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Dynavax Technologies Corporation (DVAX) Q4 2018 Earnings Conference Call Transcript

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Dynavax Technologies Corporation (NASDAQ: DVAX)
Q4 2018 Earnings Conference Call
February 26, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen and welcome to Dynavax Technologies fourth quarter and full year 2018 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Miss Heather Rowe, Vice President of Investor Relations and Corporate Communication. You may begin.

Heather Rowe -- Vice President of Investor Relations and Corporate Communications

Thank you, Operator. Good afternoon. Welcome to the Dynavax fourth quarter and full year 2018 financial results conference call. With me today are Eddie Gray, Chief Executive Officer, Rob Janssen, Chief Medical Officer, Michael Ostrach, Chief Financial Officer, and Ryan Spencer, Vice President, Commercial Operations. We issued a press release this afternoon and also posted slides to accompany this presentation. The slides can be found under the investor relations section of our website under events and presentations.

Before we begin, I advise that we will be making forward-looking statements, including statements regarding clinical and financial information, expectations, and anticipated key events. 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 report filed with the SEC, which we encourage you to review.

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With that, I'll now turn the call over to Eddie.

Eddie Gray -- Chief Executive Officer and Director

Thank you, Heather and thank you, everyone for joining us today to review our fourth quarter and full year 2018 results. 2018 was an important year of execution for Dynavax, both for the Hepislav-B commercial program and our SD-101 immuno-oncology clinical program.

Our pipeline can be seen on slide three. The backbone of this pipeline is built on an expertise in discovering and developing TLR agonists that stimulate the immune system to prevent infectious disease and treat cancer. Against that backdrop, I'll now highlight key accomplishments from the past year.

First, as you can see on slide four, Hepislav-B is poised to become the standard of care hepatitis B adult vaccine and for good reason. It offers clinical advantage over the competition. Namely, it is the only two-dose hepatitis vaccine and it has consistently protected more than 90% of adult patients, demonstrating significantly higher sero-protection rates than the market leader in head-to-head studies.

We launched Hepislav-B in 2018 with a 60-person field sales team, covering over 75% of the target market. Our efforts to shift market share from our competitors are beginning to pay off and we are establishing a solid base within institutional accounts, ensuring a future of long-term stable revenue generation.

Let me highlight some recent wins as shown on slide five. Today, we've reported Hepislav-B net sales of $3.9 million for the fourth quarter, a little more than the estimate we provided in January. This compares to $1.5 million for the third quarter. We reiterate our expectation, but Hepislav operations will be profitable by the end of the year and we believe that over time, Hepislav can reach peak gross US sales of around $500 million.

While we are confident with our year-end goal, we know we should still expect monthly and quarterly fluctuations and that the rate of growth each quarter will also fluctuate. Each large institutional customer follows a unique decision and purchase process and their associated timelines vary.

In 2019, the timing of purchases by new customer entrants are very influential. Over time, though, they make repeat orders, which settle into a more predictable pattern, thus becoming something like an annuity. Whilst this trend is beginning in 2019, obviously, the genuine power of the annuity continues to grow over time.

Let me discuss some of the recent progresses that we've made. In 2018, more than 1,200 individual customers purchased Hepislav-B. More than 80% of the doses sold to date were purchased by repeat customer purchase. As previously announced in January, Hepislav-B became available in all of the Sam's Club pharmacy locations.

In addition, we have begun sales into two of the four top national retail pharmacy chains and contracting efforts are under way to secure additional pharmacy partners. These wins represent an important step toward building our pharmacy presence to ensure and support future growth in the diabetes market.

Beyond our retail pharmacy progress, we have other recent wins, including large State Departments of Corrections, multiple Department of Defense customers, as well as State and County Health Departments through the CDC for Adult program, which became operational in January.

In addition, since our November call, we've had 17 new PNT approvals within the top 100 accounts, which means we've now passed 53 of our top 100 accounts through this important point in the process. As of last week, we've moved over 590 customers in total through PNT approval and they represent in excess of 36% of the target market potential.

In the United States, the market appears to be fairly stable around 2 million to 2.5 million adults, who are vaccinated annually against hepatitis B. Within this market are areas for growth, including increasing second-dose compliance and once we've gained market share in retail pharmacies, focus on diabetic patients.

