Q2 2019 Earnings Call

Good day, ladies and gentlemen, and welcome to the Dynavax technologies second quarter 2002, non chain conference call.

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference.

Ms. Heather right, Vice President of Investor Relations and corporate Communications you May go ahead.

Thank you operator, good afternoon, and welcome to the Dynavax second quarter 2019 financial results and corporate update conference call.

With me today are Ryan's Spencer co President and senior Vice President of commercial and Michael Aastroms Chief Financial Officer.

Before we begin I advised you that we will be making forward looking statements today, including statements about how blessed to have be commercial profile and expectations regarding Atlas assay.

Including the amount and timing of revenue rates of adoption and reorder clinical and financial information and our ability to successfully pursue strategic alternatives for immuno oncology assets.

These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially.

These risks are summarized in today's press release and are detailed in the risk factor section of our current 10-Q and 10-K periodic reports.

Files with the FCC, which we encourage you all to review.

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

Thank you Howard and thank you all for joining us today to review our second quarter 2019 results.

Before we begin I want to let you know that we will have a slightly different format for today.

As you probably saw we announced an offering this afternoon and as you can imagine there will be some activity around that so we are only providing our prepared remarks. This afternoon, and we will not be having a Q and a session.

Today, we reported Hempel said be net sales of $8.3 million for the second quarter, which was in line with our expectations.

This compares to net sales of 5.6 million for the first quarter of 2019.

Couple sat B is the first and only two dose hepatitis B vaccine approved by the FDA and has consistently protected more than 90% of adult patients in clinical studies.

Based on this profile, we continue to believe that helpless have be will ultimately become the market leader and the standard of care for adult hepatitis B vaccination.

With potential gross peak sales in the United States about the $500 million.

As you likely already know during the quarter, we announced that we had taken the strategic decision not to fund additional development of our immuno oncology research programs.

I'd like to take a moment to thank all our employees both do those who have or will be departing the company soon and those who will remain.

Our people are our most valuable assets and will be responsible for driving our success as we reshaped the company to deliver heppel savvy to as many patients as possible.

We are now completely focused on continuing to grow and develop our vaccine business would have would be sales in the U.S. as the main driver.

Commercial execution is our number one objective and we are seeing good momentum in our sales growth.

Importantly, we believe this growth will result in a substantial revenue flow.

Once we convert a customer we expect to keep them.

Making a decision to switch to help with Sabby and then implementing the new dosing regimen requires effort on the part of our customers.

In our experience is supposed to be is well received and the favorable clinical profile carries us through this multi step process.

While the process takes time and lengthens the sales cycle.

This investment provides long term value.

Institutions do not move quickly the switch.

And after going through the work to adopt SEBI, we think customers are unlikely to go back two or three dose regimen.

We continue to add customer wins to date more than 1700 individual customers have purchased several sub be including 187 of our top 300 account targets.

I will soon be is available to order in over 650 of our targeted accounts.

These accounts represent 59% of the doses in our targeted adult hepatitis b market.

Integrated delivery networks or IDN represent our largest target segment.

We continue to make progress in this segment with helpless that'd be available to order in 17 of the top 20 idea.

Now it's important to understand that each IDN does operate with a different level of control access to decision makers and physicians.

And organizational processes.

In some cases helpless b is the exclusive choice for patients and in others. It is available for use based on department or physician choice.

In this instance, we must work with individual sites or departments within the system to pull utilization through after a PMT vote in system implementation.

We have found that employee health win within ideas and hospitals represents a large portion of their utilization and is a good point of entry to secure a significant number of doses, while we work the rest of the system.

Weve also gained strong traction within retail pharmacy, we estimate the top seven retail pharmacy chains represent about 78% of the adult hepatitis B vaccine market in the retail channel.

We've executed purchase contracts with six of the top seven pharmacy chain.

Establishing epicel be within the retail segment is a critical step on the path to expanding the market and is particularly relevant in our effort to reach patients with diabetes.

In short our hepatitis B commercialization efforts are making excellent progress and we expect to achieve net product revenue of between 32 and $36 million for the full year 2019.

We believe this positions us well going into 2020 and beyond for continued steady growth towards our long term sales objectives.

Now beyond the commercialization efforts are helping to be post marketing studies continue to move forward as planned and we expect to complete enrollment by the end of October .

Kaiser Permanente Southern California is conducting the study which was initiated initiated in August 2018.

The study start was anchored to the advisory committee on immunization practices recommendation for hepatitis B that were published in April 2018.

These recommendations were necessary for Kaiser to initiate study startup activities.

As such vaccinations that were expected to start in mid 2018, instead started in August 2018.

And the remaining timelines and milestones have been updated accordingly.

The interim analysis in the study or not time based analyses rather they are event driven and thus the timelines for data are based on projected rates of cardiac events, which have been consistent with original expectations.

