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Dynavax Technologies Corp (DVAX -1.16%)
Q1Â 2019 Earnings Call
May. 8, 2019, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to the Dynavax Technologies' First Quarter 2019 Conference Call. As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference, Ms. Heather Rowe, Vice President of Investor Relations and Corporate Communications. You may begin.
Heather Rowe -- Vice President, Investor Relations and Corporate Communications
Thank you, operator. Good afternoon. Welcome to the Dynavax first quarter 2019 financial results and corporate update conference call. With me today are Eddie Gray, Chief Executive Officer; Michael Ostrach, Chief Financial Officer; Rob Janssen, Chief Medical Officer; and Ryan Spencer, Vice President of Corporate Strategy and Commercial Operations.
Before we begin, I advise you that we will be making forward-looking statements today, including statements regarding clinical and financial information, expectations regarding HEPLISAV-B, including the amount and timing of sales, revenue and profitability, rate of adoption in new order, commercial profile and anticipated key events, included -- including the timing related to clinical studies and regulatory review as well as decisions on our oncology programs. 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 Risk Factors section of our current 10-Q and 10-K periodic reports filed with the SEC, which we encourage you all to review.
With that, I'll now turn the call over to Eddie Gray.
Eddie Gray -- Chief Executive Officer and Director
Thanks, Heather. And thank you all for joining us today to review our first quarter 2019 results. We are pleased with our progress this quarter. HEPLISAV-B is indeed starting the transformation of adult hepatitis B prevention and progressing to become the standard of care in the United States. It is the only two-dose hepatitis B vaccine that has consistently protected more than 90% of adult patients.
Today, we reported HEPLISAV-B net sales of $5.6 million for the first quarter, which was in line with our expectations. This compared to net sales of $3.9 million for the fourth quarter of 2018. We reiterate our expectation that HEPLISAV-B operations be profitable in the fourth quarter. We define HEPLISAV-B operations to include the cost of product sales or sales and marketing and medical expenses. Furthermore, we believe that over time HEPLISAV-B can reach peak growth US sales of around $500 million.
Let me highlight some recent progress. We continue to make important HEPLISAV-B commercial achievements, which helped contribute to our revenue numbers. These include, we achieved sales into three of the top four national retail pharmacy chains and contracting efforts are under way to secure additional pharmacy partners. More than 1,450 individual customers have purchased HEPLISAV-B since its launch. Only 4% of the doses sold to-date were sold to customers who have not subsequently reordered after at least 45 days. 15 of the top 20 integrated delivery networks have made HEPLISAV-B available to order. 557 of the targeted 1,420 accounts have made HEPLISAV-B available to order, representing 50% of the targeted adult hepatitis B market. And 164 of our top 300 targeted customers have ordered HEPLISAV-B.
In summary, we believe that we are well positioned. We do have a compelling clinical and commercial profile and an established concentrated market. Whilst institutional customers are indeed complex and take time to convert, once they do convert to HEPLISAV-B, we then see them making repeat orders that we expect to continue in the future.
Additional HEPLISAV-B achievements include the following. In March, we announced that the European Medicines Agency has accepted our marketing authorization application for review of HEPLISAV-B. This marks the beginning of the regulatory review process for HEPLISAV-B in the European Union. And we expect to hear the outcome of that review during 2020. In May, we announced the enrollment of the first patients in an open-label single-arm study of HEPLISAV-B in adults with end-stage renal disease who are initiating or undergoing dialysis. The study is designed to establish the appropriate regimen for use in dialysis patients.
Michael will go into more detail on our financial position shortly, but I first want to emphasize that we are focused on the management of our expenses. The bulk of our 2019 expenses are planned for HEPLISAV-B as we continue to build strong foundations for the ongoing launch. Our current immuno-oncology spend is focused on completing ongoing studies and we won't be making any new commitments in immuno-oncology until we determine the outcome of our efforts to partner these programs. Based on these outcomes, we would expect to be making decisions on our oncology programs by mid-year.
