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Dynavax Technologies Corp (NASDAQ:DVAX)
Q1 2020 Earnings Call
May 8, 2020, 6:30 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 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'd now like to turn the call over to Nicole Arndt, Senior Manager, Investor Relations. You may begin now.

Nicole Arndt -- Senior Manager, Investor Relations

Thank you, Jenny. Good afternoon. Welcome to the Dynavax 2020 first quarter financial results and corporate update conference call. Joining me on the call today are Ryan Spencer, Chief Executive Officer; Michael Ostrach, Chief Financial Officer; Donn Casale, Vice President, Commercial.

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. 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 to all review.

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

Ryan Spencer -- Chief Executive Officer

Thank you Nicole and thank you all for joining us today for an update on our business and to review first quarter financial results. We appreciate you spending time with us given how much is going on in the world. The current global health crisis reinforces Dynavax's commitment to our mission of developing vaccines that provides protection for an unpredictable world. We are building a leading vaccine company on the foundation of our organizations significant experience and expertise in vaccine development and commercialization, with a focus on HEPLISAV-Bm, our adult Hepatitis B vaccine, with its outstanding safety profile and faster and consistently higher rates of protection across all subgroups and CpG-1018 with its potential as a broad based vaccine adjuvant platform.

Now more than ever, the world is acutely aware of the crucial role vaccines to play in protecting our families and communities. We urgently need a vaccine for the current COVID-19 pandemic and it is critical that any coronavirus vaccine is able to protect those at highest risk with severe complications or death. Unfortunately, the elderly and people with other chronic conditions are often the hardest groups to protect with vaccines. Based on its effectiveness with Hepatitis B, we believe CpG-1018 should be evaluated as an essential component of a coronavirus vaccine that is capable of rapidly protecting those at highest risk from COVID-19. The ability of CpG-1018 to boost the immune response, enables HEPLISAV-B provide protection to a higher percentage of the elderly and those who are hard to protect, in multiple head-to-head clinical trials, more rapidly and with fewer doses.

For example, in people between 60 years old and 70 years old 92% were protected after only two doses, of HEPLISAV-B compared to 73%, after three doses of the comparator vaccine. In fact, HEPLISAV-B has demonstrated higher levels of protection in groups known to be less responsive to vaccine, including smokers, the obese, and importantly people living with diabetes. We believe CpG-1018 can play an important role in the development of a safe and effective coronavirus vaccine, and we are committed to support these development efforts globally.

I want to touch briefly on the company's response to the COVID-19 pandemic. We have worked diligently to safeguard the health and safety of our employees and customers, while continuing effective operation to ensure patient access to HEPLISAV-B. We've implemented remote working operations for our employees at our headquarters here in California. Our manufacturing facility in Germany is employing special measures, so they can continue operations, while focusing on safety for our workers there. We have shifted from in-person interactions by the field sales force to virtual field calls, in order to allow Dynavax to continue to serve the need of physician, patients, customers during this critical time.

Operationally, we have focused on ensuring access to HEPLISAV-B. We continue to produce Hepatitis B surface antigen at our facility in Germany, and CpG-1018 adjuvant at our contract manufacturing organization here in the U.S. As a result, we have a secure supply chain that we are confident can meet the market's demand now and in the future.

Finally, while the COVID-19 pandemic has impacted access to hospitals and clinics affecting implementation of clinical trials across the pharmaceutical and biotech sectors, Dynavax is fortunate to have HEPLISAV-B post marketing observational studies fully enrolled and continuing uninterrupted. Due to the design and the conduct of the studies, we do not anticipate an impact to the integrity of the data as a result of shelter-in-place orders. Our HEPLISAV-B dialysis study continues to enroll patients with enrollment expected to complete this month.

While there's a tremendous amount of uncertainty caused by this pandemic, Dynavax is in the business of preventing deadly infectious diseases and as such, we believe we are uniquely positioned to emerge from this pandemic stronger, as a result of the world's increased awareness of the risk of infectious diseases and focus on prevention.

