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 Fourth Quarter 2020 Conference Call. As a reminder, this conference call 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 Nicole Arndt, Senior Manager, Investor Relations. You may begin.
Thank you, Operator. Good afternoon. Welcome to the Dynavax fourth quarter and full-year 2020 financial results and corporate update conference call. Joining me on the call today are Ryan Spencer, Chief Executive Officer; Michael Ostrach, Chief Financial Officer; Rob Janssen, Chief Medical Officer; Donn Casale, Vice President, Commercial.
Before we begin, I advise you that we will be making Forward-Looking Statements today, including statements regarding HEPLISAV-B’s commercial profile, revenue expectations, potential peak revenue, European launch and completion of post-marketing studies and regarding vaccine development potential with CpG 1018 and revenue expectations. These statements are subject to a number of risks and uncertainties and could cause actual results to differ materially. These results 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 all to review.
I will now turn the call over to Ryan Spencer, CEO of Dynavax.
Thank you, Nicole. And thank you all for joining us today. I'm excited to share both our 2020 results as well as our outlook for 2021. The current global pandemic has highlighted the need for continued development of new or improved vaccines to prevent the spread of infectious diseases.
Vaccine adjuvant have the potential to boost the immune response to increase protection and provide longer lasting immune immunity, maybe adjuvant and important contributor to the success of these vaccines. In addition, increased awareness of the importance of protection against deadly diseases will expand the long-term recurring revenue stream that vaccines provide.
Our first commercialized product HEPLISAV-B is an adult Hepatitis B vaccine, which is adjuvanted with CpG 1018 and was shown in three pivotal trials to provide higher levels of protection with fewer doses compared to the current market theater.
Hepatitis B is a highly infectious and potentially deadly virus with increasing infection rates. Over 250 million people worldwide are infected. Thankfully, it can be prevented with effective vaccination.
challenges with compliance. With the legacy 3-dose products are well known, with only approximately 22% to 54% of patients completing the 3-dose regimen over the required six months schedule.
HEPLISAV-B dose one month schedule, with the corresponding improvements in compliance and higher levels of protection give us confidence HEPLISAV-B will eventually become the standard of care for adult Hepatitis B vaccination in the U.S.
HEPLISAV-B a strong fourth quarter with net product revenue of $11.5 million, which was up approximately 8.5% year-over-year, despite a reduction in the overall utilization of Hep B vaccine of approximately 35% in the fourth quarter compared to the same period last year.
Market share and accounts targeted by the field sales team increased to 26% in the first quarter of 2020, up from 20% in the fourth quarter of 2019. Demonstrating HEPLISAV-B continued ability to take market share despite significant customer disruptions due to the COVID-19 pandemic.
Additionally, we made continued progress in national accounts with a national dialysis chain making a significant purchase of HEPLISAV-B to be used for its employees, resulting in approximately $3 million in revenue in the quarter.
While we expect this customer to contribute meaningful recurring revenue overtime, the stock in order will likely cover their utilization for the first few quarters as they implement HEPLISAV-B vaccination for their employees. Our ability to continue to increase our market share and advanced national accounts provides us confidence in the value of HEPLISAV-B and its ability to become the market leader.
Looking ahead to the first quarter, we are seeing continued pressure on adult vaccine utilization as our nation starts to significantly ramp up COVID-19 vaccine administration. Current CDC guidance recommends COVID-19 vaccines be administered alone with a minimum interval of 14-days before or after administration of another vaccine.
Market data in January and early February show reduced non-COVID vaccine utilization compared to fourth quarter of 2020. As a result, we expect HEPLISAV-B revenues in the first quarter to decrease from the fourth quarter.
Based on customer feedback and the expected timing of COVID-19 vaccination rollout. We believe the utilization of adult vaccines will be impacted throughout the first half of 2021. But will rapidly return in the second half of the year as the backlog of patients requiring non-COVID vaccines is addressed.
