Dynavax Technologies Q3 2024 Earnings Call Transcript

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November 7, 2024

There are 11 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the Dynavox Technologies Third Quarter 2024 Financial Results Conference Call. As a reminder, this call is being recorded. At the end of the company's prepared remarks, we will open the call for questions and provide specific participation instructions at that time. I would now like to turn the call over to Paul Cox, Vice President, Investor Relations and Corporate Communications. You may begin.

Speaker 1

Thank you for

Speaker 2

participating in today's call. Joining me from Dynavax are Ryan Spencer, Chief Executive Officer Don Cassell, Chief Commercial Officer Rob Jansen, Chief Medical Officer and Kelly McDonnell, our Chief Financial Officer. Earlier, Dynavax released financial results for the Q3 ended September 30, 2024. Copies of the press release and a supplementary slide presentation are available on Dynavax's 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, market segmentation, effective marketing efforts, future expected market share and related growth rates and related ACI committed to the impact on each financial guidance and trends, including revenue, profitability, cash flow, efficiency of current capitalization, timing and results of FDA submissions, clinical trial starts and data readouts and potential future uses of or demand for our CPG-ten eighteen adjuvant.

Speaker 2

These events involve risks and uncertainties and our actual results may differ materially. These risks 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. And with that, I will now turn the call over to Ryan.

Speaker 3

Thanks, Paul, and thank you all for joining us this afternoon. It's nice to be here again to share the results of another very successful quarter for Dynavax. Our success continues to be driven by HEPLISAV B, where the team once again delivered a record quarter with $79,000,000 in net product sales. We're very proud of our accomplishments with HEPLISAV B from its development to successful commercialization. While a quarterly result is impressive, we are still at the beginning of our plan for continued growth, which Don will provide some more details on in a moment.

Speaker 3

Our commercial success with HEPLISAV B has transformed Dynavax into a profitable company. Supported by our confidence in the future growth of HEPLISAV B and expectations for our current programs, we are committed to continuing this trend into the future. Pipeline disciplined and thoughtful capital allocation are cornerstones to our approach to generate long term value. This quarter, we read out our Phase 1 extension study from our TDAP program. And while our Phase 1 study showed improved immunogenicity from our vaccine candidate, the results did not demonstrate sufficient differentiation to meet our threshold to support advancement.

Speaker 3

Accordingly, we took the decision to discontinue this program. We continue to believe there is a need for an improved pertussis vaccine. However, we also understand what it takes to be commercially viable in a competitive environment. We will continue to evaluate all of our clinical and preclinical programs to ensure we invest in product candidates that offer meaningful value for both patients and shareholders alike. Moving to our Z1018 shingle vaccine program, we are actively enrolling in our Phase III trial and we expect enrollment to complete by the end of this year with top line data in the second half of twenty twenty five.

Speaker 3

Rob will review our expectations from this study later on the call. At our core, we are a company driven by strategic execution and operational excellence. In recognition of our strength and capabilities, we remain committed to our corporate development strategy, focusing on the expansion of our portfolio with assets that can be rapidly developed into commercial products. We have evaluated many targets and hold ourselves to a very high bar when it comes to deploying capital towards external opportunities. We will continue to maintain discipline and patience as we execute on this part of our strategy.

Speaker 4

Now as I said earlier,

Speaker 3

we are excited to have achieved a very meaningful milestone for companies in our industry, where we expect near term recurring profitability from our base business. Our capital allocation strategy balances financial discipline with our ambition to leverage our expertise and capabilities to drive growth. As announced in today's press release, our Board of Directors has authorized a $200,000,000 share repurchase plan.

Speaker 5

Personally, having been at Dynavax for so long and having participated in and led

Speaker 3

a number of financing transactions, it is a proud moment to be in a position where we can return capital to our shareholders while continuing to execute on our long term vision for the company. We aspire to be a leader in vaccines and infectious diseases with commercial scale and scientific expertise. I'm proud of how we've driven and managed our growth to date. I'm inspired by the work that we have ahead and more confident than ever in the potential of our future. We have an exceptional, dedicated and energized team focused on developing and commercializing products that change the public health landscape and protect millions from infectious diseases.

Speaker 3

Now I'd like to turn the call over to Don.

Speaker 1

Thank you, Ryan. We are very proud of the performance and record breaking sales for HEPLISAV B in the 3rd quarter. HEPLISAV B achieved over $79,000,000 in net product revenue supported by hepatitis B market growth and increases in HEPLISAV B market share. HEPLISAV B continues to increase its total U. S.

