Q3 2019 Earnings Call
[laughter].
Please standby.
Good day, ladies and gentlemen, and welcome to the Dynavax technologies third quarter 2019 Conference call. As a reminder, this conference call is being recorded.
Yes. It ended the company's prepared remarks, well open the call for questions and provide specific instructions at that point.
Turning to call over to Nicole aren't senior manager Investor Relations you may begin.
Thank you James Good afternoon, welcome to the Dynavax third quarter 2018 financial result in corporate update conference call with me today, our brain Spencer co President and Michael Armstrong Chief Financial Officer.
Before we begin I invite you that we will be making forward looking statements today, including statements regarding publicist. These commercial profile revenue expectation potential key revenue and the completion post marketing studies. These statements are subject to a number.
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 factor section of our current 10-Q and 10-K periodic reports filed with the easy which we encourage all should we.
I will now turn the call over to Brian Spencer co President of Dynavax.
Thanks, Nicole and thank you all for joining us today for an update on Dynavax and to review our third quarter 2019 results, which were very excited to share.
There are few key things for you to take away from our discussion today about all focused and our ongoing transformation of the company.
To begin Dynavax is solely focused on growing our vaccine business what happens to be sales as the main driver continuing our successful commercial execution is our number one objective.
Based on a clinical data in over 10000 patients and perhaps more importantly, our interaction with health care providers and decision makers across each of our diverse customer segments.
We believe habits that'd be has the potential to become the standard of care adult hepatitis B vaccine in the United States.
Proving patient protection and representing a commercial opportunity with potential goes peak sales of about $500 million in the United States.
Oh.
Due to a commercial teams continued strong execution today, we're pleased to report net sales of $10.2 million for the third quarter of this year.
And as a result of this progress we are raising expectations for net product sales for the full year 2019 to be between 34 and $36 million.
We're in a strong financial position with capital sufficient to execute well or help us that'd be commercial strategy, placing us on the path to profitability based on continued revenue growth in the U.S. and management of operating expenses.
With these key takeaways in mind, let's turn to some specifics about how sub the commercial efforts.
Hi, so starting with that was out of these profile.
Well said he is the only two dose hepatitis B vaccine has been approved by the FDA and has demonstrated higher rates of protection in head to head clinical studies compared to the three dose regimen of Internet speed, which is the current market leader.
Importantly challenges with compliance are well known with only 30% to 55% of patients completing the legacy products three dose regimen, which takes six months to administer.
No as you can imagine the potential improvement in compliance from a two dose one month regimen has demonstrated high rates of several protection means that happened to be offers an opportunity for greater protection to patients. It is this profile. It gives us confidence in our expectations that Apple said be will ultimately.
They become the market leader and the standard of care for adult hepatitis B vaccination in the United States.
Our commercial efforts will continue to be the driver of Heppel Sotheby's sales growth with a focus on personal promotion from field sales team and marketing initiatives to increase advocacy in awareness more broadly.
We're having success in our targeted accounts, adding both new customers and additional outlets within our existing customers in the third quarter, we captured 18% market share in those customers that are targeted by our field sales team, which was up from 13% in Q2.
Our field sales team has aligned to the highest value customers across all segments with retail pharmacy in a few large national and regional customers targeted separately from the top down by our National account directors in partnership with our corporate team.
Moving beyond our field based promotion, we also continue to see progress within retail pharmacies.
We estimate the top 10 retail pharmacy chains represent 80% of you don't have the vaccine market in this channel.
We're excited to have executed purchase contracts with nine of the top 10 retail pharmacy chains.
That's a killing the purchase contracts as a first step and getting traction into retail segment.
But the reality is each of the retail pharmacies handle implementation differently.
You know interactions with our retail customers, we've signed find that the top down support significantly improves uptake at local pharmacies. We continue to work with clinical decision makers in the pharmacy organization to secure their support for broad availability and use a couple of sabby.
We're pleased with how our retail partners view Epicel B and are enthusiastic about the opportunity. This segment presents to increase coverage rates in the future.
Part of our overall strategy in this segment. We are currently pursuing opportunities to develop initiatives with retail pharmacies, specifically targeted to increasing diabetic vaccination coverage in the retail sector.
