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spk03: Good day, ladies and gentlemen, and welcome to the Dynavax Technologies third 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.
spk01: Thank you, Alex. Good afternoon. Welcome to the DynaVax Third Quarter 2020 Financial Results and Corporate Update Conference Call. Joining me on the call today are Ryan Spencer, Chief Executive Officer, Michael Ostrock, Chief Financial Officer, Rob Jansen, Chief Medical Officer, Don Casal, Vice President Commercial. Before we begin, I advise you that we will be making forward-looking statements today. including statements regarding headless SB commercial profile, revenue expectations, potential peak revenue, the 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 insurgencies that 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 10Q and 10K 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.
spk04: Thank you, Nicole, and thank you all for joining us today. I'm very excited to share our exceptional results for the third quarter, as well as a bright outlook for the coming year. Now, today, we're going to focus on discussing the details of the best quarter of HEPA-Sav-B sales since launch, as well as the significant value being generated by our advanced vaccine adjuvant, CPG-1018, in our COVID-19 vaccine collaboration programs. The continued progress of HEPLISAV-B, along with a pipeline of opportunities emerging from CPG1018, positions us well for both short-term and long-term growth. The current global pandemic has highlighted the need for continued development of new or improved vaccines to help prevent the spread of infectious diseases. Adjuvants potential to boost the immune response to increase protection and to provide longer-lasting immunity are an important contributor to the success of vaccines. Additionally, it is often the case that patients with the greatest risk of severe disease are unfortunately less responsive to vaccines due to a weakened immune system brought on from advanced age or other chronic health conditions. Vaccine adjuvants play a critical role in addressing these patient populations. Our first commercialized product HEPLISAV-B, approved by the U.S. FDA, is an adult hepatitis B vaccine, which is adjuvanted with CPG1018. Hepatitis B is a highly infectious and potentially deadly virus with increasing infection rates. Over 250 million people worldwide and 150,000 people in the U.S. are infected with hepatitis B. Thankfully, it can be prevented with an effective vaccination. Now, challenges with compliance for legacy three-dose products are well known, with only approximately 22% to 54% of patients completing the three-dose regimen over the required six-month period. Hepatitis B is the only two-dose adult hepatitis B vaccine that has been approved by the FDA, and it offers protection in just one month compared to six months for the competitor product. On top of the speed of protection, it has demonstrated higher rates of protection in head-to-head clinical studies compared to the three-dose, six-month regimen of the current market leader. HEPLOSAB-B's two-dose, one-month regimen, with the corresponding improvement in compliance and higher levels of protection, gives us confidence HEPLOSAB-B will become the standard of care for adult hepatitis B vaccination in the US. COVID-19 continued to disrupt the vaccine market in the third quarter. The total adult hepatitis B market had about a 25% reduction in utilization from the same period last year. This COVID-19 impact varied depending on the segment. So, for instance, the Department of Defense segment actually increased 16% from the same period last year. Integrated delivery networks, hospital systems, and clinics continued to see a decrease in utilization, down approximately 35% from the same period last year. Heplicev-B enjoyed a very strong quarter despite this challenging environment. We reported our highest quarterly revenue since launch with net product revenue of $11.6 million. This performance was driven by exceptional progress in national accounts and increased market share in our field-targeted accounts, which grew to 23 percent in the third quarter. Our commercial team has maintained a high level of engagement with targeted accounts and decision makers. In addition to the growth of market share in field-targeted accounts, the team successfully converted a large national retailer that stocked HEPA-SAB-B in over 2,000 locations, resulting in approximately $1 million in revenue for the third quarter. While this inventory build will likely limit revenue from this customer in the fourth quarter, we expect that Heblisav B will be its preferred or exclusive adult standalone hepatitis B vaccine going forward, which would result in high-value recurring revenue in future quarters. As I mentioned earlier, the Department of Defense saw an increase in utilization in the third quarter compared to the same period last year. Third quarter historically has represented the periods of highest utilization in this segment due to a surge in new recruits over the summer months. In addition to the third quarter surge, several bases used end of fiscal year budget surplus to stock in doses at the end of September for use in the fourth quarter, which resulted in strong demand in the DoD segment in the third quarter. We continue to make significant progress in this segment, Having already converted four of the nine new recruit bases, we hope to finalize the conversion of another base in the fourth quarter, which would result in capturing its utilization for all of 2021. Overall, we are delighted to see such a strong quarter for Heplis FB, despite the challenges of the COVID-19 environment. Now, moving on from