Q3 2022 Dynavax Technologies Corp Earnings Call

Good day, ladies and gentlemen, and welcome to the Diamondback technology third quarter 2020 to find natural result.

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.

By specific instructions at that point.

I would now like to turn the call over to Nicole Arndt Senior manager Investor Relations you May now begin.

Thank you good afternoon, and welcome to the <unk> third quarter 2022 financial results and corporate update conference call. In addition to our press release issued today, except both entry slide presentation that accompanies today's call is available in the events section of our website before we begin I advise you that we will be making.

<unk> looking statements today based on our current expectations and beliefs, including but not limited to.

Central market sizes and market share H D. I P impact market trends growth perspective, seasonality financial guidance and trends, including revenue profitability and sufficiency of current capitalization timing.

Timing and results of clinical trials starts and data readouts and potential future uses of CPG can 18 adjuvant. These statements involve risks and uncertainties and our actual results may differ materially. These results are summarized in today's press release and detailed in the risk factors section of our S E C filings, including.

Today's quarterly report on Form 10-Q, our forward looking statements speak as of today and we undertake no obligation to update such statements. Joining me on the call today are Ryan Spencer Chief Executive Officer, Doncaster, All senior Vice President of commercial Rob Janssen Senior Medical Officer.

And Kelly Macdonald, Chief Financial Officer, I will now turn the call over to Ryan.

Thank you Nicole and thank you all for joining us today I'm delighted to have the opportunity to discuss the progress. We've made this quarter and to review how far we've come over the last few years.

It was just three years ago, we made a strategic pivot to focus on building, a leading vaccine company by committing to drive value to <unk>, b commercialization and leveraging our CPG to 18 adjuvant to develop new vaccines.

At that time <unk> revenue for the full year of 2019 ended up at $35 million.

Since then we haven't seen significant growth as a result of strong execution from our commercial team.

<unk> generated nearly $38 million in revenue in this third quarter alone keeping us on track for record <unk> revenues for the full year of 2022.

And providing us confidence and the expected continued revenue growth for the future.

Also in 2019, we began to focus on broadening utilization of CPG to 18 for the development of new vaccines. Today. In addition to help us at the <unk>.

<unk> 18 is used globally and five COVID-19 vaccine programs, which have generated over $800 million in cumulative revenues for diabetics through the third quarter of this year <unk>.

Additionally, CPG to 18 is the foundation of our expanding development pipeline.

Currently, including agile D vaccine candidate.

Shingles in place.

Yes.

Would you generated over $800 million.

Revenues.

This is tremendous progress through short term time sentiment.

He didn't plan and the team's ability to successfully execute it.

Yes.

As we near the end of 2022 as we continue to expect between $550 million at $600 million revenue from our CPG to 18 business for the full year.

Our success in navigating the pandemic highlights the organization's execution abilities underscores the scientific rationale supporting the use of CPG today theme for broader vaccine development and has transformed our financial profile.

As we look to our future our strong financial position supports continued investment in our commercialization of <unk> and expanding.

And our financial profile I'll now turn the call over to dawn to provide more details on <unk> on <unk> performance.

Thank you Brian .

I'm thrilled to share the third quarter results for <unk> B.

The dedication and perseverance of our commercial team has resulted in another record quarter, a product revenue in market share for hapless Abby.

<unk> is the first and only FDA approved adult hepatitis B vaccine that allows series completion with only two doses in one month.

Sirius completion is essential for high levels of protection.

In an era of Universal hepatitis B recommendation to does help us Abby can make series completion easier and protect more patients faster.

And the third quarter headless that'd be generated net product revenue of just under $38 million, it's highest single revenue quarters since launch an an increase of 65% from $23 million in Q3 of last year.

This significant revenue growth in the U S was largely driven by our continued gains in market share.

We estimate <unk> total market share increased to 32% compared to 25% during the same period last year, while field targeted market share increased to 43% up from 32% during the third quarter of last year.

Strong performance in Q3 was driven by two critical segments.

Retail pharmacy, and integrated delivery networks or IGN.

In Q3 retail pharmacy had significant increases in the number of new ordering and reordering locations.

We are encouraged by this trend and a positive feedback we are receiving from customers about the ACP universal recommendation.

During the quarter several top retail chains expressed a desire to make hepatitis b vaccine a priority focus for their immunization strategies moving forward.

In addition to our success in retail there has been considerable progress in the IGN segment.

Many of our customers have expanded their use and increased reordering of <unk> b.