Speaking of immuno-oncology, at ASCO in June, we have three poster presentations detailing Phase 1b/2 combination study of SD-101 and pembrolizumab for patients with advanced melanoma and for patients with recurrent or metastatic head and neck squamous cell carcinoma. At the recent AACR Annual Meeting in April, we presented Phase 1b data on inhaled DV281 TLR9 agonist. Key highlights from the clinical data presentation included the following. First, in this safety study, two doses of DV281 monotherapy followed by combination with nivolumab was well tolerated. Secondly, inhalation of DV281 led to dose-dependent target engagement measured by induction of interferon regulated genes at all evaluated dose levels. And thirdly, DV281 plus nivolumab demonstrated early signs of anti-tumor activity in a heavily pre-treated group of patients.
With that, I'll now turn the call over to Michael for a discussion of the financials.
Michael S. Ostrach -- Senior Vice President, Chief Financial Officer and Chief Business Officer
Thank you, Eddie. Further details regarding our financial results can be found in the condensed statement of operations and summary balance sheet data that were attached to the press release issued this afternoon.
Net product revenue from HEPLISAV-B in the first quarter of 2019 was $5.6 million compared to $0.2 million for the first quarter of 2018. We recorded product revenue from sales at the net sales price, which includes our estimates of product returns, chargebacks, discounts, rebates and other fees. Cost of sales product for the first quarter was $1.8 million compared to $0.2 million for the first quarter of 2018. Included in this item are fill, finish and overhead costs for HEPLISAV-B incurred after FDA approval. A higher percentage of HEPLISAV-B inventory sold in 2019 used components manufactured after FDA approval compared to 2018 when most of the expense associated with products sold was expensed to R&D prior to approval. We're expecting our cost of sales of HEPLISAV-B will increase in future periods as we produce and then sell inventory that reflects the full cost of manufacturing product.
Research and development expenses for the first quarter of 2019 were $21.2 million compared to $19 million for the first quarter of 2018. The increase reflects additional personnel and clinical trial expense for ongoing development of SD-101 and DV281 in earlier stage immuno-oncology programs. Selling, general and administrative expenses for the first quarter was $18.3 million compared to $16.9 million for the first quarter of 2018. This increase was due primarily to additional personnel in support of HEPLISAV-B commercial activities.
The net loss for the first quarter was $39.7 million or $0.62 per basic and diluted share compared to a net loss of $39 million or $0.63 per basic and diluted share for the first quarter of last year. Cash, cash equivalents and marketable securities totaled $183.2 million at the end of the quarter March 31, 2019 compared to $145.5 million at December 31, 2018. In March, we exercised our option to draw down $75 million of non-dilutive capital under our existing term loan with CRG.
I'll now turn the call back to Eddie for closing remarks.
Eddie Gray -- Chief Executive Officer and Director
Thanks, Michael. Let me discuss our expectations for upcoming milestones. We are entering in 2019 with good HEPLISAV-B sales momentum and anticipate increased revenue from HEPLISAV-B during the year. In the third quarter, we expect to complete enrollment in the HEPLISAV-B post marketing study. We also continue to investigate opportunities to broaden the use of our 1018 adjuvant, which makes HEPLISAV-B so effective into additional next generation vaccines. We're collaborating with the Serum Institute of India to develop an improved pertussis vaccine. And as I mentioned, within immuno-oncology, we have three poster presentations on updated SD-101 data at ASCO in June. We are looking forward to what we believe will continue to be a busy and exciting year. Before turning it over to the operator for questions, I'd like to take a moment to thank our Board, our employees as well as our investigators and all the patients, of course, who are participating in our trials.
I will now open it up to questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. (Operator instructions) Our first question comes from Anupam Rama with JPMorgan. Please go ahead.
Matthew Bannon -- JPMorgan -- Analyst
Yeah. Hey, guys. Thanks for taking our question. This is Matt on for Anupam. So just two from us. First one on HEPLISAV. And so for the remaining pharmacy partners and delivery networks that are not yet on-board, just kind of wondering what the gating factor is to getting those contract arrangements in place. And then secondly, on DV281, can you just let us know if some of the key points of feedback from KOLs you received on the recently presented data set at AACR? Thanks for taking our question.
