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Dynavax Technologies Corp (NASDAQ:DVAX)
Q4 2019 Earnings Call
Mar 11, 2020, 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 Fourth Quarter and Full Year 2019 Conference Call. [Operator Instructions] I would now like to turn the conference over to Nicole Arndt, Senior Manager, Investor Relations, you may begin.

Nicole Arndt -- Senior Manager of Investor Relations

Thank you, Joe. Good afternoon. Welcome to the Dynavax 2019 financial results and corporate update conference call. Joining me on the call today are Ryan Spencer, Chief Executive Officer; Michael Ostrach, Chief Financial Officer; and Donn Casale, Vice President, Sales and Marketing.

Before we begin, I advise you that we will be making forward-looking statements today, including statements regarding HEPLISAV-B's commercial profile, revenue expectations, potential peak revenue, the completion of post-marketing studies and regarding vaccine development with CpG 1018. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially.

For example, we cannot quantify at this time the impact of the coronavirus pandemic. Hospitals, clinics and other customers had postponed some face to face meetings generally, and many have imposed restrictions on access to non-essential personnel. All of which could slow customer decision-making, adoption and implementation, resulting in lower sales during the current and future quarters. These risks are summarized in today's press release and are detailed in the Risk Factors section of our current 10-Q and 10-K periodic reports filed with the SEC, which we encourage you all to review.

I will now turn the call over to Ryan Spencer, Chief Executive Officer of Dynavax.

Ryan Spencer -- Chief Executive Officer

Thanks, Nicole, and thank you all for joining us today to review our 2019 financial results and what we think is an exciting outlook for 2020. Last summer, we began a transformation at Dynavax with the goal of building a leading vaccine company. Vaccines offer a tremendous value to healthcare system, and it also represents a valuable long-term business with the potential for steady, recurring revenue. Fortunately for us, we are in a unique position of having an approved vaccine with a large current market opportunity and clear drivers for future growth. And additionally, we are focused on leveraging our core competencies in vaccine development and commercialization to bring new products to market. Starting with continued development of CpG 1018, the adjuvant contained in HEPLISAV-B.

Our first commercial product, HEPLISAV-B, is a two-dose adult hepatitis B vaccine, which delivers faster and higher rate of protection compared to the current market leader. Based on this profile, HEPLISAV-B is well positioned to become the standard of care for adults in the United States. With HEPLISAV-B's higher levels of protection and improved dosing regimen, along with our marketing efforts, we expect to drive significant market growth from currently under-vaccinated population.

Outside of the US, we see potential for HEPLISAV-B in Europe, China and other markets. In Europe, we have filed a marketing authorization application with the EMA. And in China, we are working to identify a partner for clinical development and commercialization. While HEPLISAV-B, our proprietary TLR9 agonist, CPG 1018 represents an additional asset with significant long-term potential. Dynavax developed CpG 1018 with the goal of creating an adjuvant capable of enhancing the immune response to a variety of vaccine and antigens. This adjuvant effect had initially been demonstrated in HEPLISAV-B.

We have already begun advancing CpG 1018 in multiple research collaboration. The first one is an ongoing program with Serum Institute of India, world-leading manufacturer of vaccines. This program currently in Phase 1-enabling study is focused on the development of an improved pertussis vaccine using CpG 1018 combined with antigens manufactured by Serum Institute of India.

More recently, we announced our collaboration with the University of Queensland and CEPI, the Coalition for Epidemic Preparedness, to develop a coronavirus, or COVID-19, vaccine. The University of Queensland is currently testing CpG 1018 in combination with its proprietary antigen approach, which could result in initial clinical trials beginning as early as midyear 2020. Over the course of the year, we anticipate entering multiple strategic relationships focused on advancing a variety of vaccine candidates and establishing a broad utility of CpG 1018. Through this approach, we expect to identify product opportunities to Dynavax to leverage CpG 1018 along with our clinical development, manufacturing and commercial expertise.

Shifting gears to HEPLISAV-B commercialization. We think it's worth reminding investors how we work at the US hepatitis B vaccine markets. This US market has three major segments. Starting with monovalent hepatitis B vaccine, followed by Twinrix, a combination of hepatitis A and B vaccine, and finally formulations and dosing regimen for patients on hemodialysis. Based on the data in our label that demonstrates HEPLISAV-B's improved profile compared to that of the current market leader, our initial focus has been converting the monovalent segment.

To optimize our efforts, our commercial organization is currently targeting approximately 56% [Phonetic] of the customer universe, focusing on retail and national accounts as well as high-value [Indecipherable]. During 2020, we will apply commercial efforts to begin to convert between this [Phonetic] segment as well. And following that, we plan to pursue with our dialysis segment once we have established the appropriate dosing regimen.

