Dynavax Technologies Corporation (NASDAQ:DVAX) Q4 2023 Earnings Call Transcript

Dynavax Technologies Corporation (NASDAQ:DVAX) Q4 2023 Earnings Call Transcript February 22, 2024

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Operator: 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.

Paul Cox: Thank you for participating in today’s call. Joining me from Dynavax are Ryan Spencer, Chief Executive Officer; Donn Casale, Chief Commercial Officer; Rob Janssen, Chief Medical Officer; and Kelly MacDonald, 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 order 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.

Ryan Spencer: Thanks Paul. Good afternoon everyone and thank you for taking the time to join us to review Dynavax results for 2023. 2023 was characterized by record revenue growth for HEPLISAV-B, delivering 69% growth year-over-year, and becoming the market leader market share leader in the two largest growth segments, which are retail pharmacies and integrated delivery networks, making HEPLISAV-B the leading vaccine in the U.S. 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 HEPLISAV-B brand and advancing our pipeline programs into clinical trial initiations and data readouts. For HEPLISAV-B, we are again forecasting continued growth with net product revenue in the range of $265 million to $280 million for the year.

In a few minutes, Donn will provide some additional commentary on how the U.S. hepatitis B 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 HEPLISAV-B in the 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 HEPLISAV-B SBLA for hemodialysis expected in May; clearing our shingles IND, currently being reviewed by FDA to begin our Phase 1/2 trial; advancing our Tdap program; and delivery Phase 2 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 HEPLISAV-B 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 disciplined 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 Donn to provide more details on the HEPLISAV-B results and our guidance looking forward.

Donn Casale: Thank you, Ryan. In 2023, we achieved a record net product sales and market share, establishing HEPLISAV-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 the sizable market opportunity and long-term revenue growth potential for HEPLISAV-B. 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 HEPLISAV grew to approximately $525 million in 2023 on a clear path to approximately $800 million by 2027 with HEPLISAV-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 ACIP universal recommendations despite softness in the market related to reduced wellness visits and an increased focus by healthcare providers on respiratory disease vaccines, including typical flu campaign and the launches of RC and endemic COVID-19 vaccines. HEPLISAV-B 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. The sales growth continues to be driven by HEPLISAV-B 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 IDNs segments as they expect to see most of the anticipated market growth from the ACIP universal recommendation in these segments, estimated both will grow to represent over 60% of the total hepatitis B market by 2027.

As I said, we have now the market share leader in both of these key segments. For IDNs, at the end of the year HEPLISAV-B 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 recommendations. 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 HEPLISAV-B the preferred adult hepatitis B vaccine. At the end of the year, HEPLISAV-B achieve 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 segments. Full-year hepatitis B vaccine market growth was 78%. As Ryan noted, we are providing full year 2024 for net product revenue guidance for HEPLISAV-B to be in the range of $265 million 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 softness in January, we anticipate little to no growth in the hepatitis B vaccine market for Q1, as compared to Q4 2023.

Encouragingly, we expect the market to strengthen for the remainder of Q1 into Q2 as the focus of health care providers and retail pharmacy shifted 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 U.S. hepatitis B vaccine market and forecast annual market growth of approximately 10% to 15% over the next several years with HEPLISAV-B gaining meaningful increases in total market share over that time. In summary, we had a tremendous 2023, reaffirming our confidence that HEPLISAV-B will strengthen its position as the 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 HEPLISAV-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.

Rob Janssen : Thank you, Donn. 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 CpG 1018 adjuvant is it 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 Zoster Virus.

Results from our Phase one trials 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 RGE protein our selected dose of CpG 1018 with or without alum and different vaccination schedules. We plan to enroll approximately 400 subjects and anticipate tight top line immunogenicity data in the second half of 2025.

Now turning next to our Tdap 1018 program. This is an investigational vaccine candidate intended for active booster immunization against tetanus diphtheria and pertussis or Tdap. Our Tdap have limitations including waning effectiveness. We believe there’s an opportunity to improve the duration of protection using our CpG 1018 adjuvant to generate a Th one biased immune response. We’ve completed both a Phase one clinical trial in adults and adolescents, as well as a pertussis challenge study in nonhuman primates. We recently received type the pre-IND meeting phase feedback from the FDA on the Tdap 1018 clinical development and regulatory pathways. Together, results from our Phase one studies our nonhuman primate study and the feedback from FDA all support proceeding to a human challenge study this year.