Like in retail we have received positive feedback from customers about the ACP universal recommendation and their desire to enter this new era with a two dose vaccine for hepatitis B.

In Q3, several large ITN customers updated their vaccine protocols and capabilities to reflect the policy change.

The Acp's recommendation that all adults 19 to 59 years of age should receive hepatitis b vaccination significantly expand the number of adults in the U S <unk>, who should receive it.

It should be vaccinated against hepatitis B.

We continue to believe that the universal recommendation will be a significant catalyst for growth and estimate the hepatitis b market opportunity could grow to approximately $800 million by 2027 with.

Help us have be well positioned to secure a majority market share over time.

In Q3, we continue to see positive trends in hepatitis B market recovery.

During the quarter the market was down only 7% from pre pandemic levels.

As positive recovery was due to the market continuing it's returned to normal pre pandemic operation coupled with expanded growth from customers implementing the universal recommendation.

Looking ahead to this quarter, we anticipate the hepatitis b market will remain flat or slightly below the level seen in Q3.

This likely outcome is due to the typical queue for seasonality, which has historically reduce the market by 10% to 15% quarter over quarter.

With a proven clinical profile and our team strong commercial execution, we expect further market share gains and continued annual revenue growth for <unk>.

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 Rob to take you through our clinical pipeline.

Thank you dawn.

We believe there's a tremendous amount of potential in our pipeline focusing on best in class products targeting large markets by combining our CPG 10, 18 adjuvant with established antigens. We recently completed a phase one clinical trial evaluating and improved tetanus diphtheria and pertussis or.

TDAP vaccine that utilizes or CPG 10, 18 adjuvant.

Adult and adolescent safety data from this study demonstrated the vaccine candidate was well tolerated without safety concerns.

Adult Immunogenicity results were consistent with our expectations and support continued advancement of the vaccine candidate.

We're also conducting a nonhuman primate protest is challenged study to assess the impact on prevention of disease symptoms and nasal colonization of the protesters bacteria.

Our second development area is the shingles vaccine program.

The last participant visit has been completed and the phase one study evaluating safety Tolerability and immunogenicity compared with <unk>, a commercially available shingles vaccine in the U S and other countries.

We believe better vaccine candidate aggravated with CPG, Tennessee team has the potential to elicit strong C. D. Four T cell responses, which are key in controlling reactivation of disaster virus, while also providing improved tolerability compared to the current marketed product.

Data from this proof of concept clinical trial are anticipated by year end.

The advancement of our clinical candidate is a core priority.

We're confident in our strategy to leverage the proven profiled CPG <unk> to develop new and improved vaccine candidates that provide significant opportunities to address important unmet medical needs.

I'll now turn the call over to Kelly to review, our third quarter financial results.

Thank you Rob.

Happy to report on another quarter of strong financial performance I'll.

I will touch on some key financial items, and then review our full year 2022 guidance and provide a few closing thoughts. Please note at all financial comparisons are versus the prior year period, unless otherwise noted please.

Please additionally refer to our press release and 10-Q for detailed financial information.

Starting with revenue total revenue for the third quarter was $168 million up 55% year over year.

This quarter Mark another record breaking quarter for help with that being a total net sales of $38 million, representing 65% year over year growth.

What is equally impressive for the brand is the continued improvement in gross margin, which was approximately 69% for the third quarter and 70% year to date compared to 56 per cent for the full year 2021.

Turning to CPG 10, 18 adjuvant revenue.

Revenue recognized under our commercials supply agreements for COVID-19 vaccine total is $126 million for the third quarter, bringing CPG 10, 18 adjutant revenues to $440 million a year to date.

We had two unique items to highlight in the third quarter relating to our CPG 10, 18, COVID-19 partnerships. We have recently amended our commercials supply agreements with both colver biopharmaceutical as well as biological each reflect a reduction in demand as the COVID-19 landscape evolves.

During the third quarter in connection with the Colver Amendment, we recognized approximately $24 million in one time revenue for cancellation fees covering the cost of raw materials and CMO related fees incurred. Additionally, we wrote down approximately $14 million and corresponding inventory in connection with the reduction in demand.

We are working closely with our CPG 10, 18, adjuvant commercial supply customers as they manage their initial stockpiling Ah CPG <unk> with forward looking demand as the global pandemic and evolves.

