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spk00: Good day, ladies and gentlemen, and welcome to the Dynavax Technologies fourth quarter and full year 2023 Financial Results Conference call. As a reminder, this call is being recorded. At the end of the company's prepared remarks, we'll open the call for questions and provide specific instructions at that time. I would now like to turn the call over to Paul Cox, Vice President, Investor Relations and Corporate Communications. You may begin.
spk05: Thank you for participating in today's call. Joining me from Dynavax are Ryan Spencer, Chief Executive Officer, Don Casale, Chief Commercial Officer, Rob Jansen, Chief Medical Officer, and Kelly McDonald, Chief Financial Officer. Earlier today, Dynavax released financial results for the fourth quarter and full year ended December 31st, 2023. Copies of the press release and a supplementary slide presentation are available on Dynavax's website. Before we begin, I advise you that we will be making forward-looking statements today based on our current expectations and beliefs, including but not limited to potential market sizes, market segmentation, effective marketing efforts, future expected market share and related growth rates, and related ACIP recommendation impact on each. Financial guidance and trends, including revenue, profitability, cash flow, and sufficiency of current capitalization, timing and results of FDA submissions, clinical trial starts and data readouts, and potential future uses of or demand for our CPG-1018 adjuvant. These statements involve risks and uncertainties, and our actual results may differ materially. These risks are summarized in today's press release and detailed in the risk factors section of our SEC filings, including today's annual report on Form 10-K. Our forward-looking statements speak as of today, and we undertake no obligation to update such statements. And with that, I will now turn the call over to Ryan.
spk07: Thanks, Paul. Good afternoon, everyone, and thank you for taking the time to join us to review DynaVax's results for 2023. 2023 was characterized by record revenue growth for Apple 70, delivering 69% growth year-over-year, and becoming the market share leader in the two largest growth segments, which are retail pharmacies and integrated delivery networks, making HEPA-7B the leading vaccine in the US adult hepatitis B vaccine market. We expect 2024 to be an important year in building our vaccine portfolio of best-in-class products, including further growing the HEPA-7B brand and advancing our pipeline programs into clinical trial initiations and data readouts. For HEPA-7B, We are again forecasting continued growth with net product revenue in the range of $265 to $280 million for the year. In a few minutes, Don will provide some additional commentary on how the U.S. hepatitis D vaccine market is evolving due to an active winter respiratory disease season and why we continue to be very confident in another year of growth for the brand and in the long-term prospects for HEPA-Sev-B in a vaccine market with one of the largest total addressable populations in the United States. For our development pipeline, we expect to achieve important milestones in the coming months, including our PDUFA action date for the HEPA-Sev-B SPLA for hemodialysis expected in May, clearing our shingles IND currently being reviewed by FDA to begin our Phase I-II trial, advancing our Tdap program, and delivering Phase II clinical and non-human primate challenge study data for our plague program under collaboration with the U.S. Department of Defense. Importantly, our strong financial position of $742 million of cash provides us with the optionality to continue to build value across our business, such as through incremental investments to drive the MLSMB market opportunity, continuing to advance R&D efforts, and pursuing new opportunities to accelerate our growth. As we've discussed previously, we continue to evaluate strategic opportunities to further diversify our clinical and commercial product portfolio. We remain committed to discipline capital allocation to generate significant value and accelerate growth. We look forward to providing updates on these efforts in the future. I'll now turn the call over to Don to provide more details on the HEPA-CEP results and our guidance looking forward. Thank you, Ryan. In 2023, we achieved record net product sales and market share, establishing Hepatitis B as the leading adult Hepatitis B vaccine in