Q4 2023 Dynavax Technologies Corp Earnings Call
Participants
Paul Cox; VP, IR & Corporate Communications; Dynavax Technologies Corp
Ryan Spencer; CEO & Director; Dynavax Technologies Corp
Donn Casale; Chief Commercial Officer; Dynavax Technologies Corp
Rob Janssen; Chief Medical Officer and Senior VP of Clinical Development, Medical & Regulatory Affairs; Dynavax Technologies Corp
Kelly MacDonald; Chief Financial Officer, Senior Vice President; Dynavax Technologies Corp
Matthew Phipps; Analyst; William Blair & Company, L.L.C.
Jonathan Miller; Analyst; Evercore Group L.L.C.
Paul Choi; Analyst; The Goldman Sachs Group, Inc.
Ernesto Luis Rodriguez-Dumont; Analyst; Cowen Group, Inc.
Roy Buchanan; Analyst; Citizens JMP Securities, LLC
Presentation
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 will open the call for questions and for five Pacific 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, Dan Caruso, 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 FY 17, 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 meeting that will be 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 mental 70 brand and advancing our pipeline programs into clinical trial initiations and data readouts for SMB.
We are again forecasting continued growth with net product revenue in the range of $265 million to $280 million for the year. As you minutes, Don 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 EpiCept, 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 fifth action date. For the Apple said, the SBLA for hemodialysis expected in May clearing our shingles I&D currently being reviewed by FDA to begin our Phase one two trial, advancing our TTR program and delivery phase two clinical and nonhuman primate challenge study data for our play program under collaboration with the US 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 SMB 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 SFP results and our guidance.
Looking forward.
Donn Casale
Thank you, Ryan. And 2023, we achieved a record net product sales and market share. Establishing hepatitis B is the leading adult hepatitis B vaccine in the U.S. marketplace. 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 SMB, U.S. adult hepatitis B market continued to grow in 2023 following the SAP 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 M-Pesa grew to approximately $525 million in 2023 on a clear path to approximately $800 million by 2027, with MOCVD achieving a majority market share by that time.
During the fourth quarter, we continued to see indicators of U.S. market expansion from the ACX universal recommendations, despite softness in the market related to reduced wellness visits and an increased focus by health care providers on respiratory disease vaccines, including typical flu campaign and the launches of RC and endemic COVID-19 vaccines.
Capital therapy continues to increase its total US 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 helpful have these 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 IDS 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 D market by 2027.
As I said, we have now the market share leader in both of these key segments Friday and at the end of the year, Tempo Savvis 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 ACID. change and recognize the need to adopt and implement the recommendations.
Full-year hepatitis B vaccine market growth in the IT&S segment was 41% in the Retail Pharmacy Segment, we have made significant progress in several large national chains, making headless ABI, the preferred adult hepatitis B vaccine at the end of the year help us as we 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 2020 for net product revenue guidance for SMB 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 SAP gaining meaningful increases in total market share over that time horizon.
In summary, we had a tremendous 2023 reaffirming our confidence that Hamilton Beach will strengthen this 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 EpiCept, the 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, Dan. 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 10, 18 adjuvant through multiple innovative preclinical and discovery efforts with leading collaborators starting with our shingles vaccine program, Z. 1018. 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 agents 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 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 the 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. We recently submitted an investigational new drug application or IND. to the U.S. FDA to support the initiation of a Phase one two trial of Z. 1018. In the first half of 2024, we will be evaluating escalating doses of RG. 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 TD. 2010 18 program. This is an investigational vaccine candidate intended for active booster immunization against tetanus, diphtheria and pertussis or TDF guarantee that vaccines have limitations, including waning effectiveness. We believe there's an opportunity to improve the duration of protection using our CpG 1018 management 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 teed up 10, 18 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 U.S. FDA to support the initiation of this Phase two human challenge study of TDF. 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 plug 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 TTR 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 SAP net product revenue grew 69% year over year to $213 million, 2023, another record year for the franchise. We are also pleased with our continued trend in the margin profile for Atlas at the 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 two clinical contract for the vaccine candidate.
Turning to our expenses, research and 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 help us at the market share and maximize the opportunities presented by the ACIP.s 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 to present the 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 31st, 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 core headless as the 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.
Question and Answer Session
Operator
(Operator Instructions) Matthew Phipps, William Blair.
Matthew Phipps
Good afternoon. Thanks for taking my questions. Congrats on a great 23 from last year. You just wanted a visit last year and you initially gave guidance of sort of what those lower [165, 185], Wondering if I don't 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
And Matt, thanks for the question. I think we have to remember 2023 was the 1st 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 that I recall from our prior earnings calls is that the market growth in 23 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. How much of those two factors pretty much dominated by have better market growth than originally projected.
