Dynavax Technologies Corp (DVAX) 2022 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Dynavax Technologies Third Quarter 2022 Financial Results. (Operator Instructions). I would now like to turn the call over to Nicole Arndt, Senior Manager, Investor Relations. You may now begin.

Thank you. Good afternoon, and welcome to the Dynavax Third Quarter 2020 Financial Results and Corporate Update Conference Call. In addition to our press release issued today, a supplementary slide presentation that accompanies today's call is available in the Events section of our website. Before we begin, I advise you that we will be making forward-looking statements today based on our current expectations and beliefs, including, but not limited to, potential market sizes and market share, ACIP impact, market trends, growth perspective, seasonality, financial guidance and trends, including revenue, profitability, and sufficiency of current capitalization. Timing and results of clinical trial starts and data readouts and potential future uses of CpG 1018 Adjuvant.

These statements involve risks and uncertainties, and our actual results may differ materially. These results are summarized in today's press release and detailed in the Risk Factors section of our SEC filings, including today's quarterly report on Form 10-Q. Our forward-looking statements speak as of today, and we undertake no obligation to update such statements. Joining me on the call today are Ryan Spencer, Chief Executive Officer; Donn Casale, Senior Vice President of Commercial; Rob Janssen, Senior Medical Officer; and Kelly MacDonald, Chief Financial Officer.

I will now turn the call over to Ryan.

Thank you, Nicole, and thank you all for joining us today. I'm delighted to have the opportunity to discuss the progress we've made this quarter and to review how far we've come over the last few years. It was just 3 years ago, we made a strategic pivot to focus on building a leading vaccine company by committing to drive value through HEPLISAV-B commercialization and leveraging our CpG 1018 Adjuvant to develop new vaccines. At that time, HEPLIZAV-B's revenue for the full year of 2019 ended up at $35 million. Since then, we have seen significant growth as a result of strong execution from our commercial team. HEPLISAV-B generated nearly $38 million in revenue in this third quarter alone, keeping us on track for record HEPLISAV-B revenues for the full year of 2022 and providing us confidence in the expected continued revenue growth for the future. Also in 2019, we began to focus on broadening utilization of CpG 1018 for the development of new vaccines.

Today, in addition to HEPLISAV-B, CpG-1018 is used globally in 5 COVID-19 vaccine programs, which have generated over $800 million in cumulative revenues for Dynavax through the third quarter of this year. Additionally, CpG 1018 is the foundation based of our expanding development pipeline. Currently, including adjuvanted [vacinate candidate] [shingles]. This is tremendous progress through short-term time to a testament as strategic plan and the team's ability to successfully execute it. As we near the end of 2022, we continue to expect between $550 million and $600 million in revenue from our CpG 1018 business for the full year. Our success in navigating the pandemic highlights the organization's execution abilities underscores the scientific rationale supporting the use of CpG 1018 for broader vaccine development and has transformed our financial profile. As we look to our future, our strong financial position supports continued investment in the commercialization of HEPLISAV-B and expanding and advancing our clinical programs.

With the recent data from our Tdap Phase I trial and data from the Phase I shingles clinical trial anticipated before year-end, we believe we have the opportunity to highlight the value of our pipeline and strategy to produce best-in-class products targeting large markets. Additionally, we are advancing efforts to build on our vaccine portfolio by leveraging our capabilities in commercialization, development and manufacturing through the addition of late-stage or commercial assets. We are beginning the process of carefully identifying and evaluating opportunities with a high bar for potential transactions that we may consider. We believe this approach will further enable our success by leveraging our core organizational capabilities to strengthen our financial profile.

I'll now turn the call over to Donn to provide more details on HEPLISAV-B performance.

Thank you, Ryan. I'm thrilled to share the third quarter results for HEPLISAV-B. The dedication and perseverance of our commercial team has resulted in another record quarter of product revenue and market share for HEPLISAV-B. HEPLISAV-B is the first and only FDA-approved adult hepatitis B vaccine that allows series completion with only 2 doses in 1 month. Serious completion is essential for high levels of protection. In an era of universal hepatitis B recommendation, 2-dose HEPLISAV-B can make series completion easier and protect more patients faster. In the third quarter, HEPLISAV-B generated net product revenue of just under $38 million, its highest single revenue quarter since launch and an increase of 65% from $23 million in Q3 of last year. This significant revenue growth in the U.S. was largely driven by our continued gains in market share. We estimate HEPLISAV-B's total market share increased to 32% compared to 25% during the same period last year, while field targeted market share increased to 43%, up from 32% during the third quarter of last year. Strong performance in Q3 was driven by 2 critical segments: retail pharmacy and integrated delivery networks, or IDNs.