Let's review our business starting with a HEPLISAV-B and then moving on to our CpG-1018 adjuvant to understand why we are so confident in the long-term value Dynavax offers. HEPLISAV-B is a two dose adult Hepatitis B vaccine, which delivers faster and higher rates of protection when compared to the current market leader. Our adjuvant vaccine is the only Hepatitis B vaccine, that offers protection to adults in one month compared to other Hepatitis B vaccine that requires six months. Based on this profile, HEPLISAV-B is well positioned to become the standard-of-care for adults in the U.S. 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 undervaccinated populations.

The U.S. adult Hepatitis B vaccine market has three major segments, starting with monovalent Hepatitis B vaccines, followed by Twinrix which is a combination Hepatitis A and B vaccine; and then finally, formulations and dosing regimens for patients on hemodialysis. Based on the data in our label that demonstrates HEPLISAV-B's improved profile versus the current market leader, our initial focus has been on converting the monovalent segment. To optimize our efforts, our commercial organization is focusing on retail and national accounts, as well as high value field targets, which is approximately 60% of the overall customer universe.

The CDC recommends that all healthcare workers, emergency personnel and other individuals, who are exposed to blood or bodily fluids on the job, should be protected against Hepatitis B. However, our competitors' three dose regimen required over six months, and there are far too many, who do not receive a complete three dose Hepatitis B vaccine series.

Effective protection for healthcare professionals, hospital staff, first responders and other occupations with risk of exposure must be a priority and is our core focus to win the monovalent market. Focusing on the occupational health segment provides a high value point of entry into health systems and clinics nationally, where we continue to expand usage of HEPLISAV-B beyond staff to patients as well.

Additionally, we have continued to advance our efforts into retail pharmacy setting with the conversion of monovalent business in five national retail pharmacies. We estimate that the combination of Hepatitis A and Hepatitis B product, generates a majority of sales from travelers to traveling to areas with a high prevalence of Hepatitis A and Hepatitis B, who seek vaccination prior to their trip.

Due to the recent events, international travel is likely to decline in 2020. We believe this will also be accompanied by an increased interest in seeking out vaccination guidance for those who do travel internationally and will ultimately have a positive impact on the travel vaccine market. HEPLISAV-B's rapid protection provides travelers a valuable option for protection against Hepatitis B that allows for completion of a series in just 30 days. We believe heightened consumer awareness of the risks associated with infectious disease, will enhance our ability to leverage the HEPLISAV-B profile within the travel segment, as this business returns to normal historical levels.

To address the hemodialysis market segment, we are conducting a clinical study to establish an appropriate dosing regimen for this population. Results from the interim analysis of our ongoing study evaluating HEPLISAV-B in patients undergoing hemodialysis, demonstrated an 86% seroprotection rate at week 20, after four standard doses of HEPLISAV-B. We believe this dosing regimen compares positively with the eight dose regimen, required by the current market leader, and sets Dynavax up nicely for long-term growth in this segment.

Based on the growth and expansion opportunities we see in the years ahead, we believe the U.S. market opportunity for HEPLISAV-B has the potential to ultimately increase to over $700 million in gross sales. Outside of the U.S., we see potential for HEPLISAV-B in Europe, China, and some other markets. In Europe, we have filed marketing authorization application with the EMA, and in China we are working to identify a partner for clinical development, as well as commercialization. With this overview, I think you can see why we are excited about HEPLISAV-B opportunity and as a foundational asset for building a leading vaccine company.

Now shifting to additional growth opportunities. As you know, we are developing CpG-1018 as a broad vaccine adjuvant platform. With that as the goal, we have embarked on a strategy to establish multiple research collaborations, aimed at demonstrating the capability of CpG-1018 to enhance the immune response to a variety of vaccine antigens. The first such collaboration is an ongoing program with Serum Institute of India, the world's leading manufacturer of vaccines. This program is focused on the development of an improved pertussis vaccine using CpG-1018 combined with antigens manufactured by the Serum Institute.