In summary, as you can see on slide six, we believe that we're well-positioned to drive sustained revenue growth. We have a compelling commercial profile and an established concentrated market that we can convert into an annuity.

I'll now turn the call over to our Chief Medical Officer, Rob Janssen, to discuss the immuno-oncology clinical program.

Robert Janssen -- Chief Medical Officer

Thanks, Eddie. Our lead candidate is SD-101, our optimized TLR9 agonist, as shown on slide eight. We're evaluating this intertumoral TLR9 agonist in several clinical studies to assess its safety and activity. This includes a phase II study in combination with the anti-PD-1 therapy Pembrolizumab in patients within advanced melanoma and in patients with head and neck squamous cell carcinoma.

While the current trials are in combination with Pembrolizumab, intertumoral SD-101 has systemic single-agent activity as we demonstrated in the study of lymphoma patients. In this study, intertumoral SD-101-induced abscopal responses in the absence of any other systemic therapy by producing regression in non-injected tumors.

We've consistently demonstrated that SD-101 adds meaningful clinical benefit to Pembrolizumab therapy. As shown on slide nine and presented at ESMO last year, tumors [inaudible] with SD-101 in patients with advanced melanoma naïve to anti-PD-1 therapy led to a 70% overall response rate or ORR. There was a 68% ORR in non-injected lesions, including visceral metastases in the lung and liver.

In addition, responses appear to be independent of PDL-1 expression in unselected samples. We also announced the encouraging early data from additional trials, including patients with melanoma refractory or resistant to anti-PD-1 therapy and patients with head and neck squamous cell carcinoma who are naïve to anti-PD-1 therapy. You can see these data on slides 10 and 11.

The response rates were better than what we're seeing with Pembrolizumab alone. In both trials, reported data were from 8-milligram cohorts. We've recently completed enrollment in 2-milligram cohorts and plan to report on these data later this year.

Now, importantly, the combination of SD-101 and Pembrolizumab remains well-tolerated with adverse events related to SD-101 being transient, mild to moderate, flu-like symptoms. SD-101 and Pembrolizumab are also being evaluated in a randomized investigational treatment arm for the ongoing I-SPY2 trial for neoadjuvant treatment of locally advanced breast cancer. The combination is being added to standard of care in the new treatment arm.

This trial is important for several reasons. Notably, it's a controlled study. Recall the I-SPY2 trial is a standing phase II randomized controlled multi-center study with an innovative adaptive design intended to rapidly screen and identify promising new treatments in specific subgroups of women with newly diagnosed high-risk, locally advanced breast cancer.

The primary outcome measure of this study is the pathologic complete response rate, which was proposed by FDA in 2012 as a regulatory endpoint to expedite development of drugs for these types of patients. SD-101, which can be administered directly into these lesions is well-suited for this indication from which there's a high unmet net. We look forward to seeing how SD-101 might help make available new more effective treatments for women with advanced breast cancer.

We're also developing a TLR9 agonist, DV281, that's designed for delivery to the lung as an inhaled treatment for lung cancer or other cancers metastasizing to the lung. You can see an overview of this program on slide 12.

We're conducting a phase 1B clinical trial in patients with advanced non-small cell lung cancer to investigate the safety and tolerability of DV281 as monotherapy and in combination with nivolumab, as well to identify a recommended dose for the expansion part of the study.

Beyond these programs, we're also conducting multiple immuno-oncology pre-clinical research programs, including a cancer vaccine program and a multi-pronged program to develop TLR7 and TLR8 agonists, both as anti-cancer agents and as vaccine adjuvants. We're also evaluating additional candidates to leverage the Heplisav-B 1018 adjuvants in other prophylactic infectious disease vaccines.

With that, I'll turn it over to Michael to discuss our financials.

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

Thanks, Rob. Details regarding our financial results can be found in the press release we issued this afternoon as well as slides 13 and 14 that are posted on our website for today's call. Net product revenue for Heplisav B totaled $3.9 million for the fourth quarter and $6.8 million for the full year 2018. Revenue from product sales is recorded at the net sales price, which includes estimates of product returns, chargebacks, discounts, rebates, and other fees.

Cash, cash equivalence, and marketable securities totaled $145.5 million at December 31, 2018 compared $191.9 million at December 31, 2017. We're planning to borrow $75 million from our non-dilutive term loan agreement during this quarter to support commercial efforts and advance our immuno-oncology platform.