In Q3, retail pharmacy had significant increases in the number of new ordering and reordering locations. We are encouraged by this trend and the positive feedback we are receiving from customers about the ACIP universal recommendation. During the quarter, several top retail chains expressed a desire to make hepatitis B vaccine a priority focus for their immunization strategies moving forward. In addition to our success in retail, there has been considerable progress in the IDN segment. Many of our customers have expanded their use and increased reordering of HEPLISAV-B. Like in retail, we have received positive feedback from customers about the ACIP universal recommendation and their desire to enter this new era with a 2-dose vaccine for hepatitis B. In Q3, several large IDN customers updated their vaccine protocols and capabilities to reflect the policy change. ACIP's recommendation that all adults 19 to 59 years of age should receive hepatitis B vaccination significantly expands the number of adults in the U.S. who should receive or should be vaccinated against hepatitis B. We continue to believe that the universal recommendation will be a significant catalyst for growth and estimate the hepatitis B market opportunity could grow to approximately $800 million by 2027, with HEPLISAV-B well positioned to secure a majority market share over time.

In Q3, we continue to see positive trends in hepatitis B market recovery. During the quarter, the market was down only 7% from pre-pandemic levels. This positive recovery was due to the market continuing its return to normal pre-pandemic operations, coupled with expanded growth from customers implementing the universal recommendation.

Looking ahead to this quarter, we anticipate the hepatitis B market will remain flat or slightly below the levels seen in Q3. This likely outcome is due to the typical Q4 seasonality, which has historically reduced the market by 10% to 15% quarter-over-quarter. With a proven clinical profile and our team's strong commercial execution, we expect further market share gains and continued annual revenue growth for HEPLISAV-B. We remain confident in our ability to generate momentum and look forward to continuing to drive long-term growth for the brand.

I will now turn the call over to Rob to take you through our clinical pipeline.

Thank you, Donn. We believe there's a tremendous amount of potential in our pipeline, focusing on best-in-class products targeting large markets by combining our CPG 1018 Adjuvant with established antigens. We recently completed a Phase I clinical trial evaluating an improved tetanus, diphtheria, and pertussis or TDP vaccine that utilizes our CPG 1018 adjuvant. Adult and adolescent safety data from this study demonstrated the vaccine candidate was well tolerated without safety concerns. Adult immunogenicity results were consistent with our expectations and support continued advancement of the vaccine candidate. We're also conducting a nonhuman primate pertussis challenge study to assess the impact on prevention of disease symptoms and nasal colonization of the pertussis bacteria.

Our second development area is the shingles vaccine program. The last participant visit has been completed in the Phase I study evaluating safety, tolerability and immunogenicity compared with Shingrix, a commercially available shingles vaccine in the U.S. and other countries. We believe that our vaccine candidate adjuvanted with CpG 1018 has the potential to elicit strong CD4 T cell responses, which are key in controlling reactivation of the zoster virus, while also providing improved tolerability compared to the current marketed product. Data from this proof-of-concept clinical trial are anticipated by year-end. The advancement of our clinical candidates is a core priority. We're confident in our strategy to leverage the proven profile of CpG 1018 to develop new and improved vaccine candidates that provide significant opportunities to address important unmet medical needs.

I'll now turn the call over to Kelly to review our third-quarter financial results.