With the COVID-19 pandemic, demand for CpG-1018 and Dynavax's vaccine development expertise has increased dramatically. In the last 10 weeks, we have entered multiple collaborations supporting the development of COVID-19 vaccines. Underscoring CpG-1018 potential versatility, these collaborations span multiple technology approaches to vaccine development. In order to ensure a successful development and availability of a safe and effective coronavirus vaccine, multiple approaches must be developed in parallel. We will continue to work to ensure CpG-1018 is evaluated broadly. We expect to announce additional research collaborations, and we anticipate CpG-1018 will be included in at least one coronavirus vaccine Phase 1 clinical evaluation this year.

Over the course of the year, we aim to enter multiple additional strategic relationships focused on advancing a variety of vaccine candidates and establishing the broad utility of CpG-1018. Through this approach, we can increase the number of product opportunities for Dynavax to leverage CpG 1018 along with our clinical development, manufacturing and commercial capabilities.

Let me now touch briefly on recent financial results, which Michael will cover in more detail in a moment. HEPLISAV-B net sales during the first quarter were $10.5 million, up from $5.6 million in the same period in 2019. We were pleased with these sales levels, given the headwinds of the COVID-19 pandemic. During the quarter, we saw continued increase in new order insights, consistent with prior quarters. By mid-March, most medical centers had restricted routine patient access to their facilities and focused on providing care for only the most severely affected patients. Since then, there has been a significant reduction in the utilization of vaccines across the board. We are obviously monitoring the expected timing of healthcare operations returning to normal, which, based on our commercial teams interaction with clients and healthcare providers, maybe in the June or July timeframe.

Our field sales force continues to have good engagement with their customers and targets and are actually able to make good progress on awareness and implementation planning, as certain customers have more time available due to reduced patient loads. With the current heightened awareness of the risk of infectious diseases, our team is focused on setting the stage to accelerate capturing market share as the U.S. returns to normal operations. We think the value proposition for HEPLISAV-B really resonates in the current environment.

Despite these short-term disruptions, the company's long-term value proposition remains unchanged and is potentially enhanced. Vaccines offer a tremendous value to the healthcare system. The current COVID-19 pandemic is reinforcing the need for better prevention and preparedness. We are hopeful that societal learnings from this pandemic will increase support for adult immunization and highlight the importance of providing rapid protection to our healthcare workers and others, who may be exposed to deadly viral diseases that are preventable.

The potential for all stakeholders, governments, policymakers, healthcare systems, and consumers to understand the benefits of vaccines and prevention will have a significant long-term positive impact on public health.

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 the press release issued this afternoon, so I'll just touch on the key highlights here and provide some additional color. As we reported today, HEPLISAV-B net sales for the first quarter of 2020 were $10.5 million, a substantial increase from the $5.6 million recorded in the first quarter of 2019, driven primarily by higher sales volume, as additional healthcare providers completed operational activities, required to switch to HEPLISAV-B and existing customers placed repeat orders.

Although, first quarter revenues ended up roughly flat compared to Q4, we had been on track to achieve the Q1 targets underlying our previous annual guidance, and to increase sales over Q4 until we began to see the impact of COVID-19 in the last few weeks of March. The pandemic has resulted in significantly reduced utilization of vaccines, including HEPLISAV-B, which is likely to continue until the U.S. returns to more normal conditions.

Research and Development expenses were $4.7 million for the first quarter of 2020 compared to $21.2 million for the first quarter of 2019. Excluding non-cash stock-based compensation, R&D expenses decreased to $6.2 million in the first quarter, compared to $19 million in the first quarter of 2019. These decreases resulted from significant reductions in R&D headcount and the winding down of our immuno-oncology programs following our May restructuring.

SG&A expenses for the first quarter of 2020 were $20.9 million compared to $18.3 million for the first quarter of 2019. The increase was primarily related to costs related to the HEPLISAV-B post marketing study, and an increase in facility costs due to higher overhead allocation to SG&A and changes in non-cash stock-based compensation, resulting from the restructuring. Cash, cash equivalents and marketable securities totaled $129.5 million at March 31, 2020.

The past quarter was remarkably successful, particularly in view of the challenges created by the pandemic. Until the last few weeks of March, we were on our way to our most successful sales quarter ever. We have already achieved the revenue necessary to satisfy the current year's revenue covenant and the loan agreement. We have substantially completed the restructuring and we have rapidly established multiple collaborations to advance our efforts to establish CpG-1018 as a leading adjuvant.