Speaker 1

Market share year over year, achieving 44% market share in the Q3 compared to 41% during the same period last year. HEPLISAV B's growth continues to be driven by 2 critical segments, retail pharmacy and Integrated Delivery Networks or IDNs. EFLSFE's market share in the Retail Pharmacy segment increased to 55% compared to 53% for the Q3 of 2023.

Speaker 5

For

Speaker 1

IDNs, HEPLISAV B's estimated market share increased to 56% compared to 54% during the same period last year. Over the past year, within retail pharmacy and IDN, the U. S. Hepatitis B market dose volume grew 23% year over year in Q3, while HEPLISAV B dose volume grew 27%. These trends support our long term growth expectations of the hepatitis B market and uptake of the ACIP universal recommendation.

Speaker 1

In the Q4, we look for continued focus by retail pharmacy and IDN customers on hepatitis B vaccination with increases in HEPLISAV B U. S. Market share. We also anticipate typical year end seasonality with market contraction of approximately 15% due to fewer patient visits during the holiday season. Looking ahead, we are confident in the long term revenue opportunity for HEPLISAV B.

Speaker 1

We expect the HEPLISAV B market opportunity in the U. S. To expand to a peak of over $900,000,000 by 2,030, with HEPLISAV B achieving at least 60% total market share. This long term guidance represents our expectation of a double digit annual growth for product net sales for HEPLISAV B out to 2,030. In addition, we expect the HEPLISAV B market opportunity to remain durable beyond 2,030 due to ongoing vaccination of the eligible adult population, observed revaccination practices by healthcare providers and continued gains in market share.

Speaker 1

In summary, we remain confident in the outlook for HEPLISAV B. We expect HEPLISAV B to strengthen its position as the clear market share leader in the expanding hepatitis B vaccine market. We are very proud of our commercial team's success and are excited about our work to build on this momentum for the remainder of this year and into the future. I will now turn the call over to Rob to take you through our clinical pipeline.

Speaker 6

Thank you, Don. Beginning with regulatory updates for HEPLISAV B. The FDA recently approved our SBLA to include pregnancy information in the U. S. Label for HEPLISAV B.

Speaker 6

We previously reported that FDA issued a complete response letter for the SBLA that adds a 4 dose regimen for patients on hemodialysis to the U. S. Label. Dynavax recently received feedback from the FDA regarding the potential to conduct an observational retrospective cohort study to address the deficiencies noted in the complete response letter. We look forward to providing future updates on these discussions.

Speaker 6

Now turning to our shingles vaccine program Z1018. As a reminder, we believe there's an opportunity to develop an improved shingles vaccine given the challenging tolerability profile of the current market leading product. In the Q2, we initiated a randomized active controlled dose escalation multicenter Phase III trial to evaluate the safety, tolerability and immunogenicity of Z1018 compared to Shingrix. We plan to enroll approximately 440 healthy adults aged 50 to 69 years. And with recognition that CD4 positive T cells are important in preventing reactivation of the varicella zoster virus, we seek to demonstrate CD4 positive T cell responses that are similar to those of Shingrix.

Speaker 6

We'd like to see our median T cell responses greater than 75% of Shingrix responses, which we believe would suggest a high probability of non inferiority. Now important additional information we'll consider though will be the distribution and quality of T cell responses and T cell responses over time. Antibody responses including vaccine response rates will also be evaluated. In addition to immunogenicity measures, the Phase onetwo trial will also be used to validate a patient reported outcome measurement tool to differentiate Z1018 on tolerability and to support potential label claims. We anticipate reporting top line immunogenicity and safety data in the second half of twenty twenty five.

Speaker 6

Finally, our plague vaccine program is in collaboration with and funded by the U. S. Department of Defense. Based on the results from a randomized active controlled Phase 2 clinical trial of the 2 dose plague vaccine adjuvanted with CPG1018, Dynavax has submitted a proposal to the Department of Defense regarding additional clinical and manufacturing activities. I'll now turn the call over to Kelly to review our financial results.

Speaker 7

Thank you, Rob. Before I get started, a reminder to please refer to our press release and Form 10 Q filed earlier today for more detailed financial information. The Q3 financials were underscored by record HEPLISAV B net sales of $79,000,000 and positions us to deliver on a narrowed guidance range of $265,000,000 to $270,000,000 in HEPLISAV net sales for 2024, representing over 25% year over year growth at the midpoint of this range. This top line growth highlights the strength of our commercial team and successful marketing campaigns across multiple channels, including retail. Additionally, HEPLISAV B gross margin improved to 84% in Q3 and 82% for the 1st 9 months of the year, slightly outpacing our reiterated guidance of approximately 80% for the full year.

