Dynavax Technologies Corp (DVAX) 2020 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Dynavax First Quarter 2020 Conference Call. As a reminder, this conference call is being recorded. At the end of the company's prepared remarks, we'll open the call for questions and provide specific instructions at that point.

I would now like to turn the call over to Nicole Arndt, Senior Manager, Investor Relations. You may begin now.

Thank you, Jenny. Good afternoon. Welcome to the Dynavax 2020 First Quarter Financial Results and Corporate Update Conference Call. Joining me on the call today are Ryan Spencer, Chief Executive Officer; Michael Ostrach, Chief Financial Officer; Donn Casale, Vice President, Commercial.

Before we begin, I'd advise you that we will be making forward-looking statements today, including statements regarding HEPLISAV-B's commercial profile, revenue expectations, potential peak revenue, the completion of post-marketing studies and regarding vaccine development with CpG 1018. 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 the current 10-Q and 10-K periodic reports filed with the SEC, which we encourage you to all review.

I will now turn the call over to Ryan Spencer, Chief Executive Officer of Dynavax.

Thank you, Nicole, and thank you all for joining us today for an update on our business and to review first quarter financial results. We appreciate you spending time with us given how much is going on in the world. The current global health crisis reinforces Dynavax commitment to our mission of developing vaccines that provide protection for an unpredictable world. We are building a leading vaccine company on the foundation of our organization's significant experience and expertise in vaccine development and commercialization with a focus on HEPLISAV-B, our adult hepatitis B vaccine, with its outstanding safety profile and faster and consistently higher rates of protection across all subgroups; and CpG 1018 with its potential as a broad-based vaccine adjuvant platform. Now more than ever, the world is acutely aware of the crucial role vaccines play protecting our families and communities. We urgently need a vaccine for the current COVID-19 pandemic, and it is critical that any coronavirus vaccine is able to protect those at highest risk for severe complications or death. Unfortunately, the elderly and people with other chronic conditions are often the hardest groups to protect with vaccines. Based on its effectiveness with HEPLISAV-B, we believe CpG 1018 should be evaluated as an essential component of a coronavirus vaccine that is capable of rapidly protecting those at highest risk from COVID-19. The ability of CpG 1018 to boost the immune response, enables HEPLISAV-B to provide protection to a higher percentage of the elderly and those who are hard to protect in multiple head-to-head clinical trials, more rapidly and with fewer doses. For example, in people between 60 and 70 years old, 92% were protected after only 2 doses of HEPLISAV-B compared to 73% after 3 doses of the comparator vaccine. In fact, HEPLISAV-B has demonstrated higher levels of protection in groups known to be less responsive to vaccine, including smokers, the obese and importantly, people living with diabetes. We believe CpG 1018 can play an important role in the development of a safe and effective coronavirus vaccine, and we are committed to support these development efforts globally.

I want to touch briefly on the company's response to the COVID-19 pandemic. We have worked diligently to safeguard the health and safety of our employees and customers while continuing effective operations to ensure patient access to HEPLISAV-B. We've implemented remote working operations for our employees at our headquarters here in California. Our manufacturing facility in Germany is employing special measures, so they can continue operations while focusing on safety for our workers there. We have shifted from in-person interactions by the field sales force to virtual field calls in order to allow Dynavax to continue to serve the need of physicians, patients, customers during this critical time. Operationally, we are focused on ensuring access to HEPLISAV-B. We continue to produce hepatitis B surface antigen at our facility in Germany and CpG 1018 adjuvant at our contract manufacturing organization here in the U.S. As a result, we have a secure supply chain that we are confident can meet the market's demand now and in the future.