Eddie Gray -- Chief Executive Officer and Director
Okay, Matt. Thank you very much. So I think in terms of customers and gating factors, I will ask Ryan to perhaps give some examples of the process and how we're responding to what we find in the marketplace and making adjustments to deal with these big complex customers.
Ryan Spencer -- Vice President of Corporate Strategy and Commercial Operations
Yes. Thanks, Matt. So Eddie, for retail pharmacy in particular you highlighted, this is a process where basically we need to go through and engage each of them individually for purchase contracts. That's a bit different than IDMs and hospitals you also referred to. And so on that side, group purchasing organizations are the primary mechanism for contract relationships with hospital systems and IDMs and we have tremendous coverage of group purchase organizations than hospital networks. So I wouldn't suggest that we are not -- or in a position where we're not able to be accessed via a contract by IDMs and hospitals. That's a different discussion as far as when they choose to add it to their own formulary or choose to purchase HEPLISAV. Back to the retail pharmacy side, that is actually a pretty streamlined process to get moving forward with the contracts, like we said we're in contract with three of the top four, but I don't see a ton of barriers other than continuing to move through the negotiation process and getting the top 10 squared away over the course of the year.
Eddie Gray -- Chief Executive Officer and Director
And Rob, perhaps you can address the question of feedback or the discussion on the DV281 AACR poster.
Robert Janssen -- Chief Medical Officer and Senior Vice President, Clinical Development
Yeah. The feedback we got from KOLs at AACR was very positive. The first part to Phase 1 study is a question about safety is key, is can you inhale a stimulant safely in terms of -- for somebody with lung cancer, we demonstrated that you can. It's very well tolerated. We didn't see any cases in (inaudible). In addition, we got positive feedback on the tumor doubling time, on efficacy, on early efficacy -- early signs of efficacy that we're seeing, including long-term stable disease for example and changes in tumor doubling time. So we also had a couple of comments that, hey, that's a very exciting method of delivering your drug and a lot of comments about we're eager to see how you develop this.
Matthew Bannon -- JPMorgan -- Analyst
Great. Thanks for all the color.
Eddie Gray -- Chief Executive Officer and Director
Thanks, Matt.
Operator
(Operator Instructions) Our next question comes from Brian Abrahams with RBC Capital Markets. Please go ahead.
Beau Miller -- RBC Capital Markets -- Analyst
Hi. This is Beau Miller on for Brian. So two questions from me. One on HEPLISAV and another on SD-101. I guess, first on HEPLISAV. What degree does the clinical differentiation of HEPLISAV versus other competitor vaccines play in your discussions with hospital decision makers' choice in whether or not they choose to include HEPLISAV on their formulary? And I guess, how can you translate that into orders? And then I guess on that point too, can you speak to the recently initiated study of HEPLISAV and Engerix in hemodialysis patients and to what degree that could help differentiate HEPLISAV even further?
Eddie Gray -- Chief Executive Officer and Director
Okay. Thanks, Beau. So I think the central to the success of HEPLISAV and to the fact that it will be the standard of care in the future is undoubtedly the clinical benefits of the product. And I think we are absolutely seeing that in all of our customer interactions. And I think as we go through the formal process of engaging these big complex customers, the very high success rate that we're seeing through the P&T Committee part of the process, where of course that -- that the primary assessment of the clinical benefit -- so the product being made, we're really seeing that in action. Slightly ironically, the clinical profile and the benefit of the product is then contributing to -- as we move further into the -- into getting these customers to go through the process of ordering the product. The clinical benefits of the product in the short-term makes our challenge a little more difficult, although in the long-term, it will establish why will be the standard of care for a generation because the fact that one of the key component parts is the fact that we're a two-dose vaccine rather than a three-dose vaccine actually increases the workload upon these institutions in making the change.
Ryan, perhaps you can add a little -- a few examples maybe to give a sense of why that's the case.