Matthew Phipps
And does your guidance for this year include any contribution from the dialysis segment?
Ryan Spencer
Yes, I mean, we don't really provide guidance segment by segment. So we want to want to feature that our guidance for the year takes into account a lot of different puts and takes on how the year could evolve. And so we're not going to comment on one specific segment.
Operator
Jonathan Miller, Evercore ISI.
Jonathan Miller
Hey, guys. Thanks for taking the question. And also, congrats on 23 growth. I wanted to drill down a little bit into that comment you made on little growth in the heavy market in Q one. Do you still have an opportunity to grow share in Q. one to what extent is share growth tied to market overall market expansion, I guess?
And then secondly, what are your expectations on regular regulatory requirements for plague beyond the Phase two and the NHP. studies this year. What are you spectrum regulators? And what do you expect from DOJ?
Ryan Spencer
And while we take different, hey, thanks, John. Thanks for the questions. I'm going to have Dan talk to your first question and I'll pick up the second one.
Donn Casale
In earnings share, actually, we're excited about our ability to continue to take market share. This quarter is no different, but it's going to be consistent around is the ability to take market share. So we like our position and our ability to take market share in the first quarter and even with market being where it is.
Ryan Spencer
And then the second question regarding the play plan. The regulatory plan. I think it's important to know the reason we're doing the nonhuman primate study is because that's a key part of the regulatory path for a product like this to utilize the 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 is under that under that pathway with the agency. But Rob, I don't know if you have any other comments you want to make around play?
Rob Janssen
No, I think you covered it or you don't. I don't think I do. So we know what will be required to through E way versus a full approval, not at this point.
Jonathan Miller
It makes sense --
Ryan Spencer
a little bit what 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 hepatitis. But how does that potential DOD collaboration revenue and other revenue line tie into that could total gross margin over overall gross margin still be in the mid 80s and higher.
Kelly MacDonald
So the guidance, so there's no question. The guidance is approximately 80% for the full year for Atlas as our other revenue line item is predominantly our plate our plate contract reimbursement, which doesn't carry significant margin per se sorry, significant cost of goods. It obviously doesn't carry any cost of goods. It also.
Yes, to the extent we continue recognizing which we expect to continue recognizing other revenue through that contract and our total company gross margins would be slightly higher than that 80%.
Operator
Paul Choi, Goldman Sachs.
Paul Choi
Good afternoon and congrats on the strong finish to 23 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 health care spending versus the in a 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. Um, you know, 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 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.
Paul Choi
Okay, thanks for that. And then a follow up on I know you and the team have talked about BD and or partnering here, but I guess as you sort of survey the landscape and sort of where potential bid-ask spreads or is perhaps risk appetites are I guess as partnership or BD opportunities don't materialize in the let's say, the next 12 to 18 months, how would you think about then rank ordering on your capital allocation outside of investing in the outlet business? Thanks so much for taking our questions.
Ryan Spencer
All right. Thanks, Paul. Yes. No, I think I appreciate you highlighting the fact that there's a lot of flexibility and identifying the right asset for Dynavax. And so Kelly, why don't you provide some commentary on our overall capital allocation strategy share?
Kelly MacDonald
So our exceptional commercial execution for Atlas SB., along with our hydrogen supply business, of course, has created this and this strengthening of our financial profile. And we certainly believe that strong position will help us drive further further growth, including first and foremost, looking for opportunities to invest in driving growth in SMP as well as advancing our organic clinical stage assets as well as our preclinical portfolio kind of as we as we reflect on opportunities outside of that you know, to Ryan's comments around corporate development. We do continue to evaluate strategic opportunities to diversify our commercial and clinical product portfolio. And then beyond that, certainly we do we do evaluate and consider other opportunities to either return capital to shareholders as appropriate and when appropriate, as well as other ways to generate value for our shareholders. So that's sort of the rank ordering where we stand today and for Greg.
Thank you.
Operator
Ernesto Rodriguez-Dumont, Cowen.
Ernesto Luis Rodriguez-Dumont
Hi, everybody. Thanks for taking our questions and congrats on a great year on. I have a question about the on the effect that you described for from the longer than expected and respiratory vaccine season and the Q4 seasonality. Are those effects overcome during Q4 and Q3? Or do you have to like internally adjust your estimates for 2024 based on that.
