Q3 2023 Dynavax Technologies Corp Earnings Call

Okay.

Good day, ladies and gentlemen, and welcome to <unk> Technologies' third quarter 2020 financial results Conference call.

Mind you. This call is being recorded at the end of the company's prepared remarks, we will open the call for questions and provide specific participation instructions at that time.

I would now like to turn the call over to Paul Cox, Vice President Investor Relations and corporate Communications you may begin.

Thank you all for participating in today's call.

Joining me today from Panamax or Ryan Spencer, Chief Executive Officer, Dan Caruso, Chief Commercial Officer, Rob Janssen, Chief Medical Officer, and Kelly Macdonald Chief Financial Officer.

Earlier today <unk> released financial results for the third quarter ended September 32023.

Copies of the press release and a supplementary slide presentation are available Diamondbacks website.

Before we begin I advise you that we will be making forward looking statements today based on our current expectations or beliefs, including but not limited to the potential market sizes market segmentation effective marketing efforts and future expected market share and related growth rates.

Weighted aci's recommendation.

Each site.

The annual guidance and trends, including revenue profitability cash flow and sufficiency of current capitalization.

Timing of results of FDA submissions clinical.

Clinical trial starts and data Readouts.

And potential future users or demand for our CPG.

Patrick.

Yeah.

These statements involve risks and uncertainties and our actual results may differ materially.

These risks are summarized in today's press release and detailed in the risk factors section of our SEC filings, including today's quarterly report on Form 10-Q.

Our forward looking statements speak as of today, and we undertake no obligation to update such statements.

With that I will now turn the call over to Ryan.

Thanks, Paul and good afternoon, everyone and thank you for taking the time to join us through <unk> results for the third quarter of 2023.

We're pleased to report yet another record quarter at <unk> revenue as we progress toward our goal of establishing <unk> as the leading adult hepatitis b vaccine in the U S.

Market opportunity, which we believe will continue to expand to over $800 billion by 2027.

Help us that would be delivered $52 million in quarterly net product revenue, which is a 66% year over year increase.

This record quarter was driven by market share gains and the overall adult hepatitis B vaccine market Andrew in particular by <unk>, beginning majority market share in both the key market segments of retail pharmacy and integrated delivery networks.

As a result of the strong <unk> performance in the first nine months of the year. We are again, raising our revenue expectations for the full year. We now expect <unk> net product revenue to be in the range of $210 million to $220 million, representing up to 75% growth this year.

Based on our commercial execution to date, we continue to strengthen our financial position with cash and investments increasing to $720 million at quarter end.

This position enables us to support our efforts to maximize the opportunity in this growing market.

Also advancing our clinical pipeline into the next stage of trials in 2024, which Rob will cover in a few minutes.

In addition, as we've discussed on prior calls we continue to evaluate strategic opportunities to diversify our product portfolio and create future commercial opportunities, we remain committed to disciplined capital allocation to generate significant value and accelerate growth.

We look forward to providing updates on these efforts in the future.

Now I'll turn the call over to Don to provide more details on the tremendous efforts that'd be performance in third quarter.

Thank you Ryan I am excited to share more details about another very strong quarter for <unk>.

We achieved record net product sales and market share in the quarter.

The hepatitis C market continues to grow in the U S. Following the <unk> universal recommendation for hepatitis B vaccination.

Which now represents one of the largest back the market opportunity for adults.

As a reminder, we believe this recommendation will be a significant catalyst for growth and estimate the hepatitis b vaccine market could grow to over $800 million by.

By 2027 with help us that'd be achieving a majority market share by that time.

We continue to see indicators of market expansion from ACI to universal.

In the third quarter, the total hepatitis B vaccine market grew by approximately 29% year over year.

<unk> continues to increase the total market share achieving 41% in the quarter compared to 32% during the same period last year.

Net product revenue grew 66% year over year to $62 million in the quarter.

This sales growth continues to be driven by <unk> strong performance in Q critical segment.