Thank you, Rob. I'm happy to report on another quarter of strong financial performance. I'll touch on some key financial items and then review our full-year 2022 guidance and provide a few closing thoughts. Please note that all financial comparisons are versus the prior year period, unless otherwise noted. Please additionally refer to our press release and 10-Q for detailed financial information. Starting with revenue. Total revenue for the third quarter was $168 million, up 55% year-over-year. This quarter marked another record-breaking quarter for HEPLISAV-B with total net sales of $38 million, representing 65% year-over-year growth. What is equally impressive for the brand is the continued improvement in gross margin, which was approximately 69% for the third quarter and 70% year-to-date compared to 56% for the full year 2021. Turning to CpG 1018 Adjuvant revenue. Revenue recognized under our commercial supply agreements for COVID-19 vaccines totaled $126 million for the third quarter, bringing CpG 1018 adjuvant revenues to $440 million year-to-date.

We had 2 unique items to highlight in the third quarter relating to our CpG 1018 COVID-19 partnerships. We have recently amended our commercial supply agreements with both Clover Biopharmaceuticals as well as Biological E to reflect the reduction in demand as the COVID landscape evolves. During the third quarter, in connection with the Clover amendment, we recognized approximately $24 million in one-time revenue for cancellation fees covering the cost of raw materials and CMO-related fees incurred. Additionally, we wrote down approximately $14 million in corresponding inventory in connection with the reduction in demand. We are working closely with our CpG 1018 adjuvant commercial supply customers as they manage their initial stockpiling of CpG 1018 with forward-looking demand as the global pandemic evolves. We continue to expect between $550 million and $600 million in full-year 2022 CpG 1018 revenue with corresponding gross margin approximately 60% and are very proud of the collective efforts with our collaborators to be an important part of the response to the COVID-19 pandemic during a very dynamic period. As we look ahead to 2023, we believe our customers will likely have sufficient adjuvant stockpile as of the end of 2022 to service their initial commercial agreements, translating to substantially lower adjuvant sales expected in 2023. Beyond 2023, we expect to provide additional guidance as we execute future commercial supply agreements and gain better line of sight into the endemic demand of COVID-19 vaccines for our customers.

Now turning to expenses. Our research and development expenses for the third quarter of 2022 were $13 million compared to $6 million in the same period last year, reflecting continued advancement of our ongoing pipeline programs in Tdap and shingles as well as our funded Phase II contract with the DoD for an [adjuvant to play] vaccine. Selling, general and administrative expenses for the third quarter of 2022 increased to $32 million compared to $27 million for the third quarter of last year, primarily driven by increased headcount, cross-field sales, and G&A, coupled with focused marketing investments to drive growth in HEPLISAV-B.

Moving on to profitability. For the third quarter of 2022, we generated GAAP net income of $64 million or $0.50 per share basic and $0.43 per share diluted. Turning to the balance sheet. We ended the third quarter with cash, cash equivalents, and investments of $587 million, and we continue to believe this level of capital is sufficient to support our core business, including our R&D portfolio without the need to raise additional funds. Lastly, I'm pleased to reiterate our 2022 full-year financial guidance, including CPG 1018 adjuvant revenues expected to be between $550 million and $600 million with approximately 60% gross margin for the year, reflecting the economics associated with the remaining firm orders under our [conical] supply agreements, R&D expenses in the range of $50 million to $60 million, SG&A expenses in the range of $130 million to $140 million and interest expense of approximately $7 million. In summary, with another quarter of strong commercial and financial performance, we remain on track for another great year with anticipated record revenues, continued progress and meaningful catalysts across our clinical portfolio, positive cash flow, and a second consecutive year of profitability. Our strong balance sheet position, combined with a disciplined approach to capital allocation enables us to focus on selective investments to drive growth in HEPLISAV-B and thoughtfully advance our clinical pipeline to drive long-term shareholder value.

Thank you, everyone, for your attention today. Operator, we would now like to open the Q&A portion of today's call.

(Operator Instructions). Our first question comes from Roy Buchanan from JMP Securities.

I guess the first one is on HEPLISAV. Good quarter. Do you know the market share in retail segment specifically? And if you do, is it consistent across the top 10 retailers where you have the contracts? Or is there a variation between the retailers?

Donn, do you want to go ahead and take that?

Yes. So market share across the segment is just under 50% for the entire segment. We do see different market shares across the different retail chains with a few of them where we have majority market share. So it's a blend. But overall, we like the momentum we have seen as it relates to our market share as well as growth within that segment.