the U.S. market. Additionally, we drove significant Hepatitis B market growth by effectively pulling through the ACIP universal recommendation. Our success in 2023 reaffirms our confidence in a sizable market opportunity and long-term revenue growth potential for Hepatitis B. The U.S. adult hepatitis B market continued to grow in 2023 following the ACIP universal recommendation for hepatitis B vaccination, which now represents one of the largest vaccine market opportunities for adults. We believe this recommendation will continue to be a significant catalyst for growth and estimate the hepatitis B vaccine market opportunity for HEPA-SAB grew to approximately $525 million in 2023, on a clear path to approximately $800 million by 2027, with Hempelstab B achieving a majority market share by that time. During the fourth quarter, we continued to see indicators of U.S. market expansion from the ACF universal recommendation. Despite softness in the market related to reduced wellness visits and an increased focus by healthcare providers on respiratory disease vaccines, including typical flu campaigns and the launches of RFC and endemic COVID-19 vaccines. HEPLIS FB continues to increase its total U.S. market share, achieving 42% at the end of 2023, compared to 35% at the end of 2022. Net product revenue in 2023 grew 69% year over year. This sales growth continues to be driven by HEPLIS FB's strong performance in two critical segments. retail pharmacy, and integrated delivery networks, or IDNs. We continue to focus our sales and marketing efforts on the retail pharmacy and IDN segments, as we expect to see most of the anticipated market growth from the ACIP Universal Recommendation in these segments, estimating both will grow to represent over 60% of the total hepatitis D market by 2027. Headless IB is now the market share leader in both of these key segments. For IDNs, at the end of the year, Headless IB's market share increased to approximately 56% compared to approximately 47% at the end of 2022. We are focused on working with large health systems at the C-suite and clinic level to pull through ongoing adoption of the universal recommendation. Customers continue to respond positively to the ACIP change and recognize the need to adopt and implement the recommendation. Full-year hepatitis B vaccine market growth in the IDN segment was 41%. In the retail pharmacy segment, we have made significant progress in several large national chains, making hepatitis B the preferred adult hepatitis B vaccine. At the end of the year, hepatitis B achieved approximately 58% market share in the retail pharmacy segment, compared to approximately 42% at the end of 2022. We continue to see and expect significant growth from the retail pharmacy segment. Full-year hepatitis B vaccine market growth was 78%. As Ryan noted, we are providing full-year 2024 net product revenue guidance for hepatitis B to be in the range of $265 to $280 million. This guidance reflects our momentum in the market while factoring in the evolving market landscape and emerging quarterly patterns of non-respiratory vaccination that we expect to see in 2024. Based on feedback from customers, cough, cold, and flu season has extended much further into January than expected, reducing the number of wellness visits and vaccination opportunities. Due to the softness in January, we anticipate little to no growth in the hepatitis B vaccine market for Q1 as compared to Q4 of 2023. Encouragingly, we expect the market to strengthen for the remainder of Q1 into Q2 as the focus of healthcare providers and retail pharmacy shifts back to prioritizing non-respiratory vaccines. As a result, we expect to recognize up to 60% of our full-year revenue range in the second and third quarters, with typical Q4 seasonality expected. We are extremely confident in the long-term expansion of the US hepatitis B vaccine market and forecast annual market growth of approximately 10 to 15% over the next several years, with Hepatitis B gaining meaningful increases in total market share over that time. In summary, we had a tremendous 2023, reaffirming our confidence that Hepatitis B will strengthen its position as a clear market leader in the expanding Hepatitis B vaccine market. We are very proud of our commercial team's execution and encouraged by the progress and momentum for Hepatitis B, establishing a majority market share in the key segments of retail pharmacy and IDN. I will now turn the call over to Rob to take you through our clinical pipeline.