Despite the pandemic, we expect to capture additional market share and field targeted - and make significant progress in our national accounts. Furthermore, we believe a combination of our efforts in driving market share and converting national accounts as well as increased awareness of the importance of using the best available vaccines will lead to significant revenue growth compared to 2020. With a large majority of HEPLISAV-B revenue in 2021, coming in the second half of the year.
Another important highlight of continued progress for HEPLISAV-B came this past Friday, when the European Commission granted marketing authorization for HEPLISAV-B in Europe. We anticipate launching HEPLISAV-B in Germany in the fourth quarter of this year.
Furthering our positive outlook for HEPLISAV-B yesterday, the CDC Advisory Committee on Immunization Practices or ACIP discuss the concept of an enhanced recommendation for adult Hepatitis B vaccination. Specifically the ACIP discussed recommending Hepatitis B vaccination for all previously unvaccinated adults.
This universal recommendation would greatly expand the number of adults in the U.S. who should be vaccinated against Hepatitis B. The Hepatitis B working group is targeting an ACIP vote as soon as October 2021 on this major policy initiative.
We believe a universal recommendation would be a catalyst to support the growth of the adult Hepatitis B market, by significantly increasing the number of people recommended to be vaccinated and enabling easier identification of those in need of vaccination.
HEPLISAV-B he provides an important foundation for our company. Additionally, our CpG 1018 adjuvant supply business is growing rapidly as a result of the COVID-19 pandemic, providing an additional source of revenue growth.
Underscoring CpG 1018 versatility, our collaboration span multiple technology platforms, across the varied indications, including COVID-19, tetanus, diphtheria and acellular pertussis or Tdap and universal influenza.
These CPG 1018 collaborations provide a pipeline of opportunities for Dynavax, either as a vaccine developer or as a supplier of adjuvant, and both scenarios progressed from strategy to reality in 2020.
In the vaccine development category, Dynavax is now evaluating CpG 1018 in a Phase I clinical trial of a potentially improved Tdap vaccine candidate. This clinical safety program develop out of the collaboration with Serum Institute of India.
Data from this trial are anticipated in the fourth quarter of this year. We have also made progress with our adjutant supply business for COVID-19 vaccines, which is now generating significant revenue. Before I provide an update on our specific COVID-19 partnerships, I would like to briefly review the COVID-19 vaccine landscape, and how we expect CpG 1018 to fit in.
The global demand for initial COVID-19 vaccine is massive, and with the uncertainty regarding duration of protection and the emergence of new mutations, it is likely that booster vaccinations will be necessary, and may need to contain antigens for multiple strings.
Adjutant inactivated and adjuvant protein subunit vaccine platforms provide a number of advantages to address the global demand. First, these things are stored at traditional refrigeration, temperatures, unlike mRNA vaccines, making them more accessible for the global population.
These platforms have historically been used for multivalent vaccines, while maintaining an acceptable safety and tolerability profile. Inactivated in subunit vaccine can be used for repeat dosing, unlike some viral vector platforms. And finally, with adjuvant CpG 1018, we believe these platforms have the potential to deliver high levels of protection on par with mRMA vaccines.
Our collaboration strategy has resulted in multiple opportunities for emergency use authorization in 2021 for CpG 1018 adjuvanted COVID-19 vaccines. CpG 1018 has demonstrated the ability to increase the antibodies, while preserving the best-in-class tolerability profile. Our partnerships are moving forward to the next stage of development and preparation for commercial supply.
In the third quarter of last year, we executed our first commercial supply agreement for a COVID-19 vaccine candidate and began production of CpG 1018 at scale for pandemic supply. Under this agreement Dynavax is providing CpG 1018 for Valneva's COVID-19 vaccine candidate, being developed under an agreement with the UK Government.
Dynavax is scheduled to supply Valneva CpG 1018 adjuvant or 100 million vaccine doses in 2021, which represents a revenue opportunity of up to $230 million. While this contract is contingent on continued successful development, it is potentially worth over $400 million for Dynavax through 2024.