Ryan Spencer -- Vice President of Corporate Strategy and Commercial Operations
Yeah. I think the key in getting back specifically to your question around the degree of clinical differentiation and translating that to orders, I mean, frankly, it is the clinical differentiation that's going to make this product successful. We are not approaching the market as a contracting play, like the other brands where (inaudible) commodity. And so it's that degree of differentiation that we're hanging our hat on completely and it is what's supporting our continued belief that we will eventually be the standard of care. As it relates to the last point Eddie made around the process, to those products is a change from a three-dose product, including the time frame. And that means that organizations have to not only recognize the clinical value, but they have to deal with the fact that they're switching (inaudible) streamline some patients, so there's protocols that we've written on interchangeability, electronical medical records that have to be -- or systems that have to be updated to be able to handle the two-dose logic. So that after two doses series can be deemed to be complete. So that just goes back down to, I think to the point Eddie was making, which is a clinical variation is not just seroprotection rates, but dosing regimen as well. So it works both directions and that causes some operational complexity, like that has to be navigated as well.
Eddie Gray -- Chief Executive Officer and Director
Yes. I think the other thing to reflect on here as well though is that, as I say, while we find that frustrating in the short-term, it consistently both in terms of what people say to us, but also seeing the amount of effort organizations go through to introduce that was up. Our conviction that once people move to HEPLISAV, they will not be moving away grows with every customer, I think.
Beau Miller -- RBC Capital Markets -- Analyst
And then on the -- thanks for that response. I guess on the hemodialysis study, I guess, how does that fit in to your customer base? Is that targeting hospitals already under order, I guess, what is the rationale behind that study?
Eddie Gray -- Chief Executive Officer and Director
Well, I think the first thing to remember is that these patients are already in our label. And so this study is not about seeking additional patient populations. We already have these patients in our label. But if you look at the label for all hepatitis B vaccines for these patients, there is -- these patients, generally speaking, require a different introductory dosing regimen than others. And we're really using this study to explore what the appropriate staffing regimen is for HEPLISAV in these patients.
Rob, have I summarized that accurately or would you like to add anything?
Robert Janssen -- Chief Medical Officer and Senior Vice President, Clinical Development
Yeah. No, I think the key differentiation here is like the two-dose vaccine, we're looking at a four-dose regimen over 16 weeks compared to Engerix, which is a four double-dose regimen, that's eight doses over 24 weeks. I think we're excited about it because our three-dose regimen in CKD patients had a seroprotection rate of about 90%. In dialysis patients in the Engerix label, their seroprotection rate is 67%. Not completely comparable, but we do anticipate a much higher seroprotection rate. So I think it's an exciting study.
Eddie Gray -- Chief Executive Officer and Director
I think the way to look at this study is that it's a practical means of giving helpful information to providers on a patient population that is already in our label.
Beau Miller -- RBC Capital Markets -- Analyst
Thanks. And then I guess on SD-101, can you speak more specifically to what we should expect to see in terms of data at the ASCO conference in both PD-1 resistant melanoma and the head and neck setting? And I guess, how are those data helping to guide your decisions on potential next steps for the program?
Eddie Gray -- Chief Executive Officer and Director
So Rob, perhaps you can address this. And I think it's probably also worthwhile addressing in your comments that the abstracts were drawn back in about January or February and so we probably advise people to not bother too much -- expend too much energy on the abstracts and wait for the posters. Wouldn't that be fair?
Robert Janssen -- Chief Medical Officer and Senior Vice President, Clinical Development
Yeah. Clearly, the challenge always with new data are the abstracts are submitted months before they're presented, so the abstracts generally -- actually in most of the cases in our experience don't reflect what's on the posters. We will be providing data on patients in melanoma refractory population, patients who receive 2 milligrams. Unfortunately, those data are still relatively immature. Not all those patients have had two scans by the time we'll be presenting data. We also will be presenting data on the melanoma naive population. We're continuing to follow those patients, we'll have updated PFS data and ORR data actually in that poster and then we'll also be presenting the PD-1 naive head and neck patient population and that'll be the 2 milligram population is what will be the new data.