spk04: Thank you, Don. As a reminder, in our development pipeline, we're advancing innovative and diversified vaccines that leverage our CPG-1018 adjuvant with proven antigens. We also continue to identify new opportunities to leverage our CPG-1018 adjuvant through multiple innovative preclinical and discovery efforts with leading collaborators. starting with our shingles vaccine program, Z1018. Currently, there's a successful licensed vaccine on the market, but we believe there's an opportunity to develop an improved vaccine given the challenging tolerability profile of the current market-leading product. One of the unique advantages we believe of our CPG1018 adjuvant is its safety and tolerability profile, combined with its ability to induce strong CD4 positive T cell responses, which we believe are critical to preventing the reactivation of the zoster virus. Results from our phase one trial support the continued development of Z1018, as they demonstrate the opportunity to develop a shingles vaccine with an improved tolerability profile and comparable efficacy. Late last year, we received type B meeting feedback from the FDA on the Z1018 program, which we believe is supportive of our proposed clinical development plan that includes a pivotal placebo-controlled efficacy study. We recently submitted an investigational new drug application, or IND, to the US FDA to support the initiation of a phase one, two trial of Z1018 in the first half of 2024. We will be evaluating escalating doses of our GE protein, our selected dose of CPG1018 with or without alum, and different vaccination schedules. We plan to enroll approximately 400 subjects and anticipate top-line immunogenicity data in the second half of 2025. Now, turning next to our Tdap1018 program. This is an investigational vaccine candidate intended for active booster immunization against tetanus, diphtheria, and pertussis, or Tdap. Current Tdap vaccines have limitations, including waning effectiveness. We believe there's an opportunity to improve the duration of protection using our CPG1018 adjuvant to generate a Th1 biased immune response. We've completed both a phase one clinical trial in adults and adolescents, as well as a pertussis challenge study in non-human primates. We recently received type B pre-IND meeting feedback from the FDA on the Tdap1018 clinical development and regulatory pathways. Together, results from our phase one study, our non-human primate study, and the feedback from FDA all support proceeding to a human challenge study this year. We plan to submit an IMD to the U.S. FDA to support the initiation of this phase two human challenge study of Tdap1018 in the second half of the year upon completion of the independent study being conducted by the Canadian Center for Vaccinology to establish the human challenge dose, which we will utilize in our phase two study. Moving on to the PLEG program. This is a collaboration with and funded by the U.S. Department of Defense. We are conducting a phase two trial evaluating the immunogenicity, safety, and tolerability of a two-dose plague vaccine candidate that is adjuvanted with CPG1018. The CPG1018 adjuvanted vaccine candidate's mechanism of action has the potential to speed up time to protection with fewer doses compared to the three-dose alum adjuvanted vaccine previously developed by the Department of Defense. We're currently conducting a randomized active-controlled phase 2 clinical trial evaluating immunogenicity, safety, and tolerability of the plague vaccine candidate, and in parallel, we're conducting a non-human primate challenge study. We expect top-line data from both of these studies by the end of 2024, and these data will inform next steps for the program. Now, in addition to these development programs, we've also filed a supplemental BLA for hapliceb-B vaccination of adults on hemodialysis, which the FDA has accepted with a BDUFA action date in May of 2024. If approved, this would allow us to promote a four-dose regimen of hapliceb-B to the dialysis population. We look forward to continuing to make progress across these programs in the months ahead. and we're excited to initiate the next clinical trial for both our shingles and TDAP programs in the coming year. I'll now turn the call over to Kelly to review our financial results.
spk01: Thank you, Rob. I'm pleased to report another quarter and full year of strong financial performance. I'll review the key financial results for 2023 as well as our financial guidance for 2024. Please note that all financial comparisons are versus the prior year period unless otherwise noted. Please also refer to our press release in Form 10-K for more detailed financial information. Starting with Heplicev-B, net product revenue grew 69% year-over-year to $213 million in 2023, another record year for the franchise. We are also pleased with our continued trend in the margin profile for Heplicev-B with gross margin of approximately 76% in 2023, consistent with our guidance of mid-70s percentage for the full year, and significant improvement compared to about 68% in the prior year. Looking forward, we expect gross margins of approximately 80% for the full year 2024, which is consistent with our long-term expectations of margin profile for this brand. Other revenue was $19 million in 2023, compared to $9 million in the prior year period, representing revenue related to the plague vaccine program in collaboration with and funded by the U.S. Department of Defense. The increase was primarily driven by the advancement into a non-human primate challenge study, as well as continued progress throughout our phase two clinical contract for the vaccine candidates. Turning to our expenses. Research and development expenses for 2023 increased to $55 million, compared to $47 million for the prior year period. with the increases reflecting continued advancement in our clinical and preclinical development programs. Selling general and administrative