Heplis FB to our second asset, CPG1018, where we have a new line of business that is growing rapidly as a result of our efforts to support the global response to the COVID-19 pandemic. We've embarked on a global strategy to establish a portfolio of collaborations aimed at demonstrating the capability of CPG1018 to enhance the immune response to a variety of vaccine antigens. Our open collaboration approach allows us to support multiple vaccine development efforts. And underscoring CPG1018's versatility, these collaborations span multiple technology approaches across varied indications. We've established collaborations focused on developing adjuvanted vaccines, currently including COVID-19, universal influenza, and Tdap, which is tetanus, diphtheria, and acellular pertussis. which is specifically focused on improving the immune response to the acellular pertussis component of that vaccine. The global effort to develop coronavirus vaccines offers the first demonstration of the value of CPG1018 beyond teplizapb. We have built a broad portfolio of collaborations for coronavirus vaccines to address the complex aspects of development and competition in this space. Our portfolio approach, provides multiple opportunities for CPG1018 to be a valuable component of different vaccines, recognizing that not every collaboration will move forward to an approved vaccine. We continue to expand our collaborations with a goal of ensuring CPG1018 is evaluated in the widest possible range of approaches. We believe by targeting different technologies, we will create the best opportunity for long-term value creation as the field continues to evolve. Now digging deeper into one of our key collaborations, as many may already know, we entered into an agreement to develop an adjuvanted vaccine for COVID-19 with Valneva. Subsequently, Valneva entered into a supply agreement with the UK government for Valneva's adjuvanted vaccine. During the third quarter, we executed a commercial supply agreement with Valneva and began production of CPG1018 at the increased scale for pandemic supply. Under this agreement, Dynavax will provide Valneva with CPG1018 to produce up to 190 million doses of vaccine over a four-year period. In 2021, Dynavax will supply Valneva CPG1018 adjuvant for the first 60 million vaccine doses. Bonneva also has the option to purchase CPG-1018 to produce an additional 40 million doses in 2021. Under this contract alone, we have the potential for approximately $130 to $230 million of CPG-1018 revenue in 2021, which will begin to be recognized starting in the first quarter. While this contract is contingent on continued successful development, it is potentially worth over $400 million for DynaVax through 2024. In addition to Balneva, our collaborations with Clover Biopharmaceuticals continues to make good progress. Based on positive phase one data to date, Clover has indicated that it intends to develop two adjuvanted COVID-19 vaccine programs to fully utilize their available antigen production capacity. and that it anticipates initiating a pivotal clinical trial with CPG1018 to address global demand. We expect Clover to report the results of their phase one study as well as their plans for continued development by year end. In summary, we've made significant progress on a number of fronts in the third quarter. The strength of the third quarter revenue for HEPLISAB-B combined with the initial revenue generation from CPG1018 reinforces 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. Michael?
spk02: Thank you, Ryan. Our financial results are included in the press release we issued this afternoon and detailed in the 10Q we filed with the SEC today. So I'll just touch on the key highlights and provide some additional color. Total product revenue for the quarter was $13.3 million. HEPA-SAV-B product revenue increased to $11.6 million in the third quarter from $10.2 million in the same period in 2019. This increase was due primarily to the return of adult hepatitis B vaccine utilization to approximately 75% of pre-COVID levels, significant demand from the Department of Defense, and the initial stocking order from a major national retailer. Approximately $1 million to $1.5 million of third quarter revenue resulted from replenishment of inventory by our distributors to maintain their typical days-on-hand levels due to increased demand in the third quarter compared to the second quarter. This is essentially the mirror image of what occurred in Q2 when distributors reduced inventory levels as end-user demand for HEPA-Sav-B was fulfilled out of existing channel stock. Looking to the fourth quarter, we expect continued progress in key national accounts and continued growth in field-targeted market share. The fourth quarter will, of course, have fewer selling weeks than occurred in the third quarter. Based on current trends, we expect adult hepatitis B vaccine utilization to be approximately 70% of pre-COVID levels through year-ends. The third quarter of 2020 was not only our best quarter ever for HEPA-SAV-B sales, it also marks the initiation of revenue from our second product, CPG-1018. CPG-1018 product revenue for the third quarter was $1.7 million, and we also recorded $21.7 million of deferred revenue and $5.7 million in deposits. In recognition of the value of our current and potential revenue opportunity from CPG 1018, we recently amended our loan agreement with CRG to include sales of CPG 1018 for purposes of determining achievement of the annual net sales requirements. Cost of sales for the third quarter increased to $4 million compared to $3.8 million for the third quarter of 2019, primarily due to higher unit costs for HEPA-Sav-B as we produce and sell inventory that reflects