Speaker 7

Turning to our expenses. R and D expenses for the quarter were $14,000,000 and reflect important progress throughout our pipeline as Rob mentioned moments ago. SG and A expenses for the Q3 of 2024 were $43,000,000 compared to approximately $38,000,000 for the prior year period. The increase was primarily driven by incremental headcount supporting our organization coupled with marketing investments driving the growth of HEPLISAV B during the quarter. These results generated quarterly net income of $18,000,000 supporting our commitment to achieve profitability and positive net income for the full year 2024.

Speaker 7

Moving to the balance sheet. We exited the Q3 with cash, cash equivalents and marketable securities of approximately $764,000,000 which was a $28,000,000 increase during Q3. As Ryan mentioned, we believe that the strength of our current financial profile, including our balance sheet, supports the development of our pipeline assets towards proof of concept and enables us to actively pursue external opportunities to expand our portfolio with strategically aligned assets that can be rapidly developed into commercial products. In addition to these stated priorities, we are committed to returning capital to shareholders, while still maintaining strict focus on executing on our organic and inorganic growth. As noted today, our Board has approved a $200,000,000 share repurchase plan and we believe this use of capital will benefit our shareholders while also preserving financial flexibility to make the investments required to deliver on our vision for the company.

Speaker 7

Lastly, we have updated our full year 2024 financial guidance, which includes a narrower HEPLISAV B net product revenue guidance of approximately 265 $1,000,000 to $270,000,000 a reiteration of our expectations of HEPLISAV B gross margin of approximately 80% for the year and an overall tightening of expense guidance for the year. We now expect research and development expenses to be between $55,000,000 to $65,000,000 and selling, general and administrative expenses to be between $170,000,000 to $180,000,000 Lastly, we are expecting to achieve a full year of profitability and positive net income for 2024. For our full guidance framework, please consult our press release from today. In closing, we're excited to report another strong quarter consisting of record quarterly revenue for HEPLISAV B, improved product gross margins and advancing pipeline and a strong financial profile with a balanced capital allocation strategy. We are proud of this progress and we're also excited about our growth prospects as outlined on the call today.

Speaker 7

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

Operator

Thank you. At this time, we will conduct a question and answer session. Our first question comes from Matt Phipps with William Blair. Your line is open.

Speaker 8

Good afternoon, team. Thank you for all this extra kind of clarity and nuanced guidance here today on the market. Looking at this updated kind of 2,030 view, I was wondering if your 2027 previous view still is intact as far as $800,000,000 total market by 2027, then further expanding to $900,000,000 by 2,030? Or if you think it's a little bit more linear straight to 2,030, just given, I guess, now you see kind of an 8% CAGR between 23% and 2,030 versus previously an 11% CAGR between 23% and 27%. That's just my first question.

Speaker 3

Hey, Matt. Thank you. I'll take that quickly. Yes, we just see this as an extending of our guidance out to 2030 and where we see peak. And the it does this is not a reiteration to change what we thought would happen by 2027.

Speaker 8

Okay. Thanks, Ryan. And then it looks like the majority of growth between 2027 and 2,030 is almost exclusively coming from the retail channel comparing kind of the percentage of market by segment. Is that true? And if so, what do you think is, is IDN capping out at some point or what's driving your confidence in retail really driving that much more growth?

Speaker 3

Don, you want to take that?

Speaker 1

Yes, sure. Hey, Matt. Yes, as we have communicated, we believe the Retail Pharmacy segment is well primed to continue to realize growth from ACF to Universal, partly due to the fact that the infrastructure that they've built coming out of the pandemic, the fact that there is quite a bit of incentive for retail pharmacy to identify and recommend around all adult vaccines. And we continue to see the shift from the traditional hospital IDN segment, if you will, to retail, not only for hep B, but obviously as we've seen in other vaccines as well, this shift in retail pharmacy. So we do see retail pharmacy being the predominant driver of that growth in those outer years relative to IDN.

Speaker 8

Okay. And then last question for me, just as you're thinking about this 60% market share goal, You're already pretty close there in kind of your target segments and it's been kind of stable throughout 2024. So it's getting to 60% more about kind of a spillover in the non field target segments? Or do you expect to be meaningfully above 60 in those field target segments? Thank you for taking my questions.

Speaker 3

Sure, Matt. Don, why don't you take that one too?