Pharmacy, and integrated delivery networks or Ibs.

We continue to focus our sales and marketing efforts on the retail pharmacy and IBM segment.

We expect to see most of the anticipated market growth from the Universal recommendation in these segments.

Estimating bulk will grow to represent approximately 60% of the total hepatitis b market by 2027.

Variety Ed at the end of the third quarter <unk> market share increased to approximately 54% compared to approximately 43% at the end of the third quarter last year.

We are focused on working with large health systems at the C suite and clinic level default through ongoing adoption of the universal recommendations.

In this segment, we are seeing continued strong conversion and expansion from large customers that are adopting the universal recommendation.

Having meaningful increases in their hepatitis b vaccine purchases.

In the third quarter year over year, hepatitis B vaccine market growth in the Ids segment was approximately 40%.

In the retail pharmacy segment, we have made significant progress year to date <unk>.

<unk> several large national chains, making help us that would be the preferred adult hepatitis b vaccine.

In the third quarter <unk> achieved a majority share in this important segment, which is expected to drive significant growth in the coming years.

Year over year, hepatitis B vaccine market growth in the retail pharmacy segment with 80%.

We have looked at these market share increasing to approximately 53% compared to approximately 43% at the end of the third quarter last year.

During the third quarter, we completed the optimization of our sales force to expand our promotional rates in the retail pharmacy segment versus.

Bush is intended to further drive market expansion.

This expanded Salesforce reached will call on headquarters divisional regional and district leaders across the top retail chain.

We are also excited to see the impact of our collaborative marketing initiatives with top national retail chain that loss at the end of the second quarter.

We expect a strong collaborative relationships across the top retail chain plus our expanded salesforce suites will enable continued strong market growth and market leadership within this important segment over the years to come.

Yeah.

As Ryan noted based on our progress year to date and the strong results. We are raising our full year 2023 net product revenue guidance for <unk> would be to be in the range of $210 million to $220 million.

This updated guidance reflects our tremendous momentum in the market.

Still factoring in expected fourth quarter seasonality and the impact from customer focus vaccine efforts on the new RSV vaccine COVID-19 reactivation and seasonal flu.

We believe this rate on customer bandwidth due to RSV COVID-19 and flu vaccination will be temporary and limited to the fourth quarter.

We remain extremely confident in the long term growth of the hepatitis b market and our forecasting annual growth of approximately 10% to 50% over the next several years would have let that be continuing to gain meaningful increases in total market share over that time.

In summary, we had an outstanding third quarter reaffirming our confidence in <unk>, becoming the market leader in the expanding hepatitis B vaccine market.

We are very proud of our commercial team's execution and encouraged by the progress and momentum for <unk> B.

Establishing a majority market share in the key segments of retail pharmacy and IVF.

I will now turn the call over to Rob to take you through our clinical pipeline.

Thank you dawn.

As a reminder, in our development pipeline, we are advancing innovative and diversified vaccines that leverage our CPG 10, 18 adjuvant with proven antigens.

We also continued to identify new opportunities to leverage our CPG 10, 18, adjuvant through multiple innovative preclinical and discovery efforts with leading collaborators.

Starting with our shingles vaccine program Z 10, 18 currently there is a blockbuster vaccine on the market, but we believe that there is an opportunity to develop an improved vaccine given the challenging tolerability profile of the current market leading product.

The unique advantages, we believe our CPG <unk> adjuvant is it safety and Tolerability profile combined with its ability to induce strong CV for positive T cell responses, which we believe are critical to preventing the reactivation of the zoster virus.

Results from our phase one trial support the continued development of <unk> as they demonstrate the opportunity to develop a shingles vaccine with an improved tolerability profile and comparable efficacy.

Recently, we received type B meeting feedback from FDA on the <unk> program.

We believe this feedback is supportive of our proposed clinical development plan that includes a pivotal phase III placebo controlled efficacy study.

Based on this feedback we plan to submit an IND application to the FDA to support the initiation of the phase one two trial of <unk> in the first half of 2024.