We recently executed another major agreement to support commercial supply in 2021. With the Coalition for Epidemic Preparedness Initiative, or CEPI. CEPI is providing significant support for the global response to the COVID-19 pandemic, through many collaborations and partnerships around the world.
CEPI is providing Dynavax manufacturing funding of up to $99 million to support stockpiling of CpG 1018 for future sales to CEPI grantees. Depending on the mix of CEPI grantees in the allocation to high and low income countries, the material produced under this agreement has the potential to generate approximately 125 to $200 million in CpG 1018 revenue for Dynavax in 2021.
Our most advanced partner is Clover Biopharmaceuticals, who is initiating a global Phase II/III efficacy trial with their protein subunit vaccine candidate, adjuvant with CpG 1018. This trial is expected to have an interim analysis for vaccine efficacy in the middle of 2021. This efficacy study is being funded by CEPI and as a CEPI grantees Clover have access to adjuvant produced under the CEPI funding arrangement.
In November, biological, another CEPI grantees initiated a Phase I/II clinical trial based COVID-19 subunit vaccine candidate adjuvant with CpG 1018. With results expected in March of this year. Biological E is one of the leading vaccine companies in India, and partners with global healthcare agencies, including the WHO, UNICEF, and Pan American Health Organization in their efforts to make life saving vaccines accessible globally.
And finally, Metagen, who is based in Taiwan is currently evaluating CpG 1018 adjuvant to protein subunit vaccine candidate in 3700 subjects and Phase II clinical trial. Data from this trial is expected in July of this year.
Based on the limited initial availability of COVID-19 vaccine, compared to the world's population, we expect the period of initial vaccination will continue at least through 2022, driving the need for additional vaccine options, particularly adjuvant to vaccine and with emerging variants, creating potential challenges for current vaccines. The need for adjuvant and COVID vaccines may continue far beyond 2020.
Due to the continued advancement of our multiple collaboration CpG 1018 could be utilized and up to 500 million to 1.5 billion doses of vaccine annually in 2022 and beyond, with additional capacity expansion available, depending on the global demand, making CpG 1018 a valuable additional revenue generating asset.
With that, let me wrap up with a couple final comments. 2020 was a very successful year for Dynavax, despite the pandemic, as we executed on the transformation that we initiated in 2019. We made tremendous progress on a number of fronts that we believe has have laid a foundation for significant growth in 2021 and beyond.
The strength of the fourth quarter revenue for HEPLISAV-B combined with a rapidly increasing revenue from CpG 1018 reinforce our confidence in the Dynavax vaccine business model and the long-term investment opportunity it represents.
I will now turn the call over to Michael to discuss our financial results in more detail.
Thank you, Ryan. Our financial results are included in the press release we issued this afternoon and detailed number 10-K we are filing with the SEC today. So, I will just touch on a few highlights.
Total revenues for the fourth quarter of 2020 were $19.6 million, including $13.1 million of net product revenue. Net product revenue for HEPLISAV-B during the fourth quarter was $11.5 million, up from $10.6 million for the fourth quarter of 2019.
Full-year HEPLISAV-B net product revenue increased from 34.6 million in 2019 to 36 million for 2020. The highest annual HEPLISAV-B revenue achieved since launch, despite the ongoing reduction in vaccine utilization due to the pandemic and the COVID-19 vaccines rollout.
Looking to the first quarter of this year, we expect continued progress in key national accounts and continued growth in sealed targeted market share. However, we currently expect overall vaccine utilization to decline significantly in the first quarter of 2021 from the fourth quarter of 2020 to around 50% of pre-pandemic levels, which will result in a decrease in HEPLISAV-B revenues in the first quarter of 2021 compared to the fourth quarter of 2020
Utilization of adult vaccines will continue to be impacted throughout the first half of 2021. But is expected to return to near pre-pandemic levels in the second half of the year. CpG 1018 product revenues that for 2020 was $3.3 million. As Ryan mentioned, we are manufacturing CpG 1018 for delivery this year under our commercial supply agreement with Valneva.