Now I'll turn the call back to Ryan.

Ryan Spencer -- Chief Executive Officer

Thank you, Michael. As highlighted by recent events, infectious diseases represent significant threat to public health. Vaccines offer a tremendous value to the healthcare system and they also represent a valuable long-term business with the potential for steady recurring revenue, making for a tremendous opportunity for long-term investments. Dynavax is well positioned for the long-term, with an FDA approved vaccine that has a large current market opportunity and clear drivers for future growth. In addition, we believe there is a rapidly expanding opportunity for our vaccine adjuvant CpG-1018 in multiple pandemic and endemic diseases.

While, we are closely monitoring, evaluating and working to mitigate the impact of the current pandemic, we also continue to execute initiatives to advance the commercialization of HEPLISAV-B and expand opportunities for CpG-1018. This year we remain on track for several important milestones including, advancing the ongoing study of HEPLISAV-B in patients on hemodialysis with final immunogenicity data expected in the fourth quarter of this year; completion of safety follow up for HEPLISAV-B post marketing studies in Q4 2020, which supports consideration of a preferential recommendation by ACIP in 2021; completion of Phase 1 enabling animal studies and toxicology for an improved pertussis vaccine with CpG-1018; developing CpG-1018 as a pandemic adjuvant in at least one coronavirus vaccine Phase 1 clinical study; and finally, we expect to enter multiple additional strategic relationships, focused on preclinical research in a variety of vaccine candidates, to establish CpG-1018 as a leading adjuvant.

The COVID-19 pandemic is reinforcing the need globally for better prevention and preparedness for infectious disease and Dynavax's mission is aligned with that purpose. We thank all our team members and shareholders for their commitment to Dynavax. 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 vaccine company.

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

Questions and Answers:

Operator

[Operator Instructions]. We do have our first questions on the line of Phil Nadeau from Cowen & Company. Your line is open. You may ask your question.

Philip Nadeau -- Cowen & Company -- Analyst

Good afternoon. Thanks for taking my question. A couple on COVID and then maybe one on the vaccines. First, on the impact of COVID, I appreciate that you said the utilization is down, what about your efforts to get on formularies and convert customers to HEPLISAV? Can that continue, as people are working virtually or because the healthcare systems are busy dealing with COVID in many places, has the process of converting accounts also slowed down?

Ryan Spencer -- Chief Executive Officer

Thanks, Phil. I'm going to ask Donn Casale, Vice President, Sales and Marketing and Head of Commercial to answer that question. Donn?

Donn Casale -- Vice President, Sales and Marketing, Head of Commercial

Hey Phil. Thanks for that question. So, we found that actually many of our customers and stakeholders are -- they are very open to remote and virtual meetings. We've found that many have more time now, given the limited patient load and demand and so we've been able to make a lot of progress, mainly around implementation. Again, because of the fact that there's no patients there, we're finding a lot of success. So all in all, from a virtual standpoint, the team is able to engage and get with key stakeholders, and continue to essentially advance the sales cycle for HEPLISAV-B.

Philip Nadeau -- Cowen & Company -- Analyst

Oh, that's good. Then second COVID impact question is, is on that utilization and I appreciate you said significantly reduced? Can you give us any sense what significantly reduced is, as we look to adjust our models for Q2 and Q3?

Ryan Spencer -- Chief Executive Officer

Yes, well, we're not in a position at this point to predict when the market will return to normal, since its dependent on how coronavirus pandemic progresses and the State and Federal government policies. So our interactions with our large health systems, suggest that clinics will hope to begin to open up for more traditional services in June or July. So it's not really something we can comment on, as far as how it's going to impact the quarter or beyond this point.

Philip Nadeau -- Cowen & Company -- Analyst

OK, fair enough. And then last question, you mentioned in the milestones, maybe Phase 1 trial for the coronavirus vaccine. Can you remind us which of your partners have suggested they could be in or through Phase 1 by the end of 2020?