And then second question regarding the the gross margins are on what's driving the improvement in gross margin. You said on economies of scale and lower cost or are you expecting to have more pricing power?
Ryan Spencer
Thank you for asking the first one and Kelly, if you can handle the technologic down as far as I said, Japan, Ternium is thanks for the question. I interpreted the first part of the question to say because what we see in Q1 impact how we think about the rest of the year to the change. We our general guidance. I mean, ultimately, we we've only drilled one guidance number when we're ready to provide it. So I don't it's kind of hard to think about how individual factors impacted. But like we said in the call script, we know that Q2 and Q3 will continue to be the strongest quarters of the year are our continued interactions with our customers are incredibly positive. So we're excited to get out of the respiratory season interest-free vaccine season and start working with our customers on the nonrespiratory part of the year to really drive growth in this market. Kelly, can you hit on the gross margin pressure
Kelly MacDonald
On gross gross margins for Atlas and the nice margin improvements have been driven by a couple of things, but and namely you noticed decreasing our per unit manufacturing costs. We made a number of investments in our manufacture antigen manufacturing facility in Germany on and really, really proud of the way that we've been able to pull through those on improving yields over time to realize, you know, sort of an estimate of approximately 80% gross margin for 2024.
On to reiterate another point that I made in the prepared remarks, we do expect that 80% gross margin range to represent it. And with levels that are consistent with our long-term expectations for this brand.
Operator
Edward White, H.C. Wainwright.
Hey, this is Steve on for Ed. What A few questions for the shingles vaccine. Do you have a Factive timing to market?
Ryan Spencer
Well, we haven't commented on the long term, the specificity of our launch. Obviously, it's a full clinical development program. So we're taking it could take multiple years to to move forward. We have we have commented on the Phase one two trial and the expectation to have that data in 2025. And then we'll have to roll forward from there.
Steven, on expectations from the moving into the next study site in the study, looking at enrollment that dynamics to figure out or gotten when that would be able to to readout. So it's a little premature for us to predict the specific timing of filing and ultimate approval, but we have provided general commentary there and traditional vaccine development pathway. And there's good reference points for prior trials conducted in this space to get a sense of timelines taken for those studies.
Okay. Thank you. And so there were no adjuvant sales this year, right?
Ryan Spencer
I know that I didn't sell this year and we don't we don't contemplate additional asset sales for our COVID partnerships in 2024 at this time.
Okay. And what about in 2025 and going forward?
Ryan Spencer
It's unclear. Depends on how the market demand and how the markets evolve and how our individual collaborator's products are utilized and the efforts they put beyond behind keeping up with the shifting landscape, including stream managements. So obviously, we'll be supportive of our partners and their initiatives. We believe COVID vaccination will continue globally for the years to come and is an important product in the marketplace. And so we will be there to support them as needed.
Operator
Roy Buchanan, Citizens JMP.
Roy Buchanan
Hey, thanks for taking the questions. A couple of quick ones on the play. But are you going to announce the results of the non human challenge trial and the Phase two at the same time later this year may. Can you remind me, are you making any cell-mediated immunity assessments in the FIGHT Phase two? And do you think those might be important? Any thoughts on that? Thanks.
Ryan Spencer
I'll take the first one and then I'll ask Ron to follow up on the second one of the things you have to realize with the with this study with DM funded by the DOD is this is data that has we had Orbital or duty partners on on the release that data release. And so that has not been clarified yet on exactly what the opportunity will be to show that data and what form for either trial. So we need to basically complete the trials. First, Roy and Phil will make some top line comments like we have in the past, but we don't have a data release plan across both trials together and that will we will work to be able to provide as much clarity on how that program is progressing in partnership with the DoD primary endpoint is antibodies that Rob, would you please read any other commentary you have around cell-mediated immunity in the play program?
Rob Janssen
Yes, the primary endpoint is looking at antibodies because that's been that's what DOD has used in previously. They've developed this vaccine on, particularly with respect to looking at antibodies, non nonhuman primates and then applying those to humans. We aren't looking at cell-mediated immune your T cells in our in this Phase two study.
Thank you.
Operator
Thank you. At this time, I'd like to hand the conference back over to Mr. Ryan Spencer for closing remarks.
Ryan Spencer
Thank you, operator, and thank you all for joining us today. We appreciate your interest in Dynavax. We're excited about our recent accomplishments and the strength of our position. Overall, we look forward to updating you on our progress focused on protecting the world against infectious diseases. Operator, you may end the call.
Operator
Ladies and gentlemen, thank you for joining us today. And this concludes today's conference call. You may now disconnect.