Selling, general, and administrative expenses for the fourth quarter totaled $16.4 million compared to $9.3 million for the fourth quarter of last year. Full year 2018 SG&A expenses were $64.8 million compared to $27.4 million in 2017. These increases are primarily due to full implementation of Heplisav B sales, marketing, and commercial activities, including deployments of our contract sales force, which we're converting to an internal sales force in the next month, implementation of post-marketing studies, and retention of consultants for commercial development services.

The net loss for the fourth quarter was $40 million or $0.64 per share compared to $27.4 million or $0.45 per share for the fourth quarter of last year and the net loss for the 12-month period was $158.9 million or $2.55 per share compared to $95 million or $1.81 per share for last year.

I'll now turn the call back to Eddie for his closing remarks.

Eddie Gray -- Chief Executive Officer and Director

Thank you, Michael. So, we are entering 2019 with good momentum and anticipate solid growth for the company. Our upcoming milestones -- firstly, our Heplisav-B post-marketing study -- the study was initiated in August and is recruiting at the expected rate, with full enrollment targeted for the third quarter. In addition, we are assessing markets beyond the United States and plan to file an MAA in Europe for Heplisav B in the first half of this year.

We are also investigating opportunities to broaden the use of the 1018 adjuvant, which makes Heplisav-B so effective, into additional next generation vaccines. We are collaborating with the Serum Institute of India to develop an improved pertussis vaccine and plan to begin a clinical study of a prototype vaccine later this year.

On the partnership front in immuno-oncology, we are in discussions with a number of pharmaceutical companies to explore the broadening and deepening of our immuno-oncology clinical program. These discussions are a priority activity for the management. The current expansion of our clinical data set will inform important strategic choices, including partnership options, expansion of tumor types, and selection of the best options for progression into registrational studies.

As such, in the course of discussions with prospective partners regarding phase III programs, we may find partners with capabilities and products that will enhance and broaden the TLR9 clinical program and have an interest in supporting the initiatives that we would plan to take forward on our own as well.

So, while I cannot guide to any timing or specific form of arrangement, as each discussion is different depending on the current assets and interests of each potential partner, we are committed to being thoughtful and diligent in determining the best path forward to drive value for our shareholders.

While these partnering discussions are still ongoing, there are plans that we can conduct on our own. For these, we will prioritize tumor types that we believe have a high likelihood of responsiveness to our mode of action in a clear, feasible, and affordable pathway to approval. These include following the assessments of results from the 2-miligram cohorts, we plan to start two studies of SD-101 in combination with anti-PD-1 in the second half of the year, firstly a seamless phase II/III first line in study in patients which have a net cancer.

Compared to first line melanoma, the bar for demonstrating clinical benefits in head and neck is lower and the competitive field less crowded. Secondly, a phase II/III study in patients with melanoma, resistant or refractory to anti-PD-1 therapy.

Finally, a trial that will include multiple HBD-associated malignances, including anal, rectal, and gynecological cancers is also planned for the second half of the year. As with head and neck cancer, although Pembrolizumab is approved or active in these indications, there remains significant need for increased responses that SD-101 has provided in other cancers.

As indicated earlier, while these may form the basis for a Dynavax-only plan, we are incorporating these into our discussions with potential partners as that remains our priority activity. We also plan to report additional SD-101 clinical results and development at major meetings, including the 2-miligram cohort data I mentioned earlier. Finally, at AACR, we will present safety results from our phase I dose escalation study of DV-281 in combination with nivolumab. We plan to initiate a multiple cohort phase two study later this year.

We look forward to what is sure to be a busy and exciting year. Before taking questions, I shall hand over to the operator to take us through that. Thank you.

Questions and Answers:

Operator

Thank you. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key.

Our first question is from Anupam Rama with JP Morgan. Please proceed with your question.

Anupam Rama -- JP Morgan -- Analyst

Hey, guys. I'm just following up on one of your comments, Eddie, you mentioned on the data set to inform potential partnership option. Are there any specific pieces of the data specifically thinking about durability and survival that may come at ASCO that are points of interest? And then one on Heplisav -- you mentioned that the customer retention rate is pretty high with doses being from repeat customers, so on those 20% or so that are from first-time customers, are those because the customers haven't had time to reorder or there's no patient demand or have they chosen another vaccination regimen to go with? Thank you very much?