Beau Miller -- RBC Capital Markets -- Analyst
Thank you very much.
Eddie Gray -- Chief Executive Officer and Director
Thanks, Beau.
Operator
Our next question is from Matt Phipps with William Blair. Please go ahead.
Matt Phipps -- William Blair -- Analyst
Hi. Thanks for taking my question. Just a couple on HEPLISAV. I know it's still pretty early in the launch, but I was wondering if you had any metrics around compliance and patients receiving both doses of the vaccine regimen. And then also just in the quarter, is there any changes in inventory or were there any kind of bulk purchases might have occurred?
Eddie Gray -- Chief Executive Officer and Director
Okay. Ryan, perhaps you can address both of those questions.
Ryan Spencer -- Vice President of Corporate Strategy and Commercial Operations
Yeah. Matt, we actually don't have a mechanism to calculate compliance unless we were to do some sort of study -- process study. We may be able to see some information as it relates to the post-marketing down the road possibly at being -- Kaiser already has consistently be able to pull some of that information, but we're not at that point yet. We do expect that our rate for the second dose will look identical to the rate of indirect, but that's not something we've studied to-date, it's just a general inherent expectation. So I'd love to have some of that information. We do -- we are looking at ways to gather it, but we're not at a point that we have any information there.
Eddie Gray -- Chief Executive Officer and Director
The key clinical issue there, of course, is that two doses of Engerix have far lower seroprotection rate than two doses of HEPLISAV. So...
Ryan Spencer -- Vice President of Corporate Strategy and Commercial Operations
That's right. So I think we do also expect that the ultimate measurement being series completion and we will have a higher rate of series completion because the two-dose regimen versus three. But we don't have data at that -- at this time on that question naturally. And then, I am sorry, the second question was...
Eddie Gray -- Chief Executive Officer and Director
Inventory.
Ryan Spencer -- Vice President of Corporate Strategy and Commercial Operations
The inventory in bulk purchases. We do see continued -- we see our inventory grow quarter-over-quarter, but the reality is that's consistent with underlying demand growing as well. And so if you think of inventory from the standpoint of our distribution partners want to maintain a certain number of doses on hand, certain number of weeks on hand to deliver in time. As our underlying demand grows, that inventory volume is expected to grow as well. So that's actually, yes, we've seen inventory growth, but it's completely part of what we expect to see ongoing.
Eddie Gray -- Chief Executive Officer and Director
Yeah. I think we've said before Matt that when we entered the market, we did find the sort of management of inventory of the older vaccines looked well managed and that there were not large stocks being held. And I think as we look at the data we have so far, we believe that the same picture is emerging with HEPLISAV with -- therefore, I think people can be confident that as we report our numbers on a quarterly basis, this is a function of patients being vaccinated rather than issues or activities in the channels.
Matt Phipps -- William Blair -- Analyst
Great, thank you.
Operator
Our next question is from Joseph Thome with Cowen and Co. Please go ahead.
Joseph Thome -- Cowen and Co. -- Analyst
Hi, there. And thank you for taking my questions and congratulations on the progress this quarter. My first one is on HEPLISAV. About the 860 patients that have not -- sorry, target accounts that have not been taking HEPLISAV are available to order. Can you give us a little bit more information on the proportion of those that maybe just haven't progressed past the P&T process versus those that decided not for whatever reason to make HEPLISAV available and kind of what was their reasoning if they decided not to make it available? And then I have a follow on SD-101.
Eddie Gray -- Chief Executive Officer and Director
Well, I think as a general rule, we've said before and we continue to say that the people who actively choose to say -- feel that HEPLISAV is not for them in any shape or form is a very pleasingly low number, but can you give any further insight into the numbers, Ryan.
