Q3 2021 Dynavax Technologies Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the Dana Vacs technologies third quarter 2021 conference call.
As a reminder, 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 Arndt Senior manager Investor Relations you may begin.
Good afternoon, and welcome to Diamondback <unk> second quarter 'twenty one.
Financial results and corporate update conference call before I begin.
We'll be making.
Forward looking statements, including but not limited to statements regarding margin impact.
The impact is.
Recommendation.
Our buying pattern financial guidance and trends and potential future leases.
These statements.
They involve risks and uncertainties.
<unk> actual results to differ materially. These risks are summarized in today's press release and are detailed in our risk factors section of our current.
10-Q reports filed with the SEC, which we encourage you to review.
Our forward looking statements.
Today, and we undertake no obligation to update such statements at a later date.
Joining me on the call today are Brian <unk>, Our Chief Executive Officer, Kelly Macdonald, Chief Financial Officer, Robert Jansen, Chief Medical Officer, and Don Peso Senior Vice President commercial.
Go ahead Ryan.
Thank you Nicole and thank you all for joining us today.
I'm pleased to report that we continue to make strong progress on each of our core priorities, including accelerating momentum with our lead commercial asset having SEBI.
Advancing our COVID-19 vaccine collaboration and continuing to add to our development efforts to leverage our vaccine adjuvant CPG to 18 to generate long term value.
Couple of that.
Our two dose adult hepatitis B vaccine approved in the U S and in Europe achieved another record record this quarter with net product revenue of $22 $7 million up significantly from $13 7 million in the prior quarter.
I'm also excited to report that yesterday, the CIP voted unanimously to adopt an upgraded recommendation greatly expanding the number of adults recommended to be vaccinated against hepatitis b in the United States.
With this upgraded recommendation, we believe the U S. Hepatitis b market opportunity has the potential to grow to over $800 million annually overtime.
We believe <unk> is progressing to become the standard of care adult hepatitis B vaccine in the U S. Having said that provides an important foundation for our company as our lead commercial asset generating durable long term revenue growth.
The opportunity for our CPG <unk> adjuvant has also advanced rapidly.
Collaborators have generated significant data demonstrating its efficacy immunogenicity and safety in COVID-19 vaccine, which is expected to lead to multiple emergency use authorization.
Additionally, our commercial supply agreements for CPG <unk> has generated $84 million in revenue this quarter alone.
As a result of the progress made by our collaborators and our growing CPG generating capacity, we now expect to generate approximately $375 million to $425 million in aggregate CPG <unk> product revenue in 2021, an increase to our previously estimated range of $300 million to $400 million.
I will turn the call over to Rob Janssen to review the current status of each collaboration before we move on to Apple's Abbvie and our financial results.
Rob.
Thanks, Brian starting with messages vaccine biologics messaging was the first of our collaborators to receive emergency use authorization for our COVID-19 vaccine adjuvant with CPG two <unk>. They received approval for inclusion in Taiwan, COVID-19 vaccine immunization program.
And residents began receiving the vaccine in August.
Another of our collaborators Clover biopharmaceutical recently reported topline results from a phase III global efficacy study of their COVID-19 vaccine adjuvant with CPG.
The study enrolled over 30000 participants and the results are.
Cash over there.
He met their primary and secondary efficacy endpoints, and importantly demonstrated 100% protection against severe disease hospitalization and death in the study in which only variant viruses such as the Delta were observed.
We were particularly excited that this high level of efficacy was obtained while having a tolerability profile as measured by solicited systemic adverse events that were similar to placebo.
<unk>.
Separately, our collaborator <unk> also reported positive top line data for their COVID-19 vaccine candidate adjuvant CPG <unk>.
The comparative Immunogenicity phase III trial that enrolled approximately 4000 adults with <unk>.
<unk> demonstrated superior neutralizing antibody titers compared to Astrazeneca is vaccine with the seroconversion rate over 95%.
Their vaccine candidate was well tolerated demonstrating a statistically significant better tolerability profile compared to the Astrazeneca vaccine.
Last week in July Diamondbacks, and biological <unk> entered into a commercial supply agreement for the provision of CPG Tiffany T.
<unk> is currently conducting a phase two three trial of their sub human COVID-19 vaccine candidate adjuvant with CPG.
Data are anticipated in the fourth quarter.
Based on these impressive phase III data sets across our COVID-19 partnership portfolio. We believe the combination of high efficacy and immunogenicity, coupled with favorable safety and tolerability it could be a very competitive profile as the COVID-19 pandemic evolves.
These data reinforce our belief that CPG.