In summary, our habits that will soon be commercialization efforts are making excellent progress and as a result, we're raising our expectations for full year 2019, net product sales to $34 million to $36 million.
Additionally, I'm excited to share the Kaiser Permanente, Southern California has completed a cool of more than 30000 patients who received Apple savvy and 30000 patients who have received injury Spi in our post marketing studies.
These studies were initiated in August of 2018, and will continue for 13 more months to catch a follow up safety data.
Overall, as we execute on our ongoing transformation into a leading commercial vaccine company I'm very pleased with the team's execution, which resulted in a foot productive quarter and positive outcomes on multiple fronts.
With that I'll now turn the call over to Michael to discuss our financial results.
You're right.
Our financial results are detailed in the press release issued this afternoon today I'll just touch on some hot highlights.
Net product revenue for the third quarter, 2019 was $10.2 million compared to $1.5 billion for the third quarter 2018 net product revenue for the nine months ended September 32019 was $24.1 million compared to 2.9 million for nine months.
In 2018.
Product revenue from sales is record adjusted net sales price, which includes Justin its product returns chargebacks discounts and other fees.
Regarding cost of sales product features the prior periods include onetime charges and different percentages of components. The previously had been charge to research and development expense prior to approval.
This has caused cogs to very periods appeared in a particular period may not be indicative of what should be expected going forward.
We expect template to be cost to sales will normalize next year in the range of about 30% to 35% does not based on todays pricing as we producer then sell inventory that reflects the full cost of routinely manufacturing the product.
The decreases in research and development expenses for both the three and nine month periods in 2019 compared to 2018, resulting from the winding down of oncology clinical trial activity and reductions in R&D headcount and related expenses following the restructuring we.
Plummeted in May of 2019.
Third quarter included.
Approximately $3 million in extra well expenses related to oncology programs. This amount will continue to decrease over the next three quarters as these activities are completed.
The increases it SGN a expenses for the three and nine month periods in 2019 compared to 2018 were due primarily to increases in sales and marketing activities as well as higher facility costs due to increased lease expense an increase in facility related overhead allocation to SGN a following the may receive.
That's right.
In addition, the third quarter 2019 includes payments for completion of certain milestones in the post marketing studies Kaiser Permanente.
We expect the restructuring to be substantially complete and related costs incurred and paid by the end of this calendar year. During the three months ended September Thirtyth nine 2019, we recognize restructuring charges of 3.9 billion.
And a 12.4 million for the nine months restructuring charges of approximately $800000 are expected to be recognized by the end of.
2019.
Cash cash equivalents in marketable securities totaled $174.9 million at the end of the third quarter, putting us in a strong financial position to achieve our objectives and now I'll turn the call over to Ryan for closing remarks.
Thanks, Michael.
We appreciate everyone's time today and your interest in the company.
We are in an exciting and transformational period for Dynavax that is positioning the company for long term commercial success to the benefit of patients and our shareholders. We believe hebel sabby has the potential to protect more adult patients from hepatitis b than any product in the market today and we have focused organization.
To make this possible.
We thank all our investors in team members for their commitment to this goal.
Before we close I would like to to share excitement to have had Andrew has joined our board of directors during the quarter and is from Bain capital Life Sciences, joining our existing shareholders. We look forward to all we accomplished over the next month in years ahead, as we build dynavax into a leading commercial stage vaccine company.
Operator.
We'd like to open the Q and a portion of today's call.
Thank you if you like to ask the question be signal by pressing star one on your telephone keypad.
Using a speakerphone. Please make sure your mute function has turned off to larger signatory try equipment again press star one to ask a question.
Well take our first question, Dave from Brian Abrahams with RBC capital markets.
Hi, Thanks, very much for taking my question.
But do you have a sense of the traction that you're right you have so far in the diabetic populations with a couple of coffee and I'm curious is that kind of upside opportunity that this segment could enable US you increased focus on them through the oh through the retail channel.
Yes. So one of the you know we talk a lot about the data we have available to us and we have great data as far as it relates to customer segments, and where vaccine is utilized.
