Dynavax Technologies Corp
NASDAQ:DVAX
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Dynavax Technologies Corp
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Good day ladies and gentlemen, and welcome to Dynavax Technologies' Second Quarter 2023 Financial Results. As a reminder, this conference is being recorded. At the end of the company's prepared remarks, we will open the call for questions and provide specific instructions at that point.
I would now like to turn the call over to Paul Cox, Vice President, Investor Relations and Corporate Communications. You may begin.
Thanks you all for participating in today's call. Joining me today from Dynavax are Ryan Spencer, Chief Executive Officer; Donn Casale, Chief Commercial Officer; Rob Janssen, Chief Medical Officer; and Kelly MacDonald, Chief Financial Officer.
Earlier today Dynavax released financial results for the second quarter ended June 30, 2023. 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 ACIP recommendation impacts on each, financial guidance and trends including revenue, profitability, cash flow, and sufficiency of current capitalization, timing and results of FDA submissions, critical trial starts and data readouts and potential future uses of or demand for our CpG 1018 adjuvant. These statements 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'll now turn the call over to Ryan.
Thanks, Paul. Good afternoon, everyone and thank you for taking the time to join us to read Dynavax's results for the second quarter of 2023. We are pleased to share the results of yet another impressive quarter for Dynavax, including outstanding progress for HEPLISAV-B, our adult hepatitis B vaccine, which delivered $56 million in quarterly net product revenue. These results reflect our team's success in driving the expansion of the adult hepatitis B vaccine market and capturing market share.
As a result of the strong HEPLISAV-B performance in the first half of 2023, along with the growing enthusiasm that we see in the market, we are significantly raising our revenue expectations for the full year. We now expect HEPLISAV-B net product revenue to be in the range of $200 million to $250 million, compared to the prior range of $165 million to $185 million. Last year, HEPLISAV-B revenue doubled compared to 2021. And with our increased guidance range, we now expect growth of 58% to 70% this year.
Based on our exceptional commercial execution, we have strengthened our financial position, with cash and investments increasing to $682 million at quarter end. And we expect positive free cash flow for 2023 in total. This addition enables us to support our efforts to maximize the HEPLISAV-B opportunity while making the appropriate investments to advance our clinical portfolio. We continue to make progress in advancing our clinical pipeline of three vaccine candidates for Tdap, Shingles and Plague. Rob will take -- walk through our achievements and expectations for our clinical program in a few minutes.
Additionally, we continue to identify and review strategic opportunities to help accelerate our growth and further diversify our product portfolio and future commercial opportunities. We're focusing on prioritizing external opportunities in the following two categories: first, commercial or late stage assets in the vaccine space to leverage our expertise in the field and our fully integrated capabilities; and second, high synergy commercial assets within the infectious disease space that would broaden our focus to include therapeutic modalities outside of vaccines. We remain focused on disciplined capital allocation strategy and our efforts to generate significant value and accelerate growth. And we look forward to providing updates on this front in the future.
I'll now turn the call over to Donn, so he can provide more details on the tremendous HEPLISAV-B performance in the second quarter.
Thank you, Ryan. I'm excited to share more details about another very strong quarterly performance for HEPLISAV-B and our continued progress in driving overall market growth, as well as capturing market share within what we believe is the best-in-class hepatitis B vaccine.
The hepatitis B market continues to grow in the U.S following the ACIPs universal recommendation for hepatitis B vaccination, which now represents a large and growing market opportunity. We believe this recommendation will be a significant catalyst for growth and estimate the hepatitis B market opportunity in the U.S could grow to over $800 million by 2027.
We continue to see indicators of market expansion with hepatitis B vaccine market growth of approximately 40% year-over-year in Q2. HEPLISAV-B continues its positive trend towards securing a majority market share within the expanding hepatitis B market. We are demonstrating gains in market share and estimate that HEPLISAV-B's total market share increased to approximately 39% compared to approximately 32% at the end of the second quarter last year.
As Ryan stated, HEPLISAV-B's performance in the second quarter exceeded expectations. In the quarter, net product revenue for HEPLISAV-B grew 73% year-over-year. These quarterly results were once again driven by HEPLISAV-B's strong performance in two critical market segments, retail pharmacy and integrated delivery networks or IDN.