Ryan Spencer -- Chief Executive Officer

In Phase 1, University of Queensland has sort of been the earliest -- publicly, at least earlier funded really by CEPI and Clover Biopharma have both targeted being in the clinic in 2020. The Sinovac program, I think we also would be targeting that kind of timeframe, although I can't remember what they said specifically. But we do believe there's a number of opportunities for us and as I mentioned, we are continuing to work on identifying other collaborations in the meantime.

Philip Nadeau -- Cowen & Company -- Analyst

Great. Thanks for taking my questions.

Ryan Spencer -- Chief Executive Officer

Thanks Phil.

Operator

[Operator Instructions]. We do have another question from the line, and that is from the line of Matt Phipps from William Blair. Your line is open.

Matthew Phipps -- William Blair -- Analyst

Good afternoon. Thanks for taking my question. First, I guess following up on the COVID-19 or SARS-CoV2 vaccine. Something like Sinovac, they obviously just published some preclinical data using an alum adjuvant. If they move forward, is it your understanding that they would take both alum and CpG-1018 or would they run additional preclinical studies, and then only take one forward? Or just -- how does this -- how do you think the next step works for somebody like them?

Ryan Spencer -- Chief Executive Officer

Well, I'll make a generic comment. I mean, I think we have to recognize the speed at which all of these things are happening at and there is a need to develop things in parallel, because there's a lot of it -- we're not into traditional sequential drug development, that you're used to. So I do believe there's -- depending on each circumstance, it could be different realities. We would expect that Sinovac would be interested in the adjuvant. In many ways, dose sparing is really relevant here, when you're dealing within activated products, because they obviously having enough supply and critical elements of this. And so I do think it's likely that they will be looking for some dose sparing capability from adjuvant, which would make it -- so goes it beyond just the immunogenicity or protection results Matt, and so it's hard to speculate now because it depends on that data.

Matthew Phipps -- William Blair -- Analyst

Yes. Thanks, Ryan. And then separating on the interim analysis data you guys showed recently was obviously really impressive. Is that enough that you can at least start having conversations with the DaVita and Fresenius, or do they really want it in label, before they really consider or just what's the process and next steps there?

Ryan Spencer -- Chief Executive Officer

No, we will not be having proactive conversations with DaVita and Fresenius from a commercial perspective, based on interim analysis of this study. So our proactive conversations with those customers from a commercial perspective, will be dependent on some updates to the label. I think the reality is, we're talking about two players who control the 80% of the market. The data will likely be made available, we will publish this data like we do with others in a reputable scientific forum and so the data will be available broadly, but it will not be promoted commercially by us.

Matthew Phipps -- William Blair -- Analyst

OK. And then lastly, Michael, obviously a big step down R&D in this quarter. You mentioned a lot of headcount and IO wrapping up. I mean, it's just kind of a base that you think now going forward, or is there other things? I know you guys have mentioned there's maybe another quarter or two of the I-SPY trial?

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

Yes, I think that almost all -- I mean, there's always some carryover. We are just completing treatment in SD-101 combination study and so that's finishing, and we will complete our investment in oncology around mid-year, with the completion of the I-SPY trial. So you can see the market reduction in cash spending in the first quarter to about $6.2 million I recall for the quarter in R&D, and sales were clearly a significant reduction, and I am not going to commit to you giving exactly that number, but it's now gotten down to a more -- within the range of what you would expect for us going forward on operating basis, until and unless we expand our operations in support of a COVID vaccine.

Matthew Phipps -- William Blair -- Analyst

All right. Good. Thanks for taking my questions.

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

Currently -- just to interrupt currently, our investment is limited, because we're collaborating with others who are advancing their programs, and we're contributing our expertise in 1018.

Matthew Phipps -- William Blair -- Analyst

Great. Thanks.

Ryan Spencer -- Chief Executive Officer

Thanks Matt.

Nicole Arndt -- Senior Manager, Investor Relations

Operator, are there any more questions?

Operator

[Operator Closing Remarks].

Duration: 60 minutes

Call participants:

Nicole Arndt -- Senior Manager, 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, Head of Commercial

Philip Nadeau -- Cowen & Company -- Analyst

Matthew Phipps -- William Blair -- Analyst

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