We continue to expect between 550 and $600 million and full year 2022, CPG Canadian revenue with corresponding gross margin approximating, 60% and are very proud of the collective efforts with our collaborators to be an important part of the response to the COVID-19 pandemic during a very dynamic period.

As we look ahead to 2023, we believe our customers will likely have sufficient adjuvant stockpile as of the end of 2022 to service their initial commercial agreements translating to substantially lower adjuvant sale expected in 2023.

Beyond 2023, we expect to provide additional guidance as we execute future commercials supply agreements and gain better line of sight into the endemic demand of COVID-19 vaccine for our customers.

Now turning to expenses, our research and development expenses for the third quarter of 2022 or $13 million compared to $6 million in the same period last year, reflecting continued advancement of our ongoing pipeline programs and TDAP and shingles as well as our funded phase two contract with a D O D for an adjuvant to play vaccine.

Selling general and administrative expenses for the third quarter of 2022 increased at $32 million compared to $27 million for the third quarter of last year, primarily driven by increase headcount crossfield sales and G&A, coupled with focused marketing investments to drive growth in <unk>.

Moving on to profitability for.

For the third quarter of 2022, we generated GAAP net income of $64 million or 50 cents per share basic and 43 cents per share diluted.

Turning to the balance sheet, we ended the third quarter with cash cash equivalents in investments of $587 million and we continue to believe this level of capital is sufficient to support our core business, including our R&D portfolio without the need to raise additional funds.

Lastly, I'm pleased to reiterate our 2022 four year financial guidance, including CPG <unk> adjutant revenues expected to be between 550 and $600 million with approximately 60 per cent gross margin for the year, reflecting the economics associated with the remaining firm.

Supply agreements.

The expenses in the range of $50 million to $60 million SG&A expenses, and the range of $130 million to $140 million in interest expense of approximately $79.

In summary, with another quarter of strong commercial and financial performance. We remain on track for another great year with anticipated record revenues continued progress in meaningful catalyst across our clinical portfolio positive cash flow and a second consecutive year of profitability or.

Our strong balance sheet physician combined with a disciplined approach to capital allocation enables us to focus on selective investments to drive growth and <unk> and thoughtfully advance are clinical pipeline to drive long term shareholder value.

Thank you everyone for your attention today, operator, we would now like to open the Q&A portion of today's call.

Thank you at this time, we will conduct a question and answer session.

Ask a question you will need to press star 111 year telephone and wait for your name to be announced please.

Please stand by while we compile the Q&A roster.

Our first question comes from Roy Buchanan from JMP Securities. Your line is open.

Mmm, Thanks for taking my questions I guess, the first one is on <unk>.

Cause I <unk> do you know the the market share in retail segment specifically.

And if you do as a consistent across the top 10 retailers, where you have the contracts or is it a variation between the retailers.

Do you Wanna go ahead and take care.

Yeah, so so a market share across the segment is.

Just under 50% for the entire segment.

We do see different market shares across the different retail chains.

With a few of them were we have majority market share. So it's kind of a blend but overall we liked the momentum we have seen as it relates to our market share as well as growth within that segment.

Okay, Great and then at the improvements in gross margin is impressive given all we've heard about inflation I guess.

Any thoughts on on the impact of inflation may we see that impacts of gross margins going forward.

Extra wait until you're gonna take that one shoulder. So yeah. Thanks Roy for the question I. Appreciate it we've made substantial improvements in investments in our manufacturing facility in Germany, and it really excited to be able to pull through some of the financial benefits of those investments over the last couple of years, we don't expect inflation to have a meaningful impact to our gross Martin.

And in fact in the 70%.

Ranges, where we expect gross margins et cetera, and at this level of volumes.

Hello, sorry.

Great. Thanks, and then I had a quick one on the shingles data coming up later in the year are you going to have to sell data for all the patients. So then I know you're looking at the C. D. Four cells of the secondary endpoint or you can also gonna look at CD eight cells.

Rob you on a speaker city.

<unk> or what are associated with protection against reactivation of saucers, there will be predominantly focusing on <unk>.

For all patients brokerage himself for all patients.

Mmm.

Thank you.

Thanks for it.

Please stand by for the next question.

Our next question comes from Matthew.

Blair Your line is open.

Alright, <unk> and congrats on continue <unk>.

I guess on the singer singles update in comparison to <unk>.

Maybe it took the answers, but how much better do you want to be in the Tolerability.

New deck cause it's like that's <unk>.

A side effect profile is are there any particular.

Side effects, you think are more impactful than others. When you think about <unk> perfectly clean adoption.