Beyond the current market, we expect growth over time from a variety of factors, including improving vaccination rates, improve second dose to clients and other market expansion initiatives. For example, the Centers for Disease Control's Healthy People 2030 framework includes the goal of eliminating viral hepatitis as a public health threat by 2030. We believe HEPLISAV-B can play a vital role in achieving this goal. In our opinion, HEPLISAV-B's safety, compliance and rapid seroprotection rate warrant it becoming standard of care adult hepatitis B vaccine in the US. This profile has the potential to generate a preferential recommendation to HEPLISAV-B from the CDC's Advisory Committee on Immunization Practices, or the ACIP.

To that end, we are focused on supporting the evaluation of a preferential recommendation for HEPLISAV-B through providing additional data and information to help the working group complete the review. The ACIP hepatitis working group is also evaluating a routine recommendation for all adults to be vaccinated against hepatitis B. Currently, only adults with specific risk factors are recommended to be vaccinated. Both the potential preferential recommendation for HEPLISAV-B and a recommendation for routine adult vaccination could be valuable steps to helping achieve the Healthy People 2030 goal. Based on the growth opportunities we see in the years ahead, we believe the market for HEPLISAV-B has the potential to ultimately increase to well over $700 million in gross sales.

With this overview of the market opportunity and our current efforts, I will now touch briefly on our recent financial results, which Michael will cover in more detail in a moment. HEPLISAV-B net sales during the fourth quarter were $10.6 million, which is up from $3.9 million in the same period in 2018. As expected, we have seen some seasonality in our revenue in the fourth quarter driven by slower Department of Defense activity as well as some other factors. Full year 2019 HEPLISAV-B net sales were $34.6 million, in line with our upwardly revised guidance and a substantial increase from 2018's $6.8 million in net sales.

Our HEPLISAV-B commercial efforts are making excellent progress and we expect this significant growth to continue with full year 2020 net product sales anticipated to increase by approximately 70% over 2019. If we are successful in delivering this kind of growth in 2020, we expect to be on a great trajectory to achieve our long-term goal, particularly as we move in the years with additional growth drivers such as dialysis and the potential to enhance CDC's recommendation. As we execute on our ongoing transformation into a leading fully integrated vaccine company, I am very pleased with the team's accomplishment that resulted in a productive year in 2019 and positive momentum heading into 2020.

With that, I'll now turn the call over to Michael to discuss our financial results in more detail.

Michael S. Ostrach -- Senior Vice President, Chief Financial Officer and Chief Business Officer

Thank you, Ryan. Our financial results are presented in more detail in the press release issued this afternoon. So I'll just touch on the key highlights here and provide some additional color. Consistent with our previous guidance, we reported today full year 2019 HEPLISAV-B net sales of $34.6 million. HEPLISAV-B net sales during the fourth quarter of 2019 were $10.6 million, up from the $10.2 million we recorded for the third quarter and a significant increase from the $3.9 million recorded in the fourth quarter of 2018.

At our current scale, quarterly product sales can be affected by variations in seasonal factors such as lower Department of Defense purchases following the summer surge of new recruits, gains lost to holiday periods, which can delay implementation and ordering by customers, and the staffing patterns of our distributors. Research and development expenses were lower for the full year and continued to decrease during the fourth quarter, down to $12.3 million from the $22.9 million for the fourth quarter of last year. The decreases resulted from the winding down of oncology research activities and reductions in R&D headcount following the restructuring we implemented in May 2019 to focus on our vaccine business.

The fourth quarter included approximately $3 million in expenses related to oncology programs. These expenses are expected to continue to decrease over the next three quarters as these activities are completed with total additional expenses over that period anticipated to be approximately $6 million. These increases in SG&A expenses for the three- and 12-month periods in 2019 compared to 2018 were due primarily to increases in sales and marketing activities, payments for completion of certain milestones in the HEPLISAV-B post-marketing study, and higher facility costs due to an increase in facility related overhead allocation to SG&A functions following the restructuring in May. In addition, it's worth noting that increased lease expense, which is being recouped through a sublease to a third party is recorded as part of other income.

Cash, cash equivalents and marketable securities totaled $151.1 million at December 31, 2019, putting us in a strong financial position to achieve our long-term objectives. On the strength of 2019's revenue growth and continued successful implementation of our commercial strategy, we expect net product sales for the full year 2020 to be between $55 million and $62 million. As indicated earlier, we cannot quantify at this time the impact of the coronavirus pandemic.

