Dynavax Technologies Corporation (NASDAQ:DVAX) Q1 2024 Earnings Call Transcript May 8, 2024
Dynavax Technologies Corporation misses on earnings expectations. Reported EPS is $-0.06698 EPS, expectations were $-0.05. DVAX isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Dynavax Technologies First Quarter 2024 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the call over to Paul Cox, Vice President, Investor Relations and Corporate Communications. Please begin, sir.
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 our Interim of Head of Finance, Rita O’Connor. Earlier today, Dynavax released financial results for the first quarter ended March 31, 2024. Copies of the press release and the supplementary slide presentation are available on Dynavax’s website. Before we begin, I advise you that we will be making forward-looking statements today based on our current expectations and beliefs, including, but not limited to, potential market sizes, market segmentation, effective marketing efforts, future expected market share and related growth rates and related ACIP recommendation impact on each financial guidance and trends, including revenue, profitability, cash flow and sufficiency of current capitalization, timing and results of FDA submissions, clinical trial starts and data readouts and potential future uses of or demand for our CpG-1018 adjuvant.
These statements involve risks and uncertainties, and our actual results may differ materially. These risks are summarized in today’s press release and detailed in the Risk Factors section of our SEC filings, including today’s quarterly report on Form 10-Q. 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. Thank you for taking the time to join us to review our Q1 2024 results. The first quarter of 2024 saw continued year-over-year growth in quarterly HEPLISAV-B net product revenue despite a slight decrease in the U.S. hepatitis B vaccine market during the first quarter. Due to an extended cough, cold and flu season, which reduced the number of vaccination opportunities a dynamic which was observed across other nonrespiratory vaccine markets beyond hepatitis B. Even with the slow start to the year, we remain very encouraged about the adult hepatitis B vaccine market opportunity, both in 2024 and over the longer term. We are seeing a pickup in the market in recent weeks as providers have begun to shift to nonrespiratory vaccine campaigns and as our retail pharmacy partners and top IDN systems launched new hepatitis B-focused initiatives.
HEPLISAV-B became the market share leading hepatitis B vaccine for adults in the U.S. last year, and we plan to build on that position in 2024. We continue to expect record HEPLISAV-B in 2024, with net product revenue expected in the range of $265 million to $280 million for the year. Longer term, the U.S. adult hepatitis B vaccine opportunity remains significant with over 130 million patients eligible , one of the largest addressable patient populations in the U.S. with a vast majority remaining unvaccinated. We believe this translates to a market opportunity for HEPLISAV-B of over $800 million by 2027, with HEPLISAV-B poised to achieve a majority market share. We’re also excited for several upcoming milestones from our novel vaccine pipeline, including the initiation of our Phase I/II trial for a shingles vaccine tense long-term follow-up data for our Phase I TdaP trial and data readouts from our play program.
As a reminder, we look forward to our PDUFA action date on May 13 for HEPLISAV-B supplemental BLA for vaccination of adults on hemodialysis, which is currently under review by the U.S. FDA. In addition to this continued execution and bolstered by our strong financial position, we continue to assess opportunities to grow beyond our internal organic pipeline within the infectious disease space, which we believe would enable us to further diversify our product portfolio and create future commercial opportunities. As we’ve discussed previously, we remain committed to disciplined capital allocation focused on generating significant value and driving growth. We look forward to providing updates on these efforts in the future. I’ll now turn the call over to Donn and Rob who will provide more details on HEPLISAV-B results and our pipeline progress, respectively, before Rita O’Connor reviews our financial results for the first quarter.
As previously announced, our CFO, Kelly MacDonald, is currently on maternity leave, as Rita has stepped in as Interim Head of Finance, supporting me and my temporary appointment as Principal Financial Officer until Kelly’s expected return in August. Donn, can you take it away?
Donn Casale: Thank you, Ryan. In the first quarter of 2024, HEPLISAV-B achieved strong net product sales despite headwinds that affected the nonrespiratory vaccine markets, including hepatitis B. On our last call, we said that growth in the U.S. hepatitis B vaccine market was expected to be flat during the first quarter due to an extended cough, cold and flu season. As expected, these dynamics played out ultimately reducing the opportunity for adult vaccination in Q1, leading to a slight decrease in the hepatitis B vaccine market compared to the fourth quarter of last year and a flat year-over-year growth compared to the first quarter of 2023. This dynamic has been observed across other nonrespiratory vaccine markets as well.