For IDN, at the end of the second quarter, HEPLISAV-B's market share increased to approximately 53% compared to approximately 39% at the end of the second quarter last year. In the IDN segment, we're seeing strong conversion from large customers that have started to adopt the Universal Recommendation, driving meaningful increases in their hepatitis B vaccine purchases and vaccination in appropriate patients that exceeded 2019 pre-pandemic levels. We are working with these large health systems and others to drive ongoing adoption of the Universal Recommendation during the second half of the year.
In the retail pharmacy segment, we continue to make tremendous progress. During the quarter, HEPLISAV-B dose volume increased 78% year-over-year. We are excited about this result as market growth is the number one indicator that retail pharmacy customers are adopting the Universal Recommendation. Driving market growth and retail will be our primary sales and marketing focus moving forward.
Although our market share for the quarter remained consistent at 45% year-over-year, as a result of buying patterns of several top retail chains, we are extremely confident in our ability to be the market leader within this critical segment. We have well established strong collaborative relationships across the top retail chain and have launched key headquarters sponsored marketing initiatives and tactics across the segment.
Given this, we will be optimizing our sales force to expand our promotional reach in the segment to drive market expansion. This expanded sales force reach will call on headquarters, divisional, regional and district leaders across the top retail chain. In addition to increasing our sales force reach, we are also excited to see the full impact of the collaborative marketing initiatives launched at the end of the second quarter. We anticipate these headquarters sponsored initiatives, plus our expanded sales force reach will enable continued strong market growth and market leadership within this important segment.
We are focusing our efforts on the retail pharmacy and IDN segment, as we expect to see most of the anticipated market growth from the ACIP Universal Recommendation in these segments. Both segments have required institutional control, infrastructure, capabilities and patient volume that can help drive universal uptake. We've said these two segments will represent approximately 60% of the hepatitis B market by 2027 compared to approximately 44% in 2022. We are well-positioned to both segments with HEPLISAV-B now capturing approximately 50% of the market share in these segments combined.
In summary, we had an outstanding quarter, reaffirming our confidence that HEPLISAV-B becoming the market leader in the expanding hepatitis B vaccine market. We are encouraged by our progress and momentum in the key segments of retail pharmacy and IDN. Both of which significantly contributed to the performance of HEPLISAV-B exceeding expectations for the second quarter.
This quarter's record HEPLISAV-B revenue results reflects the continued expansion of the hepatitis B vaccine market and growing demand from physicians, pharmacists and patients for our best-in-class hepatitis B vaccine, both made possible by our team's strong commercial execution.
I will now turn the call over to Rob to take you through our clinical pipeline.
Thank you, Donn. Over the second quarter, we made important progress on our pipeline, and I'm pleased to provide our recent advancements and our plans for continued execution throughout 2023.
I'll start with our shingles vaccine program in Z-1018. In June, we presented results from the Phase 1 randomized, active-controlled, adjuvant dose escalation trial to evaluate the safety, tolerability and immunogenicity of 1018, at the 2023 Annual Conference on Vaccinology Research. In this study, we demonstrated that Z-1018 team showed favorable tolerability without observed safety concerns in healthy adults aged 50 to 69 years. All Z-1018 groups demonstrated high antibody and CD4+ T cell responses. These results demonstrate the opportunity to develop a shingles vaccine with improved tolerability and comparable efficacy, and they support the continued development of Z-1018.
In the second half of 2023, we plan to assess the regulatory pathway with the FDA to support the initiation of a Phase 1/2 trial in early 2024. Now let's turn to our Tdap-1018 program. It's an investigational vaccine candidate intended for active booster immunization against tetanus diphtheria, and pertussis, or Tdap. We're focused on improving the durability and protection against pertussis by leveraging our CpG-1018 adjuvant in the novel Tdap booster vaccine. We recently completed a pertussis challenge study in the nonhuman primate model, which demonstrated protection from disease and robust Th1 responses.
We also recently received Type B Pre-IND meeting feedback from the FDA on the Tdap-1018 clinical development and regulatory pathways. Together, results from our Phase 1 study and our human primate studies, non-human primate studies, as well as feedback from FDA support proceeding to a human challenge then. We expect to submit an investigational new drug application to FDA in the fourth quarter of 2023. To support the initiation of the human challenge study.