I'll now turn the call back to Ryan for some closing remarks.

Ryan Spencer -- Chief Executive Officer

Thanks, Michael. Building on the transformation that started in 2019, we expect 2020 will be an important year for Dynavax with multiple value drivers, including: HEPLISAV-B net product revenue expected to increase approximately 70%; interim data to be released from our ongoing study of HEPLISAV-B in patients on hemodialysis later this month with final immunogenicity data in the second half of 2020; completion of safety follow-up for HEPLISAV-B post-marketing studies in Q4 of 2020; completion of Phase 1-enabling animal studies and toxicology for improved pertussis vaccine enabled by CpG 1018 by year-end; announcing multiple strategic relationships focused on establishing CpG 1018 as a leading adjuvant, including our recent announcement related to our collaboration to develop a coronavirus vaccine.

We are in a truly exciting period for Dynavax that will position the Company for substantial long-term success, benefiting both patients and shareholders. As highlighted by recent events, infectious diseases represent a significant threat to public health. And we believe the vaccine business represents a tremendous opportunity for long-term investment. HEPLISAV-B has the potential to protect more adults from hepatitis B than any product in the US market today. Across the Dynavax organization, we are focused on day-to-day execution of our commercial strategy to drive annual revenue growth for HEPLISAV-B. We are also working to drive value with our CpG 1018 vaccine adjuvant, which represents an additional opportunity to create differentiated vaccine for high unmet medical needs.

We thank all of our investors and team members for their commitment in Dynavax and HEPLISAV-B. We look forward to all we will accomplish together over the course of 2020 and the years ahead as we build Dynavax into a leading fully integrated vaccine company.

Operator, we would now like to open the Q&A portion of the call.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We will take our first question from Matt Phipps of William Blair. Please go ahead, your line is open.

Matt Phipps -- William Blair & Company, L.L.C. -- Analyst

Good afternoon, guys. Thanks for taking my question. I guess, first, can you try to quantify in some of the seasonality that you saw in Q4, is that across? And you kind of mentioned some specific areas like the DOD, but other area -- break it down a little bit more and how much of that is -- I think that again should rebound in Q1?

And then on the expense side, how much of SG&A was one time? You did mentioned the milestones in post-marketing. Just kind of wondering how SG&A spend moves going forward, specifically? And then lastly, I guess how much supply do you guys have on hand right now? Any concern build on your facility within Germany manufacturing side?

Ryan Spencer -- Chief Executive Officer

Matt, I couldn't get the second question. Do you mind repeating the second question.

Matt Phipps -- William Blair & Company, L.L.C. -- Analyst

Yes. Second question is on SG&A spend. You mentioned there is a one-time, I guess, milestones in the post-marketing study. I believe you mentioned was in SG&A, if you can maybe quantify that. Just kind of curious how much SG&A spend to expect going forward to get a better sense of the expenses?

Ryan Spencer -- Chief Executive Officer

Okay. Well, let me go back to them a little bit. First of all, supply on hand, we have actually built up quite a significant inventory balance between finished product and raw materials. And we continue to manufacture in Germany at the moment. So I assume your question tied to supply chain disruption due to many different impacts for the coronavirus situation. As of right now, we feel like we have plenty of inventory to meet demand for quite a while. So I don't think it's something that we're focused on at the moment, or should be at the moment.

And then as it relates to seasonality. Obviously, we mentioned a number of factors. I think what we want to highlight is, the seasonality as it relates to DOD it's something that we've always known to exist. And it really comes from troop counts. We see a spike in troop count in the summer months as they bring in more new recruits and Q4, it happens to be lower. So it's hard to quantify because it depends on their own recruiting efforts each year. And so we don't want to get into quantification of what you should expect annually. It also has an impact based on how many bases we have at the time that have switched to HEPLISAV.

The other items Michael mentioned were around distributor stocking as well as sales days, activity days in the fourth quarter. That is, again, hard to quantify in particular. It's just that we know that we will have an impact on implementation because implementation is very specific to a number of individuals. We all have to be present and with the holiday schedules, it will make it harder to pull together groups of people. That's not the same as product utilization, that will be a little different in later stages of our life cycle.

The only other point, I think, Michael mentioned was really destocking at distributors. Weeks on hand have general fluctuations that we could see between two weeks on hand. There's a range that we carry that could fluctuate by two weeks or so. And that's just not part of what we manage. And so, that's something with seasonality but it can be an explanation for why quarterly variances may -- are not indicative of the underlying health of the business.