Is a unique and valuable adjuvant for the development of novel and improved vaccines.
Additionally, we have developed a portfolio of global research collaborations to help establish CPG and <unk>.
As a broad vaccine adjuvant platform.
<unk> utility of CPG <unk> enables us to support multiple vaccine approaches across a variety of indications, which has now enabled the portfolio of development programs beyond hepatitis B and COVID-19 that currently includes TDAP universal flu and swine.
It takes you through our updated on handful of Debbie I will now turn it over to Dawn <unk> Senior Vice President commercial.
Thank you Rob.
I'm excited to provide an update on <unk> that would be and our continued progress within the U S market.
Herbalist Abbvie, our adult hepatitis B vaccine adjuvant in with CPG <unk> delivers higher rates of protection in only two doses in one month compared to other hepatitis b vaccines that require three doses over six months.
Tablets Abbvie has been proven to demonstrate broad protection, achieving thorough protection rates of over 90% across all patient types, including diabetics in older adults, who often fail to generate an adequate immune response from traditional three dose hepatitis b vaccine.
I am thrilled to report that headless Abbvie has achieved another record quarter with $22 7 million in net product revenue the highest quarterly revenue since launch.
This revenue outcome as it is an increase of 96% compared to the third quarter of last year and growth of 66% compared to the second quarter of this year.
Our third quarter revenue milestone was achieved despite the hepatitis C market remaining below historical norm due to the ongoing pandemic.
Hepatitis B market utilization during the third quarter was at 76% of pre pandemic levels.
Our success in the third quarter was driven by continued progress in field targeted and national accounts.
We looked at field targeted market share as a critical metric.
And it has been especially important over the last year as the overall vaccine market has been disrupted by the pandemic.
In the third quarter fueled targeted market share increased to 33, 5% up 3% from the previous quarter and up 10% from the same period last year.
Within National accounts, we significantly expanded the number of retail pharmacy location initiating their first order for <unk> b.
Additionally, we drove meaningful reorders across retail outlets during the quarter.
All of this led to significant growth in the retail segment of 93% compared to the previous quarter with all time highs in doses sold in market share realized in this segment.
Progress in field targeted and national accounts have helped to increase our total U S market share to 26% in the third quarter.
Q3 was a remarkable quarter for Hecla therapy.
We are immensely proud of the results and want to thank our team for all their hard work and dedication.
Looking ahead for <unk> B, we project that field targeted market share will continue to increase over time, and we anticipate continued increases in the number of new ordering and reordering locations across our promoted segment.
However, we anticipate the overall heavy Tennessee market will soften in the fourth quarter.
This projection is based on two market dynamics occurring in the quarter.
First pre pandemic historical trends have shown us that the hepatitis C market decreases by up to 15% in the fourth quarter due to seasonal purchasing patterns of key segments and one to two weeks of depressed demand due to the holiday.
Second COVID-19, booster planning and administration may cause intermittent customer disruption or preventative services such as immunizations.
Because of the convergence of these two events, we believe the hepatitis b market in Q4 could temporarily contract by as much as 30% from Q3 2021 levels.
Early market utilization data supports this expectation and we will continue to monitor the outcome.
That said, we remain confident in the market recovery over the long term and anticipate the market returned back to a positive recovery trend in early 2022.
Our ability to increase market share and drive new ordering locations in a volatile market due to the pandemic supports our confidence in continued long term growth for hecla therapy with revenues expected to increase year over year.
Further in the positive outlook for <unk> B, the CVC Advisory committee on immunization practices or ACI.
Yesterday voted unanimously to recommend that all adult 19% to 59 years of age should receive hepatitis B vaccination.
This recommendation simplifies the identification of patients who need a hepatitis b vaccine compared to the current risk based recommendation.
And significantly expands the number of adults in the U S, who should be vaccinated against hepatitis B.
We expect this new hepatitis B recommendation to be included in the updated adult immunization schedule published in early 2022.
While it will take some time for this recommendation to work its way through the health care system.
It has the potential to expand the number of adult vaccinated annually for hepatitis B by approximately 50% over the next five years.
Based on this opportunity we plan to launch innovative marketing campaign that will target consumers and health care providers to increase the awareness of headless that'd be as the only two dose hepatitis b vaccine option with broad protection across all patient types that.
That can best support Cdc's goal to eliminate viral hepatitis.
Q3 was an exceptional quarter for <unk>, achieving all time highs in revenue and market share.
We remain confident in our ability to generate momentum and look forward to continuing to drive long term growth for the brand.
I will now turn the call over to Kelly to discuss our Q3 financial results in more detail.
