Dynavax Technologies Corporation (NASDAQ:DVAX) Q3 2023 Earnings Call Transcript
Dynavax Technologies Corporation (NASDAQ:DVAX) Q3 2023 Earnings Call Transcript November 2, 2023
Dynavax Technologies Corporation beats earnings expectations. Reported EPS is $0.1, expectations were $-0.01.
Operator: Good day, ladies and gentlemen, and welcome to Dynavax Technologies' Third Quarter 2023 Financial Results Conference Call. As a reminder, this call is being recorded. At the end of the company's prepared remarks, we will open the call for questions and provide specific participation 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: Thanks you all for participating in today's call. Joining me today 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 third quarter ended September 30, 2023. Copies of the press release and a supplementary slide presentation are available on Dynavax's Web site. 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 impacts 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 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 and thank you for taking the time to join us to review Dynavax's results for the third quarter of 2023. We're pleased to report yet another record quarter of HEPLISAV-B revenue as we progress toward our goal of establishing HEPLISAV-B as the leading adult hepatitis B vaccine in the U.S. and market opportunity, which we believe will continue to expand to over $800 million by 2027. HEPLISAV-B delivered $62 million in quarterly net product revenue, which is a 66% year-over-year increase. This record quarter was driven by market share gains in the overall adult hepatitis B vaccine market, and in particular by HEPLISAV-B gaining majority market share in both the key market segments of retail pharmacy and integrated delivery networks.
As a result of the strong HEPLISAV-B performance in the first nine months of the year, we are again raising our revenue expectations for the full year. We now expect HEPLISAV-B net product revenue to be in the range of $210 million to $220 million, representing up to 75% growth this year. Based on our commercial execution to date, we continue to strengthen our financial position, with cash and investments increasing to $720 million at quarter end. This position enables us to support our efforts to maximize HEPLISAV-B's opportunity in this growing market, while also advancing our clinical pipeline into the next stage of trials in 2024, which Rob will cover in a few minutes. In addition, as we've discussed on prior calls, we continue to evaluate strategic opportunities to diversify our product portfolio and create future commercial opportunities.
We remain committed to discipline 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 tremendous HEPLISAV-B performance in third quarter.
Donn Casale: Thank you, Ryan. I'm excited to share more details about another very strong quarter for HEPLISAV-B. We achieved record net product sales and market share in the quarter. The hepatitis B market continues to grow in the U.S. following the ACIP universal recommendation for hepatitis B vaccination, which now represents one of the largest vaccine market opportunities for adults. As a reminder, we believe this recommendation will be a significant catalyst for growth and estimate the hepatitis B vaccine market could grow to over $800 million by 2027, with HEPLISAV-B achieving a majority market share by that time. We continue to see indicators of market expansion from ACIP universal. In the third quarter, the total hepatitis B vaccine market grew by approximately 29% year-over-year.
HEPLISAV-B continues to increase its total market share, achieving 41% in the quarter compared to 32% during the same period last year. Net product revenue grew 66% year-over-year to $62 million in the quarter. This sales growth continues to be driven by HEPLISAV-B strong performance in two critical segments, retail pharmacy and integrated delivery networks or IDN. We continue to focus our sales and marketing efforts on the retail pharmacy and IDN segment as we expect to see most of the anticipated market growth from the universal recommendation in these segments, estimating both will grow to represent approximately 60% of the total hepatitis B market by 2027. At the end of the third quarter, HEPLISAV-B's market share increased approximately 54% compared to approximately 43% at the end of the third quarter last year.
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. In this segment, we are seeing continued strong conversion and expansion from large customers that are adopting the universal recommendation driving meaningful increases in their hepatitis B vaccine purchases. In the third quarter, year-over-year hepatitis B vaccine market growth in the IDN segment was approximately 40%. In the retail pharmacy segment, we have made significant progress year-to-date, including several large national chains making HEPLISAV-B the preferred adult hepatitis B vaccine. In the third quarter, HEPLISAV-B achieved a majority share in this important segment, which is expected to drive significant growth in the coming years.
Year-over-year, hepatitis B vaccine market growth in the retail pharmacy segment was 80% with HEPLISAV-B's market share increasing to approximately 53% compared to approximately 43% at the end of the third quarter last year. During the third quarter, we completed the optimization of our sales force to expand our promotional reach in the retail pharmacy segment which is intended to further drive market expansion. This expanded sales force reach will call on headquarters, divisional, regional and district leaders across the top retail chain. We're also excited to see the impact of our collaborative marketing initiatives with top national retail chains that launched at the end of the second quarter. We expect the strong collaborative relationships across the top retail chain plus our expanded sales force reach will enable continued strong market growth and market leadership within this important segment over the years to come.
As Ryan noted, based on our progress year-to-date and the strong results, we're raising our full year 2023 net product revenue guidance for HEPLISAV-B to be in the range of $210 million to $220 million. This updated guidance reflects our tremendous momentum in the market, while still factoring in expected fourth quarter seasonality and the impact from customer focus vaccine efforts on the new RC vaccine, COVID revaccination and seasonal flu. We believe the strain on customer bandwidth due to RC, COVID and flu vaccination will be temporary and limited to the fourth quarter. We remain extremely confident in the long-term growth of the hepatitis B market and are forecasting annual growth of approximately 10% to 50% over the next several years with HEPLISAV-B continuing to gain meaningful increases in total market share over that time.
In summary, we had an outstanding third quarter, reaffirming our confidence in HEPLISAV-B becoming the market leader in the expanding hepatitis B vaccine market. We are very proud of our commercial teams' 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, Z-1018. Currently, there is a blockbuster vaccine on the market, but we believe that there's an opportunity to develop and improve 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+ T cell responses, which we believe are critical to preventing the reactivation of the zoster virus.
Results from our Phase 1 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. Recently, we received Type B meeting feedback from FDA on the Z-1018 program. We believe this feedback is supportive of our proposed clinical development plan that includes a pivotal Phase 3 placebo-controlled efficacy study. Based on this feedback, we plan to submit an IND application to the FDA to support the initiation of the Phase 1/2 trial of Z-1018 in the first half of 2024. Turning next to the Tdap-1018 program. So 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. We've completed both a Phase 1 clinical trial in adults and adolescents as well as a pertussis challenge study in non-human primates. We recently received Type B pre-IND meeting feedback from FDA on the Tdap-1018 clinical development and regulatory pathways. Together, results from our Phase 1 study, our non-human primate study and the feedback from FDA all support proceeding to a human challenge study in mid 2024. Moving on to the plague program. This is in collaboration with and funded by the U.S. Department of Defense. We're conducting a Phase 2 trial evaluating the immunogenicity, safety and tolerability of a two dose plague vaccine candidate that's adjuvanted with CpG 1018.
The CpG 1018 adjuvanted vaccine candidate's mechanism of action has the potential to speed up time to protection with fewer doses compared to the three dose adjuvanted regimen that has been previously evaluated by the DoD. Earlier this year, we successfully completed part one of the Phase 2 study and subject dosing in part two is now complete. We anticipate top line data in 2024. Dynavax in the U.S. Department of Defense recently executed a contract modification to support advancement of the plague vaccine candidate into a non-human primate challenge study, which was initiated in August. In addition to these development programs, we've also filed a supplemental BLA for HEPLISAV-B vaccination of adults on hemodialysis, which the FDA has accepted with a PDUFA action date in May of 2024.
Now, if approved, this would allow us to promote a four dose regimen of HEPLISAV-B for the dialysis population, which comprised about 11% of the total U.S. hepatitis B vaccine market in 2022. We look forward to continuing to make progress across these programs in the months ahead. And we're excited to initiate the next clinical trials 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 excited to report on a strong third quarter. I'll review the key financial results and then share our updated guidance for the full year. 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-Q for detailed financial information. Starting with revenue. Total revenues for the third quarter of 2023 were $70 million, driven by HEPLISAV-B net product revenue of $62 million. During the third quarter of last year, HEPLISAV-B net product revenue grew by 66%. We continue to be excited about the uptake trajectory for HEPLISAV-B with consistent growth in key market segments. Based on the strong results for the first nine months of the year, we are raising our HEPLISAV-B net product revenue guidance for the full year to $210 million to $220 million compared to prior guidance of $200 million to $215 million, reflecting our competence in HEPLISAV-B's continued growth for the full year.
We are also pleased with the continued trend in the margin profile for HEPLISAV-B with gross margin of approximately 79% in Q3 compared to about 69% last year. And we continue to expect gross margins to average in the mid 70s for the full year. HEPLISAV-B margin improvements have been driven by lower per unit manufacturing costs as a result of the previous investments to drive process development improvements. Other revenue was $7 million in the third quarter compared to $4 million in the prior year period, representing revenue related to the plague vaccine program in collaboration with and funded by the U.S. Department of Defense. The increase was primarily driven by the advancement into a non-human primate challenge study. Now turning to our research and development expenses for the quarter, which increased to $14 million compared to $13 million for the prior year period.
The increase was driven by continued advancements in our clinical and preclinical development programs in collaboration. Selling, general and administrative expenses for the quarter were $38 million compared to $32 million in the prior year period. The increase was primarily driven by higher compensation and related personnel costs, and an overall increase in targeted commercial and marketing efforts designed to increase HEPLISAV-B market share and maximize the opportunities presented by the ACIP universal recommendation. These results generated GAAP net income of $14 million or $0.11 per share basic and $0.10 per share diluted in Q3 compared to the GAAP net income of $64 million or $0.50 per share basic and $0.43 per share diluted for the prior year period.
Moving to the balance sheet. We ended the third quarter with cash, cash equivalents and marketable securities of approximately $720 million, an increase compared to our year-end balance of $624 million the end of 2022. Based on our current operating plan, we continue to expect to finish 2023 with a positive free cash flow for the year. We are revising our full year 2023 financial guidance expectations, including raising our HEPLISAV-B net product revenue expectations to be between approximately $210 million to $220 million and refining our operating expense guidance including research and development expenses to be between $50 million to $60 million, as well as some general and administrative expenses to be between $145 million and $155 million.
In closing, we believe that with our strong financial profile, we are well positioned to drive sustainable growth in our core HEPLISAV-B business, capture a 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, and 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. Operator, we would now like to open the Q&A portion of today's call.
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