the full cost of manufacturing. In addition, cost of sales for the third quarter of 2020 included $800,000 of cost to produce CPG-1018 for our collaboration partners. We expect cost of sales to increase substantially in 2021 as we produce and sell CPG-1018 under the supply agreement with Valneva and to other customers. Based on increased scale, we expect to significantly reduce the cost of goods per dose of CPG-1018 for pandemic supply. Although cost of goods per dose of CPG-1018 will vary depending on the adjuvant dose used by our customers, in all cases, cost of goods are expected to be well below $1 a dose, assuming hundreds of millions of doses produced annually, resulting in reasonable margins across all markets. R&D expenses for the third quarter of 2020 decreased to $8.5 million from $12.7 million for the third quarter of last year, as personnel costs, facilities overhead cost allocations, and non-cash stock-based compensation decreased due to lower R&D headcount, and outside services decreased due to the winding down of our immuno-oncology programs. This was offset by CPG 1018 development costs at our third-party manufacturer to support increased CPG 1018 demand by our collaboration partners for use in their COVID-19 vaccine candidates. SG&A expenses for the third quarter increased to $21.5 million compared to $18.5 million in the third quarter of last year, but this was primarily due to a $2.5 million payment due to the third quarter, paid during the third quarter of 2020 in connection with the sale of SD-101. Loss from operations for the third quarter of 2020 decreased to $13.8 million from $30.6 million in the third quarter of last year. Net income for the third quarter was $4.4 million, primarily due to a gain of $21.2 million in the fair value of our warrant liability. cash, cash equivalents, and marketable securities totaled $177.2 million at September 30, 2020. I'll now turn the call back to Ryan for closing remarks.
spk04: Thanks, Michael. Despite the significant disruption of this year, we continue to make steady progress towards several important milestones, including advancing the ongoing study of HEPAL-SAV-B in patients on hemodialysis, with the final immunogenicity data expected in the fourth quarter of this year, with publication planned in the first half of 2021. The completion of the safety follow-up period for HEPLISAV-B post-marketing studies in Q4 of 2020, with the final report available in Q2 of 2021. Completion of phase one enabling animal studies and toxicology for an improved Tdap vaccine with CPG1018, And finally, we continue to advance the MAA review of HEPLISAV-B for Europe with a decision expected in the first half of 2021. We are very proud and excited about the recent progress we have made to move our business forward on multiple fronts. HEPLISAV-B delivered its highest quarterly sales since launch, even though the vaccine market continues to be impacted by the coronavirus pandemic. Moving forward, We expect to continue to increase market share in our field-targeted accounts, as well as continue to make progress in key national accounts to support significant growth in 2021. While the coronavirus pandemic had temporarily slowed our progress with HEPA-Sav-B, we have been able to react to the pandemic to accelerate value creation from CPG-1018 to support a number of potential coronavirus vaccines. Based on our existing commercial agreement with Valneva, we have the potential to generate approximately $130 to $230 million of revenue next year from the sales of CPG 1018 for this one contract alone. We will continue to work with our collaborators to establish additional commercial demand for CPG 1018 as their coronavirus vaccines advance in development. We look forward to updating you on our progress and accomplishments as we build Dynavax into a leading commercial stage vaccine company. We thank all 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.
spk03: Ladies and gentlemen, if you have a question at this time, please press star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, Please press the start, the pound sign. You don't have any questions at this time. I would now like to turn the call over to Ryan Spencer, CEO, for closing remarks. You may begin.
spk04: Thank you, Operator. Vaccines are an essential tool in protecting the world from infectious diseases, which is why developing and commercializing novel and improved vaccines is DynaVac's mission. To truly protect against infectious diseases, we must find a solution for everyone, including those with weakened immune response, weakened immune systems such as the elderly and those with certain chronic conditions. Advanced agents such as CPG-1018 are well positioned to help address this public health need. While the effort to develop an adjuvanted vaccine for COVID-19 is a key priority, we continue to drive our business forward through the growth of sales of HEPLOSAB-B, which we believe will become the standard of care adult hepatitis B vaccine in the U.S., with a potential future market opportunity exceeding $600 million in net sales. The ongoing coronavirus pandemic is driving awareness and greater understanding of the importance of vaccines and the protection they offer against preventable diseases. This is Dynavax's focus, developing and commercializing novel vaccines, positioning us with the right business model at the right time. Thank you for joining the call today. We appreciate you spending your time with us. We look forward to speaking to you again soon. Operator, you may end the call.
spk03: Ladies and gentlemen, thank you for joining us today. This concludes today's conference call. You may now disconnect.
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