DVAX - NASDAQ

Good day, ladies and gentlemen, and welcome to the Dynavax Technologies' Fourth Quarter and Full Year 2024 Financial Results Conference Call. As a reminder, 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 for participating in today's call. Joining me from Dynavax are Ryan Spencer, Chief Executive Officer; Donn Casale, Chief Commercial Officer; Rob Janssen, Chief Medical Officer; and Kelly MacDonald, our Chief Financial Officer. Earlier today, Dynavax released financial results for the fourth quarter and full year ended December 31st, 2024. Copies of the press release and the supplementary slide presentation are available on Dynavax's website. Before we begin, I advise you that we will be making forward-looking statements today based on our current expectations and beliefs, including, but not limited to, potential market sizes, market segmentation, effective marketing efforts, future expected market share, and related growth rates and related ACIP recommendation impact on each; financial guidance and trends, including revenue, profitability, cash flow, and sufficiency of current capitalization; timing and results of FDA submissions, clinical trial starts and data readouts; and potential future uses of or demand for our CpG-1018 adjuvant. 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 annual report on Form 10-K. Our forward-looking statements speak as of today and we undertake no obligation to update such statements. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations on the Investors section of our corporate website at dynavax.com. And with that, I will now turn the call over to Ryan.

Thanks Paul and thank you all for joining us this afternoon. In 2024, we delivered across our strategic priorities, including achieving record fourth quarter and annual HEPLISAV-B product revenue, advancing our pipeline programs, achieving profitability, and returning capital to shareholders through our share repurchase plan. This performance sets up for even stronger success in 2025, which we expect to be a banner year for Dynavax. For HEPLISAV-B, we expect to drive continued top line growth with net product sales between $305 million to $325 million, fueled by the expanding adult hepatitis B vaccine market in the U.S. along with expected market share gains by HEPLISAV-B. We also expect 2025 to be a transformational year for development pipeline with multiple programs advancing to important milestones and new programs emerging throughout the year. Our Shingles program is our most advanced clinical program and we see a significant opportunity for a differentiated and best-in-class shingles vaccine in both the U.S. and ex-U.S. markets, which is currently a multibillion-dollar annual market dominated by a single product. We know the profile required for competitive vaccine to be successful and disruptive in this market. It will require similar efficacy to the standard-of-care and significantly improved tolerability compared to the existing product. We are executing on a development plan to establish this product profile for our

Thank you, Ryan. At Dynavax, we are proud to be the leader in the US hepatitis B adult vaccine market. Since its launch in 2018, HEPLISAV-B has disrupted the market due to what we believe is a differentiated and best-in-class profile. Through our strong commercial execution, we have increased HEPLISAV-B's total market share to 44% by the end of 2024, securing this position as the market leader. This rapid advancement in a few short years demonstrate our ability to compete effectively against established legacy products. The ACIP Universal recommendation has transformed the adult hepatitis B vaccine market, creating one of the largest addressable patient populations for vaccines in US. The market continues to adopt these expanded guidelines with overall hepatitis B vaccine dose growth increasing by nearly 10% year-over-year in 2024. HEPLISAV-B's strong performance in this expanding market has resulted in record net revenues of $71 million for the fourth quarter and $268 million for the full year 2024. These results reflect significant growth compared to prior year. The growth of HEPLISAV-B is supported by two key segments: retail pharmacy and integrated delivery networks or IDN. We continue to prioritize our sales and marketing efforts in these critical areas. Although, market share was essentially flat year-over-year in these segments, together, they drove an impressive 25% annual growth in HEPLISAV-B dose. We are encouraged by the ongoing adoption of HEPLISAV-B and look forward to continuing our momentum in 2025 and beyond. As we look to the future, we are excited by market developments that are improving access to, and increasing the focus on hepatitis B vaccination in the US. These developments are reflected in our 2025 guidance and further strengthen our outlook on the long-term market opportunity and market share for HEPLISAV-B. First, starting in January of this year, Medicare patients gained access to hepatitis B vaccines at retail pharmacies through roster billing under Medicare Part B. which mirrors the approach for influenza and pneumococcal vaccines. Until now, Twinrix was the only hepatitis B containing vaccine reimbursed for Medicare patients in the retail setting, giving it majority market share among that population. Now with equal access and leveraging our commercial strength of retail, we are excited about how this new Medicare policy could support HEPLISAV-B's retail growth and market share in 2025. Second, beginning in 2025, adult hepatitis B vaccination will be included in the healthcare effectiveness data and information set or HEDIS measure. HEDIS is the largest and most widely used set of quality performance indicators in US healthcare and IDNs typically align their operations to perform well on these measures. The inclusion of hepatitis B vaccination as a HEDIS measure signals its growing priority, placing alongside other high adult, high volume adult vaccines. We believe this change is likely to enhance focus and utilization in IDNs and large clinics, while also increasing market share as the measure focuses on serious completion, which we believe aligns well with HEPLISAV-B's 2-dose regimen. These positive market dynamics combined with our strong commercial execution and performance in retail and IDN segments give us confidence in the long-term revenue opportunity for HEPLISAV-B. We are encouraged by the growth of the HEPLISAV-B market opportunity, which expanded by approximately $90 million to $650 million in 2024. This progress tracks with our long-term outlook for HEPLISAV-B market opportunity in the US, which we expect to peak to over $900 million by 2030, with HEPLISAV-B capturing at least 60% market share. This long-term guidance reflects our expectation of double-digit annual growth in product net sales through 2030. We expect the HEPLISAV-B market opportunity to remain durable beyond 2030, driven by ongoing vaccination of the eligible adult population, observed revaccination practices by healthcare providers and continued market share gains. In summary, we remain confident in the outlook for HEPLISAV-B. We expect HEPLISAV-B to further solidify its position as a clear market leader in the expanding hepatitis B vaccine market. We are incredibly proud of our commercial team's success and excited about the momentum we're building today and into the future. I will now turn call over to Rob to take you through our clinical pipeline.