Moving on to the plan program. We're conducting a Phase 2 trial evaluating the immunogenicity safety and tolerability of a two dose vaccine candidate that is activated with CpG-1018. This is a collaboration with and funded by the U.S Department of Defense. This CpG 1018 adjuvant effective entities mechanism of action has the potential to speed up time for protection with fewer doses compared to the three dose alum adjuvanted vaccine under development by the Department of Defense.
Earlier this year, we completed enrollment in part two of the [indiscernible] program with top line data expected in 2024. In July, Dynavax, from the Department of Defense executed a contract modification to support advancement into a nonhuman primate challenge study, with the agreement now totaling $33.7 million through 2025. We look forward to continuing to make progress across these programs during the rest of this year.
In addition, we're excited to announce establishment of our Scientific Advisory Board comprised of renowned leaders in vaccine research and development and infectious diseases. We look forward to working with this advisory board in our advancing our pipeline, as well as supporting the evaluation, internal and external opportunities.
I'll now turn the call over to Kelly to review our financial results.
Thank you, Rob. I'm thrilled to report on another strong quarter. I'll review the key financial results for the second quarter and then review our updated guidance for the full year. Please note that all financial comparisons are versus the prior year period unless otherwise noted. Please also refer to our press release and Form 10-Q for the detailed financial information.
Starting with revenue. Total revenues for the second quarter of 2023 were $60 million, driven by HEPLISAV-B net product revenue of $56 million, compared to the second quarter of last year, HEPLISAV-B net product revenue grew by 73%. We are excited about the uptake trajectory for HEPLISAV-B including our continued growth in key market segments and are therefore raising our HEPLISAV-B net product revenue guidance for the full year to $200 million to $216 million, compared to the prior guidance at $165 million to $185 million. This represents an almost 20% increase at the midpoint, reflecting our confidence in the continued product growth this year.
We are also pleased with the continued trend in the margin profile for HEPLISAV-B for gross margins of approximately 76% in Q2 compared to about 69% last year. And we continue to expect gross margins to average in the mid 70s for the full year. Other revenue was $4 million for the second quarter representing revenue related to the plague vaccine program in collaboration with and fully funded by the U.S Department of Defense.
Now turning to our research and development expenses for the quarter. These increased to $30 million, compared to $10 million for the prior periods. The increase was driven by continued advancement in our clinical pipeline programs. Selling, general and administrative expenses for the quarter were $37 million compared to $36 million for the prior period. The increase was primarily driven by higher personnel related costs, and an overall increase in targeted marketing efforts to drive HEPLISAV-B market share and drive market expansion in key segments that we believe will disproportionately benefit helplessly upbeat.
Now turning to net income, we record -- we recorded GAAP net income of $3 million or $0.03 per share basic and diluted in Q2, compared to GAAP net income of $129 million or $1.02 per share basis at $0.87 per share diluted for the prior year period.
Moving to the balance sheet, we ended the second quarter with cash, cash equivalents and marketable securities of approximately $682 million, an increase compared to our year-end balance with $624 million. Based on our current operating plan, we continue to expect to finish 2023 with a positive free cash flow for the year. Additionally, we continue to believe this level of capital is sufficient to support our core business, enabling us to drive sustainable growth in HEPLISAV-B to capture a majority market share and bring our R&D portfolio of vaccine candidates for without needing to return to the capital markets.
We are also pleased to update our full year 2023 financial guidance expectations. As mentioned, we are raising our HEPLISAV-B net products revenue expectations to be between $200 million and $215 million. We are maintaining our operating expense guidance of R&D expenses between $55 million and $70 million, as well as SG&A expenses between $135 million and $155 million. We do expect to come in at the lower end of our R&D expense range due to the timing of Tdap program, clinical trials, startup activities taking place later this year and into early 2024.
In closing, we are proud of another successful quarter marked by continued HEPLISAV-B outperformance, further strengthening of our financial position, and pipeline progress. We also continue to be extremely thoughtful in how we allocate our capital to accelerate growth and build beyond our current base business.
Our strong capital position and commercial execution has provided us with strategic flexibility to identify and pursue external opportunities to complement our organic growth as we strive to deliver long-term value to our shareholders. We're excited about our progress to date, and we look forward to continuing to deliver on our goals for 2023.
Thank you, everyone for your attention today. Operator, we would now like to open the Q&A portion of today's call.