We are planning to supply Valneva with Agilent for the first 100 million vaccine doses in 2021, representing a revenue opportunity of approximately $230 million in 2021. Approximately 40% of the supplies planned for delivery in the first half was the remaining amount in the fourth quarter.
With CpG 1018 at the beginning to deliver significant revenue for the first time, we want to provide a comment on the near-term magnitude is that raise revenue. Based on currently planned deliveries, we expect CpG 1018 net product revenue for the first quarter of 2021 could range between $40 million and $60 million. As with HEPLISAV-B, we do not plan to provide quarterly guidance for potential CpG 1018 revenue on an ongoing basis.
Cost of sales products for the fourth quarter of 2020 increased to $4.1 million, compared to $2.4 million for the fourth quarter of 2019. And full-year 2020 cost of sales product was $11.4 million, compared to $10.2 million for the follow year 2019, primarily due to higher unit costs for HEPLISAV-B as we produce and sell inventory reflecting the full cost of manufacturing.
R&D expenses for the fourth quarter of 2020 decreased to $9.5 million compared to $12.3 million for the fourth quarter of 2019, and full-year 2020 R&D expenses decreased significantly, from $62.3 million for the full-year to 2019 to $28.6 million for 2020.
This decrease in R&D expenses is due to lower R&D headcount resulting from our restructuring in May, 2019, and the winding down of our immuno-oncology programs. It does include an increase in additional CpG 1018 development costs on our third-party manufacturing facility to support increased CpG 1018 demand from collaboration partners for use in their development or commercialization of COVID-19 vaccines.
SG&A expenses for the fourth quarter of 2020 decreased to $17.8 million, compared to $20.3 million for the fourth quarter of 2019, and full-year 2020 SG&A expenses were $79.3 million, compared to $75 million, for the full-year of 2019.
Loss from operations for the fourth quarter of 2020 decreased to $11.9 million from $27.4 million in the fourth quarter of 2019, and full-year 2020 loss from operations is decreased to $68.4 million, compared to $134.8 million for the full-year of 2019. Finally, cash, cash equivalents and marketable securities totaled $165 million at December 31, 2020.
Back to Ryan for closing remarks.
Thanks, Michael. Despite the significant disruption of the past year, we continue to make good progress with both HEPLISAV-B B and CpG 1018, and are looking forward to multiple important milestones in 2021, including potential ACIP decision on a universal recommendation for adult Hepatitis B vaccination increasing the addressable market in the U.S. and multiple COVID-19 vaccine data readout for our CpG 1018 collaborators.
2020 was a successful year for Dynavax, and we look forward to updating you in 2021, as we continue building Dynavax into a leading commercial stage vaccine company. We think all of our investors and team members for their commitment to this goal.
Operator, we would now like to open the Q&A portion of today's call.
[Operator Instructions]. Our first question comes from the line of Matt Phipps [William Blair].
Hi, Ryan. Thanks for taking my question and congrats on a good quarter and obviously a pretty important year for you guys. Just a couple of clarification on some of the CpG 1018 revenues. First, Michael I think you said 40% of the supply is planned to be delivered in the first half with the remaining amount in Q4. Just wanted to confirm that is I guess, the Valneva collaboration or does that also include the set agreement? And then if you could just provide, I guess, more details on how that revenue recognition works with the CEPI grantees under CEPI grant. Is it still when you delivered the material, the CpG 1018 final material to the CEPI grantees that you would recognize it?
Yes. On the latter. So, the projection with respect to the split was specifically with respect to Valneva. We expect 40% of the planned deliveries will occur in the first half. And then the remainder in the fourth quarter.
With respect to CEPI arrangement, that is a loan for us to produce the material and have it available for their clients, and when we enter into supply agreements with those clients and then sell to them.
We will repay CEPI for that comparable portion of the material that we sell to their clients. And that is when we would recognize the revenue. So, it is similar to when we generally recognize revenue for CpG 1018, which is upon delivery of product.
