Q3 2020 Dynavax Technologies Corp Earnings Call
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Their minds and this conference call 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 Nicole aren't senior manager Investor Relations.
Again.
Good afternoon, welcome to the <unk> third quarter 2020 financial results and corporate update conference call. Joining me on the call today are Brian Spencer Chief Executive Officer, Michael Armstrong, Chief Financial Officer, Rob Janssen, Chief Medical Officer.
Sure.
It's all.
To boost the immune response to increase protection and to provide longer lasting immunity are an important contributor to the success of vaccines.
Additionally, it is often the case that patients with the greatest risk of severe disease are unfortunately, less responsive to vaccines due to a weakened immune system brought on from advanced age or other chronic health conditions.
Vaccine adjuvant play a critical role in addressing these patient populations.
Our first commercialized product helpless that'd be approved by the U S. F. D. A is an adult hepatitis b vaccine, which is adjuvant did with CPG 10 18.
Hepatitis B is a highly infectious and potentially deadly virus with increasing infection rates over 250 million people worldwide.
And 150000 people in the U S are infected with hepatitis b. Thanks.
Thankfully it can be prevented.
With an effective vaccination nation.
The challenges with compliance for legacy three those products are well known with only approximately 22% to 54% of patients completing the three dose regimen over the required six month period head.
<unk> is the only two dose adult hepatitis B vaccine that has been approved by the FDA ended offers protection in just one month compared to six months for the competitor products.
On top of the speed of protection. It has demonstrated higher rates of protection and head to head clinical studies compared to the three dose six month regimen of the current market leader.
<unk> <unk>, one month regimen with the corresponding improvement in compliance and higher levels of protection gives us confidence herbalist that'd be will become the standard of care for adult hepatitis B vaccination in the U S.
COVID-19 continued to disrupt the vaccine market in the third quarter. The total adult hepatitis B market had about a 25% reduction in utilization from the same period last year.
This COVID-19 impact vary depending on the segment.
So for instance, the department of Defense segment actually increased 16% from the same period last year. However, integrated delivery networks hospital systems in clinics continue to see a decrease in utilization down approximately 35% from the same period last year.
<unk> be enjoyed a very strong quarter. Despite this challenging environment we.
We reported our highest quarterly revenue since launch with net product revenue of $11.6 million. This performance was driven by exceptional progress and national accounts and increased market share in our field targeted account, which grew to 23% in the third quarter.
Our commercial team has maintained a high level of engagement with targeted accounts and decision makers.
We continue to make significant progress in this segment, having already converted four of the nine new recruit bases, we hope to finalize the conversion of another base in the fourth quarter, which would result in capturing its utilization for all Twentytwenty one.
Overall, we are delighted to see such a strong quarter for hepatitis b. Despite the challenges of the COVID-19 environment.
Now moving on from heavily savvy to our second asset CPG 10, 18, where we have a new line of business that is growing rapidly as a result of our efforts to support the clinical response to the COVID-19 pandemic.
We've embarked on a global strategy to establish a portfolio of collaborations aimed at demonstrating the capability of CPG can 18 to enhance the immune response to a variety of vaccine antigens.
Our open collaboration approach allows us to support multiple vaccine development efforts.
And underscoring CPG Trinity's versatility.
These collaborations span multiple technology approaches across varied indications.
We've established collaborations focused on developing agitated vaccines currently including coordinate team universal influenza and Cdaf, which is tetanus that area and a cellular processes, which is specifically focused on improving the immune response to the cellular pertussis.
Component of that vaccine.
The global effort to develop Corona virus vaccines offers the first demonstration of the value of CPG to 18 beyond helpless abbvie.
We have built a broad portfolio of collaborations for Corona virus vaccines to address the complex aspect of development and competition in this space. Our portfolio approach provides multiple opportunities for CPG 10, 18 to be a valuable component of different vaccines.
Recognizing that not every collaboration will move forward to an approved vaccine.
We continue to expand our collaborations with a goal of ensuring CPG ton 18 is evaluated in the widest possible range of approaches we believe by targeting different technologies, we will create the best opportunity for long term value creation as a field continues to evolve.
So digging deeper into one of our key collaborations.
As many may already know we entered into an agreement to develop an advantaged vaccine for COVID-19 with Val Niva.
Subsequently dial neova entered into a supply agreement with the UK government for Bell Media's agile anti vaccine.
During the third quarter, we executed a commercial supply agreement with fell Niva and began production of CPG 10, 18 at the increased scale for pandemic supply.
Under this agreement Dynavax will provide all nivo with CPG 10, 18 to produce up to 190 million doses of vaccine over a four year period.
In 2021.
Dynavax will supply Don Eva CPG 10, 18 adjuvant for the first 60 million vaccine doses Don.
Don Niva also has the option to purchase Cpgs in 18 to produce an additional 40 million doses in Twentytwenty one.
Under this contract alone we have the potential for approximately $130 million to $230 million of CPG 10, 18 revenue in Twentytwenty one.
Which will begin to be recognized starting in the first quarter.
While this contract is contingent on continued successful development it is potentially worth over $400 million for Dynavax through 2024.