Thanks, Matt while I have robbed and so that one yeah. So what I anticipate that is that we would be able to demonstrate statistically significantly lower rates of post injection reactions and <unk>. We're currently in the process of evaluating.

If any.

Of the individual reactions would be more important than any other or whether we would use essentially a composite.

Term, which is all any of the either local or systemic post injection reactions, but it's something that we're looking into right now.

Okay. Okay. Thanks, Rob.

A question about the.

<unk>, obviously it caused some headaches for other drug development company, but there there is some benefit for adult vaccine coverage.

Or as a co pays and things like that does that.

<unk> development calculus for pipeline programs.

Yeah, well I mean.

The benefits are relative compared to other products I mean, the reality is for <unk> B for example to incredibly favorable because of the the impact on part D coverage, but without with heavy specifically being called out on the Medicaid rebate program is not having to participate.

And then and then not we do not expect given the level of Medicare spend on hepatitis B vaccine that it would ever be a negotiated drug so from a relative perspective I think are are long term revenue potential is.

Is comparatively strong compared to other products, possibly.

Different they catch us would be different depending on the product. If you had a product that is focused on the over 65 population that could result in larger spend for Medicare then it might be it might have an impact, but I will say that one of the benefits is that it's somewhat limited given the the.

The I R. A limited the negotiation down to 25 or 25 per cent impact, which is less for vaccines, which is less than what you could see in other classes. So ultimately.

I think being a vaccine manufacturer the irate that doesn't have the same level of impact as other.

Parts of our industry.

That's right and I guess, maybe lastly.

Obviously mentioning.

Significant maybe slowdown in CPG revenues next year.

But I guess that.

At least there is still some you expect next year is that kind of slow through.

Currently sign contracts or is that.

You do see potential for some contact with <unk>.

Yeah, I think the way we were.

<unk>, what we're trying to provide an overview of what we know now what we what we know now is that the market has changed significantly over the last year as it relates to demand, it's dizzy and there's a decent amount of stockpile of adulate within our <unk> our.

Collaborators and so it really would come down to how to any shipments from the end of this year well into next year, which would be minor and then how will the market evolve towards the towards the end of next year, which we don't have a ton of visibility into now.

So.

As a potential for.

Additional revenue in the second half of the year, depending on how the market evolves, which we currently are not contracted for at the moment. So.

Uhm.

That that will let you know as we know.

Contracts evolve and which will be dependent on the <unk>.

Line of sight as far as demand for a collaborator vaccines.

Yeah that that's helpful. Thanks radicals with ultimate.

Okay. Thank you.

Please stand by for the next question.

Our next question comes from men Kumar from Goldman Sachs. Your line is open.

Hey, guys. This is rob on promoter. Thanks for taking our question I guess, we were just wondering from a high level, how should we think about a year and shingles data and then also I guess, how should we be thinking about modeling the adjuvant revenues like in 2023 and on.

Forward.

So for the shingles data.

We will we expect to have the data in hand by the end of the year and we will be we exit issue of top line press release, shortly thereafter with more robust reporting the data to fall over the side at a scientific.

Meeting or publication.

And then the other question as far as how to think about the long term adjuvant revenue.

I mean, I think Rob the key is you got to watch the market I mean, what we keep saying is there has been significant evolution of the COVID-19 market. During the course of this year.

We think we're well positioned as it relates to the global need recognizing that we have you know.

Collaborators targeting very many different markets around the globe.

As far as what what that ultimate demand will be I think that's still kind of left to be determined as we move into this and that is so we were very pleased with how we position ourselves to be able to participate in the long term demand being able to quantify it at this moment is difficult.

That makes a lotta sense. Thanks for taking my question.

<unk> for the next question.

And the next question comes from Mister Rodriguez Dumont.

<unk> Your line is open.

Alright, Thank you for taking our questions. Congrats on the record or you highlighted the progress that you had on the retail space on the on the hospital with hospital system.

They seem to be aware of the or the nurse or what can they make a recommendation symptoms. That's gonna be a catalyst for growth what do you expect them to be heard over there is the logistics of them.

Applying the recommendation or are they gonna wait for the demand too.

Success, or they're gonna try to push it or what is it what if I get to the next step there.

If you gave us a quick question. If you can if you can do also any color on the launch in Europe any progress on on the other markets outside of Germany.

Okay. What is your take that the hurdle is focusing on the hurdle of the uptake Universal I think it was the question not not not spoke some market share, but let's start with the up taken universal.