Turning next to teed up to 18 program. So this is an investigational vaccine candidate that's intended for active booster immunization against tetanus, diphtheria and pertussis Ortega.

Current teed up vaccines have limitations, including waning effectiveness and rebuild there is an opportunity to improve the duration of protection using our CPG <unk> adjuvant to generate at th one biased immune response.

We completed both the phase one clinical trial in adult and adolescent as well as a pertussis challenge studies in nonhuman primates we.

We recently received type B pre IMD meeting feedback from FDA on the <unk> clinical development and regulatory pathways.

Together results from our phase one study.

Non human Primate study and the feedback from FDA all support proceeding to a human challenge study in mid 2024.

Moving onto the plagued program. This is in collaboration with and funded by the U S Department of defense.

We're conducting a phase II trial evaluating the Immunogenicity safety and Tolerability of the two dose plagued vaccine candidate that is agile ended with CPG 2018.

The CPG <unk> adjuvant vaccine candidates mechanism of action has the potential to speed up time to protection with fewer doses compared to the three.

Dose alum adjuvant regimen that has been previously evaluated by the Dod.

Earlier this year, we successfully completed part one of the phase III study and subject dosing and part two is now complete we anticipate topline data in 2024.

Turning it back to the U S Department of Defense recently executed a contract modification to support advancement of the plagued vaccine candidate into a nonhuman Primate Challenge study, which was initiated in August.

In addition to these development programs. We've also filed a supplemental BLA for Hep B vaccination of adults on hemodialysis, which the FDA has accepted with a <unk> action date in May of 2024.

Now if approved this would allow us to promote a four dose regimen of tablets at B for the dialysis population, which comprised about 11% of the total U S. Hepatitis B vaccine market in 2022.

We look forward to continuing to make progress across these programs in the months ahead and we're excited to initiate the next clinical trials for both our shingles emptied out programs in the coming year.

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

Thank you Rob.

Starting to report on our strong third quarter I'll review the key financial results and then share our updated guidance for the full year. Please note that all financial comparisons are versus the prior year period, unless otherwise noted.

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

Starting with revenue.

Total revenues for the third quarter of 2023, our $70 million driven by help us that the net product revenue of $62 million.

Compared to the third quarter of last year being net product revenue grew by 66%.

We continue to be excited about the uptake trajectory for Apple Duffy with consistent growth in key market segments.

Based on the strong results for the first nine months of the year, we are raising our help us that would be net flat revenue guidance for the full year $210 million to $220 million.

The prior guidance of $200 million to $215 million, reflecting our confidence in <unk> continued growth for the full year.

We're also pleased with the continued trend in the margin profile, perhaps with Duffy with gross margin of approximately 79% in Q3 compared to about 69% last year and we continue to expect gross margins to average in the mid 70 for the full year.

Couple that with the margin improvements have been driven by a lower per unit manufacturing cost as a result of the previous investments to drive profit development improvements.

Okay.

Other revenue was $7 million for the third quarter.

Third a $4 million in the prior year period, representing revenue related to the plagued us in program in collaboration with and funded by the U S Department of defense.

Greece was primarily driven by the advanced Peninsula Nonhuman Primate Challenge study.

Now turning to our research and development expenses for the quarter, which increased to $14 million compared to $13 million from the prior year periods.

The increase was driven by continued advancements in our clinical and preclinical development programs and collaborations.

Selling general and administrative expenses for the quarter were $38 million compared to $32 million for the prior year period.

The increase was primarily driven by higher compensation and related personnel costs and an overall increase in targeted commercial and marketing efforts designed to increase help us that'd be market share.

And maximize the opportunities presented by the API.

So our recommendations.

These results generated GAAP net income of $14 million or 11 cents per share basic and 10 cents per share diluted.

Compared to GAAP net income of $64 million or <unk> 50 per share basic and <unk> 43 per share diluted for the prior year period.

Moving to the balance sheet, we ended the third quarter with cash cash equivalents in marketable securities of approximately $721 million, an increase compared to our year end balance of $624 million the end of 2022.