I would point you to, if you want to kind of dig in a little bit more our corporate presentation, we did provide a slide that shows the segment growth as far as doses. That is not the same [Phonetic] information, including our corporate debt, that can give you some sense of how things have grown segment by segment over the launch.

Michael S. Ostrach -- Senior Vice President, Chief Financial Officer and Chief Business Officer

And with respect to the question about milestones that are paid under the post-marketing study, that was just actually because we achieved a significant progress in completing enrollment and so forth. And so, the way the payment structure was related to that. That having been said, there is only a couple of million dollars left remaining on the expenses related to that one. $2 million or $3 million for this current year.

Operator

Thank you. We will take our next question from Phil Nadeau of Cowen and Company. Please go ahead, your line is open.

Phil Nadeau -- Cowen and Company, LLC -- Analyst

Good afternoon and thanks for taking my questions. Just a couple. First on HEPLISAV in Q4, are there any updated statistics that you can share around targeted accounts that are ordering or market share among targeted accounts? Anything that we can use to benchmark versus the statistics you gave us over the last several quarters?

Ryan Spencer -- Chief Executive Officer

As far as targeted accounts ordering, we sort of moved away from that [Indecipherable] to the shared point that it gets complicated as far as what we call a target between individual sites of care within large customers or a customer themselves. So, it's over -- it's multiple thousands of orders. But as we look at where our growth comes from, they're not equal. And so it became -- it started to become a number that we didn't feel was meaningful. If we have a whole bunch of small independent starting to order, I mean it's not going to provide you a meaningful metric compared to some of our larger customers, and so we felt that at initially launch it's useful to show traction in the marketplace that now become -- it doesn't become something that's useful, so we haven't provided it in our updated [Indecipherable] in the updated release.

Phil Nadeau -- Cowen and Company, LLC -- Analyst

Got it. Okay. That's very helpful. And...

Ryan Spencer -- Chief Executive Officer

But perhaps a more relevant information is our market share. So we have increased our market share for our field accounts to 21%. So we did show continued progress there as well as a 11.6% overall, which is up from something like I think 2.8% in Q4 of last year. So that show -- we are moving our metrics to provide you some level of traction, but to a little bit higher level concepts.

Phil Nadeau -- Cowen and Company, LLC -- Analyst

Great. That's very helpful. And then the second question is around just to dig more deeply into the preferential recommendation that you mentioned from ACIP. What is the process for securing that? And specifically in regards to the post-marketing study, how does the ACIP get hold of that data? Do you have to submit it? Does there have to be a formal publication that they can see? How does that data get into their hands?

Ryan Spencer -- Chief Executive Officer

Okay. So, the ACIP has a working group they designate for certain disease states, and so there's a hepatitis working group. And that is where we would interact if they need additional information. So we don't interact directly with the ACIP work group. We have a relationship with the ACIP work group through the CDC. And so via that relationship, we can provide updated information either because we have new relevant information for their consideration or to answer questions they may have specifically. Obviously, the post-marketing studies are information that's important to their review. We have provided the interim analysis to the working group. They have reviewed it. They are working through the evaluation.

At the February meeting, they will confirm that they are conducting an economic analysis, which I believe they could -- said it would be available this spring, which is their own analysis. We have conducted our own, which we will share with them. So it's a bit of an opening back and forth, but in generally, as it relates to data and information not -- there is not casual -- a casual relationship, but it's not as formal as a BLA process, for example.

Phil Nadeau -- Cowen and Company, LLC -- Analyst

Got it. And for the ACIP to issue preferential recognition, is that something that they would have to take up in an open public forum. So at some point, will we see an agenda that says professional recommendation for HEPLISAV? Or is this something that can actually happen without a public meeting and public vote?

Ryan Spencer -- Chief Executive Officer

No, it is a public forum. All -- the ACIP meeting each year and they are all public. And that is where the entire dialogue happened as it relates to any change to the recommendation.

Phil Nadeau -- Cowen and Company, LLC -- Analyst

Perfect. That's very helpful. Thanks for taking my questions and congrats on progress.

Ryan Spencer -- Chief Executive Officer

Thank you, Phil.

Operator

Thank you. We'll now take our next question from Ed White of H.C. Wainwright. Please go ahead, your line is open.

Edward White -- H.C. Wainwright & Co, LLC -- Analyst

Hi. Thanks for taking my question. So the first question, just wanted to get an update on the diabetes pharmacy chain initiatives that you are working on to launch this quarter?

Ryan Spencer -- Chief Executive Officer

The -- I'm sorry, the last part of that question, diabetes pharmacy...