So overall, a very productive quarter with good progress on a number of fronts.

With that ill now turn the call over to Michael to discuss our financial results.

Thank you Ryan.

Further details regarding our financial results can be found in the press release, we issued this afternoon.

As you heard net product revenue for the second quarter 3009 gene was $8.3 million compared to $1.3 million for the second quarter of 2018.

Product revenue from sales is recorded at the net sales price, which reflects reductions for estimated returns chargebacks discounts and other fees.

Cost of sales product for the second quarter of 2019 was $2.1 million compared to $5.2 million for the second quarter of 2018.

The second quarter of 2018 included excess capacity charges associated with resuming manufacturing operations after approval of our.

PFS presentation.

And therefore.

We expect helpless as the sales.

I'm sorry.

And.

A higher percentage of inventory sold in 2019 used components manufactured after approval compared to 2018, when most of the expense associated with product sold was expensed as R&D.

Thus, we expect to have to set up the cost of sales will increase in future periods, both in absolute dollars and as a percentage of product revenue.

As we produce incentives sell inventory that reflects the full cost of manufacturing the product.

Research and development expenses for the second quarter of 2019 were $16.2 million compared to $16.3 million for the second quarter of 2018 and May late May of 2019, we announced a strategic organizational restructuring to align our operations around the vaccine business and significantly curtail further investment in immuno oncology R&D.

Selling general and administrative expenses for the second quarter of 2019 were $17.9 million compared to $15.7 million for the second quarter of 2018.

And this increase was due primarily to additional personnel and support of half will be commercial activities.

The net loss for the second quarter was $42.7 million or 66 cents per basic and diluted share.

Compared to a net loss of $39.4 million or 63 cents per basic and diluted share for the second quarter of 2018.

And at June Thirtyth, 2019, we had cash cash equivalents and marketable securities totaling $140.5 million.

And finally.

The total restructuring costs related to our.

May 23rd restructuring announcement is estimated to be $9.4 million of which $5.3 million is related to severance other termination benefits and outplacement.

$4.1 million is related to stock based compensation expense as a result of accelerated vesting of stock awards and exercise period for stock options.

During the three months ended June Thirtyth 2019, we recognize restructuring charges of $8.8 million and the remaining zero point $6 million is expected to be recognized by the end of 2019.

The reef workforce reduction is expected as we have previously reported to reduced compensation and benefits costs by approximately $16 million annually.

After all existing oncology trials in commitments are complete.

We estimate our operating expenses related to external oncology costs will be reduced by approximately $8 million per quarter as compared to the first quarter.

Now as a result of our reduced head count we recently Subleased a smaller office space.

And overall, our expectation is that restructuring and focusing the business on commercializing helpless b will reduce our facilities expenses by.

Almost 2 million $1.9 million per year.

In addition.

We have agreed with our lender CR G to amend the annual revenue thresholds for sales of helpless.

In the loan agreement.

Revising the 12 month measurement periods from beginning on January Twond January one of each year.

So beginning on July one of each year.

Including 2019, and further removing our obligations for the period subsequent to July one 2022.

So although the measurement dates have shifted the remaining minimum required revenue amounts are unchanged consistent with our belief in the long term trajectory of hepatitis B sales, we continue to be confident in our revenue estimates for 2019 and beyond and believes this change to our debt agreement should provide equity holders with increased confidence in our liquidity position.

I'd like to now turn the call back to Ryan for closing remarks.

Thanks, Michael we look forward to what the balance of the year holds for the company and its shareholders.

First we have strong handle that helpless as the sales momentum and anticipate increased revenue from eplus heavy during the remainder of the year.

As I mentioned earlier, we expect to complete enrollment in our habits at the post marketing studies in the fourth quarter.

Additionally, we are evaluating a four dose regiment of hepatitis b in patients on hemo dialysis and expect enrollment of 100 patients to be completed in early 2020.

We also continue to investigate opportunities to broaden the use of our technology, which makes eplus that'd be so effective into additional next generation vaccines.

Since launch we have done the hard work necessary to understand the complexities and opportunities within our target market.

Our customer interactions have consistently reinforced our belief in the ultimate value of helpless upbeat.

The two dose regimen combined with higher rates of Cerro protection continues to be well received by physician and other decision makers.

While we still have work to do.

The responses and advocacy from physicians nurses and other providers reinforce our expectation that help us said be will become the market leader and the standard of care.

Ultimately, reaching peak gross sales in the United States of up to $500 million.

And with that let me close with where we began.

We believe helpless abbvie has the potential to protect more adult patients from hepatitis b that any product in the us market today, and we have reshaped our organization to make this possible.

We thank our investors and team members for their commitment to this goal. We look forward to all we will accomplish in 2019 and beyond as we build dynavax into a leading commercial stage vaccine company.

Thank you for joining us today, we will now disconnect.