Dynavax Technologies Corp

NASDAQ:DVAX

Earnings Call Transcript 2018-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to the Dynavax Technologies Fourth Quarter and Full Year 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce you host for today's conference, Ms. Heather Rowe, Vice President of Investor Relations and Corporate Communication. You may begin.

[Heather Rowe, VP, IR & Corporate Communications]

Thank you, operator. Good afternoon. Welcome to the Dynavax Fourth Quarter and Full Year 2018 Financial Results Conference Call. With me today are Eddie Gray, Chief Executive Officer; Rob Janssen, Chief Medical Officer; Michael Ostrach, Chief Financial Officer; and Ryan Spencer, Vice President Commercial Operations. We issued a press release this afternoon and also posted slides to accompany this presentation. The slides can be found under the Investor Relations section of our website under Events and Presentation.

Before we begin, I advise that we will be making forward-looking statements including statements regarding clinical and financial information, expectations, and anticipated key events. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risks are summarized in today's press release and are detailed in the Risk Factors section of our current 10-Q and 10-K periodic reports filed with the SEC, which we encourage you to review.

I'll now turn the call over to Eddie.

[Eddie Gray, CEO]

Thank you, Heather, and thank you everyone for joining us today to review our fourth quarter and full year 2018 results. 2018 was an important year of execution for Dynavax, both for the HEPLISAV-B commercial program and our SD-101 immuno-oncology clinical program. Our pipeline can be seen on Slide 3. The backbone of this pipeline is built on an expertise in discovering and developing TLR agonists that stimulate the immune system to prevent infectious disease and treat cancer. Against that backdrop, I'll now highlight key accomplishments from the past year.

First as you can see on Slide 4, HEPLISAV-B is poised to become standard of care hepatitis B adult vaccine, and for good reason. It offers clinical advantage over the competition. Namely, it is the only two-dose hepatitis B vaccine that has consistently protected more than 90% of adult patients, demonstrating higher consumer [ph] protection rates from the market leader in head-to-head studies. We launched HEPLISAV-B in 2018 with a 60-person field sales team covering over 75% of the target market. Our efforts to shift market share from our competitors are beginning to pay off and we are establishing a solid base within institution accounts, ensuring a future of long term stable revenue-generation.

Let me highlight some recent wins as shown on Slide 5. Today, we reported HEPLISAV-B net sales of $3.9 million for the fourth quarter, a little more than the estimate we provided in January. This compares to $1.5 million for the third quarter. We reiterate our expectation that HEPLISAV operations will be profitable by the end of the year and we believe that over time, HEPLISAV can reach peach gross U.S. sales of around $500 million.

While we are confident with our year-end goal, we know we should still expect monthly and quarterly fluctuations and that the rate of growth each quarter will also fluctuate. Each large institutional customer follows a unique position in purchase process and their associated time lines vary. In 2019, the timing of purchases by new customer entrants are very influential. Overtime though, they make repeat orders which settle into a more predictable pattern, thus becoming something like an annuity. Now whilst this trend is beginning in 2019, obviously, the genuine power of the annuity continues to grow overtime.

So let me discuss some of the recent progresses that we've made. In 2018, more than 1,200 individual customers purchased HEPLISAV-B. More than 80% of the doses sold today each were purchased by repeat customer purchase. As previously announced in January, HEPLISAV-B became available in all of the Sam's Club pharmacy locations. In addition, we have begun sales into two of the four top national retail pharmacy chains and contracting efforts are under way to secure additional pharmacy partners. These winds represents an important step toward building our pharmacy presence to ensure and support future growth in the diabetes market.

Beyond our retail pharmacy progress, we have other reasons where news including large state departments of corrections, multiple departments of defense customers, as well as state and county health departments through the CDC vaccine for adult program which became operational in January. In addition, since our November call, we've had 17 new P&T approvals within the top 100 accounts, which means we have now passed 53 of our top 100 accounts through this important point in the process. As of last week, we've moved over 590 customers, in total three P&T approval and they represent in excess of 36% of the target market potential.