Great. Thanks, Michael. And then if I can also ask about kind of the discussion yesterday, I'm sure there is limited things you can say, given it is ongoing. But the committee members seem to be pretty positive in my opinion, on universal recommendation and not really limiting it to any age group. I think if the positive vote comes through in October. How much would you have to scale current manufacturing? How much investment would you need, is that probably wait until it comes through, or would you start some of that earlier, if the discussion looks positive as well?
Well, exactly. We are going to have a couple of looks at it, right. It is going to progress through June and October, so we will see how it is progressing. I think it is important to understand that, we have been preparing for a success for this product from a manufacturing perspective. So, we have made continued improvement and investment in [indiscernible] to be able to meet any demand that we think we could generate.
So, those investments have already kind of ongoing in that. So I don't think that there is a major need to invest in manufacturing other than just continue to stockpile material, and we will have enough advanced notice because what is you will see with the ACIP recommendation, will be the recommendation and then an update in the MMWR, which take a little bit of time as well, couple months. I think plenty of time for us to react both commercially and from a manufacturing perspective.
Okay. And then if I got one more in Europe. Obviously, Europe on the approval and then I know you're submitting and manufacturing supplements. So, launch in Germany at the end of this year, just as you think about it now, when you start in Germany, obviously that is a common procedure, but how quickly would you advance to maybe another country or will it be the cadence of out into additional countries? How many do you think you can do in legitimately try to target by yourselves?
I mean, cadence of that kind of depends on which countries we want to go to. They each have their own process for access, initial access and pricing, things like that. So the overall pricing strategies between private and public will matter. So, I don't think we can comment at this moment on the cadence or the specific countries beyond Germany. But as we move through 2021, we will be refining that overall European strategy.
Great. Thank you.
Your next question comes from line of Ed White [H.C. Wainwright].
Good afternoon guys. Thanks for taking my questions. So, when you were talking about the recovery of the market share - excuse me, market penetration and increased market share by year end, the question I have for you is just, how are you thinking about that why are you confident that the second half will be stronger than the first half, which seems like it would be before the ACIP guidelines or recommendations. And when you are thinking of market penetration, how are you getting the market penetration, who is coming from and why do you continue to believe that you are going to gather more shares? Thanks.
Thanks Ed. While, I think the first part of that question and I will ask Donn, he would be fair to answer the second part. But as it relates to the market returning the we did even we did get to see some insights and how fast the market can rebound as evidenced by last year's Q3, moving up to about 75%.
Our expectation of the market returning is not tied to ACIP is really tied to processing the vaccine will offer COVID-19. Q1 saw a resurgence of cases after the holiday period combined with the rollout of the vaccine program. And we do think that the majority, the vast majority of Americans will be vaccinated in the first half of this year.
And both for Hep B vaccines as well as other adult vaccines, there is going to be significant pent up demand because of the fact that it has become clear that there is a number of people who are prioritizing COVID vaccination over other adult vaccines. So, the return in the second half of the year is really more tied to when we believe the mass vaccination campaign will complete.
Donn, do you want to comment on penetration?
Yes, and I get that, when we look back a quarter and we look at our market share, it was at 23%, we grew from Q3 to Q4, three points. Again, in this disruption of the pandemic, we anticipate, again, our ability to be successful with customers every month.
So, the challenge is not being able to engage customers. It is really causes disruption around the administration with the COVID vaccine. So, we continue to engage with customers, we are very confident our ability to continue to win new business in the market can be a little smaller here in the first half of the year. But we do anticipate to drive market share, which will lead to certainly revenue in the second half of this year.
Okay, thanks. And maybe if you can just discuss the Hemodialysis market opportunity. And we know you're going to get the full safety data by year end 2021. And just curious as to what that really means to potential sales in 2022 and beyond and in how you're going to go about targeting that market opportunity?
I mean, the beauty of the job, as long as it is highly concentrated amongst a few national providers, and then obviously, dialysis services provided by large integrated health systems. And so the two national chains make up about 80% of the overall dialysis market as we have it kind of laid out in our, our slide deck, we provide a segmentation there.
