Dynavax Technologies Corp
NASDAQ:DVAX
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Dynavax Technologies Corp
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Good day, ladies and gentlemen, and welcome to the Dynavax 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.
Thank you for participating in today's call. Joining me from Dynavax are Ryan Spencer, Chief Executive Officer; Donn Casale, Chief Commercial Officer; Rob Janssen, Chief Medical Officer; and Kelly MacDonald, our Chief Financial Officer.
Earlier today, Dynavax released financial results for the third quarter 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 ACIP recommendation impact on each, financial guidance and trends, including revenue, profitability, cash flow, sufficiency 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 1018 adjuvant.
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 will now turn the call over to Ryan.
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 million in net product sales.
We are very proud of our accomplishments with HEPLISAV-B from its development to successful commercialization. While the quarterly result is impressive, we are still at the beginning of our plan for continued growth, which Donn will provide some more details on in a moment.
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 discipline and thoughtful capital allocation are cornerstones to our approach to generate long-term value. This quarter, we read out our Phase I extension study from our Tdap program. And while our Phase I study showed improved immunogenicity from our vaccine candidate, the results did not demonstrate sufficient differentiation to meet our threshold to support advancement. 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 Z-1018 shingles vaccine program. We are actively enrolling in our Phase I/II trial, and we expect enrollment to complete by the end of this year with top line data in the second half of 2025. 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. Now as I said earlier, 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 million share repurchase plan. Personally, having been at Dynavax for so long and having participated in and led 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.
Now I'd like to turn the call over to Donn.
Thank you, Ryan. We are very proud of the performance and record-breaking sales for HEPLISAV-B in the third quarter. HEPLISAV-B achieved over $79 million 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. market share year-over-year, achieving 44% market share in the third quarter 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. HEPLISAV-B's market share in the Retail Pharmacy segment increased to 55% compared to 53% for the third quarter of 2023. For IDN, 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, 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.
In the fourth quarter, 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. We expect the HEPLISAV-B market opportunity in the U.S. to expand to a peak of over $900 million by 2030, 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 2030.
In addition, we expect the HEPLISAV-B market opportunity to remain durable beyond 2030 due to ongoing vaccination of the eligible adult population, observed revaccination practices by health care providers and continued gains in market share.
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.
Thank you, Donn. 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. 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.
Now turning to our shingles vaccine program, Z-1018. 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 second quarter, we initiated a randomized active controlled dose escalation multicenter Phase I/II trial to evaluate the safety, tolerability and immunogenicity of Z-1018 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.
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 I/II trial will also be used to validate a patient-reported outcome measurement tool to differentiate Z-1018 on tolerability and to support potential label claims. We anticipate reporting top line immunogenicity and safety data in the second half of 2025.
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 II clinical trial of the 2-dose plague vaccine adjuvanted with CpG 1018, 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.
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 third quarter financials were underscored by record HEPLISAV-B net sales of $79 million and positions us to deliver on a narrowed guidance range of $265 million to $270 million 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 first 9 months of the year, slightly outpacing our reiterated guidance of approximately 80% for the full year.
Turning to our expenses. R&D expenses for the quarter were $14 million and reflect important progress throughout our pipeline, as Rob mentioned moments ago. SG&A expenses for the third quarter of 2024 were $43 million compared to approximately $38 million 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 million, supporting our commitment to achieve profitability and positive net income for the full year 2024. Moving to the balance sheet. We exited the third quarter with cash, cash equivalents and marketable securities of approximately $764 million, which was a $28 million 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 million 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.
Lastly, we have updated our full year 2024 financial guidance, which includes a narrower HEPLISAV-B net product revenue guidance of approximately $265 million to $270 million, 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 million to $65 million and selling, general and administrative expenses to be between $170 million to $180 million. 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.
Thank you, everyone. Operator, we would now like to open the Q&A portion of today's call.
[Operator Instructions]
Our first question comes from Matt Phipps with William Blair.