In the United States, the market appears to be fairly stable and at around 2 million to 2.5 million adults who are vaccinated annually against hepatitis B. Within this market, our areas for growth including increasing second-dose compliance and once we've gained market share in retail pharmacies, focus on diabetic patients. In summary as you can see on Slide 6, we believe that we're well-positioned to drive sustained revenue growth. We have a compelling commercial profile and an established concentrated market that we can convert into an annuity.

I'll now turn the call over to our Chief Medical Officer, Rob Johnson to discuss the immuno-oncology clinical program.

[Robert Janssen, CMO]

Thanks, Eddie. Our lead candidate is SD-101, our optimized TLR9 agonist as shown on Slide 8. We're evaluating this intratumoral TLR9 agonist in several clinical studies to assess its safety and activity. This includes the Phase 2 study in combination with the anti-PD-1 therapy pembrolizumab in patients with advanced melanoma and the patients with head and neck squamous cell carcinoma. While the current files are in combination with pembrolizumab, intratumoral SD-101 has systemic single agent activity as we demonstrated in the study of lymphoma patients. In this study, intratumoral SD-101 induced abscopal responses in the absence of any other systemic therapy by producing regression in non-injected tumors.

We've consistently demonstrated that SD-101 has meaningful clinical benefit to pembrolizumab therapy. As shown on Slide 9 and presented at ESMO last year, 2-milligrams SD-101 in patients with advanced melanoma naïve to anti-PD-1 therapy led to a 70% overall response rate or ORR. There is a 68% ORR in non-injected lesions including visceral metastasis in the lungs and liver. In addition, responsive appear to be independent of PD-L1 expression in unselected samples. We also announced the encouraging early data from additional trial including patients with melanoma refractory or resistant to anti-PD-1 therapy and patients with head and neck squamous cell carcinoma who are naïve to anti-PD-1 therapy. You can see these data on Slides 10 and 11. The response rates were better than what we're seeing with pembrolizumab alone in both trials reported data were from 8-milligram cohorts. A recently completed enrollment in 2-milligram cohorts and plan to report on these data later this year. Now importantly, the combination of SD-101 and pembrolizumab remains well-tolerated with adverse events related to SD-101 being transient, mild to moderate flu-like symptoms.

SD-101 and pembrolizumab are also being evaluated in a randomized investigational treatment arm for the ongoing I-SPY 2 TRIAL for neoadjuvant treatment of locally advanced breast cancer. The combination is being added to standard of care in the new treatment arm. This trial is important for several reasons. Notably, it's a controlled study. We call the I-SPY 2 TRIAL is a stand-in Phase 2 randomized controlled multicenter study with an innovative adaptive design intended to rapidly screen and identify promising new treatments in specific sub groups of women with newly diagnosed high-risk locally advanced breast cancer.

The primary outcome measure of this study is the pathologic complete response rate which was proposed by FDA in 2012 as a regulatory end point to expedite development of drugs for these types of patients. SD-101 which can be administered directly into these regions is well-suited for this indication for which there's a high unmet need. We look forward to seeing how SD-101 might help make available new more effective treatments for women with advanced breast cancer.

We're also developing a TLR9 agonist DV281 that's designed for delivery to the lungs as an inhaled treatment for lung cancer or other cancers metastasizing to the lung. You can see the overview of this program on Slide 12. We're conducting a Phase 1b clinical trial in patients with advanced non-small cell lung cancer to investigate the safety and tolerability of DV281 as monotherapy and in combination with nivolumab, as well, to identify a recommended dose for the expansion part of the study.

Now beyond these programs, we're also conducting multiple immuno-oncology preclinical research programs including a cancer vaccine program and a multi-pronged program to develop TLR7 and TLR8 agonist, both is anti-cancer agents and is vaccine adjuvants. We're also evaluating additional candidates to leverage the HEPLISAV-B 1018 adjuvant in other prophylactic infectious disease vaccines.

With that, I'll turn it over to Michael to discuss our financials.

[Michael Ostrach, CFO]

Thanks, Rob. Key sales regarding our financial results can be found in the press release we issued this afternoon, as well as Slides 13 and 14 that are posted on our website for today's call. Net product revenue for HEPLISAV-B total $3.9 million for the fourth quarter and $6.8 million for the full year 2018. Revenue from product sales is recorded at that net sales price which includes estimates of product returns, charge backs, discounts, rebates and other fees.