HEPLISAV-B continued to increase its total U.S. market share year-over-year, achieving an estimated 41% market share in the first quarter compared to 37% during the same period last year. Net product revenue in the quarter grew 10% year-over-year compared to the first quarter of 2023. This sales growth continues to be driven by HEPLISAV-B’s strong performance in 2 critical segments: retail pharmacy and integrated delivery networks or IDM. We estimate these segments will drive significant growth and represent over 60% of the total adult hepatitis B market in the U.S. by 2027. In both segments, HEPLISAV-B’s first quarter estimated market share increased to approximately 55% compared to approximately 49% during the same period last year. Despite the softness in the market in the first quarter, we continue to see indicators of U.S. market expansion from the ACIP universal recommendation for adult hepatitis B vaccination reaffirming our confidence in a sizable market opportunity and long-term revenue growth potential for HEPLISAV-B.
Large health systems and providers are gaining awareness and agree they need to act on the ACIP universal recommendation. Many large systems have committed to launching new hepatitis B-focused initiatives over the next several quarters to effectively implement the recommendation. Over half of our targeted IDM universe has increased hepatitis B dose volume year-over-year. While system level changes take time to enact, we are encouraged by the progress we see as our systems work to implement operational changes to support routine adoption of the ACIP universal recommendation. In the Retail Pharmacy segment, we have made meaningful progress with several large national chains, placing HEPLISAV-B in a preferred position among adult hepatitis B vaccines.
Despite the slow start in Q1, retail customers are mobilizing around the opportunity that HEPLISAV-B vaccination. Several customers have indicated a clear shift away from respiratory vaccines to a focus on nonrespiratory vaccines such as hepatitis B. Given these positive trends and customers’ commitment to prioritize hepatitis B vaccination for the rest of the year, we are forecasting the retail segment to meet our annual expectations for 2024 and make a considerable impact to HEPLISAV-B’s success this year. As Ryan noted, we are reaffirming our full year 2024 net product revenue guidance for HEPLISAV-B to be in the range of $265 million to $280 million. As mentioned, we’ve already seen signs of the market strengthening early on in Q2 as the focus of health care providers and retail pharmacy shifts back to prioritizing nonrespiratory vaccines.
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. We continue to expect the hepatitis B vaccine market opportunity for HEPLISAV-B to grow to over $800 million in the U.S. by 2027, from approximately $525 million in 2023. In summary, we are reaffirming our confidence that HEPLISAV-B will strengthen its position as a clear market share leader in the expanding hepatitis B vaccine market, and we expect 2024 will be another year of record sales and continued growth. We are very proud of our commercial team’s execution in establishing HEPLISAV-B as the market share leader in the U.S., and we look forward to continuing this momentum in the remainder of 2024.
I will now turn the call over to Rob to take you through our clinical pipeline.
Rob Janssen : Thank you, Donn. We continue to make progress advancing our innovative vaccine pipeline which is focused on leveraging our CpG 1018 adjuvant with proven antigens. Starting with our shingles vaccine program, Z-1018. As a reminder, we believe there’s an opportunity to develop an improved shingles 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 its safety and tolerability profile combined with its ability to induce strong CD4 positive T cell responses, which we believe are critical to preventing the reactivation of disaster virus. We previously conducted a Phase I trial of Z-1018 in 150 subjects at clinical sites in Australia.
We believe the results from this trial support the continued development of Z-1018 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 FDA on the Z-1018 program, which we believe is supportive of our proposed clinical development plan that includes a pivotal placebo-controlled efficacy study. During the second quarter of 2024, we plan to initiate a randomized active controlled Phase I/II trial to evaluate the safety, tolerability and immunogenicity of Z-1018 compared to the licensed recombinant vaccine. We plan to enroll approximately 440 healthy adults aged 50 to 69 years at trial sites in Australia. We will be evaluating escalating doses of our GE protein, our selected dose of CpG 1018 with or without alum and different vaccination schedules.
We anticipate top line immunogenicity and safety data in the second half of 2025, which will include a comparison of CD4 positive T cells 1 month after the last vaccine dose. In March, we received FDA clearance of our IND application for this trial. Turning next to the TdaP-1018 program. This is an investigational vaccine candidate that’s intended for active booster immunization against tetanus, diphtheria, and pertussis or TdaP. Current TdaP vaccines have limitations, including waning effectiveness. And we believe there’s an opportunity to improve the duration of protection using our CpG-1018 adjuvant to generate a TH1-biased immune response. In 2022, Dynavax reported top line results from a Phase I clinical trial evaluating the immunogenicity and safety of a booster dose of TdaP-1018 compared to an active control.