Eddie Gray -- Chief Executive Officer and Director

Thank you, Anupam. The line was breaking up there. So, I'm just going to clarify to make sure we have the right question. The first question, I think, was around durability data later in the year and the second one was about the balance between first customer orders and multiple orders in the Heplisav data. Is that correct?

Anupam Rama -- JP Morgan -- Analyst

That's correct and qualifying those first-time orders, what kind of customers. Thank you.

Eddie Gray -- Chief Executive Officer and Director

Rob, can you comment on the evolution of our durability data and when we're expecting to see available data?

Robert Janssen -- Chief Medical Officer

Yeah. The last durability data we presented as at ESMO. We do anticipate presenting at ASCO. This is in the PD-1-naïve melanoma population which we will be essentially an additional six months to follow up. We have fully enrolled all those patients at this point. So, they are in follow-up. I'm anticipating that we -- I'll trust we'll have meeting and follow-up in the two-milligram group potentially at 10 to 12 months.

Eddie Gray -- Chief Executive Officer and Director

Ryan, could you address the Hepislav, please?

Ryan Spencer -- Vice President of Commercial Operations

Yes. Focusing on the 20% is difficult. Obviously, there are different reasons why customers haven't had a chance to have repeat orders. Some, like you mentioned, will be first time and if they stock in for a month, you can't expect them to have had a repeat order yet. They have different stocking practices, which could be multiple months and in fact, those numbers were based on doses, not actual customers.

We have a situation that can speak to -- not specifically, but we had a rather large customer who took on an initial stocking order that hasn't had a chance to reorder yet either. That actually is a big part of the 20%. So, I think the 80% is a number to focus on as far as having a metric that is meaningful to show that customers to purchase Heplisav and do reorder. The 20% falls into a expected range for a scenario where you're continuing to build new customers every month.

Eddie Gray -- Chief Executive Officer and Director

I think, Anupam, what we're trying to help investors understand is the growth over time in customers who are converting either wholly to Heplisav or converting greater proportions of their business to Heplisav over time and one can see that in a high rate of continued ordering, but also recognizing that by maintaining 20% at this point in time, we're feeding new customers in that.

So, the machine of annuity, if I may call it that way, is being fed with new customers. So, I think we quite like the 80%-20% at this point in time. It's showing that both parts of the development of the business are advancing.

Anupam Rama -- JP Morgan -- Analyst

That's really helpful. Thanks a lot, guys.

Operator

Our next question is from Joseph Cohen with Cowen and Company.

Joseph Cohen -- Cowen and Company -- Analyst

Thank you for taking my questions and congrats on the progress this quarter. I'll start with one on Heplisav. I know the experience is obviously pretty early, but do you have any real world compliance or safety data yet? Have you seen anything surprising or is everything pretty similar to what we saw in clinical study? And then maybe on DV281, have you reached that maximum tolerated dose that you believe you're going to take into expansion cohorts or will you do that by the time of the AACR presentation? Thank you.

Eddie Gray -- Chief Executive Officer and Director

Okay. So, Rob, perhaps you can comment on the compliance or safety data for Heplisav. Then on 281, again, if you can comment. But I'm guessing given our experience in SD-101 and what we've seen in terms of efficacy pattern, we're not necessarily targeting maximum tolerated dose with DV281 anyway.

Robert Janssen -- Chief Medical Officer

Yeah. With respect to compliance, we don't have data at this point with compliance in the post-marketing studies we're doing with Kaiser in Southern California. They will be looking at that when they analyze the data, but that will be in a year or two. The other thing with respect to safety, we do get individual reports of safety events. We're not seeing anything out of the ordinary, nothing that we haven't seen in the past.

With respect to the MTD for DV281, we are right now enrolling in about complete enrollment in our highest dose cohort and we certainly will be looking at whether we reach an MTD. As Eddie mentioned, we think it's probably unlikely that we'll find an MTD.

Joseph Cohen -- Cowen and Company -- Analyst

Great. Thank you.

Operator

Our next question is from Katherine Xu with William Blair & Company. Please proceed with your question.