Cash, cash equivalents and marketable securities totals $145.5 million at December 31, 2018, compared to $191.9 million at December 31, 2017. We were planning to borrow $75 million from our non-diluted term loan agreement during this quarter to support commercial efforts and advance our immuno-oncology platform. Selling, general and administrative expenses for the fourth quarter totaled $16.4 million compared to $9.3 million for the fourth quarter of last year. Full year 2018 SG&A expenses were $64.8 million, compared to $27.4 million in 2017. These increases are primarily due to full implementation of HEPLISAV-B sales, marketing and commercial activities including deployments of our contract sales force which were converting to an internal sales force in the next month, implementation of post marketing studies and retention of consultants for commercial development services.

The net loss for the fourth quarter was $40 million or $0.64 per share compared to $27.4 million or $0.45 per share for the fourth quarter of last year and the net loss for the 12-month period was $158.9 million or $2.55 per share compared to $95 million or a $1.81 per share for last year.

I'll now turn the call back to Eddie for his closing remarks.

[Eddie Gray, CEO]

Thank you, Michael. So we are entering 2019 with good momentum and anticipate solid growth for the company.

For upcoming milestones, firstly our HEPLISAV-B post marketing study. A study was initiated in August and is recruiting at the expected rate with full enrollment target of the third quarter. In addition, we are assessing markets beyond the United States and plans to file an MAA in Europe for HEPLISAV-B in the first half of this year. We're also investigating opportunities to broaden the use of the 1018 adjuvant which makes HEPLISAV-B so effective into additional next-generation vaccines. We are collaborating with The Serum Institute of India to develop and improve pertussis vaccine and plan to begin a clinical study of a prototype vaccine later this year.

On the partnership front in immuno-oncology, we are in discussions with a number of pharmaceutical companies to explore the broadening and deepening of our immuno-oncology clinical program and these discussions are a priority activity for the management.

The current expansion of our clinical data set will inform important strategic choices including partnership options, the expansion of tumor types and selection of the best options for progression into registrational studies. As search in the course of discussions with prospective partners regarding Phase 3 programs, we may find partners with capabilities in products that will enhance and broaden the TLR9 clinical program and have an interest in supporting the initiatives that we would plan to take forward on our own as well.

So whilst I cannot guide to any timing or specific form of arrangements as each discussion is different depending on the current assets and interests of each potential partner, we are committed to being thoughtful and diligent in determining the best path forward to drive value for our shareholders.

Our lease partnering discussions are still ongoing. There are plans that we can conduct on our own. For these, we will prioritize tumor types that we believe have a high likelihood of responsiveness to our mode of action and a clear feasible and affordable pathway to approval. These include following the assessing the results from the 2-milligram cohorts, we plan to start two studies of SD-101 in combination with anti-PD-1 in the second half of the year.

Firstly, a seamless Phase 2/3 first line study in patients with head and neck cancer, compared to first line melanoma, the bar for demonstrating clinical benefits in head and neck is lower and the competitive field less crowded. And secondly, a Phase 2/3 study in patients with melanoma resistant or refractory to anti-PD-1 therapy.

And finally, a trial that will include multiple HPV associated malignancies including anal, rectal and gynecological cancers is also planned for the second half of the year. As with head and neck cancer low pembrolizumab is approved or active in these indications, there remain significant need for increased responses that SD-101 has provided in other cancers. As indicated earlier, whilst these may form the basis for Dynavax only plant [ph], we are incorporating these into our discussions with potential partners as that remains our priority activity. We also plan to report additional SD-101 clinical results and developments at major meetings including the 2 milligram cohort data I mentioned earlier. And finally at the AACR, we will present safety results from our Phase 1 dose escalation study of DV281 in combination with nivolumab. We plan to initiate a multiple cohort Phase 2 study later this year.

We look forward to what is sure to be a busy and exciting year. And before taking questions, I shall hand over to the operator to take us through that. Thank you.

[Operator]

[Operator Instructions] Our first question is from Anupam Rama with JPMorgan. Please proceed with your question.