Edward White -- H.C. Wainwright & Co, LLC -- Analyst

Pharmacy chain initiative, yes.

Ryan Spencer -- Chief Executive Officer

Pharmacy. I'm sorry. I heard policy and I got confused, because we do not have a policy initiative. The pharmacy initiative [Indecipherable]. Why don't I turn it over to Donn Casale, our Head of Sales and Marketing, who can give you a general overview on, I think, more beyond just the specific one off, how we're approaching diabetes throughout 2020. Donn?

Donn Casale -- Vice President, Sales and Marketing

Thanks for the question. So regarding the, obviously, the partnership, it's been very successful, in fact, from an [Indecipherable] perspective [Indecipherable] 2,000 patients during the two week initiative. And so it became kind of a playbook for us moving forward with different pharmacy. So very successful and so it becomes an opportunity for us moving forward. There's going to be more initiatives like this with other retailers throughout 2020. As you know, these opportunities with diabetes and patient origination within the pharmacy, and so looking forward to doing more [Indecipherable].

Ryan Spencer -- Chief Executive Officer

Yes. And in general, this is how we're going to have to get out to the diabetic recommendation, is through these institutional customers that have an ability to leverage their control or their system to target specific patients. So, beyond pharmacy we will start to evaluate opportunities with large IDNs, who have made system-level switches to help with us to support programs around using electronic medical system to cause physicians to vaccinate their diabetic patients as well.

Edward White -- H.C. Wainwright & Co, LLC -- Analyst

Great, thank you. And then just a question on the coronavirus initiatives with the University of Queensland, you're providing technical expertise in your agonist adjuvant. How much -- just thinking from an R&D standpoint in the cost of this program? Is it going to be minimal or could this be material thing? And then also, just on the timing of it, there is a lot of -- a lot of coronavirus vaccine initiatives going on right now. And just wondering where you sort of stand? When we could see some kind of data or get more information about this program? Thank you.

Ryan Spencer -- Chief Executive Officer

So this brings up a couple of points that highlight where we are with our CPG adjuvant program. But specifically the corona, this program is funded by CEPI, but it's being run primarily by the University of Queensland. We are providing our adjuvant and the expertise that they're providing is our know-how. The reason is being, it is a very opportunistic to our CK [Phonetic]. This adjuvant is the same adjuvant we manufactured for HEPLISAV. So we are actually leveraging all of the existing work we're doing now. It's not much of a -- many of the people involved in corona that you hear about are chasing it from the standpoint of putting new efforts to it. For us, we're leveraging the approved -- the vaccine in the approved FDA -- an FDA approved product. So we're able to supply it with virtually no cost to be part of this program.

Queensland -- University of Queensland is doing an initial research and it's all funded by CEPI. So we do not see there being inaugral cost at this stage for Dynavax. And the whole reason Queensland is involved because they have a -- use the long-term funding through CEPI.So I don't think it being something that impacts R&D spend. And it's a little bit indicative of what we should expect for other CpG-related programs initiatives where we're able to leverage the fact that we make a large quantities of this product and we're willing to provide our expertise and how to use the adjuvant in the vaccine setting to Research Partners. Which can rapidly -- which can enhance their efforts in a meaningful way in terms of time and reduce their risk of success. And so, specifically with respect to the University of Queensland collaboration, they're hoping to complete the animal testing by mid year and go into the clinic rapidly. So we'll see what happens with the animal side of the work that you're hoping to see initial clinical trials in middle of the year.

Donn Casale -- Vice President, Sales and Marketing

It isn't guaranteed that our product will be selected for clinical trials. But if those results are positive that would be the timeframe.

Edward White -- H.C. Wainwright & Co, LLC -- Analyst

I'm sorry, that is midyear?

Donn Casale -- Vice President, Sales and Marketing

Yes.

Edward White -- H.C. Wainwright & Co, LLC -- Analyst

Okay.

Donn Casale -- Vice President, Sales and Marketing

You can imagine that we can't be too specific at this point. Everything is moving so fast.

Edward White -- H.C. Wainwright & Co, LLC -- Analyst

Okay, great. Thanks for taking my questions.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Nicole Arndt -- Senior Manager of Investor Relations

Ryan Spencer -- Chief Executive Officer

Michael S. Ostrach -- Senior Vice President, Chief Financial Officer and Chief Business Officer

Donn Casale -- Vice President, Sales and Marketing

Matt Phipps -- William Blair & Company, L.L.C. -- Analyst

Phil Nadeau -- Cowen and Company, LLC -- Analyst

Edward White -- H.C. Wainwright & Co, LLC -- Analyst

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