Thank you. [Operator Instructions] Our first question comes from the line of Matthew Phipps with William Blair. Your line is now open.
Good afternoon. Yes. Just really congrats on a great quarter for you guys. Great to see. I guess first for Donn, given what you -- some of the commentary you had around kind of retail growth. And just where your market share is? Is the overall market expanding, as you expected? Or is it maybe even a little bit faster than you expected to get to that $800 million. I guess I would have started be a little bit slower in this first year picking up a little bit later. Here's where you think you are in that kind of trajectory to get to $800 million.
Hey, Matt. Again, thanks for the question. Regarding market growth, as I mentioned on the comments, the market growth is so critical, obviously in retail and IDN. But specifically to answer your question, market growth is actually accelerating more so than we forecasted. We're really pleased to see the uptake with the recommendation in both segments, both retail and IDN. And so that's something that we're really excited about in those segments.
Great. Thanks. And curious on the Tdap nonhuman challenge study. Did that study include a control arm such as Boostrix?
It did.
Did you comment on any of that? Or will you do plan to present that at some meeting coming up?
We don't have any plans to present that nonhuman primate data and meeting on its own. But in general, we saw strong T cell responses which would be adjuvant comparatively strict -- compared to control arm 7. So we were pleased with the results compared to the comparator. Yes. And then just to put a finer point on Donn's question before Matt, just so you're clear. As you mentioned, its accelerated faster than we projected. We haven't at this point, changed the overall time on our long-term guidance around the peak. So we're going to have to watch that and see how that kind of continues to evolve over time. See, if this accelerator the chicken, the curve just got a little steep on the front end.
Yep, understood. Thank you all and congrats again.
Thank you so much.
Thank you. [Operator Instructions] Our next question comes from the line of Ernesto Rodriguez-Dumont with Cowen. Your line is now open.
Hi, and congratulations on a great quarter. Thank you for taking my question. So one question on HEPLISAV. You have guided previously for gross margins in the low 70s. Now you reported margins on the mid high 70s. Is that something that we should consider looking forward? Maybe improvement in the -- in estimates and gross margins? Or is that something more short-term?
Kelly, I think that one.
For sure. Hi, Ernie. Thanks for the question. As you know, and as we've seen sort of in the lumpiness over the last couple of years and COG we've made pretty meaningful investments in our manufacturing facility over in Germany. So we're really excited to see some of the yield improvement translating to improve margins, especially in this quarter. To answer your question directly, we would expect margins in this level that continued here on with mid 78% margin for the year on average.
Got it. Thank you. That's helpful. And if I may on the shingles vaccine on the presentation, any feedback that you got from in terms of deposition computations? And in particular, you -- have you disclose also the Grade 3 or Grade 4 AES that were presented, in particular the one that led to discontinuation of treatment?
Rob, do you want to answer that one.
Yes, we did. The Grade 3 and 4 were similar between the two groups. And the ones that lead there was one that led to discontinuation in the lowest detainee teen group, but it wasn't related to vaccine. It was -- sorry, it was thought to be related to vaccine from a third-party by the investigator, by the sponsor we would not consider to be related.
Got it. Okay. Thank you. Appreciate it. Congrats again.
Thank you.
Thank you. [Operator Instructions] Our next question comes from the line of Roy Buchanan with JMP Securities. Your line is now open.
Hi. Thanks for taking the question. Great quarter. First one, I guess on the [indiscernible] that the new grant just how much was left in the original part of the grant. Do you have access to that entire amount? And then how far does the new total get you? I think the TR says, starting the nonhuman primate challenge trial. But seems like it probably gives you quite a bit beyond that. And then I guess, can you just help us understand what’s the loss in the nonhuman primate challenge trial are -- as far as getting you to an approval?
Roy, thank you. If you recall, the original contract is about $22 million, that we will have full access to that contract. That was to focus on the completion of the Phase 2 trial. So there's a number of amendments that expanded the contract by about $11 million in total, with the largest piece being non human primate study, which is, I think, to get to a real the crux, the real question is how far does that get us that's one component of a longer term pathway to support eventual approval that would leverage non human primate challenge studies. And so that's the first step in that process, which is covered by this particular contract expansion.