expenses for 2023 were $153 million, compared to $131 million in the prior year period, with the increase primarily driven by higher compensation and related personnel costs, and an overall increase in targeted commercial investments designed to drive helpless FB market share and maximize the opportunities presented by the ACIP's universal recommendation. These results generated gap net loss of $6.4 million in 2023, compared to a gap net income of $293 million during 2022. Moving to the balance sheet, we ended the year with cash, cash equivalents and marketable securities of approximately $742 million, which we believe is sufficient to progress our current pipeline assets and support our organic-based business without the need to raise additional capital. Turning towards 2024, we are providing the following full-year financial guidance. HEPLS FB net product revenue is expected to be between approximately $265 and $280 million, including approximately $3 million in ex-U.S. sales through our commercialization agreement with Bavarian Nordic and Germany. We expect HEPLISA to be gross margin of approximately 80% for the full year 2024. We expect R&D expenses to be between approximately 60 and $75 million. We expect SG&A expenses to be between approximately 160 and $180 million. And we also expect to be cash flow positive for the full year ended December 31st, 2024. reflecting our continued discipline towards allocating capital to drive top-line revenue growth while thoughtfully advancing our research programs. In closing, we believe that with our strong financial profile, we are well-positioned to drive sustainable growth in our core hepatitis B business, capture a majority market share, and lead the expansion of the adult hepatitis B vaccine market. We look forward to progressing our R&D portfolio of vaccine candidates while continuing to be extremely thoughtful in how we allocate our capital to accelerate growth and build beyond our current base business. We are excited about our progress to date, and we look forward to continuing to deliver on our goals for this year and beyond. Thank you, everyone, for your attention today. Operator, we would now like to open the Q&A portion of today's call.
spk00: Thank you. To ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Matthew Phipps with William Blair. Your line is now open.
spk06: Hi, good afternoon. Thanks for taking my question. Congrats on a great 23. Last year, I just wanted to visit last year, and you initially gave guidance of You know, there was lower 165, 185, something like that. And throughout the year, you raised it 20, over 20% with subsequent updates. What were the factors you think that drove greater than expected sales from your initial point last year? Was it greater growth of the total market or market share gains? Just kind of wondering what factors might influence where your guidance goes from today in 2024?
spk07: Hey, Matt. Thanks for the question. I think we have to remember 2023 was the first year, first full year coming out of both reconciliation of pandemic demand as well as the ACIP universal recommendation. So one of the things we said, I think we were pretty clear about this as I recall to our prior earnings calls is that The market growth in 23 outpaced our original expectations when we originally provided guidance earlier in the year. So, you know, we also had fairly successful growth in market share throughout the year. And so those two factors were dominated by better market growth than originally projected.
spk06: Yep. Okay. Thanks, Ryan. And does your guidance for this year include any contribution from the dialysis segments?
spk07: Yeah, I mean, we don't really provide guidance segment by segment, so we want to stay true to that. Our guidance for the year takes into account a lot of different puts and takes on how the year can evolve, so we're not going to be able to comment on one specific segment.
spk06: Okay. Great. Thanks for taking my questions.
spk00: Thank you. Thanks, Matt. One moment for our next question, please. Our next question comes from the line of Jonathan Miller with Evercore ISI. Your line is now open.
spk06: Hey, guys. Thanks for taking the question, and also congrats on 23 growth. I wanted to drill down a little bit into that comment you made on little growth in the HEPA market in Q1. Do you still have an opportunity to grow share in Q1? To what extent is share growth tied to overall market expansion, I guess? And then secondly... What are your expectations on regulatory requirements for plague beyond the Phase II and the NHP studies this year? What do you expect from regulators, and what do you expect from DOD?
spk07: Thanks, Jonathan, for the questions. I'm going to have Don tackle your first question, and I'll pick up the second one. Hey, Jonathan.
spk09: Regarding share, actually, we're excited about our ability to continue to take market share. This quarter is no different. That's one of the things we consistent around is the ability to take market share. So we like our position and our ability to take market share in this first quarter, even with the market being what it is.
spk07: And then the second question regarding the plague plan, the regulatory plan. I think it's important to know the reason we're doing the non-human primate study is because that's a key part of the regulatory path for a product like this to utilize the animal rule. And so, what we don't know yet is the specific path on whether or not there will be additional work required to satisfy the filing needed under that pathway with the agency. Rob, I don't know if you have any other comments you want to make around plague.
spk04: No, I think you covered it. I don't think at this point we know what will be required, say, for an EUA versus a full approval. Not at this point.
spk07: And the data will also be an important aspect of that. So, we really need to see that data before we can confirm the pathway.