Finally, while the COVID-19 pandemic has impacted access to hospitals and clinics affecting implementation of clinical trials across the pharmaceutical and biotech sectors, Dynavax is fortunate to have HEPLISAV-B post-marketing observational studies fully enrolled and continuing uninterrupted. Due to the design and the conduct of these studies, we do not anticipate an impact to the integrity of the data as a result of shelter-in-place orders. Our HEPLISAV-B dialysis study continues to enroll patients with enrollment expected to complete this month. While there is a tremendous amount of uncertainty caused by this pandemic, Dynavax is in the business of preventing deadly infectious diseases. And as such, we believe we are uniquely positioned to emerge from this pandemic stronger as a result of the world's increased awareness of the risk of infectious diseases and focus on prevention.

Let's review our business, starting with HEPLISAV-B and then moving on to our CpG 1018 adjuvant to understand why we are so confident in the long-term value that Dynavax offers. Now as you know, HEPLISAV-B is a 2-dose adult hepatitis B vaccine, which delivers faster and higher rates of protection when compared to the current market leader. Our adjuvanted vaccine is the only hepatitis B vaccine that offers protection to adults in 1 month compared to other hepatitis B vaccines that require 6 months. Based on this profile, HEPLISAV-B is well positioned to become the standard of care for adults in the U.S. With HEPLISAV-B's higher levels of protection and improved dosing regimen, along with our marketing efforts, we expect to drive significant market growth from currently undervaccinated populations. The U.S. adult hepatitis B vaccine market has 3 major segments, starting with monovalent hepatitis B vaccine followed by Twinrix, which is a combination hepatitis A and B vaccine; and then finally, formulations and dosing regimens for patients on hemodialysis. Based on the data in our label that demonstrates HEPLISAV-B's improved profile versus the current market leader, our initial focus has been on converting the monovalent segment. To optimize our efforts, our commercial organization is focusing on retail and national accounts as well as high-value field targets, which is approximately 60% of the overall customer universe. The CDC recommends that all health care workers, emergency personnel and other individuals who are exposed to blood or bodily fluids on the job should be protected against hepatitis B. However, our competitor's 3-dose regimen requires over 6 months, and there are far too many who do not receive a complete 3-dose hepatitis B vaccine series. Effective protection for health care professionals, hospital staff, first responders and other occupations with risk of exposure must be a priority and is our core focus to win the monovalent market. Focusing on the occupational health segment provides a high-value point of entry into health systems and clinics nationally, where we continue to expand usage of HEPLISAV-B beyond staff to patients as well. Additionally, we have continued to advance our efforts in the retail pharmacy setting with the conversion of monovalent business in 5 national retail pharmacies. We estimate that the combination of hepatitis A and hepatitis B product generates a majority of its sales from travelers to travel into areas with a high prevalence of hepatitis A and hepatitis C, who seek vaccination prior to their trip. Due to the recent events, international travel is likely to decline in 2020. We believe this will also be accompanied by increased interest in seeking out vaccination guidance for those who do travel internationally and will ultimately have a positive impact on the trial vaccine market. HEPLISAV-B's rapid protection provides travelers a valuable option for protection against hepatitis B that allows for completion of the series in just 30 days. We believe heightened consumer awareness of the risk associated with infectious disease will enhance our ability to leverage the HEPLISAV-B profile within the travel segment as this business returns to normal historical levels.

To address the hemodialysis market segment, we are conducting a clinical study to establish an appropriate dosing regimen for this population. Results from the interim analysis of our ongoing study evaluating HEPLISAV-B in patients undergoing hemodialysis demonstrated an 86% seroprotection rate at week 20 after 4 standard doses of HEPLISAV-B. We believe this dosing regimen compares positively with the 8-dose regimen required by the current market leader, and sets Dynavax up nicely for long-term growth in this segment.

Based on the growth and expansion opportunities we see in the years ahead, we believe the U.S. market opportunity for HEPLISAV-B has the potential to ultimately increase to over $700 million in gross sales. Outside of the U.S., we see potential for HEPLISAV-B in Europe, China and some other markets. In Europe, we have filed a marketing authorization application with the EMA, and in China, we are working to identify a partner for clinical development as well as commercialization. With this overview, I think you can see why we're excited about HEPLISAV-B opportunity and as a foundational asset for building a leading vaccine company.

