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spk02: 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 extend the call over to Nicole Arndt, Senior Vet Manager, Investor Relations. You may begin.
spk01: 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 Ostrock, Chief Financial Officer, Rob Jansen, Chief Medical Officer, and Don Casal, Senior Vice President Commercial. Before we begin, I advise you that we will be making forward-looking statements today including statements regarding HEPLIS-SB's commercial profile, revenue expectations, potential peak revenue, European launch, and the completion of post-marketing studies, and regarding vaccine development potential for CPG1018 and revenue expectations. 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 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.
spk08: 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 adjuvants have the potential to boost the immune response to increase protection and provide longer lasting immunity, making adjuvants an 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 leader. 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 three-dose products are well known, with only approximately 22 to 54% of patients completing the three-dose regimen over the required six-month schedule. HEPLISAV-B's two-dose, one-month schedule with the corresponding improvement 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 enjoyed 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 HEPB vaccine of approximately 35%, in the fourth quarter compared to the same period last year. Market share in 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 Heplis AbbVie's 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 over time, 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 advance 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 HEPALSAT-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. 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 in field targeted accounts 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 HEPLIS FB revenue in 2021 coming in the second half of the year. Another important highlight of continued progress for HEPLIS FB came this past Friday when the European Commission granted marketing authorization for HEPLIS FB in Europe. We anticipate launching HEPLIS FB in Germany in the fourth quarter of this year. Furthering our positive outlook for hepatitis B, yesterday, the CDC Advisory Committee on Immunization Practices, or the ACIP, discussed 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. Hepatitis B 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's versatility, our collaborations span multiple technology platforms across varied indications, including COVID-19, tetanus, diphtheria, and acellular pertussis, or Tdap, and universal influenza. These CPG1018 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 CPG1018 in a phase one clinical trial of a potentially improved Tdap vaccine candidate. This clinical stage program developed out of a 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 adjuvant 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 CPG1018 to fit in. The global demand for initial COVID-19 vaccines 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 from multiple strains. Adjuvanted and activated and adjuvanted protein subunit vaccine platforms provide a number of advantages to address the global demand. These vaccines 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 and subunit vaccines can be used for repeat dosing, unlike some viral vector platforms. And finally, with adjuvants like CPG-1018, we believe these platforms have the potential to deliver high levels of protection on par with mRNA vaccines. Our collaboration strategy has resulted in multiple opportunities for emergency use authorization in 2021 for CPG1018 adjuvanted COVID-19 vaccines. CPG1018 has demonstrated the ability to increase antibodies while preserving a 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 CPG1018 at scale for pandemic supply. Under this agreement, Dynavax is providing CPG1018 for Valneva's COVID-19 vaccine candidate, being developed under an agreement with the UK government. Dynavax is scheduled to supply Valneva CPG1018 adjuvant for 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 and 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 CPG1018 revenue for DynaVax in 2021. Our most advanced partner is Clover Biopharmaceuticals, who is initiating a global phase 2, 3 efficacy trial with their protein subunit vaccine candidate, adjuvanted with CPG1018. 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 grantee, Clover will have access to adjuvant produced under the CEPI funding arrangement. In November, Biological E, another CEPI grantee, initiated a Phase 1-2 clinical trial of its COVID-19 subunit vaccine candidate, adjuvanted with CPG1018, 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, Medigen, who is based in Taiwan, is currently evaluating CPG1018 adjuvanted protein subunit vaccine candidate in 3,700 subjects in a phase two clinical trial. Data from this trial is expected in July of this year. Based on the limited initial availability of COVID-19 vaccines 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 adjuvanted vaccines. And with emerging variants creating potential challenges for current vaccines, the need for adjuvanted COVID vaccines may continue far beyond 2022. Through the continued advancement of our multiple collaborations, CPG-1018 could be utilized in 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 Dynamax, 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 have laid a foundation for significant growth in 2021 and beyond. The strength of the fourth quarter revenue for HEPA-Sav-B, combined with the rapidly increasing revenue from CPG-1018, reinforced our confidence in the Dynavax vaccine business model and the long-term investment opportunity it represents. I'll now turn the call over to Michael to discuss our financial results in more detail.