Based on our current operating plan, we continue to expect to finish 2023 with a positive free cash flow for the year.

We are revising our full year 2023 financial guidance expectations.

Planning raising our helpless FTE net product revenue expectations to be between approximately $210 million to $220 million.

And refining our operating expense guidance, including research and development expenses to be between $50 million to $60 million.

As well as selling general and administrative expenses to be between 145 and $155 million.

In closing, we believe that with our strong financial profile, we are well positioned to drive sustainable growth in our core <unk> business.

Capture a majority market share and lead the expansion of the adult hepatitis B vaccine market.

We look forward to progressing our R&D portfolio of vaccine candidates, while continuing to be extremely thoughtful and how we allocate our capital to accelerate growth and build beyond our current base business.

We're excited about our progress to date and we look forward to continuing to deliver on our goals for this year and beyond.

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

Thank you to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced please standby, while we compile the Q&A roster.

One moment for your first question.

Our first question comes from the line of Matthew Phipps with William Blair. Your line is now open.

Good afternoon, Thanks for taking my questions Congrats on another great quarter.

Market share gains done real quick you mentioned I think you said you expect that the total market to have 10% to 15% annual growth over the next several years to sort of make sure youre, referring to total market. There and then you guys ability to gain market share on top of that.

Hey, Matt how are you doing yes. So my comments were around the entire heavy market would be we expect around 10% to 15% year over year growth.

For the next couple of years that's total.

Yeah, Okay. Thank you for clarifying that.

Sure.

In the single plans now that you've got the feedback congrats on <unk>.

Confirming our placebo controlled phase III.

The next step still to evaluate multiple doses of the antigen that you are producing yourselves.

Hey, Matt. Thank you for the question, Yes, that's the plan for the Phase one two studies to evaluate.

Couple of different doses of ampligen.

Alright, and then lastly, Brian earlier this year, you talked a little more about potential for external business development.

As being a priority, but no I don't really see any mention of that is that due.

Due to our change in excitement on your end for the internal singles and <unk> programs or maybe just the lack of attractive external opportunities.

No. It's still a priority we mentioned it in my opening remarks, it still continues to be a priority for us to find opportunities to accelerate accelerate growth.

Alright, great. Thanks for taking my questions.

Thank you our next question please.

Yeah.

So it comes from the line of Ernesto Rodriguez <unk> with Cowen. Your line is now open.

Hi.

Graduations on another great quarter. Thanks for taking my question.

So you gained share market share in both both segments IBM segment on the retail segment.

But it seems like the.

Quarter over quarter.

Share gain was more pronounced in the rebuilt segment than the Ibms segment. I was wondering is that noise or is that maybe it reflects more difficulty penetrate the IBM IBM market at this moment or anything like that.

Jeremy This is Don I mean, I think the best way to think about the two segments IBM, probably more consistent around buying purchases in buying patterns versus within the retail segment, you're going to see more either seasonality or different types of purchasing patterns that will drive more fluctuation in market share. So there is.

Different types of segments. So if you think about the heavy market.

Okay.

And then looking looking into 2024.

BLA.

Dialysis.

Operation should we.

Sort of like an inflection point there.

Or I guess, what's your expectation.

On further acceleration.

If and when you get that label expansion.

Yes, Arnie. This is Ryan we haven't actually provided any guidance for 2004, and we and I think I understand your point as.

As far as when we're able to start promoting but we.

I'd like to first get through.

The approval.

Gauge the customer before we're able to make any commentary around specific expectations in that segment.

Okay.

Thanks, and congratulations again.

Thank you. Thank you.

One moment for our next question.

Okay.

Next question comes from the line of Jonathan Miller from Evercore ISI. Your line is now open.

Okay, Hey, guys. Thank you Mr. Taking the question Endo joined everybody else in congratulating you on another great quarter.

I would love to get some color maybe on.

Our gross margin trends I know you announced earlier this quarter that you had better pricing in your manufacturing.