So right now as I mentioned before a nurse and our style, we see quite a few of our hospitals that have implemented a flag within their EMR system. So it's a passive flag. That's a first grade step it gives us quite a bit of confidence as we think about the market opportunity to be communicated 800 million dollar opportunity those types of science are signs that we like.

To see and we will continue to see that happening throughout the marketplace or role will be to pull that through with the customer to increase your awareness at the provider level of those set flags on the retail segment, we've engaged with all of our top retail customers.

From their point of view as I mentioned before the AC hepatitis B vaccine and universal recommendation as an opportunity, especially for those age 30 to 50.

To use a plus one strategy, especially going into 2023, so they've been gauging us around opportunities to go after that patient population and really see it as a strategic priorities moving forward. So that's why we're really excited about the opportunities as it relates to universal both in retail and IGN.

If I can just add a little bit of color onto that as it relates to clearing hurdles.

I actually would say we've cleared a small hurdle already this year.

<unk> commentary around what we've seen with certain idea and customers turning on a flag, which basically prompts physicians when a patient has not been vaccinated, we've actually seen.

Uptake and that is that's that seems obvious but that is a hurdle to clear that when that physicians do have the prompts in front of them patients are actually accepting of the recommendation and we've already seen evidence that that's taken place. So I would argue that we've cleared the first hurdle.

And expanding the market now obviously, we have two that has to be done much more broadly as dawn highlighted but we are seeing evidence that patients are going to be willing to accept a recommendation for hepatitis b vaccine. So that's it's an important step in the journey and then.

<unk> you want to provide some commentary on the launch in Germany.

Yeah. So the losses is going well as you would expect with most launches. It takes time, but we're excited about the progress has been made is far will continue to update.

As we get more information, but thus far the launch is going as we expected and these launches.

<unk>.

That was very helpful.

Please stand by for the next question.

And next question is from.

Upenn from J N T security your line is open.

Oh, thanks for taking the follow ups I had a couple more so what's the status of hapless have it in dialysis patients I think you were expecting to meet with the F. D. A.

Around this time, just curious if that happened and where where that fat.

Yeah, we've had good engagement that it was a little delay due to the the fda's focus on Covid over the last few years, but we are working on the SPL a for dialysis, which makes it the file probably early next very early next year.

To get that data into the label upon approval <unk>.

Okay, Great and then.

The shingles I guess you know, it's a little earlier, just finishing up the the phase one that you're going to need to talk to the F. D. A et cetera, but how how do you picture the registrational path for that Kennedy at this point are you going to lie.

Like we have to go head to head with <unk>, Neither efficacy trial and then how do you think about the past X U as in the market opportunity there. Thanks.

Sure I will just say the first the first point is probably worth hitting head on which is when you have products with this level of efficacy that we expect you to over 90, 95% efficacy of head to head trauma, just doesn't make sense, you'll never be able to physically demonstrate actual efficacy.

And so we still obviously need to continue to advance our engagement with the agency given that we're in phase one to really fine tune what the expectations are for the full regulatory plan, but we do not expect it's just not feasible to do ahead efficacy study in this case.

So we can be a placebo controlled efficacy study or even the potential accelerated approval on immunogenicity.

But we haven't been able to fine tune that path just yet in the U S or in other other markets.

Okay great.

And then on the X U S. Do you see that as a viable stinker does pretty well X U S. Especially this last quarter. How are you guys thinking about the opportunity there.

Oh well.

Like like any products, we would expect to what we'd want to launch it broadly and they're all markets that would support the infrastructure cost of bringing the product into that region. So that's part of the strategy is a global strategy for shingles.

Okay perfect. Thank you.

Thank you we have no further questions at this time I would now like to turn the call over to Ryan Spencer C. E O for clothing remarks, you may begin.

Thank you operator, and thank you all for your attention today as we have reiterated on multiple occasions, we believe that the combination of our revenue generating assets a highly experienced team our strong financial profile and an emerging pipeline of product candidates based on our proven adjuvant technology provide a solid foundation for <unk>.

<unk> future.

Our success this year and opportunities B C. A head are made possible by the dedicated team here at <unk>.

Our people are everything and I would like to thank them for their commitment and effort towards our mission. Thank you for joining US today. We appreciate your time and interest in <unk> operator, you may end the call.

Ladies and gentlemen, thank you for joining US today. This concludes today's conference call you may now disconnect.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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