Speaker 1

Sure. Yes. So, Matt, again, retail, pharmacy and IDN will be the predominant growth drivers over this time period. We continue to expect taking market share within those critical segments. And so the disproportionate growth within IDN Retail will continue to increase the overall total market share.

Speaker 1

We do see some spillover in some of these other segments as we continue to increase awareness around HEPLISAV B over the years. But again, this market share gain will continue driven off these critical segments of retail pharmacy and IDM where we do see, as I said before, disproportionate growth and continued increases in market share.

Operator

Thank you. Please stand by for the next question. The next question comes from John Miller with Evercore. Your line is open.

Speaker 4

Hi, guys. Congrats on the quarter and thanks for taking the question. Maybe on gross margin dynamics, can you give me a little more color about how you expect gross margin to evolve maybe just over the next couple of quarters given you reiterated the full year guidance, but it seems like you're a little bit ahead of schedule this quarter. Is there still some variability to expect in gross margin going forward in Q4?

Speaker 3

Kelly, you want to handle that one? Thanks for the question, John.

Speaker 7

Sure. Thanks, John. Yes, sure. So while we look towards the full year to represent the continued progress around gross margin, there are sort of fluctuations quarter over quarter as you've seen over the last couple of years just in terms of accounting and timing of recognizing cost of goods sold relative to the activities, particularly in our Germany facility. So we're not trying to highlight anything specifically that we're anticipating.

Speaker 7

We just acknowledge that there's some variability from quarter to quarter.

Speaker 3

All right, great. And I

Speaker 4

guess secondly, I heard you reiterate your interest in BD and external opportunities. But I guess given a pretty substantial share repo authorization here, should we be taking that as more a priority than external BD? And is that a sign that you've had trouble finding good value in the external opportunities that are out there right now?

Speaker 3

No, I wouldn't read into it that way. I think the reality is it's a balanced capital allocation strategy and we feel like we have the opportunity to return capital at these levels while still maintaining our focus for growth through external business and corporate development. Obviously, the opportunity set we've been prioritized and working through it and they continue it's dynamic, it's not static. And we do believe there's still good opportunities out there. And to the extent things are larger and require more support, we would have to obviously figure out how to finance that.

Speaker 3

But ultimately, it doesn't change our focus on how we're going to drive growth.

Speaker 4

And then maybe just lastly on that repo for modeling purposes, do you have an expectation for cadence on the repo and when that could happen or do you have or is it fully open ended?

Speaker 3

Kelly?

Speaker 7

We have stated that we intend to execute the program by within the next 12 months subject to market conditions and we'll look forward to leveraging the program to execute accordingly.

Speaker 4

All right. Thanks very much.

Speaker 3

Thanks, Don.

Operator

Thank you. Please standby for the next question. The next question comes from the line of Ernie Rodriguez with TD Cowen. Your line is now open.

Speaker 5

Hi, Tim. Congrats on the quarter too and thank you for taking our questions. So looking forward to Q4 and Q1 and thinking about the expected seasonality, we were wondering if the lower rate of RSV vaccination that has been reported by the RSV players in part due to the CDC updated regs. Could that be a positive impact on HEPLISAV and maybe represent some upside given the foundation for more capacity in the retail segment? Is that something you're thinking about?

Speaker 3

Hey, thanks Ernie. Don, why don't you address that one?

Speaker 1

Ernie, yes, thanks for the question. Not necessarily upside, we considered certainly the recommendation when we thought about the guide. It certainly represents again opportunity from a standpoint of a plus one campaign for HEPLISAV B. It's an open arm, if you will, as people into the pharmacy for other vaccines. That is the retail pharmacy strategy.

Speaker 1

All the retailers always want to find a way to have a plus one vaccine. So from that standpoint, there's opportunity, but we calculate that into kind of our thinking, into the Q4 as well as starting into the beginning of 2025.

Speaker 5

Thank you. That's helpful. And then on the pipeline and the Tdap vaccine program, is there any learnings that from those results that perhaps are any read through to the other vaccine programs or maybe even any potential vaccine indication that you are that you were contemplating? Any learnings from that? Any data that you can use going forward?

Speaker 3

No. I mean, I think well, there's no negative read through from one program to the other. I think the learning is every program, every antigen, every disease is different and how and the product that you're building and how 10 18 will support it is going to be different. So no, there's no consistent read through that I would we would look to get out of that information. I think the important thing that you can extrapolate is how we manage our clinical pipeline and our investments in R and D to be hold ourselves accountable to try to find ways to have meaningful readouts that will allow us to make decisions and then make the decision around that information with a focus of building products that will actually be competitive.