The specific patients its utilized in is a little bit trick here. So we don't have great insight into where dialogue with how much I mean patients with diabetics diabetes or being vaccinated.
But given the trend to the market there has been some increase over the last year, which could be attributed to more uptake in diabetes. It's not obvious that it is though based on where we're seeing that the growth.
It was probably be more relevant just to speak to the opportunity in retail in particular.
There's a couple ways to look at it Brian you know we talked about this over the years of the size of the market.
The diabetes market is 20 million existing patients with about somewhere north of 1.5 million new patients diagnosed with diabetes each year.
When comparing that so what we believe is about two and a half million patients a year they get vaccinated against hepatitis B. Currently you can understand why it's an area of focus.
The retail segment the power. The retail segment has is they can identify the patients and so a retailer so inclined can take measures to proactively.
Target patients with diabetes for vaccination.
So this is where the opportunity really lies.
We have to where the early stages of doing this with some retail partners. We're working on initiatives and that's something that's going to be important as we kind of build out. This segment for everyone to understand is that retailers are initiative, driven you've probably seen some of it yourself within this segment. When you go to retail pharmacy, and that's how we expect historically.
Diabetes, and that's what we're going to be doing in the short term, which will be these very aggressive initiate initiatives to get pharmacist to identify patients and vaccinate over time, we hope that as after doing enough initiatives. You also become second nature as far as their willingness to identify patients and vaccinate, but the opportunity.
Maybe exist because the sheer number of stores and pharmacists that can be leveraged if there is a corporate program for a large retailer so.
The brought opportunity will capture via retail as well as possibly through other institutional programs.
And specifically in the short term what we're working on is.
Discrete initiatives within the retailers to begin the process.
That's really helpful. Thanks, Thanks, Ryan and then just maybe one more question can you give us an update on just your recent interactions with pet your payers in progress with reimbursement any color on that.
Whether there has been any shifts in discounting for perhaps a b. I guess, some I guess I'm just curious what your latest view is on the actual net mark market opportunity based on the discounting trends the epidemiology and the dynamics that you're seeing on the ground in terms of marketshare and I'll hop back in the queue. Thanks.
Yeah.
So I might have this change that up a little bit I think the clarification part of your question or auto around contracting a discount is it is helpful. Because you know in this case for this product payers aren't really involved payers set reimbursement rates based on list price for vaccine and there is not there hasn't really been an opportune.
You need to attack the pair segment with specific contracting that would drive utilization for us or others.
But I think the other point of your question was how is the discounting environment evolving those discounts are actually end user discounts.
Offered either directly or through group purchasing organizations.
We've always had.
Took a pretty tight line here. This is the clinical sale for us we're not in a contract play with our competition.
They have historically discounted pretty heavily a wi.
We are not chasing them from a pricing perspective, so we were sort of divorced from their discounting in pricing strategy and it's been pretty static since we launched we launched with a general discounts available through a number of channels and we are evaluating some additional programs for customers that have high control.
But.
You know, it's been pretty it's been pretty static over the course of our launch it hasn't been a huge amount of movement and we haven't directly seen any major change from our competitors other than price increases.
Got it that that's really helpful. Yeah, I, obviously meant that should a framed it is the end user customers rather than.
Payer, specifically, but that's really helpful color. Thanks again right.
Sure.
Next we'll hear from Matt Fips with William Blair.
Good afternoon, guys up actually my question Ryan can you.
I think it's probably about four but now with the conclusion of the post marketing studies do you anticipate Kaiser will actually moved to use some commercial over several they wait and see the.
Final result for that study and then you know as far as.
Where are you guys are thinking on timing of Interims now that the enrollment is complete.
Based on the event I guess.
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Yes, so no obviously kaiser to target, there's some complexity as as it relates to.
The finishing of getting 30000 patients versus when they're able to transition that we have to work through over a few months remember the way. The trials design is it's 30000 patients who receive their first dose. So there's still a number of patients a large number of patients in the study you haven't received their second dose.
And or if they're in the sites that are indirect sites right have not received index regimen. So there's some nuance there as far as not wanting to.