Okay, great. Then it's a quick one on shingles. I know you guys still need to talk to the FDA and probably will have more to say after that, but I guess I'm just curious, your thoughts around if you have to go ex U.S for the next trial? Is that leverageable for a U.S approval? Or is it base case assumption that you might have to forego U.S market? And if the latter is the case? Does it make the most sense to license that candidate out?
Now, our current strategy is definitely to include the U.S market. So as you indicated, we'll have to still talk to the agency about our opportunities for a pathway in the U.S. But anything any sort of strategy that took us to the ex U.S markets for efficacy would be part of a plan to utilize that data to support U.S licensure.
Okay, thank you.
Thank you. [Operator Instructions] Our next question comes from the line of Jon Miller with Evercore ISI. Your line is now open.
Hey, guys, thanks so much for taking my question. I guess I'll join everybody else in congratulating you on a great quarter. As the new analysts covering the story, I can only assume every quarter will be as exciting as this one. Thanks, Jon. Appreciate that.
That's my question. No, maybe just one or two from me. When you say you're optimizing your commercial efforts for retail IDN segments as the fastest growing segments can maybe give me a little more color on what levers are available to their front versus other segments and maybe what the biggest drivers of shared growth there will be and given the rapid growth you've seen since the ASAP rack. Are you seeing any signs that have pushed back from pairs, price sensitivity or anything like that in the retail segment that may be influencing further growth there
Why don't we break this up? I'll take the second question quickly. And then let Donn provide some more insight around the optimization within retail. But in general, this is really important as it relates to the vaccine business. There's very little payer involvement or engagement, the vaccine business, it's generally good medicine and seen as being, it's welcomed by pairs typically. So we have not seen any pushback as relates to the recommendation from a payer or pricing perspective. So and I don't, we don't expect that would have any impact on the ability for the market to grow, that really comes down to physician recommendations and patient acceptance. But as it relates to the operational changes within the field team and the marketing -- sorry the retail segment, I turn it over to Donn.
Yes. Hey, Jon. So yes, regarding the optimizing of sales force, optimization to sales force, mainly as it relates specifically to retail, as I mentioned, on the call, the targets will be around not only headquarters, which is where we've been quite a bit for, for quite some time, establishing relationships that allows us to deploy marketing initiatives, but also engaging at the regional the divisional and the district levels of these retail chains, which is so critical to pull through initiatives and education, whatever it may be to increase identification and recommendation of hepatitis B vaccine. So the whole point there is to really engage the retailer at those different levels. And that's part of this process, ensuring we have the right sales force attack to allow us to drive forward recommendations throughout the top change.
At the same time within the hospital segment, IDN segment, we've gone to a more vertical structure allows account executives to own the decision makers at the top as well as pull through at the clinic level to drive the recommendation. So we feel really good about where we're at. And a lot of it's based upon a lot of the learnings we've been able to gather over the last several years in launching FSFE.
Great. That that makes sense. Maybe on the Tdap program, do you have any more color on that challenge study that you're planning on starting by the end of the year. How big it's going to be and how that will support further development of that program.
We haven't commented on actual size just yet. But as far as the -- how it fits into the whole picture, obviously, demonstrating that the product can be protective in humans is critical. And it'll allow us to then have a immunogenicity endpoint that we can use to bridge back to in larger studies. So this is a an initial challenge study, It's likely and expected that we would have to do larger challenge study.
In addition to this, this one as part of a longer term development plan, it's important to also recognize this is a new study design that hasn't really been done before with a vaccine pertussis. So we're working with an investigator now to help support his development of a challenge model where we can use a vaccine and allows disease to progress to identify and test efficacy in humans. And so, this pilot study is important on a number of fronts. One for our product, and also to establish the Model
Makes sense. Thanks so much.
Definitely. Thank you for the question.
Thank you. And we have no further questions at this time. I would like to hand the conference back over to Mr. Ryan Spencer, Chief Executive Officer for closing remarks. You may begin.
Thank you, operator, and thank you all for joining us today. We appreciate your interest in Dynavax. We are very excited about our continued progress and the strength of our position, which we believe allows us to focus on executing our long-term objectives to drive value through advancement of meaningful products to help protect the world from infectious diseases. We look forward to updating you on our progress. Operator, you may end the call.
Thank you. Ladies and gentlemen, thank you for joining us today. This concludes today's conference call. You may now disconnect. Everyone have a wonderful day.