Speaker 3

And so we can have a high confidence in the product's overall success. So I think that's probably the bigger learning from this Ernie, but no, I wouldn't suggest there's any read group for 10 18 here. This is just how 10 18 performed with these specific antigens against this specific target.

Speaker 5

Got it. Thank you. That's helpful.

Speaker 3

Thank you.

Operator

Thank you. Please stand by for the next question. The next question comes from the line of Paul Choi with Goldman Sachs. Paul, your line is now open.

Speaker 9

Hi, thank you. Good afternoon team and thank you for taking our questions. I had a pipeline question for Rob with regard to 10/18. And the question is, how do you think about the possibility of a single dose candidate here that's reasonably within the non inferiority margin versus Shingrix on immunogenicity, even if there is somewhat more higher rate of adverse events relative to maybe the wider dosing intervals with multiple doses with 2 doses? Thank you very much.

Speaker 3

Go ahead, Rob.

Speaker 6

Yes. A single dose I think is going to be challenging. I think it's going to be challenging for everybody. With respect to reactogenicity, we're seeing fine reactogenicity even with our higher dose of CPG1018. Even with that higher reactogenicity than with a lower dose of 10 18, it's still better than Shingrix and still better tolerated than Shingrix.

Speaker 6

I think we're certainly going to be looking as we look at these wider interval, we certainly are going to be looking at the one dose to see if there is a potential opportunity. But in the previous study, we compared one dose of the Z1018 of Z1018 with one dose of Shingrix and they were the same. It was the 2nd dose in which things seem to improve more for Shingrix than it did for us. It did improve very well for both vaccines, but more for Shingrix. So we're going to look at one dose.

Speaker 6

I'm not sure we're going to see one dose success.

Speaker 3

And Paul, if I understood your question, it sounded like you were asking, would it be worth if a product could generate one dose immunogenicity efficacy, but had to trade off with even higher reactogenicity, would that make sense? Because I think we've seen that in some other programs, not ours. And I think we would have to say from our perspective, Shingrix is one of the most reactogenic vaccines or is probably the most reactogenic vaccine. So I think anything that targets a profile that has more reactogenicity is not likely to be very successful.

Speaker 9

Got it. Okay. Thank you very much.

Operator

Thank you. Please stand by for the next question. The next question comes from the line of Roy Buchanan with Citizens. Your line is now open.

Speaker 10

Hey, thanks for taking the questions. I had a few on the site program and the plan you submitted to DoD. I see that you have dose optimization in the slides. Is there anything you can say about the doses that you're going to look at higher or lower? Do you still expect greater durability and a lower number of doses?

Speaker 10

And when do you expect to hear back from the DoD on that?

Speaker 3

Hey, Roy, thanks for the question. I think the best thing for us to do is hold off commenting on specifics regarding the trial until we actually have heard back from DoD on the contract and have a good half of alignment on what the next clinical trial would look like. So, we do expect to hear back from the DoD in the near term, possibly this year, early next year. But again, it's kind of up to them. So we're happy that we were able to continue the relationship with them and submit this updated contract and we'll be able to provide you more information when they respond.

Speaker 10

Okay, perfect. And then the SBLA for the dialysis label for HEPLISAV, I guess, do you have any sense of how long you might need to compile that data? And Rob, I think said, provide future updates on the discussions. So are discussions ongoing? You're waiting additional feedback?

Speaker 10

Or do you think you know what you need to do at this point?

Speaker 3

Yes. I'll take that. Rob, you can add on. But we've engaged with them in the process as part of their response. And so we are waiting to provide an update to them in the near term.

Speaker 3

And then once they have that, there's no defined timeline for their response. This is not a there's not a PDUFA timeline or anything like that. So this is a little bit more flexible as far as how the dialogue would go. So Rob, you want to thread any additional comments?

Speaker 6

Yes. So we're proposing a real world evidence study and as Ryan said, they have to go through we have to go through steps. And the first one is they have to decide if the database is fit for purpose. So that's really the step we're going to engage with them in the near term. I think in the long term, Roy, our understanding of the amount of time it will take to do the analysis is even though FDA's timelines are not guided by PDUFA, we're still optimistic we'll be able to get our resubmission in on time in by mid May next year.

Speaker 10

Okay. Thank you.

Operator

Thank you. 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

Speaker 3

you, operator, and thank you all for joining us today. We appreciate your interest in Dynavax. We're excited about our recent accomplishments and the strength of our position. We look forward to updating you on our progress focused on protecting the world against infectious diseases. Operator, you may end the call.

Operator

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

Speaker 3

disconnect.

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