For example, takeover sites, where interest as being utilized how they're going to manage through the transition from completing mean the accrual period versus the the follow on vaccination period for Epicel well looking through some of those details now.
As it relates to their overall uses eventually you were going to have to treat them like a any other customer and engage them.
At all levels, it's youre, our work with them at a research level is very much that it's it's at a research level. They they do a very good job appropriately keeping firewalls between the research team and any commercial interaction. So when we have data available and when they have the data they seem to be sufficient.
Available I believe we'll be able to engage with him commercially I can't really comment on when that's going to be at this point as it relates to your other question around Interims look the bottom line is a trial is on track as as we've said all along we're very happy that we've completed the accrual and we are on track to deliver.
The reports to the agency that we've committed committed too so.
You know, it's all all working as planned.
Hi, Thanks, right and then just curious on the market share that you mentioned increasing from 13.
18% College or Ah.
And your target accounts.
He just give us an idea on if that is maybe or how many how much of that as an exclusive contract or how do you think the.
Pursuit of exclusive contractors increase maybe recently.
So let me you know.
I mean it pick on specific according it's just I feel like this is going to be a dialogue we have for a few quarters now so I want to make sure. We're all the line.
Contracts.
You know we were lucky when we can find exclusive contracts, but in general the contracts our purchase agreements and then they usage as to become exclusive.
We are actually working towards some high control contracts, which means they have some volume commitments.
But but the idea how many customers have gone exclusive is that kind of the need of it all in.
It's not driven by a few customers going exclusive that's not where it's coming from.
The reality is what we have fewer customers, who go exclusive than we have customers, who make it available and utilize it in some you know some subset of their system and we view that as a continuum of use you start somewhere but that's not where you end up and that's why we're going to continue to add to focus on.
Targeting these customers and am I know you know we talk about the fact, we are happy we've added customers.
So to new customers as well as we continue to add sites of care within existing customers. So exclusive right now is on the lower end.
Of sort of what customers, there's a fewer number of customers who do that they just not using the control that way but.
It's a it's open for everybody and I think it's for US we're not deterred by that at all it's just a matter of how you go through the process. So you start somewhere and then pulled through all the way.
Got it thanks Ryan.
Our next question will come from Phil Nadeau with Cowen and company.
[noise] afternoon, Congrats on the progress first just a follow up to match last question on the market share.
It's a little bit about who are the key determinants of share within the accounts, where you do have some agreements in place.
Is there it's important to physicians who determine.
Well, which were actually there's patients get people running guidelines that determine which.
Vaccine as preferred within that that purchaser, how does the process of gaining share.
Work in these organizations.
Yeah, we generally.
Generally think about customers it having multiple pillars. So you have a financial pillar of clinical pillar in an operational pillar.
So your pharmacy director, which is where the process generically starts is your financial pillar, which is obviously no it's not where we'd like to begin we need to build clinical advocacy.
And so that's just getting getting the system aware and and being supportive of introducing the product when you get into moving it through to market share.
It looks a little bit different with every customer, but oftentimes, it's going to be department, driven if not done from a top down. So we find all kill or employee health is actually quite a large portion of this market, especially within the hospital systems.
And so our employee health directors or employee health professionals is a great place for us to start as from a champion perspective or to capture a decent amount of the overall business for that customer.
And then and then it moves kind of out from there into different areas of use which can be within liver clinics or within a variety of primary care settings within the system. So you know the sure this share generally starts with.
Becoming available for use and whatever champions the clinical champions, you've been able to build along the way to support becoming available and it goes out from there, but it varies the people who always involve pharmacy directors somebody from infectious disease, or immunizations, 70 committees, which often exist in.
These systems.
Got it and do individual physicians have discretion or because it would be to send somebody should be vaccine against HBV and.
When I look in their electronic system.
Recommendations made to them as to what they should use.
It's it's even a little bit more.
Logistical than that so when they don't look into the system. They opened the door the refrigerator and they grab the product it's available. So yes in many systems. They do have say from the standpoint of.
As I mentioned, if it's available they can order it the what it boils down to is it went to set up is like for that system. If you have a if you have as an individual physician who controls ordering for their floor office site location, then they can pick and choose if they're vocal in an advocate in most in most situation.