Now shifting to additional growth opportunities. As you know, we are developing CpG 1018 as a broad vaccine adjuvant platform. With that as a goal, we have embarked on a strategy to establish multiple research collaborations aimed at demonstrating the capability of CpG 1018 to enhance the immune response to a variety of vaccine antigens. The first such collaboration is an ongoing program with Serum Institute of India, the world's leading manufacturer of vaccines. This program is focused on the development of an improved pertussis vaccine using CpG 1018 combined with the antigens manufactured by Serum Institute.

With the COVID-19 pandemic, demand for CpG 1018 and Dynavax's vaccine development expertise has increased dramatically. In the last 10 weeks, we have entered multiple collaborations supporting the development of COVID-19 vaccines. Underscoring CpG 1018 potential versatility, these collaborations span multiple technology approaches to vaccine development. In order to ensure successful development and availability of a safe, and effective coronavirus vaccine, multiple approaches must be developed in parallel. We will continue to work to ensure CpG 1018 is evaluated broadly. We expect to announce additional research collaborations and we anticipate CpG 1018 will be included in at least one coronavirus vaccine Phase I clinical evaluation this year. Over the course of the year, we aim to enter multiple additional strategic relationships focused on advancing a variety of vaccine candidates, and establishing a broad utility of CpG 1018. Through this approach, we can increase the number of product opportunities for Dynavax to leverage CpG 1018 along with our clinical development, manufacturing and commercial capabilities.

Let me now touch briefly on recent financial results, which Michael will cover in more detail in a moment. HEPLISAV-B net sales during the first quarter were $10.5 million, up from $5.6 million in the same period in 2019. We were pleased with the sales level given the headwinds of the COVID-19 pandemic. During the quarter, we saw continued increase in new ordering sites consistent with prior quarters. By mid-March, most medical centers had restricted routine patient access to their facilities and focused on providing care to only the most severely affected patients. Since then, there has been a significant reduction in the utilization of vaccines across the board. We are obviously monitoring the expected timing of health care operations returning to normal, which based on our commercial team's interaction with clients and health care providers may be in the June or July time frame. Our field sales force continues to have good engagement with their customers and targets and are actually able to make good progress on awareness and implementation planning as certain customers have more time available due to reduced patient loads. With the current heightened awareness of the risk of infectious diseases, our team is focused on setting the stage to accelerate capturing market share as the U.S. returns to normal operations. We think the value proposition for HEPLISAV-B really resonates in the current environment. Despite these short-term destructions, the company's long-term value proposition remains unchanged and is potentially enhanced.

Vaccines offer a tremendous value to the health care system. The current COVID-19 pandemic is reinforcing the need for better prevention and preparedness. We are hopeful that societal learnings from this pandemic will increase support for adult immunization, and highlight the importance of providing rapid protection to our health care workers and others who may be exposed to deadly viral diseases that are preventable. The potential for all shareholders, governments, policymakers, health care systems and consumers to understand the benefits of vaccines and prevention will have a significant long-term positive impact on public health.

With that, I'll now turn the call over to Michael to discuss our financial results in more detail.

Thank you, Ryan. Our financial results are presented in the press release issued this afternoon, so I'll just touch on the key highlights here and provide some additional color. As we reported today, HEPLISAV-B net sales for the first quarter of 2020 were $10.5 million, the substantial increase from the $5.6 million recorded in the first quarter of 2019, driven primarily by higher sales volume as additional health care providers completed operational activities required to switch to HEPLISAV-B and existing customers placed repeat orders. Although first quarter revenues ended up roughly flat compared to Q4, we have been on track to achieve the Q1 targets underlying our previous annual guidance and to increase sales over Q4 until we began to see the impact of COVID-19 in the last few weeks of March. The pandemic has resulted in significantly reduced utilization of vaccines, including HEPLISAV-B, which is likely to continue until the U.S. returns to more normal conditions.