spk06: And then just one more on gross margin. You said 80% plus for HEPLISAV, but How does the potential DOD collaboration revenue and other revenue line tie into that? Could total gross margin, overall gross margin still be in the mid-80s and higher?
spk01: So, the guidance, so thanks for the question. The guidance is approximately 80% for the full year for haplicev. Our other revenue line item is predominantly our plague. our plate contract reimbursement, which doesn't carry significant margin, or sorry, significant cost of goods at all. It doesn't carry any cost of goods at all. So yes, the extent we continue recognizing, which we expect to continue recognizing other revenues through that contract, our total company gross margins would be slightly higher than that 80%.
spk02: Thanks so much.
spk00: Thank you. One moment for our next question. It comes from the line of Paul Choi with Goldman Sachs. Your line is now open.
spk10: Hi, Jane.
spk09: Good afternoon and congrats on the strong finish to 23 from us as well. I want to maybe just ask, you know, on your thinking with regard to the guidance and as you think about the macroeconomic environment we're in and, you know, people's price sensitivity and sensitivity in terms of thinking about healthcare spending versus the high inflation environment. How do you think about maybe sort of the puts and takes of that in terms of, you know, demand growth over the course of the year? And, you know, would that, is that something you're thinking about in terms of framing your guidance?
spk10: And then I had to follow up on capital allocation.
spk07: Thanks for the question, Paul. You know, our guidance obviously is very specific to the market dynamics for adult vaccination. we don't see some of those macro factors having a big impact here at all on the FTI-SP market. It's a very, the reimbursement for that segment is incredibly well. There's first dollar coverage required under the Affordable Care Act. So, we think we're in a good position as it relates to some of those macro factors to continue to grow the vaccine market through 2024 and beyond. Okay.
spk09: Thanks for that. And then, as a follow-up, I know you and the team have talked about BD and or partnering here, but I guess as you sort of survey the landscape and sort of where potential bid-ask spreads or perhaps risk appetites are, I guess if partnership or BD opportunities don't materialize in the, let's say, in the next 12 to 18 months, You know, how would you think about then rank ordering your capital allocation outside of, you know, investing in the HEPLIS F business? Thanks so much for taking our questions.
spk07: All right. Thanks, Paul. Yeah, no, I think I appreciate you highlighting the fact that there's a lot of flexibility in identifying the right asset for Dynabacs. So, Kelly, why don't you provide some commentary on our overall capital allocation strategy?
spk01: Sure. So, you know, our exceptional commercial execution for HEPLIS FB, along with our adjuvant supply business, of course, has created this strengthening of our financial profile. We certainly believe the strong position will help us drive further growth, including, you know, first and foremost, looking for opportunities to invest in driving growth in haplosab B, as well as advancing our organic clinical stage assets, as well as our preclinical portfolio. As we reflect on opportunities outside of that, you know, to Ryan's comments, around corporate development, we do continue to evaluate strategic opportunities to diversify our commercial and clinical product portfolio. And then beyond that, certainly we do evaluate and consider other opportunities to either return capital to shareholders if and when appropriate, as well as other ways to generate value for our shareholders. So I'd say that's sort of the rank ordering where we stand today.
spk10: Thanks, Paul. Brett, thank you.
spk00: Thank you. One moment for our next question. Our next question comes from the line of Ernesto Rodriguez Dumont with Calwin. Your line is now open.
spk03: Hi, everybody. Thanks for taking your questions, and congrats on a great year. I have a question about the effects that you described from the longer-than-expected respiratory vaccine season and the Q4 seasonality. Are those effects overcome during Q4 and Q3, or do you have to, like, internally adjust your estimates for 2024 based on that? And then a second question regarding the gross margins. What's driving the improvement in gross margin? Is it economies of scale and lower costs, or are you expecting to have more pricing power? Thank you.
spk07: Yeah, I'll take the first one, and Kelly, if you can handle the second one. As far as I, Ernie, thank you for the question. I interpreted the first part of the question to say, does what we see in Q1 impact how we think about the rest of the year? Does it change how we update our guidance? I mean, ultimately, we only provide one guidance number when we're ready to provide it. So I don't, it's kind of hard to think about how individual factors impact it. But like we said in the call script, We know that Q2 and Q3 will continue to be the strongest quarters of the year. Our continued interactions with our customers are incredibly positive. So we're excited to get out of the respiratory season and the respiratory vaccine season and start working with our customers on the non-respiratory part of the year and to really drive growth in this market. Kelly, can you handle the gross margin?