The results demonstrated that TdaP-1018 was generally well tolerated and induced similar or higher antipertussis antibodies and booster response rates than the active control. Prior to advancing TdaP-1018 into a previously announced Phase II human challenge trial, Dynavax plans to evaluate the persistence of pertussis immunogenicity of TdaP-1018 through a long-term follow-up study of participants who completed our Phase I trial. The extension study is expected to follow participants for up to approximately 3 years following vaccination. Top line results are expected in the fourth quarter of 2024. These data will provide us with a view of how the TdaP-1018 immunogenicity response over time compares to the active control. And will help establish our views on the potential benefits that can be achieved with our vaccine candidate.
Moving on to the plague vaccine program, which is in collaboration with and funded by the U.S. Department of Defense. In March, we executed a contract modification with DoD to add approximately $4 million to support CMC work for the plague vaccine candidate with the agreement now totaling $38 million through 2025. We anticipate top line data from both the randomized active control Phase II clinical trial as well as the nonhuman primate challenge study of the plague vaccine candidate in the fourth quarter of 2024. These data will inform next steps for the program. We’re pleased with this progress across our pipeline, and we look forward to executing on these upcoming milestones in the coming months. We also continue to identify new opportunities to leverage our CpG-1018 adjuvant through multiple innovative programs with biotech and academic collaborators.
I’ll now turn the call over to Rita to review our financial results.
Rita O’Connor: Thank you, Rob. I’ll review the key financial results for the first quarter of 2024 and as well as our financial guidance for the full year of 2024. Please note that all financial comparisons are versus the prior year period, unless otherwise noted. Please refer to our press release and Form 10-Q for more detailed financial information. Starting with HEPLISAV-B, net product revenue grew 10% year-over-year to $48 million in the first quarter of 2024. Cost of product sales for HEPLISAV-B in the first quarter of 2024 decreased to $11 million compared to $15 million for the prior year period. The decrease was primarily due to lower per unit manufacturing costs as a result of previous process improvements, partially offset by a $1 million inventory write-off charge recorded during the first quarter of 2024.
We continue to be pleased with the HEPLISAV-B margin profile trend with gross margin of about 77% in Q1 of 2024, a significant improvement over the 66% in the first quarter of 2023. We continue to expect gross margins of approximately 80% and for the full year of 2024, which is consistent with our long-term expectations of margin profile for HEPLISAV-B. Other revenue was about $3 million for both the first quarter of 2024 and 2023, representing revenue related to the plague vaccine program in collaboration with and funded by the U.S. Department of Defense. Turning to our expenses. Research and development expenses were $14 million for both the first quarter of 2024 and 2023. Expenses in 2023 included the completion of clinical trials for our pipeline programs, whereas the first quarter of 2024 reflected activities for planned clinical trials as well as increases related to investments in our CpG-1018 preclinical and clinical collaborations.
Selling, general and administrative expenses for the first quarter of 2024 were $44 million compared to approximately $37 million for the prior year period. The increase was primarily driven by increased head count and other investments supporting our strategic growth, including an overall increase in targeted commercial and marketing efforts designed to increase HEPLISAV-B market share and maximize the opportunities presented by the ACIP’s universal recommendation. Sublease expense was $1.6 million in the first quarter of 2024 compared to sublease income of $1.6 million in the prior year period. This change reflected the termination of our original lease with a noncash charge of $3.5 million, partially offset by income of $1.9 million during the period.
Including this onetime noncash charge, we expect to record approximately $5 million of net sublease income for the full year of 2024. These results generated a net loss of $9 million in the first quarter of 2024 compared to $24 million during the prior year period. Moving to the balance sheet. We ended the first quarter of 2024 with cash, cash equivalents and marketable securities of $724 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. And now to summarize our financial guidance, we are reaffirming our prior full year 2024 financial guidance as follows: HEPLISAV-B net product revenue expected to be between approximately $265 million and $280 million including approximately $3 million in ex U.S. sales through our commercialization partnership in Germany.
We expect HEPLISAV-B gross margin of approximately 80% for the full year of 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 cash, cash equivalents and marketable securities to be higher at the end of ’24 as compared to December 31, ’23, reflecting our continued discipline towards allocating capital to drive top line revenue growth while thoughtfully advancing our research programs. I would now like to turn the call back over to Ryan before we start the Q&A section.
Ryan Spencer: Thanks, Rita. In closing, we believe that our strong financial position and proven ability to execute, we are well positioned to drive sustainable growth in our core HEPLISAV-B business by capturing majority U.S. market share and leading 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 on 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 attending today. Operator, we would now like to open the Q&A portion of the call.
See also 20 Countries that Produce the Most Pollution in the World and 15 Best Places to Retire in Minnesota.
To continue reading the Q&A session, please click here.