Ryan Spencer -- Vice President of Corporate Strategy and Commercial Operations
Yeah. I'd avoid going into too much detail as far as individual percentages because it tends to fluctuate, but it is a low number of the people of the thing -- of the accounts, where it's not available yet. In most cases, it's going to be -- there is not formal defined decision-making process. So either -- so we don't have evidence of any decision being made or they just haven't made a decision yet and we're still continuing to go through that process. It's not surprising. I think we're quite pleased with how we've progressed at making the product available. And I would also suggest that in the situations where it is a no because we have had people say, no, we're not going to do this at this time. That's an important part at this time. Actually, now that we've been on the market for over a year, we've had accounts that were some very early on nos and have since actually become yeses, including for conversion. So a no in the setting is not -- it's not no and we walk away and we never talk to them again. It can be a variety of reasons. One, which we're navigating right now in particular was when they brought to P&T Committee, they had the wrong prices. They had drastically the wrong price. That's not our doing. That's their doing. They -- we're not allowed to be in a room in this setting, but we kept working the account and we figured out the issue and we've since reengaged and are taking it back to P&T next month and are actually expecting an outcome. So you could just imagine the number of variety of situations that could occur like that, which means I'm encouraged by the fact that the number is fairly low anyway, including those kinds of situations.
Eddie Gray -- Chief Executive Officer and Director
I think Ryan is right. I think our experience would be that no actually means we're just still in the process rather than a decision.
Joseph Thome -- Cowen and Co. -- Analyst
Okay. That's great to hear. And then on SD-101, Eddie, in your prepared remarks, you mentioned that you were going to wait in terms of partnership discussions. And I know previously, we've talked about the willingness to go alone in certain of these indications. I guess, how are you thinking now? Are you willing to take some of these indications, probably more the head and neck or the PD-1 non-responsive populations in melanoma forward alone or are you looking to partner all three of the indications?
Eddie Gray -- Chief Executive Officer and Director
Well, I think first of all I think we recognize and are really trying to make sure people understand that we -- we -- that we understand that confirming our plans for the oncology assets, including the outcomes from any partnership discussions are indeed a top priority. Our focus in the short-term I think is all around management of our expenses, making sure that our only expenditure on immuno-oncology is around completion of the ongoing studies and we're not making any new commitments in immuno-oncology. I think the issue of different assets and what they may or may -- what they may or may not look like inside or outside of Dynavax, there are too many individual subsets -- answers to that question depending on which potential party you would talk to. So I think what we've tried to do today is give people a sense that based on all of these processes that we expect to make our decisions on the ecology programs by the mid-year and it's probably not helpful or indeed appropriate for me to elaborate on that today.
Joseph Thome -- Cowen and Co. -- Analyst
Great. And then maybe just a quick one on DV281. Can you just give us an update on enrollment and maybe timing of moving into kind of the Phase 2 portion of the expansion cohorts there?
Eddie Gray -- Chief Executive Officer and Director
Well, I think we are currently in the final cohort of the safety study. And really any future activities on DV281, I sort of refer you to my last answer really, probably not appropriate for me to say any more than I have to today.
Joseph Thome -- Cowen and Co. -- Analyst
Okay. Great. Thank you guys so much.
Eddie Gray -- Chief Executive Officer and Director
Super. Thanks, Joseph.
Operator
(Operator Instructions) And I'm showing no further questions at this time. I would like to turn the call back over to Eddie Gray, Chief Executive Officer, for closing remarks.
Eddie Gray -- Chief Executive Officer and Director
Thank you very much. I would like to thank everybody for joining us here today and for your continued support of Dynavax. We look forward, as I said earlier, to an ongoing exciting year for the Company and to update you on our progress in future calls. Thank you very much.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect.
Duration: 32 minutes
Call participants:
Heather Rowe -- Vice President, Investor Relations and Corporate Communications
Eddie Gray -- Chief Executive Officer and Director
Michael S. Ostrach -- Senior Vice President, Chief Financial Officer and Chief Business Officer
Ryan Spencer -- Vice President of Corporate Strategy and Commercial Operations
Robert Janssen -- Chief Medical Officer and Senior Vice President, Clinical Development
Matthew Bannon -- JPMorgan -- Analyst
Beau Miller -- RBC Capital Markets -- Analyst
Matt Phipps -- William Blair -- Analyst
Joseph Thome -- Cowen and Co. -- Analyst