spk04: Thank you, Ryan. Our financial results are included in the press release we issued this afternoon and detailed in the 10-K we are filing with the SEC today, so I'll 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 HEPLASAT-B during the fourth quarter was $11.5 million, up from $10.6 million for the fourth quarter of 2019. Full-year HEPLASAT-B net product revenue increased from $34.6 million in 2019 to to $36 million for 2020, the highest annual HEPA-SATB 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 field 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 21, but is expected to return to near pre-pandemic levels in the second half of the year. CPG 1018 product revenues net 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're planning to supply Valneva with adjuvant for the first 100 million vaccine doses in 2021, representing a revenue opportunity of approximately $230 million in 2021. Approximately 40% of this supply is planned for delivery in the first half, with the remaining amount in the fourth quarter. With CPG 1018 beginning to deliver significant revenue for the first time, we want to provide a comment on the near-term magnitude of that 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 HEPLASAT-B, we do not plan to provide quarterly guidance for potential CPG 1018 revenue on an ongoing basis. Cost of sales product for the fourth quarter 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 full year 2019, primarily due to higher unit costs for HEPA-SAV-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 of 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. And it does include an increase in additional CPG1018 development costs at our third-party manufacturing facility to support increased CPG1018 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 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 decreased to $68.4 million compared to $134.8 million for the full year 2019. Finally, cash, cash equivalents, and marketable securities totaled $165 million at December 31, 2020. Back to Ryan for closing remarks.
spk08: Thanks, Michael. Despite the significant disruption of the past year, we continue to make good progress with both HEPA-SAP-B and CPG-1018 and are looking forward to multiple important milestones in 2021, including... a 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 readouts 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 thank 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.
spk02: At this time, if you would like to ask a question, please press star followed by the one on your telephone keypad. To withdraw your question, press the pound key. Our first question comes from the line of Matt Phipps.
spk05: 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 clarifications 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. I just wanted to confirm that's, I guess, the Valneva collaboration, or does that also include the CEPI agreement? And then if you could just provide, I guess, more details on how that revenue recognition works with the CEPI grantees under the CEPI grant Is it still when you deliver the material, the CPG-1018 final material, to the CEPI grantee that you would recognize it?
spk04: Yes, on the latter. So the projection with respect to the split was specifically with respect to Valneva. We expect that 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's when we would recognize the revenue, similar to when we generally recognize revenue for CPG-1018, which is upon delivery of the product.
spk05: Great. Thanks, Michael. And then if I can also ask about kind of the discussion yesterday at ACIP. I'm sure there's only limited things you can say, given it's ongoing. But, you know, the – committee members seem to be pretty positive in my opinion on universal recommendation, not really limiting it to any age groups. I guess if, if the positive vote comes through in October, how much would you have to scale current manufacturing? You know, how much investment would you need? And would that, is that when you wait until the vote comes through or could you, would you start some of that earlier if you know the discussion in June looks positive as well?
spk08: Well, yeah, exactly. We're going to have a couple of looks at it, right? It's going to progress through June and then to October. So we'll see how it's progressing. I think it's important to understand that we've been preparing for success for this product from a manufacturing perspective. So we've made continued improvements and investment in Dusseldorf to be able to meet any demand that we think we could generate. So those investments have already kind of been ongoing, Matt. So I don't think that there's a major need to invest in manufacturing other than just continuing to stockpile material. And we will have enough advance notice because what you'll see with the ACIP recommendation will be the recommendation and then an update in the MMWR, which takes a little bit of time as well, a couple months. So there's, I think, plenty of time for us to react both commercially and from a manufacturing perspective.
spk05: Great. And then if I could ask one more in Europe. um obviously uh you know if you're up on approval and then i know you're submitting a manufacturing supplement so launch in germany at the end of this year just as you think about it now you know okay you start in germany obviously that's a common procedure but how how quickly would you advance to maybe another uh country or how you know what would be the cadence of rollout into additional countries how many do you think you could you legitimately try to target by yourselves
spk08: I mean, I think the cadence of that's really going to depend 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 strategy 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.
spk05: Good. Thank you.
spk02: Your next question comes from the line of Ed White.
spk06: Good afternoon, guys. Thanks for taking my questions. So when you were talking about the recovery of the market share, excuse me, of market penetration and increased market share by year end, The question I have to 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're thinking of market penetration, how are you getting the market penetration? Who's it coming from, and why do you continue to believe that you're going to gather more share?
spk08: Thanks, Ed. Why don't I take the first part of that question, then I'll ask Dawn to be prepared to answer the second part. But as it relates to the market returning, we did even, we did get to see some insights in 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. It's really tied to processing the vaccine rollout for COVID-19. You know, Q1 saw the 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's going to be significant pent up demands because of the fact that it's become clear that there's a number of people who are prioritizing COVID vaccination over other adult vaccines. the return in the second half of the year is really more tied to when we believe the mass vaccination campaign will complete. Don, do you want to comment on penetration?