Research and development expenses were $4.7 million for the first quarter of 2020 compared to $21.2 million for the first quarter of 2019. Excluding noncash stock-based compensation, R&D expenses decreased to $6.2 million in the first quarter compared to $19 million in the first quarter of 2019. These decreases resulted from significant reductions in R&D headcount and the winding down of our immuno-oncology programs following our May restructuring.

SG&A expenses for the first quarter of 2020 were $20.9 million compared to $18.3 million for the first quarter of 2019. The increase was primarily related to costs related to the HEPLISAV-B post-marketing study and an increase in facility costs due to higher overhead allocation to SG&A and changes in noncash stock-based compensation resulting from the restructuring.

Cash, cash equivalents and marketable securities totaled $129.5 million at March 31, 2020.

The past quarter was remarkably successful, particularly in view of the challenges created by pandemic. Until the last few weeks of March, we were on our way to our most successful sales quarter ever. We have already achieved the revenue necessary to satisfy the current year's revenue covenant and the loan agreement. We have substantially completed the restructuring, and we have rapidly established multiple collaborations to advance our efforts to establish CpG 1018 as a leading adjuvant.

Now I'll turn the call back to Ryan.

Thank you, Michael. As highlighted by recent events, infectious diseases represent significant threat to public health. Vaccines offer a tremendous value to the health care system, and they also represent a valuable long-term business with the potential for steady recurring revenue, making for a tremendous opportunity for long-term investment. Dynavax is well positioned for the long-term with an FDA-approved vaccine that has a large current market opportunity and clear drivers for future growth. In addition, we believe there is a rapidly expanding opportunity for our vaccine adjuvant CpG 1018 in multiple pandemic and endemic diseases. While we are closely monitoring, evaluating and working to mitigate the impact of the current pandemic, we also continue to execute initiatives to advance the commercialization of HEPLISAV-B and expand opportunities for CpG 1018.

This year, we remain on track for several important milestones, including: advancing the ongoing study of HEPLISAV-B in patients on hemodialysis, with final immunogenicity data expected in the fourth quarter of this year; the completion of safety follow-up for HEPLISAV-B post-marketing studies in Q4 2020, which supports consideration of a preferential recommendation by ACIP in 2021; completion of Phase I enabling animal studies in toxicology for an improved pertussis vaccine with CpG 1018; developing CpG 1018 as a pandemic adjuvant in at least one coronavirus vaccine Phase I clinical study; and finally, we expect to enter multiple additional strategic relationships focused on preclinical research in a variety of vaccine candidates to establish CpG 1018 as a leading adjuvant.

The COVID-19 pandemic is reinforcing the need globally for better prevention and preparedness for infectious disease, and Dynavax mission is aligned with that purpose. We thank all our team members and shareholders for their commitment to Dynavax. We look forward to all we will accomplish together over the course of 2020 and the years ahead as we build Dynavax into a leading vaccine company.

Operator, we would now like to open the Q&A portion of today's call.

(Operator Instructions) We do have our first question from the line of Phil Nadeau from Cowen and Company.

A couple on COVID and then maybe one on the vaccines. So first, on the impact of COVID. I appreciate that you said the utilization is down. What about your efforts to get on formularies and convert customers to HEPLISAV? Can that continue as people are working virtually or because the health care system is so busy dealing with COVID in many places, has the process of converting accounts also slowed down?

Thanks, Phil. I am going to ask Donn Casale, our Vice President of Sales and Marketing and Head of Commercial to answer that question. Donn?

Phil, thanks for the question. So we found that, actually, many of our customers and stakeholders are -- they're very open to remote and virtual meetings. We found that many have more time now given the limited patient load and demand. And so we've been able to make a lot of progress, mainly around implementation, again, because of fact that there's no patient there, we're finding a lot of success. So all in all, from a virtual standpoint, the team is able to engage and get with key stakeholders and continue to essentially advance the sales cycle for HEPLISAV-B.