Thank you Tom.
I'll focus my comments on the highlights of our financial performance in the quarter and refer you to our press release issued this afternoon, along with our 10-Q filed with the SEC today.
Let's begin with revenue.
Third quarter, we recorded total revenue of $108 million, which primarily included net product revenue from Hep with Abbvie as well as CPG anything adjuvant sales for our COVID-19 vaccine collaboration partners.
Starting with the financial performance.
And finally, Don also mentioned, we reported record quarterly net sales of $22 $7 million. This represents 96% from $11 $6 million, which was recorded in the third quarter of last year.
This year over year growth is primarily driven by increased market share and the increased utilization as health care facilities continue to navigate reopening amidst the pandemic.
Moving on to <unk>.
We recorded $84 $3 million in product revenue associated with adjuvant accounts, our COVID-19 collaboration partners in the third quarter. This is compared to $1 $7 million the same quarter last year.
As Rob highlighted we continue to make significant progress with each of our CTG can 18 partnerships and are very excited to report that we have increased our revenue outlook for the year.
We now expect approximately $375 million to $425 million in aggregate <unk> adjuvant revenue for 2021.
This is a substantial increase from the previously estimated range of $300 million to $400 million and this increase in our expectations, primarily driven by the recent positive clinical data readouts from our partners along with a corresponding increase in near term demand for C. P. G any team to support commercialization in their respective markets.
As a reminder, adjuvant shipments and corresponding revenue remain contingent on each of our partners continued success and the timing of product deliveries.
Further as we continue to sell to certain of our partners, who support vaccination effort in low and middle income countries gross margin may fluctuate quarter to quarter. However, we expect margins to settle in the 50% range overtime.
We look forward to providing additional clarity or 2022 and beyond.
Partners work towards securing additional commercial contracts and regulatory approval.
Moving on to expenses.
Our research and development expenses for the third quarter or $6 $2 million compared to $8 $5 million in the comparable period in 2020.
During the third quarter of last year, we recognized certain costs associated with the wind down of our legacy oncology business, which were nonrecurring in the current period.
[noise] ahead, we expect R&D expenses to continue to reflect progress in our early stage pipeline as we continue to advance our programs through the clinic.
Notably this includes our expectation to begin incurring cost to develop a combination vaccine adjuvant with PPG 10, 18 and connection with our $22 million contract with the department of Defense, which was recently executed.
SG&A expenses for the third quarter were $26 $9 million compared to $21 $5 million in the comparable period in 2020 with the increase primarily driven by our expanded field sales team, which was brought on at the beginning of the third quarter.
Looking forward for SG&A. We expect these expenses may slightly increase over time as we carefully invest to drive market share for apples that would be in addition to supporting our CTG 10, 18, adjuvant partnerships and our growing pipeline.
Turning now to our bottom line.
Max generated a GAAP net loss of $28 $4 million in the third quarter. This compared to net income of $4 $4 million in the prior year quarter.
Importantly, our GAAP net loss and net income, it's a noncash fair value adjustment for our outstanding warrants that fluctuate quarter to quarter in connection with the movement in our stock price.
During the third quarter and tracking to the recent increases in our stock price the impact to net income from this fair value adjustment.
A loss of $45 million.
Compared to a gain of $21 million from the prior year third quarter.
We anticipate these quarterly fluctuations continuing through exploration through the expiry of the warrants in February 2020.
Turning now to our cash position.
We ended the quarter with a very robust balance sheet cash cash equivalence and marketable securities of approximately $414 million compared to $164 million as of December 31, 2020. This is driven by cash flow from operations of $215 million over the same grant.
In the near term, we remain focused on our core strategic objectives to inform our capital allocation decision.
It's driving help us that the market share fully executing on our CTG 10, 18, adjuvant supply collaboration and lastly, exercising disciplined allocation of capital to advance and further establish our pipeline leveraging our CPG 10, 18 adjuvant to generate long term value.
Additionally, we look forward to multiple important milestones and anticipated catalysts in 2022, including the beginning of the implementation of the updated <unk> recommendation for adult hepatitis B vaccination.
Clinical and regulatory milestones from each of our COVID-19 partnerships and continued progress in our early stage R&D program.
Lastly, and in clothing.
None of these results that you heard Brian's on it Don and Rob and I discuss would've been possible without the incredible diverse team and I'd like to pass on our sincere thanks to each of our teammates for their hard work and dedication.
Thank you everyone for your attention today.
Later, we would now like to open the Q&A portion of uptake.
Thank you.
Ladies and gentlemen, if you wish to ask a question you will need to press star one on your telephone.
The withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Yeah.
Your first question comes from the line of Matt Phipps from William Blair. Your line is now open.
Okay.
Hi, good afternoon, congrats on the quarter, great to see continued execution here on top of the tier ones because you guys.
So you know you did give some breakdown for the increase in the total market opportunity that you guys think.
Wonder if you could just give maybe any more kind of color around how much of that is through just you think there'll be increased uptake in some of those groups like the diabetic group versus other patients that weren't at risk and then if there's any change to kind of price assumptions.
So you guys had previously with the with the new guidance.
Thanks, Matt Don why don't you take that question.
Sure Matt regarding the modeling that we look at.
Predominantly a lot of this growth.
Going to come from the at risk patients in particular that was the primary goal of this universal recommendation is to increase the coverage rate in particular for the at risk patient.
One of the things we look at and it's a good analog is looking at influenza from a little over 10 years ago. When that recommendation went from an at risk to a universal and we model basically the at risk increases and vaccination rates.
Similar to what happened with flu as a way to think about growth in the market. So a lot of that's driven through the at risk. There is some modeling done with the the we'll call it a healthy patient as well, but predominantly a lot of the growth is coming from the at risk patient.
Regarding the price increase the price increases, we do anticipate having price increases year over year, but that hasn't changed with regards to this recommendation our strategy around price has remained the same regardless of this.
This recommendation from ACI P.
Great. Thanks, maybe a thought.
We thought for you as well this quarter, the new slide deck doesn't show that kind of.
Doses sold by segment.
Wondering if you could maybe give a any kind of high level and it says, there's especially how much D. O D was there in Q3, which we assume will not recur and that seems to be more heavy in Q2 and Q3.
But as typical D O D.
Certainly you see that what we call the summer surge in Q3, so duty.
Did see.
Our growth in D M D, but predominantly a lot of our growth as I mentioned earlier came in the retail segment.
We have 93% growth quarter over quarter in retail so certainly that contributed to a lot of success are certainly that field targeted market share increasing three points quarter over quarter also increased so ibm's public health also saw increases quarter over quarter, So you're predominantly you're seeing growth across all.
The segments the retail in particular had a.
A lot of success and growth quarter over quarter at 93%.
Yes, that's great.
Just to add onto that.
We've talked a lot about some of the surge in Paas and Don's commentary around the seasonality between Q3 and Q4 is some of that is impacting about 15% and you see the typical delta between Q3 and Q4, so it's already captured and remember we showed there.
Great. Thanks, and then my last question for me.
For for Kelly on the Cogs in the quarter, just wondering how much of that.
As you know kind of this dynamic of okay Hugh.
Making the product now you're recognizing some revenue baseline, but there'll be kind of a true up in revenue later once it once its finally sold depending on where which market is sold into sort of how the cogs in this quarter reflect maybe total CPG potential if you've made any changes I guess to your kind of margin assumptions around shipping.
To your revenues.
Thanks, Matt.
As it relates to CTG as I mentioned, you know, we're going to continue to see quarterly fluctuations based on.
Customer mix getting you're spot on in pointing out that there may be some reconciliation stopped downstream to the extent that product to market that are at a higher price or contemplated at the base level of fee arrangement we.
We do believe that over time. Despite these fluctuations that 50% ballpark ish is the right metric of our CPG Cogs.
Okay, great. Thanks, guys congrats.
Thanks, Matt.
Yeah.
Your next question comes from the line of Phil Nadeau from Cowen and co. Your line is now open.
Good afternoon, thanks for taking our questions and lenders that are congratulations on a great quarter.
First a follow up on the Q3 to Q4 dynamics kind of play that.
To follow on a comment that you just made can I ask a question.
Are we right to interpret what you're saying is typically Q4 is 15% below Q3, and HPV vaccine utilization. This year do you think there could be an incremental 15 percentage points down because of the timing of booster shots.
For the Covid vaccine in the U S are those the two factors or is there anything else one time about Q3 or a headwind in Q4 that were missing for 2021.
No I think that's it I mean like we said we are focusing their own the underlying market.
The two main market factors that we think will reduce the total market size in Q4 compared to Q3.
Great. Thanks, and then second also on help us out in terms of the ACP PCI P recommendation.
It seems like kind of ex anticipate that this could happen for quite some time.
Does it trigger any change in your marketing strategy or your distribution strategy for them.
How does this change in D. C. I P recommendation, Ben been contemplated as you put together your your strategy in the past.
Don't want to take that.