[Anupam Rama, JPMorgan]

Just following up on one of your comments there, Eddie, on attention of the data set to inform potential partnership options. Are there any specific pieces of the data potentially thinking about durability and survival that may come at ASCO at those points of interest? And then one on HEPLISAV, you mentioned that the test and retention rate is pretty high with the except [ph] doses being from the peak customers. So on those 20% that are from first-time customers, are those because the customers haven't had time to reorder, or there's no patient demand, or have they chosen another vaccination regimen to go with? Thank you very much.

[Eddie Gray, CEO]

Thank you, Anupam. The line was breaking up there, so I'm just going to clarify to make sure we have the right questions. The first question I think was around durability data later in the year and the second one was about the balance between first customer orders and multiple orders in the HEPLISAV data? Is that correct?

[Anupam Rama, JPMorgan]

That's correct. And qualifying those first-time orders, what kind of customers they are? Thank you.

[Eddie Gray, CEO]

Right. Rob, can you comment on the evolution of our durability data around when we're expecting to see data?

[Robert Janssen, CMO]

Yes. The last durability data we presented with ASNO [ph], we do anticipate presenting at ASCO. This is in the PD-1 naïve melanoma population which will be essentially in additional six months to follow up. We have fully enrolled all those patients at this point. So they are in follow-up. I'm anticipating that we -- I trust we'll have needing follow up in the 2-milligram group potentially at 10-12 months.

[Eddie Gray, CEO]

Ryan, could you address the HEPLISAV please?

[Ryan Spencer, VP, Commercial Operations]

Yes. Focusing on the 20% is difficult. Obviously, there are different reasons why customers haven't had a chance to have repeat orders. Some like you mentioned will be first time. If they stock in for a month, you can't expect them to have a repeat order yet. They have their in-stocking practices which could be multiple months and in fact those numbers were based on those as not actual customers. We have a situation I can speak to enough specifically, but we had a rather large customer who took on initial stocking order but hasn't had the chance to reorder yet either. So that actually is a big part of the 20%. I think the 80% is the number to focus on as part of having the metric meaningful to show that customers do first with HEPLISAV and do reorder at the 20% fall [ph] which is very expected range for a scenario where we're continuing to build new customers every month.

[Eddie Gray, CEO]

And I think, Anupam, I think what we're trying investors understand, is the growth over time in customers who are converting either wholly to HEPLISAV or converting greater proportions of their business to HEPLISAV over time and one can see that in the high rate of continued ordering. But also recognizing that by maintaining 20% in new at this point in time, we're teething new customers in that. So the machine of annuity, if I may call it that way, is being said with new customers. I think we quite like the 80/20 at this point in time. It's showing that both parts of the developments of the business are enhancing.

[Anupam Rama, JPMorgan]

That's really helpful. Thanks a lot, guys.

[Operator]

Our next question is from Joseph Thome with Cowen & Company. Please proceed with your question.

[Joseph Thome, Cowen & Company]

Thank you for taking my questions and congrats on the progress this quarter. I'll start with one on HEPLISAV. I know the experience is obviously pretty early, but do you have any real-world compliance or safety data yet? Or are you seeing it as surprising or is everything pretty similar to what we saw in clinical study? And then maybe on DV281, have you reached that maximum tolerated dose that you believe you're going to take into expansion cohorts? Or will you do that by the time of the AACR presentation? Thank you.

[Eddie Gray, CEO]

Okay. Rob, perhaps you can comment on the compliance or safety data for HEPLISAV and then on DV281, again if you can comment. But I'm guessing given our experience in SD-101 and what we've seen in terms of efficacy pattern, we're not necessarily targeting maximum tolerated dose with DV281 anyway. Take those three questions if you would.

[Robert Janssen, CMO]

Yes. With respect to compliance, we don't have data at this point with compliance in the post marketing sales were doing with Kaiser in Southern California. They will be looking at that when the end lights the data, but that will be in a year or two. The other thing with respect to safety, we aren't seeing -- we do get individual reports of safety advance and we're not seeing anything out of the ordinary, nothing that we haven't seen in the past. With respect to the MTD for DV281, we are right now enrolling in about complete enrollment in our highest dose cohort and we certainly will be looking at whether we reach an MTD. As Eddie mentioned, we think it's probably unlikely that we'll find an MTD.