spk01: Sure. On gross margins for helpless FB, These margin improvements have been driven by a couple of things, but mainly, you know, just decreasing our per-unit manufacturing costs. We made a number of investments in our antigen manufacturing facility in Germany. I'm really, really proud of the way that we've been able to pull through those improved yields over time to realize, you know, sort of an estimate of approximately 80% gross margin for 2024. To reiterate, you know, a point that I made in the prepared remarks, We do expect this 80% gross margin range to represent levels that are consistent with our long-term expectations for this brand.
spk03: Okay. Very helpful. Thank you.
spk10: Thank you, Ernie. Thank you.
spk00: Thank you. One moment for our next question. Our next question comes from the line of Edward White with HC Wainwright. The line is now open.
spk10: Hey, this is Steve on for Ed White. A few questions. For the shingles vaccine, do you have an expected timing to market?
spk07: We haven't commented on the long-term specificity of our launch. Obviously, it's a full clinical development program, so it will take multiple years Let's move forward. We have commented on the Phase 1-2 trial and the expectation of that data in 2025. And then we'll have to roll forward from there, Steven, on expectations for moving into the next study, citing the study, looking at enrollment dynamics to figure out exactly when that would be able to read out. So it's a little premature for us to predict the specific timing of filing and ultimate approval. But we have provided general commentary that it's a traditional vaccine development pathway, and there's good reference points for prior trials conducted in this space to get a sense of the timelines taken for those studies.
spk10: Okay, thank you. And so there were no adjuvant sales this year, right?
spk07: No adjuvant sales this year. We don't contemplate additional adjuvant sales for our COVID partnerships in 2024 at this time.
spk10: Okay. And what about in 2025 and going forward?
spk07: It's unclear. It depends on how the markets evolve and how our individual collaborators' products are utilized and the efforts they put behind keeping up with the shifting landscape, including strain management. So, obviously, we'll be supportive of our partners and their initiatives. We believe COVID vaccination will continue. globally for the years to come and is an important product in the marketplace. And so we will be there to support them as needed.
spk10: All right, thank you.
spk00: Thank you. One moment for our next question, please. Our next question comes from the line of Roy Buchanan with Citizens JMP. Your line is now open.
spk08: Hey, thanks for taking the question. Just a couple quick ones on the plague. Are you going to announce the results of the non-human challenge trial in the phase two at the same time later this year. And can you remind me, are you making any cell-mediated immunity assessments in the plague phase two, and do you think those might be important? Any thoughts on that? Thanks.
spk07: I'll take the first one, and then I'll ask Rob to follow up on the second. One of the things we have to realize with the study funded by the DoD is this is data that has – we have to work with our DoD partners on the release, specific And so that has not been clarified yet on exactly what the opportunity will be to share the data and what forum for either trial. So we need to basically complete these trials first, Roy, and we'll be able to make some top line comments like we have in the past. But we don't have a data release plan across both trials together. But we will work to be able to provide as much clarity on how the program is progressing in partnership with the DOD. The primary endpoint is antibodies, but Rob, please try any other commentary you have around cell-mediated immunity in the Plain Program.
spk04: Yeah, the primary endpoint is looking at antibodies because that's what DOD has used previously as they've developed this vaccine, particularly with respect to looking at antibodies in non-human primates and then applying those to humans. we aren't looking at cell-mediated immunity or T cells in our, in this phase two study.
spk02: Thank you.
spk00: Thank you. At this time, I'd like to hand the conference back over to Mr. Ryan Spencer for closing remarks.
spk07: Thank you, operator, and thank you all for joining us today. We appreciate your interest in DynaVax. We're excited about our recent accomplishments and the strength of our position overall. We look forward to updating you on our progress focused on protecting the world against infectious diseases. Operator, you may end the call.
spk00: Ladies and gentlemen, thank you for joining us today. This concludes today's conference call. You may now disconnect.
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