Thank you for all this extra kind of clarity and nuanced guidance here today on the market. Looking at this updated kind of 2030 view, I was wondering if your 2027 previous view still is intact as far as $800 million total market by 2027, then further expanding to $900 million by 2030? Or if you think it's a little bit more linear straight to 2030, just given, I guess, now you see kind of an 8% CAGR between '23 and 2030 versus previously an 11% CAGR between '23 and '27 for -- that's just my first question.
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 -- this is not a reiteration to change what we thought would happen by 2027.
Okay. And then it looks like the majority of growth between '27 and 2030 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?
Donn, do you want to take that?
Yes, sure. Matt, yes, as we have communicated, we believe the Retail Pharmacy segment is well primed to continue to realize growth from ACIP 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, the shift into retail pharmacy. So we do see retail pharmacy being the predominant driver of that growth in those outer years relative to IDN.
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 is 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?
Sure, Matt. Donn, do you want to take that one, too?
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 and retail will continue to increase the overall total market share. 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 to be driven off these critical segments of retail pharmacy and IDN where we do see, as I said before, disproportionate growth and continued increases in market share.
The next question comes from Jon Miller with Evercore.
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 into Q4?
Kelly, do you want to handle that one? Thanks for the question, Jon.
Sure. Thanks, Jon. Yes, sure. So while we look towards the full year to represent 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. We just acknowledge that there's some variability from quarter-to-quarter.
All right. Great. And I 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 does that a sign that you've had trouble finding good value in the external opportunities that are out there right now?
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. But ultimately, it doesn't change our focus on how we're going to drive growth.
And then maybe just lastly on that repo for modeling purposes, do you have an expectation for cadence on the repo and when those -- when that could happen? Or do you have -- or is it fully open-ended?
Kelly?
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.
The next question comes from the line of Ernie Rodriguez with TD Cowen.
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 recs, could that be a positive impact on HEPLISAV and maybe represent some upside given the potential for more capacity in the retail segment? Is that something you're thinking about?
Thanks, Ernie. Donn, why don't you address that one?
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 the standpoint of a plus 1 campaign for HEPLISAV-B. It's an open arm, if you will, as people come into the pharmacy for other vaccines. That is the retail pharmacy strategy. All the retailers always want to find a way to have a plus 1 vaccine. So from that standpoint, there's opportunity, but we calculate that into kind of our thinking into the fourth quarter as well as starting into the beginning of 2025.
That's helpful. And then on the pipeline and the Tdap vaccine program, is there any learnings that -- from those results that you -- that perhaps are any read-through to the other vaccine programs or maybe even any potential vaccine indication that you were contemplating. Any learnings from that? Any data that you can use going forward?
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 1018 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&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 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-through for 1018 here. This is just how 1018 performed with these specific antigens against this specific target.
The next question comes from the line of Paul Choi with Goldman Sachs.
I had a pipeline question for Rob with regard to 1018. 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.
Go ahead, Rob.
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 CpG 1018, even with that higher reactogenicity than with the lower dose of 1018, it's still better than Shingrix and still better tolerated than Shingrix.
I think we're certainly going to be looking. As we look at the wider interval, we certainly are going to be looking at the one dose to see if there's a potential opportunity. But in the previous study, we compared one dose of the 1018 -- of Z-1018 with one dose of Shingrix, and they were the same. It was the second dose in which things seem to improve more for Shingrix than it did for us. It improved very well for both vaccines, but more for Shingrix. So we're going to look at one dose. I'm not sure we're going to see one dose success.
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 or 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.
The next question comes from the line of Roy Buchanan with Citizens.
I had a few on the plague program and the plan you submitted to DoD. I see that dose optimization in the slides. Anything you can say about the doses that you're going to look at higher, lower? Do you still expect greater durability and a lower number of doses? And when do you expect to hear back from the DoD on that?
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 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.
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? Or do you think you know what you need to do at this point?
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. And then once they have that, there's no defined time line for their response. This is not -- there's not a PDUFA time line or anything like that. So this is a little bit more flexible as far as how the dialogue will go. So Rob, do you want to provide any additional comments?
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 time lines are not guided by PDUFA, we're still optimistic we'll be able to get our resubmission on time by mid-May next year.
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 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.
Ladies and gentlemen, thank you for joining us today. This concludes today's conference call. You may now disconnect.