Roland -- William Blair & Company -- Analyst

Hi, this is Roland on for Katherine. Two questions from me -- first, which is more likely at this point for SD-101, a partner for a phase III study in metastatic melanoma or going on your own in a smaller indication such as head and neck. Second, do you still expect to be operationally ready to enter phase III studies by the end of the first quarter? Thank you.

Eddie Gray -- Chief Executive Officer and Director

So, I think the idea of interest in melanoma-naïve from a partnership point of view and the relative interest on that in comparison to what's going alone on head and neck or anything else really differs from partner to partner. So, it's very difficult for me to be specific. And obviously, I'm not in a position today to talk in detail about individual conversations. So, I think we, as I think I said in my comments, we do take the partnership discussions, confidential as they are, in very high-priority manner.

We do find when we're talking to these customers that each individual discussion is driven by multiple factors and they're different in each case. Each company has its own assessment of market opportunity, how different segments or different tumor types fit into their own portfolio, their own [inaudible], perhaps even what they are trying to achieve or not achieve with their own PD-1. So, I can't really provide a general answer to that one.

In terms of phase III, as Rob's indicated, we are currently collecting all the final 2-milligram data on head and neck and on melanoma refractory. We're putting in place all the preparations ready to go forth with phase III if they're the decisions that we take subject to partnership discussions, but I think it's probably unlikely that we would see any final decisions made on that until we see the full 2-milligram data in those two studies. Is that fair, Rob? Thank you.

Operator

As a reminder, *1 on your telephone keypad if you would like to ask a question. Our next question is from Brian Abrahams with RBC Capital Markets. Please proceed with your question.

Burt -- RBC Capital Markets -- Analyst

Hi, this is Burt on for Brian. Congratulations on the quarter and thanks for taking our question. As you've now reached the inflection point with Heplisav-B sales, are there any additions to or modifications in your approach being implemented to increase uptake on the remaining formularies that you're targeting? I would also be interested in your current thoughts and plans for expanding the label for Heplisav into younger patients, including newborns. Thank you.

Eddie Gray -- Chief Executive Officer and Director

Okay. On the commercial approaches, can you deal with that Ryan, please?

Ryan Spencer -- Vice President of Commercial Operations

I wouldn't say there are massive differences, but we are constantly learning from our interactions with the marketplace and making adjustments to how we approach customers and how we can obviously always improve the efficiencies and the effectiveness of each interaction. But from what I believed the point of your question is a large strategic change -- we're not making major changes to the field structure. There are some minor elements based on our learnings and engagement strategies, but no major changes to our approach to the marketplace.

Eddie Gray -- Chief Executive Officer and Director

On the issue of expanding Heplisav use, I think when one looks vaccination of infants for hepatitis B, there are two important things to remember. Firstly, infants' immune systems remain far more responsive to the traditional alum adjuvants than adults. So, the significant difference and benefit that we can bring to adults in the marketplace isn't as readily available in childhood vaccination. Secondly, hepatitis B in children is very rarely given as a monovalent vaccine. It forms a component path of multi-dose vaccines.

I think we've always felt that it's unlikely even if we were able to deliver a slightly better hepatitis B response that public policy would switch out of these multi-valent vaccines to get the slightly better hepatitis B response in children and create some degree of uncertainty in the rest of the vaccination schedule. So, for those reasons, I think we've always felt it unlikely that we would ever see a pediatric vaccination and I think that's still where our heads are.

Burt -- RBC Capital Markets -- Analyst

Thank you.

Operator

I'm showing no further questions at this time. I would like to turn the call back over to Eddie Gray, Chief Executive Officer, for closing remarks.

Eddie Gray -- Chief Executive Officer and Director

Thank you. I would really just like to thank everybody for joining us today and for your continued interest and support of Dynavax. We very much look forward to updating you on future calls as to our progress through 2019. Thank you very much for your time today.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect.

Duration: 31 minutes

Call participants:

Heather Rowe -- Vice President of Investor Relations and Corporate Communications

Eddie Gray -- Chief Executive Officer and Director

Robert Janssen -- Chief Medical Officer

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

Ryan Spencer -- Vice President of Commercial Operations

Anupam Rama -- JP Morgan -- Analyst

Joseph Cohen -- Cowen and Company -- Analyst

Roland -- William Blair & Company -- Analyst

Burt -- RBC Capital Markets -- Analyst

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