And so as far as how we resource that opportunity, it is pretty easy as for the two national accounts to make national decisions for all of their centers. And this is this is evidence a little bit by what we had happened here in Q4 with one of the national providers making a major purchase for their employees essentially, at least that is how we have engaged them.
The data that we that you referred referenced in the study will be used to support interactions with the FDA to get that data into the label which will strengthen our ability to capture that market. So, because at that point, we will be able to proactively engage with all our customers from a commercial perspective at the moment, but we are not doing that. Right now, our conversations with them are only focused on employees.
Okay. Thanks. And perhaps just last question from me, can you give us just an update on the universal flu vaccine and what we expect to see going forward?
Yes. The development of that program was fairly impacted by COVID-19 in 2020. And so, it is continuing to progress. I believe that the clinical trial for that, the initial clinical trial would be targeted for next year.
Okay. Thank you.
Certain.
Thanks Ed.
Your next question comes from the line of [Ernie Rodriguez] (Ph).
Hi, team. Thank you for taking my call, and congratulations on the progress on CpG. In terms of recommendations from [indiscernible] for these recommendations to be fix sure and what role do you guys play in the process? And similarly in terms of supply contracts with Valneva, was that mostly in Q2, in order for the supply agreements - do you have any clarity on that? Thank you.
So, let's start with the ACIP. Thanks for the questions. If you go back and look at the presentation, you can see they sort of laid off the next steps. The way this works is they present an initial concept like they did yesterday, and as part of that presentation, they basically solicited questions from ACIP, which they will then go back and do more analysis to be able to support the ACIP questions and concerns. So that is, what is going to happen next.
Our involvement here on given this as a universal recommendation is limited. I mean, we obviously engage as we can. But this is a working group, a division of our Hepatitis and ACIP working group agenda items. So, our involvement is actually a little bit limited in this. But, we will be supportive.
You can tell though as part of their assessment, they are considering, the role that 2-dose vaccine plays. And so, we will continue to engage with the work group to present our safety data, when it is available in Q2. So, the work we have had the benefit of the safety data and as part of their overall analysis around the universal recommendation, and then the appropriate recommendations around the two versus 3-dose products.
And then moving to Valneva. Valneva we really just need to continue to deliver the doses. I think the only point that we just sort of trying to make with all of these collaborations is, we have to have time to deliver the doses, and we know Valneva has a data readout coming here in April.
So, while we believe that the UK Government remains committed to the contract and the fact that, they are inactivated approach, adjuvant inactivated approach is building off there is other inactivated technologies out there that have demonstrated an ability to drive protection.
We believe that there is relatively little risk on that data readout, but there is still a data readout that has to come for that program and they just have to continue to move their program forward. It is really all it has to happen for us to continue to recognize the revenue.
Alright. Thank you. That is very helpful.
There are no further questions at this time. I would now like to turn the floor back over to Ryan Spencer CEO for closing or additional comments.
Thank you, operator. Well, we believe adjutanted vaccines will plan an critical role to ensure the effective vaccination for all populations against COVID-19. Having vaccines going to be effective in offsetting this is really one of the first steps, we want to make sure there is adequate supply of these vaccines.
We believe the evolving COVID-19 pandemic will require additional solutions and manufacturing capacity beyond 2022. We also believe CpG 1018 is well-positioned to drive significant growth and value for Dynavax and its shareholders.
And while the fight against COVID-19 is currently a key priority, we also continue to drive our business through the growth of sales of HEPLISAV-B which we believe will become standard of care for adult Hepatitis B vaccine in the U.S. with a potential annual market opportunity in growing to over $600 million. With a combined strengthen of opportunities in HEPLISAV-B and CpG 1018 we believe 2021 will be a transformational year for Dynavax.
Thank you again for spending your time with us today. And we look forward to speaking with you soon. Operator, you man end the call.
Ladies and gentlemen, thank you for joining us today. This concludes today's conference call. You may now disconnect.