People can get what they want physicians can generally get what they want when new vocal in the willing to advocate for it so.
So it varies a little bit the best way to think about it though when you think about pull through is you're still pulling through to a site and that site. If it's one that has a reasonable amount of vaccine probably has a reasonable number of physicians and so thats site or location. Even if it's just part of the larger health system has to make a decision generally for what they're.
Going to pull in so that might even be a couple of physicians or or you know.
Office manager group that decides what to do for that office or group of offices. So there's still some group based decision, making as you pull it through its not really like a script, where individual physician within offices can make different choices on what they choose to prescribed.
Got it okay any individual site as it typically are either 100% other HPV vaccine use or.
There are.
Are there any sites that actually split their use or do they usually go all or not.
Typically look all or none because as you know it's there's two this medication errors and it's just it's not worth there's not really reasons not in all unless you have something.
Yes, some patients that you've decided.
You want we want more data on for Eplus out for example, if our label is very broad from our indicated but we have some physicians and say well we don't have data in transplant. So they might want to keep up with Andrew it's around for sub populations like that but you know I enjoy.
General I think we've we're finding its more for per site, it's kind of it's basically at all or nothing.
Got it one last question just on the Cogs guidance <unk> to 30% to 35%. It's steady state in 2020 can we assume that over the very long term as volumes increase the cost of goods as a percent as percentage of sales will will go down further.
Yes, it over the longer term yes.
I mean, when we starts to build our scale to meet X U.S. opportunities, but that will be over three four or five year period from now where we can drive it significantly below.
The 30% to 35% maybe.
I think that's right I mean, I think I think that's what the 30 to 35 is trying to encompass still that will drive down. The Thirtys you know that those 30 range or 30.
Based on scale and then I honestly the other piece that is depending what happens with price.
As our price increases that percentage actually will continue to become more favorable.
Got it okay. Thanks for taking my questions.
Thanks, Phil.
Our final question did they will come from Ed White with H.C. Wainwright.
Hi, guys. Thanks for taking my questions. So just a couple and and one going back to the market share.
Is that 18% share.
Volume or is a you know for dose or is that you know what dollar amount.
As.
We decided to use dose.
As far as but you know just to be very clear and allocation. If this were trying to be very appropriate and pride metrics that you know.
Show, how we're progressing so we've we've sort of normalize the dose is right because we have a different dosing regimen. So we normalize the doses.
We see sold in the market to be comparable to Apple SAB dosing regimen.
So basically translating the market tablets have doses and then seeing what percentage of the doses we took.
So that that's to adjust to that we don't over and play for our price premium.
Or under and play for our dosing regimen or under represent for dosing regimen.
Okay, great. Thanks, Frank and you mentioned.
The opportunity in the diabetes market I'm just wondering if you can discuss briefly you know the potential in the dialysis market.
Mhm.
Sure the dialysis market is somewhere.
It fluctuates between 852 million.
Huh.
Dose is a year and the career the current products are.
The minister for shots, but they are double doses. So that's a very very large amount of indirects. It's given in dialysis setting in a single shot. So there. They are double one mill. This is to know shot given et cetera.
So we are evaluating a full dose regimen in the clinical trial currently.
Because of the fact that it's certainly known that there's different dosing regimens in this in this these hard to vaccinate patients in hemodialysis. So opportunity is pretty strong there we've developed a regimen based on the idea that we want to maintain the same profiles that will start with higher rates of protection. So our.
For those regimen, we're hoping will offer higher rates of protection compared to that of the eight dose regimen of indirects.
The opportunity there and I think it's an important point as we talk through coverage and things like that the dialysis market is extremely consolidated there's two players who cover or control about 80% of dialysis market and then as you know another couple below that there is still fairly large and.
They make national level decisions for all of their outlets, so with data in hand and with the appropriate.
Appropriate time, we'll be able to target those customers at a national level, hopefully being able to take over their business kind of in a binary fashion.
But obviously, we're not we're not there yet.
[noise], Okay, great. Thanks, Frank.
Thank you that will conclude todays question and answer session and that will conclude today's call. Thank you for your participation you may now disconnect.