Contract, how should we expect gross margin to evolve as volumes increase and then maybe.

Secondarily as youre growing market share nicely overall and in those key segments that you've been talking about is there anywhere thats proving challenging to grow places where legacy contracting is slowing things down or theres. Some other headwind in.

And is there any dynamic related to that that we can expect to change going forward.

Hi, John Thanks for the question and Kelly I'll take I'll take the first one and then hand it over to Don for the second question.

We are proud of the way that we've been able to execute.

The margin improvement I mean this is a result of many years of investment then.

Efficiencies that we've made not only in our disposal facility.

Can engage with our CMO for adjuvant manufacturer.

You can see the improved trends throughout the year as you've noted.

Additionally, I mean, just as a reminder, we are.

We did three issue our guidance I'll reiterate our guidance that we believe for the full year, we're going to have average gross margins in the mid seventies.

Would expect.

Next year to continue to see.

Strong strong margin.

More or less consistent with what we've seen this most recent quarter.

Yeah, and John regarding market share and obviously you heard the numbers regarding retail pharmacy.

Adam we're really proud of the market share gains quarter over quarter.

Areas are difficult and always has been difficult.

This long tail of customer, which is approximately 40000 locations that order very little hepatitis B vaccine. So penetrating that universe of customers has been challenging from a from a market share perspective.

But certainly that's why we focus our efforts back to retail back to IBM, where we believe the vast majority of growth will happen in those two segments. So we feel very confident around our growth opportunities.

We look ahead, but from a market share perspective and that long tail.

Thats been difficult to in the past for market share.

Great. Thanks, so much and then maybe if I can squeeze one more in there <unk>.

Piggyback on that earlier question about BD.

Given that it's still a priority for you how do you view the current market environment. The valuations that are out there as a potential acquirer I think we've been seeing some motion in that.

Across the industry, but it does feel like there is opportunities from evaluation perspective, how do you view it.

Infectious disease.

Rest of the market.

Yeah. Thanks, Sean we agree I mean, I think it's hard it's hard to Miss that point, but we have to really focus on staying disciplined.

And finding the right fit for us for our business.

Our plans going forward I think that the trap of a good deal is not something we're really going to fall into we want to really make sure its right thing for our business.

Now this requires us to continue to be disciplined.

Great. Thanks, so much guys.

Thank you.

One moment for our next question please.

Our next question comes from the line of Roy Buchanan with JMP Securities. Your line is now open.

Hey, Thanks for taking the question how would a few follow ups on the 10 18, just if you could give any more detail around what the FDA do you have that.

Actual minutes back from the meeting debate.

Politically recognize it correlated protection for the pivotal trial, if any other detail you can give us around the potential pivotal design.

Hey, Brian This is Brian I'll, just take a quick high level comment Rob feel free to add to it I think we still continue to believe that this is a placebo controlled efficacy study not a cortland protection for.

The <unk> program.

Beginning with the FDA.

The.

The written response indicated support for that.

That approach Rob do you have any other comments to make on top of that.

I know, it's an efficacy study. So there was no mention of correlates nor did we really ask about correlates and I think the design of the study is going to be pretty typical of.

GSK is old old design for <unk> in terms of size end points, we haven't finalized any of that.

Yeah don't be surprised if it looks a lot like that.

Okay, great that seems like a pretty big win in my view.

And then just a quick one for Kelly I guess.

The decrease in R&D guidance for the year. Thanks.

Thanks, Ryan sorry, it's just timing of deployment of our spend here.

That's helpful.

Okay. Thank you.

Thank you.

We have no further questions at this time I would like to turn the call over to Mr. Ryan Spencer Chief Executive Officer for closing remarks, you may begin.

Thank you operator, and thank you all for joining US today. We appreciate your interest in Diamondback, we're excited about our recent accomplishments and the strength of our position. We look forward to updating you on our progress operator, you may end the call.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for joining US you may now disconnect everyone have a wonderful day.

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