spk07: Yeah, I guess, Ed, you know, 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. To Ryan's point, it's really kind of the disruption around the co-administration with the COVID vaccine. So we continue to engage with customers. We're very confident in our ability to continue to win new business. It's just the market's going to be a little smaller here in the first half of the year. But we do anticipate continuing to drive market share, which will lead to certainly revenue in the second half of this year.
spk06: 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 21. And just curious as to what that really means to potential sales in 2022 and beyond and how you're going to go about targeting that market opportunity.
spk08: I mean, the beauty of the dialysis market is it's 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 probably about 80% of the overall dialysis market as we have it kind of laid out. You noted in our slide deck, we provide a segmentation there. And so as far as how we resource that opportunity, it's pretty easy. There are two national accounts that make national decisions for all of their centers. This is evidenced a little bit by what we had happen here in Q4 with one of the national providers making a major purchase for their employees, essentially. At least that's how we've engaged them. The data that you referenced in the study will be used to support interaction with the FDA to get that data into the label, which will strengthen our ability to capture that market, because at that point we'll be able to proactively engage with all dialysis customers. from a commercial perspective. At the moment, we are not doing that. Right now, our conversations with them are only focused on employees.
spk06: Okay, thanks. And perhaps just the last question from me, can you give us just an update on the universal flu vaccine and what we expect to see, you know, going forward?
spk08: Yeah, the development of that program was fairly impacted by COVID-19 in 2020, and so it's continuing to progress. I believe that the clinical trial for that, the initial clinical trial, would be targeted for next year. Okay. Thank you. Yes, sir. Thanks, Ed.
spk02: Your next question comes from the line of Ernie Rodriguez.
spk03: Hi, Tim, and thank you for taking my call, and congratulations on the approval and the progress with CPG. Can you discuss, in terms of the preferential recommendation from ACIP, what all needs to happen in this process from now to October for this recommendation to be secure, and what role do you guys play in that process? And similarly, in terms of the supply contracts with Balneva, What data must be produced by Q2 in order for the supply agreement to stay in place? Do you have any clarity on that? Thank you.
spk08: So let's start with ACIP, Ernie. Thanks for the questions. If you go back and look at the presentation, you can see they sort of laid out the next steps. The way this works, they present an initial concept like they did yesterday, and as part of that, that presentation, they basically solicited questions from the ACIP, which they will then go back and do more analysis to be able to support the ACIP's questions and concerns. So that's what's going to happen next. Our involvement here, given this is a universal recommendation, is limited. I mean, we obviously engage as we can, but this is a working group a division of viral 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, that as part of their assessment, they are considering the role the two-dose vaccine plays. And so we will continue to engage with the work group to present our safety data when it's available in Q2. So the work group has the benefit of the safety data as part of their overall analysis around the universal recommendation and then the appropriate recommendations around the two versus three 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 are trying to make with all of these collaborations is we have to be able 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 their inactivated approach, adjuvanted inactivated approach is building off of, there's other inactivated technologies out there that have demonstrated an ability to drive protection. We believe that There's relatively low 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's really all that has to happen for us to continue to recognize the revenue.
spk03: Thank you. That's very helpful.
spk02: If there are no further questions at this time, I would now like to turn the floor back over to Ryan Spencer, CEO, for any closing or additional comments.
spk08: Thank you, Operator. Well, we believe adjuvanted vaccines will play a critical role to ensure the effective vaccination for all populations against COVID-19. Having vaccines shown to be effective in clinical settings is really only the first step. We must ensure there's adequate supply of these vaccines. We believe the evolving COVID-19 pandemic will require additional solutions and manufacturing capacity beyond 2022. We also believe CPG1018 is well positioned to drive significant growth and value for Dynavax. and its shareholders. And while a fight against COVID-19 is currently a key priority, we also continue to drive our business forward through the growth of sales of HEPALSAT-B, which we believe will become the standard of care adult hepatitis B vaccine in the U.S., with a potential annual market opportunity growing to over $600 million. With the combined strength of opportunities from HEPALSAT-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 again soon. Operator, you may end the call.
spk02: Ladies and gentlemen, thank you for joining us today. This concludes today's conference call. You may now disconnect.
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