Yeah, Phil I mean regarding the the recommendation, we certainly are thinking about a different marketing mix as I mentioned earlier with this recommendation, we feel there's an opportunity to actually start to go to consumer in particular, so that's a big shift in how we've operated in the past my marketing mix perspective, putting more investments in direct to consumer.
Marketing.
To support the recommendation as well as continuing to increase awareness at the provider level as well we.
We do believe retail will be a critical piece of this equation as it relates to each got teeth and so our success continuing to drive share within retail and marketing to retail outlets will be critical as well too.
Full advantage of this opportunity with a skeptic.
Perfect that's helpful and on CPG, two <unk> I guess first on the labor.
Do you have visibility on orders for 2022 for CPG 10 18.
And if you don't have visibility that you do you have a sense of when you will have some visibility on what what level of those orders could be.
Yes, so we have our courses lagging indicator demand in certain timelines by which they have to right.
The net orders so we have visibility to the extent, it's contained and the supply agreement or it's in the order we received for.
But in future periods, I think one of the things.
We're waiting to also seeds.
The finalized path to approval for our collaborators to lock in the certainty around.
The ultimate demand, which comes from the actual end user customers. So we will be able to provide more guidance on that in coming periods.
Perfect. Thanks for taking my questions and congratulations again.
Thanks, Phil Thanks, Phil.
Your next question comes from the line of Madhu Kumar.
From Goldman Sachs. Your line is now open.
Hey, guys. This is rob on for Madhu, Congrats on a great quarter.
I was just wondering how should we think about the revenue recognition for the COVID-19 vaccine programs.
Namely Clover and bio E through 2021 and 2022.
The only once you work through love to the Rev. Rec on the.
Hi, Ross Thanks for the question.
We recognize revenue when we really need all of the revenue recognition criteria.
The general election, delivering product to the end customer.
You asked on cash flow ahead of that.
Got it in our 10-Q and in our balance sheet in deferred revenue.
And then we actually collect cash from our customers ahead of that final delivery.
The predominant trigger for revenue recognition is upon delivery of product to our end customer.
Thanks.
Sure.
Just as how it goes.
And trust.
Your next question comes from the line of Josh <unk> from Evercore. Your line is now open.
Great. Thanks, so much for taking the question given the dramatic jump in the retail contribution in third quarter, maybe he can provide a a little bit more in the way of details what what drove such a dramatic increase what what percent of apples have sell sell so the third quarter of come from the retail channel.
And what what are the specific forces that may be affecting the retail channel compared to others as we think about either the fourth quarter or 2022 and beyond.
Yeah sure.
So suggest me put quite a bit of focus into this particular segment thinking about the future specifically as it relates to H at the University recommendation.
The first objective is to get.
Retail outlets to stock helpless at the.
And so there are several large banners that are familiar to us all that.
That we've been able to really expand the breath of ordering but more importantly, the reordering within these particular outlets within retail.
And so we have an entire pharmacy sales team that engages.
The pharmacy chain more at the regional and district manager level.
To drive ordering for herbalist that'd be so we've had a lot of momentum as I mentioned before quarter over quarter growth.
Which really drove some of our success here in the quarter.
Looking ahead. The primary objective again is to can you expand breath of ordering and reordering, but more importantly.
Also continue to find partnership opportunities and initiatives with these particular banners because I think as we mentioned in the past retailers really initiative based.
Hello, New initiatives for several weeks and then go on to the next initiatives. So we continue to look at initiatives as we think about next year in particular drive hyper fab use that step one is to get obviously boxes and fridge across these different outlets within the banners.
Within within the segment.
Okay. Thank you.
And says.
As it relates to be at risk patient diabetic patient certainly is going to be a focus.
With this direct to consumer advertising.
That coupled with Gon' working with a retail segment.
And identifying diabetics at point of sale within the retail terminal will be really the strategy that relates to diabetic and going after the diabetic patients. We also plan to in addition to the average diabetic patient.
Put some of our marketing mix towards the healthy patient as well, obviously, that's a bigger opportunity more patients out there and so it can be a mix between the two but from an at risk perspective diabetic patients will be our primary focus from a consumer perspective.
Okay. Thank you.
Thanks.
[noise] that is actually the last question.
Okay.
Well. Thank you for your questions because of the call.
Closing remarks, the the ongoing.
Pandemic is driven awareness and greater understanding of the importance of vaccines and the protection they offer against infectious diseases.
A recent progress with both of the B M. P. G 13, reinforces our confidence in the diet aspect in business model and we are very optimistic about the opportunities B C. With these two asset to continue to drive value for the company. Thank you for joining US today, we appreciate your time and interest in Denver.
Hitting me in the call.
Goodbye.