in that poster.

And then we'll also be presenting the PD-1-naive head and neck patient population, and that will be the 2-milligram population is what will be the new data.

Our next question is from Matt Phipps with William Blair.

Just a couple on HEPLISAV.

I know it's still pretty early in the launch, but I was wondering if you had any metrics around compliance and patients receiving both doses of the vaccine regimen?

And then also just in the quarter, is there any changes in inventory or were there any kind of bulk purchases might have occurred?

Okay.

Ryan, perhaps you can address both of those questions, if you would.

Matt, we actually don't have a mechanism to calculate compliance unless we were to do some sort of study -- a process study.

We may be able to see some information as it relates to the post-marketing study down the road possibly at -- being that Kaiser obviously has the system to be able to focus on that information.

But we're not at that point yet.

We do expect that our rate for the second dose will look identical to the rate of Engerix but that's not something we study today, that's just a general inherent expectation.

So I'd love to have some of that information.

We do -- we were looking at ways to gather it, but we're not at a point yet where we have any information there.

The key clinical issue there, of course, is that 2 doses of Engerix has a far lower seroprotection rate than 2 doses of HEPLISAV.

So...

That's right.

So I think we do also expected the ultimate measurement being series completion that we will have a higher rate of series completion because of the 2-dose regimen versus 3. But we don't have data at that -- at this time on that, the question around metric.

And then -- I'm sorry, the second question was?

Inventory.

Inventory and bulk purchases.

We do see -- continue to see our inventory grow quarter-over-quarter, but the reality is that's consistent with underlying demand growing as well.

And so if you think of inventory from the standpoint of our distribution partners wanting to maintain a certain number of doses on hand -- [given the] number of weeks on hand [within time,] as our underlying demand grows, that inventory volume is expected to grow as well.

So that's actually -- yes, we've seen inventory growth, but it's completely part of what we expect to see ongoing.

Yes, I think we've said before, Matt, that when we entered the market, we did find the sort of management of inventory of the older vaccines looked well-managed and that there were not large stocks being held.

And I think as we look at the data we have so far, we believe that the same picture is emerging with HEPLISAV with -- therefore I think people can be confident that as we report on them on a quarterly basis, this is a function of patients being vaccinated rather than issues or activities in the channels.

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

Congratulations on the progress this quarter.

My first one is on HEPLISAV.

About the 860 patients that have not -- or sorry, targeted accounts that have not been [taking] HEPLISAV available to order.

Can you give us a little bit more information on the portion of those that maybe just haven't progressed past the P&T process versus those that decided not, for whatever reason, to make HEPLISAV available?

And kind of what was the reasoning if they decided not to make it available?

And then I have a follow-up on SD-101.

Well I think as a general rule, we've said before and continue to say, that the people who actively choose to say and feel that HEPLISAV's not for them in any shape or form is a very pleasingly low number.

But can you give any further insight into the numbers, Ryan?

Yes.

I'd avoid going into too much detail as far as individual percentages because it tends to fluctuate.

But it is a low number of the people -- of the accounts where it's not available yet.

In most cases, it's going to be -- there is not a formal defined decision-making process.

So either -- so we don't have evidence that any decision being made or they just haven't made a decision yet and we're still continuing to go through that process.

It's not surprising, I think.

We're quite pleased with how we progressed at making the product available.

And I would also suggest that in the situations where it is a no because we have had people say " no, we're not going to do this at this time." That's the important part, "at this time." Actually, now that we've been on the market for over a year, we've had accounts that were some very early on nos and have since actually become yeses, including full conversions.

So a no in this setting is not -- it's not no and we walk away and we never talk to them again.

There can be a variety of reasons.

One, which we're navigating right now in particular was when they brought us to the P&T Committee, they had the wrong price.

They had drastically the wrong price.

That's not our doing, that's their doing.

We're not allow to be in the room in this setting.

But we kept looking at the account and we figured out the issue, and we've since reengaged and are taking it back to the P&T next month and I actually expect to get an outcome.

So you could just imagine the number of -- variety of situations that could occur like that, which means I'm encouraged by the fact that the number is fairly low anyway, including those kinds of situations.

I think Ryan's right.

I think our experience would be that no actually means we're just still in the process rather than a decision.

Okay.

That's great to hear.

And then on SD-101, Eddie, in your prepared remarks, you mentioned that you're going to wait in terms of partnership discussions.

And I know previously we talked about the willingness to go alone in certain of these indications.

I guess, how are you thinking now?

Are you willing to take some of these indications, probably more the head and neck or the PD-1 non-responsive populations in melanoma forward alone?

Or are you looking to partner all 3 of the indications?

Well, I think, first of all, I think, we recognize and are really trying to make sure people understand that we -- that we understand that confirming our plans for the oncology assets, including the outcomes from any partnership discussions, are indeed the top priority.

Our focus in the short-term I think is all around management of our expenses, making sure that our only expenditure in immuno-oncology is around completion of the ongoing studies and we're not making any new commitments in immuno-oncology.

I think the issue of different assets and what they may or may not look like inside or outside of Dynavax, there are too many individual subsets answers to that question depending on which potential partner you would talk to.

So I think what we try to do today is give people a sense that based on all of these processes that we expect to make our decisions on the oncology programs by the midyear and it's probably not helpful or indeed appropriate for me to elaborate on that today.

Great.

And then maybe just a quick one on DV281.

Can you just give us an update on enrollment and maybe timing of moving into kind of the Phase II portion of the expansion cohorts there?

Well I think we are currently in the final cohort of the safety study and really any future activities on DV281, I sort of refer you to my last answer really.

Probably not appropriate for me to say any more than I have today.

(Operator Instructions) And 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 very much.

I would like to thank everybody for joining us here today and for your continued support of Dynavax.

We look forward, as I said earlier, to an ongoing exciting year for the company and to update you on that progress in future calls.

Thank you very much.

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

This concludes the program, and you may now disconnect.