In addition, develop lever our collaborations with Cobra Biopharmaceuticals continues to make good progress but.
Based on positive phase one data to date.
However, as indicated that it intends to develop to add vented kobin 18 vaccine programs.
To fully utilize their available antigen production capacity and that it anticipates initiating a pivotal clinical trial with CPG 10, 18 to address global demand.
We expect Clover to report the results of the Phase one study as well as their plans for continued development by year end.
In summary.
We've made significant progress on a number of fronts in the third quarter the strength of the third quarter revenue for episode the combined with the initial revenue generation from CPG can 18 reinforces our confidence in the Dynavax vaccine business model and the long term investment opportunity it represents.
I will now turn the call over to Michael to discuss our financial results in more detail Michael.
Thank you Ryan.
Our financial results are included in the press release, we issued this afternoon.
As detailed in the 10-Q, we filed with the FCC today, So I'll just touch on the key highlights and provide some additional color.
Total product revenue for the quarter was $13.3 million how percent b product revenue increased to $11.6 million in the third quarter from $10.2 million in the same period in 2019.
This increase was due primarily to the return of adults hepatitis b vaccine utilization to approximately 75% of pre covance levels.
Significant demand from the department of Defense and the initial stocking order from a major national retailer.
Approximately 1 million to a million and a half dollars of third quarter revenue resulted from replenishment of inventory by our distributors to maintain their typical days on hand levels due to increased demand in the third quarter compared to the second quarter. This.
This is essentially the mirror image of what occurred in Q2, when distributors reduced inventory levels as end user demand for hepatitis B was fulfilled out of existing channel stock.
Looking to the fourth quarter, we expect continued progress in key national accounts.
Continued growth in field targeted market share.
The fourth quarter will of course have fewer selling weeks that occurred in the third quarter.
Based on current trends, we expect adult hepatitis b vaccine utilization to be approximately 70% of precocious levels through year end.
The third quarter of 2020 with not only our best quarter ever for Epicel be sales. It also marks the initiation of revenue from our second product CPG turn 18.
CPG 10, 18 product revenue for the third quarter was $1.7 million.
And we also recorded $21.7 million as deferred revenue and $5.7 million in deposits.
In recognition of the value of our current and potential revenue opportunity from CPG Tennant team. We recently amended our loan agreement with Crj. Two includes sales of CPG today, Jean for purposes of determining the achievements of the annual net sales requirements.
Cost of sales for the third quarter increased to $4 million compared to $3.8 million for the third quarter of 2019, primarily due to higher unit costs for hepatitis B as we produce and sell inventory that reflects the full cost of manufacturing and.
In addition cost of sales for the third quarter of 2020 included $800000 of cost to produce CPG tenant gene for our collaboration partners.
We expect cost of sales to increase substantially in 2021, as we produce and sell CPG Tenb 18 under the supply agreement, we found Eva and pursue other customers.
Okay decreased to $13.8 million from $30.6 million in the third quarter of last year net.
Net income for the third quarter was $4.4 million, primarily due to a gain of $21.2 million in the fair value of our warrant liability.
[noise] cash cash equivalents and marketable securities totaled $177.2 million at September 30th 2020, I'll now turn the call back to Ryan for closing remarks.
Thanks, Michael.
Despite the significant disruption of this year, we continue to make steady progress towards several important milestone, including advanced any ongoing study of <unk> and patience on hemodialysis with the final Immunogenicity data expected in the fourth quarter of this year with publication planned in the first half.
Of 2021.
The completion of the safety follow up period for help us out the post marketing study in Q4 of 2020 with a final report available and Q2 of 2021.
Completion of phase, one, enabling animal studies and toxicology for an improved T that back pain with CPG 10 18.
And finally, we continue to advance the M. A a review of purpose that'd be for Europe with a decision expected in the first half of 2021.
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We're very proud and excited about the recent progress we have made to move our business forward on multiple fronts helpless.
<unk> be delivered its highest quarterly sales since launch even though the vaccine market continues to be impacted by the coronavirus pandemic moving forward, we expect to continue to increase market share in our field targeted account as well as continue to make progress in key national account to support significant growth in 2020.
He won.
While the coronavirus 10, debit or temporarily slowed our progress with herbalist that'd be we've been able to react to the pandemic to accelerate value creation from CPG 10, 18 to support a number of potential coronavirus vaccine.
Based on our existing commercial agreement with all NEVA, we have the potential to generate approximately 132 $230 million of revenue next year from the sales of CPG 10, 18 for this one contract alone.
We will continue to work with our collaborators to establish additional commercial demand for CPG 10, 18 as their coronavirus vaccine advanced in development.
We look forward to updating you on our progress and accomplishments as we build <unk> into a leading commercial stage vaccine company. We thank all our investors and team members for their commitment to the school.
Operator, we would now like to open the Q&A portion of today's call.
Ladies and gentlemen, if you have a question at this time 355, and then the number one key on your Touchtone telephone. If your question has been answered are you wish to remove yourself from the queue. Please fries, sorry that sounds fine.
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