No, that's great. And then second COVID impact question is on that utilization, and I appreciate you said significantly reduced. Can you give us any sense what significantly reduced is as we look to adjust our models for Q2 and Q3?

Yes. Well, we're not in a position at this point to predict when the market will return to it to normal since it's dependent on how coronavirus pandemic progresses and the state federal government policies. So our interactions with our large health systems suggest the clinics will hope to begin to open up for more traditional services in June or July. So it's not really something we can comment on as far as how it's going to impact the quarter or beyond at this point.

Okay. Fair enough. And then last question. You mentioned in the milestones, maybe Phase I trial for the coronavirus vaccine. Can you remind us which of your partners have suggested they could be in or through Phase I by the end of 2020?

In Phase I, University of Queensland has sort of been the earliest -- publicly, at least earlier funded really by CEPI and Clover Biopharma have both targeted being in the clinic in 2020. The Sinovac program, I think also would be targeting that kind of time frame, although I can't remember what they said specifically. But we do believe there's a number of opportunities for us. And as I mentioned, we are continuing to work on identifying other collaborations in the meantime.

(Operator Instructions) We do have another question from the line, and that is from the line of Matt Phipps from William Blair.

First, I guess, following up on the COVID-19 or SARS-CoV-2 vaccine. Something like Sinovac, they obviously just published some preclinical data using an alum adjuvant. If they move forward, is it your understanding that they would take both alum and CpG 1018? Or would they run additional preclinical studies and then only take one forward? Or just -- how does this -- how do you think the next step works for somebody like them?

Well, I'll make a generic comment. I mean, I think we have to recognize the speed which all of these things are happening at. And there is a need to develop things in parallel because there's a lot of -- we're not in traditional sequential drug development that you're used to. So I do believe there's -- depending on each circumstance there could be different realities. We would expect the Sinovac would be interested in the adjuvant. In many ways, dose sparing is really relevant here when you're dealing with inactivated products because they -- obviously, having enough supply is a critical element of this. And so I do think it's likely that they will be looking for some dose sparing capability from the adjuvant, which would make -- so it goes beyond just the immunogenicity or protection results in that. And so it's hard to speculate now because it depends on that data.

Yes. All right. And then separating on the interim analysis data you guys showed recently was obviously really impressive. Is that enough that you can at least start having conversations with DaVita and Fresenius or do they really want it in label before they really consider it? Or just what's the process and next steps there?

No. We will not be having proactive conversations with DaVita and Fresenius from a commercial perspective based on interim analysis of this study. So our proactive conversations with those customers from a commercial perspective will be dependent on some updates to the label. I think the reality is we're talking about 2 players who control 80% of the market. The data will likely be made available -- we will publish this data, like we do with others, in a reputable scientific forum. And so the data will be available broadly. But it will not be promoted commercially by us.

Yes. Okay. And then lastly, Michael, obviously, a big step down in R&D this quarter. You mentioned a lot of that is headcount and IO wrapping up. I mean it's just kind of a base that you think now going forward? Or is there other things? I know you guys have mentioned there was maybe another quarter or 2 of the I-SPY trial.

Yes. I think that almost all -- I mean, there's always some carryover. We're just completing a treatment in the SD-101 combination study, so that's finishing, and we will complete our investment in oncology around mid-year with the completion of I-SPY trial. So you can see the market reduction in cash spending in the first quarter to about $6.2 million, I recall, for the quarter in R&D and sales were clearly a significant reduction. And I'm not going to commit to it being exactly that number, but it's now gotten down to a more -- within the range of what you would expect from us going forward on an operating basis, until and unless we expand our operations in support of COVID vaccine.

Currently -- just to interrupt, currently, our investment is limited because we're collaborating with others who are advancing their programs, and we're contributing our expertise in 1018.

Operator, are there any more questions?

There are no further questions from the line, presenters.

Ladies and gentlemen, ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for joining us today. Thank you, presenters. Goodbye.