We plan to submit an IND to the US FDA to support the initiation of this Phase two human challenge study of Tdap 1018 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 onto the plague program. This is a collaboration with and funded by the US 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 CpG 1018. The CpG 1018 adjuvanted vaccine candidates. 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 two clinical trial evaluating immunogenicity safety and tolerability of the plague vaccine candidate. And in parallel, we’re conducting a nonhuman 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 hepatitis B vaccination of adults on hemodialysis which the FDA has accepted with a PDUFA action date in May of 2024. If approved, this would allow us to promote a four dose regimen of teplizumab 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.

Kelly MacDonald: 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 and Form 10-K for more detailed financial information. Starting with HEPLISAV-B, net product revenue grew 69% year-on-year to $239 million in 2023, another record year for the franchise. We are also pleased with our continued trend in the margin profile for HEPLISAV-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 and 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 US Department of Defense. The increase was primarily driven by the advancement into a nonhuman primate challenge study, as well as continued progress throughout our Phase 2 clinical contract for the vaccine candidate. Turning to our expenses. Research & Development expenses for 2023 increased to $55 million, compared to $47 million in the prior year period with the increases reflecting continued advancements 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 HEPLISAV-B market share and maximize the opportunities presented by the ACIP universal recommendation. These results generated a GAAP net loss of $6.4 million in 2023 compared to a GAAP 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 base business without the need to raise additional capital.

Turning towards 2024, we are providing the following full year financial guidance. Coupled with that the net product revenue is expected to be between approximately $265 million and $280 million including approximately $3 million in ex-US sales through our commercialization agreement with Bavarian Nordic in Germany. We expect HEPLISAV-B gross margin of approximately 80% for full year 2024. We expect R&D expenses to be between approximately $60 million and $75 million. We expect SG&A expenses to be between approximately $160 million and $180 million and we also expect to be cash flow positive from the full year ended December 31, 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 HEPLISAV-B business, capture 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. And operator we would now like to open the Q&A portion of today’s call.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Matthew Phipps with William Blair. Your line is now open.

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Q&A Session

Matthew Phipps: Hi, good afternoon. Thanks for taking my questions. Congrats on a great 2023. Last year, you just wanted to visit last year, and you initially gave guidance of, 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?

Ryan Spencer: 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 from our prior earnings calls, is that the market growth in 2023 outpaced our original expectations when we originally provided guidance earlier in the year. So 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.

Matthew Phipps: Yeah, okay, thanks, Ryan. And does your guidance for this year include any contribution from the dialysis segment?

Ryan Spencer: 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.

Matthew Phipps: Okay. Great. Thanks for taking my questions.

Ryan Spencer: Thanks, Matt.

Operator: Thank you. 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.

Jonathan Miller: Hey, guys, thanks for taking the question and also congrats on the 2023 growth. I wanted to drill down a little bit into that comment you made on little growth in the Hep B 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 the regulatory requirements for plague beyond the Phase 2 and the NHP studies this year? What do you expect from regulators and what do you expect from DoD?

Ryan Spencer: Hey, why don’t we take the — hey, thanks, Jon. Thank you for the questions. I’m going to have Don tap me a first question and I’ll pick up the second one.

Donn Casale: Hey, Jonathan. Yeah. Regarding share, actually, we’re excited about our ability to continue to take market share. This quarter is no different. It’s one thing to be consistent around 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.

Ryan Spencer: 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 studies is because that’s a key part of the regulatory path for a product like this utilizing animal. 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.

Rob Janssen: 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.

Jonathan Miller: Make sense.

Ryan Spencer: And a little bit, the data will also be an important aspect of that. So we really need to see that data before we can confirm the pathway.

Jonathan Miller: 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?

Kelly MacDonald: So the guidance — so thanks for the question. The guidance is approximately 80% for the full year for HEPLISAV. Our other revenue line item is predominantly our plague 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, to the extent we continue recognizing, which we expect to continue recognizing other revenue through that contract, our total company gross margins would be slightly higher than that 80%.

Jonathan Miller: Thanks so much.

Ryan Spencer: Thanks, Jon.

Operator: Thank you. One moment for our next question. Comes from the line of Paul Choi with Goldman Sachs. Your line is now open.

Paul Choi: Hi, team. Good afternoon, and congrats on the strong finish to 2023 from us as well. I want to maybe just ask on your thinking with regard to the guidance. And as you think about the macro economic environment we’re in and on 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 demand growth over the course of the year? And would that – is that something you’re thinking about in terms of freight trimming your guidance? And then I had a follow up on capital allocation.

Ryan Spencer: Thanks for the question, Paul. Our guidance obviously is very specific to the market dynamics trend or vaccination and it’s we don’t see some of those macro factors having a big impact here at all on the advertising market. And 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.