[Joseph Thome, Cowen & Company]

Okay, great. Thank you.

[Operator]

Our next question is from Katherine Xu with William Blair & Company. Please proceed with your question.

[Roland Smith, William Blair & Company]

Hi, this is Roland on for Katherine. Two questions for me. First, which is more likely at this point for SD-101? A partner for a Phase 3 study in metastatic melanoma, or going on your own in a smaller indication such as head and neck? And second, do you still expect to be operationally ready to enter Phase 3 studies by the end of the first quarter? Thank you.

[Eddie Gray, CEO]

I think the idea of interest in melanoma naïve from a partnership point of view and the relative interest on that in comparison to what's going alone on head and neck or anything else really differs from partner to partner. So it's very difficult for me to be specific and obviously not in a position today to talk in detail about individual conversations. As I think I said in my comments, we do take the partnership discussions as confidential as they are in very high priority manner. We do find when we're talking to these customers that each individual discussion is driven by multiple factors and they're different in each case. Each company has its own assessment of market opportunity, how different segments or different tumor types fit in to their own portfolio, their own timeline, perhaps even what they are trying to achieve or not achieve with their own PD-1. So I can't really provide a general answer to that one.

In terms of Phase 3, as Rob has indicated, we are currently collecting all the final 2-milligram data on head and neck on melanoma refractory. We're putting in place all the preparations ready to go forth with Phase 3, but every decision that we take subject to partnership discussions. But I think it's probably unlikely that we would see any final decisions made on that until we see the full 2-milligram data in those two studies.

Is that fair, Roland?

[Roland Smith, William Blair & Company]

Yes.

[Eddie Gray, CEO]

Okay. Thank you.

[Operator]

[Operator Instructions] Our next question is from Brian Abrahams of RBC Capital Markets. Please proceed with your question.

[Unidentified Analyst]

Hi, this is Bert [ph] on for Brian. Congratulations on the quarter and thanks for taking our questions. As you've now reached the inflection point with HEPLISAV-B sale, are there any additions to or modifications in your approach, this being implemented to increase uptake on the remaining formularies that you're targeting? And then we'd all should be interested in your current thoughts and plan for potentially expanding the label for HEPLISAV into younger patients including new born. Thank you.

[Eddie Gray, CEO]

Okay. On the commercial purchase, can you deal with that, Ryan, please?

[Ryan Spencer, VP, Commercial Operations]

Sure. No, I would say there's massive differences, but we are constantly learning from our interactions with the marketplace and making adjustments to how we approach customers and how we can obviously always improve the efficiencies and the effectiveness of each interaction. But I believe the point of your question is that there is a large strategic change. We're not making major changes to the field structure. There are some minor element based on our learning's and engagement strategies, but no major changes to our approach to the marketplace.

[Eddie Gray, CEO]

On the issue of expanding HEPLISAV use, I think when one looks at vaccination of infants for hepatitis B, there are two important things to remember: firstly, infants' immune systems remain far more responsive to the traditional alum adjuvant than adults. So this significant difference and benefit that we could bring to adults in the marketplace isn't as readily available in child with vaccination; secondly, hepatitis B in children is very rarely given as a monovalent vaccine. It forms a component part of multi-dose vaccines. I think we've always felt that it's unlikely, even if we were able to deliver a slightly better hepatitis B response, but public policy which switch out of these multivalent vaccines to get to slightly-better hepatitis B response in children and create some degree of uncertainty in the rest of the vaccination schedule. So for those reasons, I think we've always felt it unlikely that we would ever see pediatric vaccination and I think that's still where our heads are.

[Unidentified Analyst]

Great. Thank you.

[Operator]

And we're showing no further questions at this time. I would like to turn the call back over to Eddie Gray, Chief Executive Officer, for closing remarks.

[Eddie Gray, CEO]

Thank you. I would really just like to thank everybody for joining us today and for your continued interest and support of Dynavax. We very much look forward to updating you on future calls as our progress for 2019. Thank you very much for your time today.

[Operator]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect.