Dynavax Technologies Corporation (NASDAQ:DVAX) Q2 2023 Earnings Call Transcript
Dynavax Technologies Corporation (NASDAQ:DVAX) Q2 2023 Earnings Call Transcript August 3, 2023
Dynavax Technologies Corporation misses on earnings expectations. Reported EPS is $0.03 EPS, expectations were $0.09.
Operator: Good day ladies and gentlemen, and welcome to Dynavax Technologies' Second Quarter 2023 Financial Results. As a reminder, this conference 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 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 second quarter ended June 30, 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 impacts on each, financial guidance and trends including revenue, profitability, cash flow, and sufficiency of current capitalization, timing and results of FDA submissions, critical 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'll 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 read Dynavax's results for the second quarter of 2023. We are pleased to share the results of yet another impressive quarter for Dynavax, including outstanding progress for HEPLISAV-B, our adult hepatitis B vaccine, which delivered $56 million in quarterly net product revenue. These results reflect our team's success in driving the expansion of the adult hepatitis B vaccine market and capturing market share. As a result of the strong HEPLISAV-B performance in the first half of 2023, along with the growing enthusiasm that we see in the market, we are significantly raising our revenue expectations for the full year. We now expect HEPLISAV-B net product revenue to be in the range of $200 million to $250 million, compared to the prior range of $165 million to $185 million.
Last year, HEPLISAV-B revenue doubled compared to 2021. And with our increased guidance range, we now expect growth of 58% to 70% this year. Based on our exceptional commercial execution, we have strengthened our financial position, with cash and investments increasing to $682 million at quarter end. And we expect positive free cash flow for 2023 in total. This addition enables us to support our efforts to maximize the HEPLISAV-B opportunity while making the appropriate investments to advance our clinical portfolio. We continue to make progress in advancing our clinical pipeline of three vaccine candidates for Tdap, Shingles and Plague. Rob will take -- walk through our achievements and expectations for our clinical program in a few minutes.
Additionally, we continue to identify and review strategic opportunities to help accelerate our growth and further diversify our product portfolio and future commercial opportunities. We're focusing on prioritizing external opportunities in the following two categories: first, commercial or late stage assets in the vaccine space to leverage our expertise in the field and our fully integrated capabilities; and second, high synergy commercial assets within the infectious disease space that would broaden our focus to include therapeutic modalities outside of vaccines. We remain focused on disciplined capital allocation strategy and our efforts to generate significant value and accelerate growth. And we look forward to providing updates on this front in the future.
I'll now turn the call over to Donn, so he can provide more details on the tremendous HEPLISAV-B performance in the second quarter.
Donn Casale: Thank you, Ryan. I'm excited to share more details about another very strong quarterly performance for HEPLISAV-B and our continued progress in driving overall market growth, as well as capturing market share within what we believe is the best-in-class hepatitis B vaccine. The hepatitis B market continues to grow in the U.S following the ACIPs universal recommendation for hepatitis B vaccination, which now represents a large and growing market opportunity. We believe this recommendation will be a significant catalyst for growth and estimate the hepatitis B market opportunity in the U.S could grow to over $800 million by 2027. We continue to see indicators of market expansion with hepatitis B vaccine market growth of approximately 40% year-over-year in Q2.
HEPLISAV-B continues its positive trend towards securing a majority market share within the expanding hepatitis B market. We are demonstrating gains in market share and estimate that HEPLISAV-B's total market share increased to approximately 39% compared to approximately 32% at the end of the second quarter last year. As Ryan stated, HEPLISAV-B's performance in the second quarter exceeded expectations. In the quarter, net product revenue for HEPLISAV-B grew 73% year-over-year. These quarterly results were once again driven by HEPLISAV-B's strong performance in two critical market segments, retail pharmacy and integrated delivery networks or IDN. For IDN, at the end of the second quarter, HEPLISAV-B's market share increased to approximately 53% compared to approximately 39% at the end of the second quarter last year.
In the IDN segment, we're seeing strong conversion from large customers that have started to adopt the Universal Recommendation, driving meaningful increases in their hepatitis B vaccine purchases and vaccination in appropriate patients that exceeded 2019 pre-pandemic levels. We are working with these large health systems and others to drive ongoing adoption of the Universal Recommendation during the second half of the year. In the retail pharmacy segment, we continue to make tremendous progress. During the quarter, HEPLISAV-B dose volume increased 78% year-over-year. We are excited about this result as market growth is the number one indicator that retail pharmacy customers are adopting the Universal Recommendation. Driving market growth and retail will be our primary sales and marketing focus moving forward.
Although our market share for the quarter remained consistent at 45% year-over-year, as a result of buying patterns of several top retail chains, we are extremely confident in our ability to be the market leader within this critical segment. We have well established strong collaborative relationships across the top retail chain and have launched key headquarters sponsored marketing initiatives and tactics across the segment. Given this, we will be optimizing our sales force to expand our promotional reach in the segment to drive market expansion. This expanded sales force reach will call on headquarters, divisional, regional and district leaders across the top retail chain. In addition to increasing our sales force reach, we are also excited to see the full impact of the collaborative marketing initiatives launched at the end of the second quarter.
We anticipate these headquarters sponsored initiatives, plus our expanded sales force reach will enable continued strong market growth and market leadership within this important segment. We are focusing our efforts on the retail pharmacy and IDN segment, as we expect to see most of the anticipated market growth from the ACIP Universal Recommendation in these segments. Both segments have required institutional control, infrastructure, capabilities and patient volume that can help drive universal uptake. We've said these two segments will represent approximately 60% of the hepatitis B market by 2027 compared to approximately 44% in 2022. We are well-positioned to both segments with HEPLISAV-B now capturing approximately 50% of the market share in these segments combined.
In summary, we had an outstanding quarter, reaffirming our confidence that HEPLISAV-B becoming the market leader in the expanding hepatitis B vaccine market. We are encouraged by our progress and momentum in the key segments of retail pharmacy and IDN. Both of which significantly contributed to the performance of HEPLISAV-B exceeding expectations for the second quarter. This quarter's record HEPLISAV-B revenue results reflects the continued expansion of the hepatitis B vaccine market and growing demand from physicians, pharmacists and patients for our best-in-class hepatitis B vaccine, both made possible by our team's strong commercial execution. I will now turn the call over to Rob to take you through our clinical pipeline.
Photo by cdc on Unsplash
Rob Janssen: Thank you, Donn. Over the second quarter, we made important progress on our pipeline, and I'm pleased to provide our recent advancements and our plans for continued execution throughout 2023. I'll start with our shingles vaccine program in Z-1018. In June, we presented results from the Phase 1 randomized, active-controlled, adjuvant dose escalation trial to evaluate the safety, tolerability and immunogenicity of 1018, at the 2023 Annual Conference on Vaccinology Research. In this study, we demonstrated that Z-1018 team showed favorable tolerability without observed safety concerns in healthy adults aged 50 to 69 years. All Z-1018 groups demonstrated high antibody and CD4+ T cell responses. These results demonstrate the opportunity to develop a shingles vaccine with improved tolerability and comparable efficacy, and they support the continued development of Z-1018.
In the second half of 2023, we plan to assess the regulatory pathway with the FDA to support the initiation of a Phase 1/2 trial in early 2024. Now let's turn to our Tdap-1018 program. It's an investigational vaccine candidate intended for active booster immunization against tetanus diphtheria, and pertussis, or Tdap. We're focused on improving the durability and protection against pertussis by leveraging our CpG-1018 adjuvant in the novel Tdap booster vaccine. We recently completed a pertussis challenge study in the nonhuman primate model, which demonstrated protection from disease and robust Th1 responses. We also recently received Type B Pre-IND meeting feedback from the FDA on the Tdap-1018 clinical development and regulatory pathways. Together, results from our Phase 1 study and our human primate studies, non-human primate studies, as well as feedback from FDA support proceeding to a human challenge then.
We expect to submit an investigational new drug application to FDA in the fourth quarter of 2023. To support the initiation of the human challenge study. Moving on to the plan program. We're conducting a Phase 2 trial evaluating the immunogenicity safety and tolerability of a two dose vaccine candidate that is activated with CpG-1018. This is a collaboration with and funded by the U.S Department of Defense. This CpG 1018 adjuvant effective entities mechanism of action has the potential to speed up time for protection with fewer doses compared to the three dose alum adjuvanted vaccine under development by the Department of Defense. Earlier this year, we completed enrollment in part two of the [indiscernible] program with top line data expected in 2024.
In July, Dynavax, from the Department of Defense executed a contract modification to support advancement into a nonhuman primate challenge study, with the agreement now totaling $33.7 million through 2025. We look forward to continuing to make progress across these programs during the rest of this year. In addition, we're excited to announce establishment of our Scientific Advisory Board comprised of renowned leaders in vaccine research and development and infectious diseases. We look forward to working with this advisory board in our advancing our pipeline, as well as supporting the evaluation, internal and external opportunities. I'll now turn the call over to Kelly to review our financial results.
Kelly MacDonald: Thank you, Rob. I'm thrilled to report on another strong quarter. I'll review the key financial results for the second quarter and then review 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 the detailed financial information. Starting with revenue. Total revenues for the second quarter of 2023 were $60 million, driven by HEPLISAV-B net product revenue of $56 million, compared to the second quarter of last year, HEPLISAV-B net product revenue grew by 73%. We are excited about the uptake trajectory for HEPLISAV-B including our continued growth in key market segments and are therefore raising our HEPLISAV-B net product revenue guidance for the full year to $200 million to $216 million, compared to the prior guidance at $165 million to $185 million.
This represents an almost 20% increase at the midpoint, reflecting our confidence in the continued product growth this year. We are also pleased with the continued trend in the margin profile for HEPLISAV-B for gross margins of approximately 76% in Q2 compared to about 69% last year. And we continue to expect gross margins to average in the mid 70s for the full year. Other revenue was $4 million for the second quarter representing revenue related to the plague vaccine program in collaboration with and fully funded by the U.S Department of Defense. Now turning to our research and development expenses for the quarter. These increased to $30 million, compared to $10 million for the prior periods. The increase was driven by continued advancement in our clinical pipeline programs.
Selling, general and administrative expenses for the quarter were $37 million compared to $36 million for the prior period. The increase was primarily driven by higher personnel related costs, and an overall increase in targeted marketing efforts to drive HEPLISAV-B market share and drive market expansion in key segments that we believe will disproportionately benefit helplessly upbeat. Now turning to net income, we record -- we recorded GAAP net income of $3 million or $0.03 per share basic and diluted in Q2, compared to GAAP net income of $129 million or $1.02 per share basis at $0.87 per share diluted for the prior year period. Moving to the balance sheet, we ended the second quarter with cash, cash equivalents and marketable securities of approximately $682 million, an increase compared to our year-end balance with $624 million.
Based on our current operating plan, we continue to expect to finish 2023 with a positive free cash flow for the year. Additionally, we continue to believe this level of capital is sufficient to support our core business, enabling us to drive sustainable growth in HEPLISAV-B to capture a majority market share and bring our R&D portfolio of vaccine candidates for without needing to return to the capital markets. We are also pleased to update our full year 2023 financial guidance expectations. As mentioned, we are raising our HEPLISAV-B net products revenue expectations to be between $200 million and $215 million. We are maintaining our operating expense guidance of R&D expenses between $55 million and $70 million, as well as SG&A expenses between $135 million and $155 million.
We do expect to come in at the lower end of our R&D expense range due to the timing of Tdap program, clinical trials, startup activities taking place later this year and into early 2024. In closing, we are proud of another successful quarter marked by continued HEPLISAV-B outperformance, further strengthening of our financial position, and pipeline progress. We also continue to be extremely thoughtful in how we allocate our capital to accelerate growth and build beyond our current base business. Our strong capital position and commercial execution has provided us with strategic flexibility to identify and pursue external opportunities to complement our organic growth as we strive to deliver long-term value to our shareholders. We're excited about our progress to date, and we look forward to continuing to deliver on our goals for 2023.
Donn Casale: 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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