Okay. Great. And then the improvements in gross margin is impressive, given all that we've heard about inflation. I guess any thoughts on the impact of inflation, may we see that impact the gross margins going forward?

Thanks, Roy. Kelly, do you want to take that one?

Sure. So thanks, Roy, for the question. I appreciate it. We've made substantial improvements in investments in our manufacturing facility in Germany and are really excited to be able to pull through some of the financial benefits of those investments over the last couple of years. We don't expect inflation to have a meaningful impact to our gross margins. And in fact, in the 70% range is where we expect gross margins to settle in at this level of volume for HEPLISAV.

Great. And then I had a quick one on the shingles data coming up later in the year. Are you going to have T-cell data for all the patients? And then I know you're looking at the CD4 cells as a secondary endpoint. Are you also going to look at CD8 cells?

Rob, you want to take that?

CD4s are what are associated with protection against reactivation of zoster, so we'll be predominantly focusing on CD4s.

For all patients...

For all patients in the study.

Our next question comes from Matthew Phipps of William Blair.

And congrats on continued great momentum with [HEPLISAV]. I guess on the shingles update in comparison to Shingrix, I know it may be tough to answer this, but how much better do you want to be in the tolerability your new deck has [effect on] Shingrix side effect profile? And are there any particular side-effects you think are more impactful than others when you think about patient preference and adoption?

Thanks, Matt. Why don't have Rob answer that one?

Yes. So what I anticipate is that we would be able to demonstrate statistically significantly lower rates of postinjection reactions in Shingrix. We're currently in the process of evaluating if any of the individual reactions would be more important than any other or whether we would use essentially a composite term, which is any of either local or systemic postinjection reactions. But it's something that we're looking into right now.

Interesting. A question about the IRA inflation reduction. Obviously, it's some headaches for other drug development companies, but there is some benefit for adult vaccine coverage as far as co-pays and things like that. Does that impact any of your development calculus for pipeline programs?

Yes. Well, I mean, the benefits are relative compared to other products. I mean the reality is for [HEP-B] for example, it's incredibly favorable because of the impacts on Part D coverage. But with HEP-B specifically being called out on the Medicaid rebate program is not having to participate. We do not expect, given the level of Medicare spend on hepatitis B vaccine that it would ever be a negotiated drug. So from a relative perspective, I think our long-term revenue potential is comparatively strong compared to other products possibly. Different -- the calculus would be different depending on the product. If you had a product that was focused on the over-65 population that could result in a larger spend for Medicare, then it might be -- it might have an impact. But I will say that one of the benefits is that it's somewhat limited given the IRA limited the negotiation down to a 25% impact, which is less for vaccines, which is less than what you could see in other classes. So ultimately, I think being a vaccine manufacturer, the IRA doesn't have the same level of impact as other parts of our industry.

And I guess maybe lastly, obviously, mentioning a significant maybe slowdown in CpG revenues next year. But I guess it implies at least there is still some you expect next year. Is that flow through of currently signed contracts? Or is that you do see potential for some contracts in 2022?

Yes. I think the way -- what we're trying to provide is an overview of what we know now and what we know now is the market's changed pretty significantly over the last year as it relates to demand. And there's a decent amount of stockpile of adjuvant within our collaborators. And so it really would come down to how do we need shipments from the end of this year roll into next year, which would be minor. And then how will the market evolve towards the end of next year, which we don't have a ton of visibility into now. And so there is a potential for additional revenue in the second half of the year depending on how the market evolves, which we currently are not contracted for at the moment. So we would have to let you know as we know, as those contracts evolve and which will be dependent on the line of sight as far as demand for our collaborative vaccines.

Our next question comes from [Madhu Kumar] from Goldman Sachs.

This is Rob on for [Madhu]. I guess we were just wondering, from a high level, how should we think about the year-end shingles beta. And then also, I guess, how should we be thinking about modeling the adjuvant revenues in 2023 and on the forward?

So for the shingles data, we expect to have the data in hand by the end of the year, and we will be -- we expect to issue a top-line press release shortly thereafter with more robust reporting of the data to follow at a scientific meeting or publication. And then the other question as far as how to think about the long-term adjuvant revenue, I mean I think Rob, the key is you got to watch the market. What we keep saying is there's been significant evolution of the COVID market during the course of this year. We think we're well positioned as it relates to the global need, recognizing that we have collaborators targeting many different markets around the globe. But as far as what that ultimate demand will be, I think that's still left to be determined as we move into this investment. So we're very pleased with how we positioned ourselves to be able to participate in the long-term demand. Being able to quantify it at this moment is difficult.

And the next question comes from Ernesto Rodriguez-Dumont from Cowen.

Congrats in the quarter. You highlighted the progress that you've had on the retail space and with hospital systems. And they seem to be aware of their Universal clinical recommendation and seems that that's going to be a curator growth. What do you expect them to be the hurdle there? Is it the logistics of them applying their recommendation? Or are they going to wait for the demand to assess? Or are they going to try to push it? Or what is, I guess, the next step there? And if you -- my second question, if you could give also any color on the launch in Europe? Any progress on other markets outside of Germany?

Okay. Donn, why don't you take that? The hurdle – spoken on the hurdle of the uptake from Universal, I think it was a question not spokes on market share, but let's start with the uptick in Universal.

So right now, as I mentioned, before nurse, we see quite a few of our hospitals that have implemented a flag within their EMR systems. So at the passive flag, that's a first great step. It gives us quite a bit of confidence as we think about the market opportunities. We communicated $800 million opportunity. Those types of signs or signs that we like to see, and we will continue to see that happening throughout the marketplace. Our role will be to pull that through with the customer for those age 30 to 50 to use a plus 1 strategy, especially going into 2023. So they've been gauging us around opportunities to go after that patient population and really see it as a strategic priority moving forward. So that's why we're really excited about the opportunities as it relates to Universal, both in Retail and IDN.

Yes. If I can just add a little bit of color. That seems obvious, but that is a hurdle to clear that when physicians do have the prompts in front of them, patients are actually accepting the recommendation. And we've already seen evidence that that's taking place. So I would argue that we've cleared the first hurdle in expanding the market. Now obviously, we have to -- that has to be done much more broadly, as Donn highlighted. But we are seeing evidence that patients so that's an important step in the journey. Then, Donn, do you want to provide some commentary on the launch in Germany?

Yes. The launch is going well. As you would expect with most launches, it takes time. But we're excited about the progress that's been made thus far. We'll continue to update as we get more information. But thus far, the launch is going as we expect (technical difficulty).

Our next question is from Roy Duane from JMP Securities.

I had a couple more. So what's the status of HEPLISAV in dialysis patients?

Focused on COVID over the last few years. But we are working on the SBLA for dialysis, which we expect to file probably early next -- very early next year and to get that data into the label upon approval of the SBLA.

Okay. Great. And then back to the shingles. I guess it's a little earlier just finishing up the Phase 1, you're going to need to talk to the FDA, et cetera.

95% efficacy ahead to head trial, just doesn't make sense. You'll never be able to seasonally demonstrate actual efficacy. And so we still obviously need to continue to advance our engagement with the agency, given that we're in Phase I to really fine-tune what the expectations are for the full regulatory plan. But we do not expect -- it's just not feasible to do a head-to-head efficacy study in this case.

Ex-U.S., do you see that as a -- I mean Shingrix does pretty well ex-U.S., especially this last quarter. How are you guys thinking about the opportunity there?

Well, any product, we would expect we want to launch it broadly into all markets that would support the infrastructure cost of bringing the product into that region. So that's part of the -- the strategy is a global strategy for shingles.

We have no further questions at this time. I would now like to turn the call over to Ryan Spencer, CEO, for closing remarks. You may begin.

Thank you, operator, and thank you all for your attention today. As we have reiterated on multiple occasions, we believe that the combination of our revenue-generating assets, a highly experienced team, our strong financial profile and an emerging pipeline of product candidates based on our proven adjuvant technology, provide a solid foundation for Dynavax's future. Our success this year and opportunities we see ahead are made possible by the dedicated team here at Dynavax. Our people are everything, and I would like to thank them for their commitment and effort towards our mission. Thank you for joining us today. We appreciate your time and interest in Dynavax. Operator, you may end the call.

Ladies and gentlemen, thank you for joining us today. This concludes today's conference call. You may now disconnect.