Thank you, Donn. I'll begin with our shingles vaccine program,

Thank you, Rob. Before I get started, a reminder to please refer to our press release and Form 10-K filed earlier today for more detailed financial information. Financial highlights for the fourth quarter and full year include HEPLISAV-B net sales of $71 million for the fourth quarter, up 39% year-over-year and a record $268 million for the full year, up 26% year-over-year, reflecting the impressive growth in the total addressable market opportunity. Additionally, HEPLISAV-B gross margin was 82% for the full year 2024, an increase compared to 76% in 2023 and achieving our guidance of approximately 80% for 2024. And looking forward, we expect HEPLISAV-B gross margin to continue at around 80% in 2025. Turning to expenses. R&D expenses were $19 million in the fourth quarter, up 32% year-over-year and $62 million for the full year 2024, up 12% year-over-year. Looking forward for R&D expenses, as we continue to progress our clinical stage pipeline through key milestones in 2025, we expect R&D expenses to increase by high teens percent compared to 2024. SG&A expenses were $42 million for the fourth quarter, which is flat year-over-year, and they were $170 million for the full year 2024, up 11% year-over-year. Looking forward for SG&A expenses, we expect these expenses to be roughly flat in 2025 as we believe this represents the appropriate resourcing to drive the overall growth of our current business and maximize the HEPLISAV-B opportunity. Moving to the bottom line. We achieved our previously stated guidance for full year profitability with net income of $27 million, including net income in the fourth quarter of $7 million. Lastly, on the P&L. We are introducing a non-GAAP measure of adjusted EBITDA, excluding non-cash stock-based compensation that we intend to report on for 2025. Non-GAAP adjusted EBITDA, excluding stock-based compensation was $13 million for the fourth quarter, an increase of over 200% year-over-year and $52 million for the full year 2024, up over 300% compared to prior year. Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results and accompanying disclosure. Transitioning to the balance sheet. We exited the year with cash equivalents and marketable securities of $714 million compared to $742 million at the end 2023. The decrease in our cash position includes the deployment of $100 million towards our first accelerated share repurchase program, which was finalized earlier this month. As a reminder, in November 2024, we announced the authorization of up to $200 million in share buybacks, which approximated just under 15% of our market cap and approximately 37% of our net cash at the time of announcement. We expect to complete the remaining $100 million of authorized share repurchases by end of 2025. We are encouraged by our robust performance in the fourth quarter and full year. We achieved all of our financial guidance goals, including HEPLISAV-B net sales and full year profitability, further strengthening our financial position and enabling us to drive long-term growth while returning capital to shareholders as part of our balanced capital allocation strategy. Turning to our financial guidance for full year 2025. We expect HEPLISAV-B net product revenue to be in the range of $305 million to $325 million, which represents 17% year-over-year growth at the midpoint. We also expect adjusted EBITDA, excluding stock-based compensation to be at least $75 million, demonstrating our ability to grow adjusted EBITDA at more than two times the rate of product revenue further strengthening our ability to deliver on our strategic priorities in 2025. In closing, we're excited to report another strong year consisting of record revenue for HEPLISAV-B, improved product gross margin and advancing pipeline with key milestones this year and a strong financial profile with a balanced capital allocation strategy. We are very proud of this progress. We're also excited about our growth prospects as outlined on the call today. Thank you, everyone. Operator, we would now like to open the Q&A portion of today's call.

[Operator Instructions] Our first question or comment comes from the line of Matt Phipps from William Blair. Mr. Phipps, your line is now open.

Hello. I hope you can hear me? Thanks for taking my question. Curious, as you go into 2025 and just kind of looking at the year-over-year growth in market share. I know you guys have given 2030 guidance. But what is the kind of entrants to get into more accounts and continue to drive market share growth? So what do you think is the barriers you need to overcome? Is it just that you've gotten the fast adopters and I have to try to find these kind of other accounts? Or is there something else to help kind of drive continued market share gains between now and 2030?

Hey, Matt, thanks for the question. Donn, why don't you take that one. But one thing I want to highlight is we recognize that our market has broken up to two key segments between IDN and retail. So probably a little bit comment on both would be helpful.

Yes, hey, Matt. How are you doing? So a great question. When we think about market share, I alluded to it on the on the call, there's two major market events that are going to help support continued growth market share access in the Medicare patient population in retail is critical to be able to continue the gains in retail that is incredibly important. And then also having the HEDIS measure, which again, is going to focus on serious completion, which obviously has got to favor HEPLISAV in its 2-dose completion. So those are two events that will continue to support market share gains. And then it's a continuation – continue to working with customers and various outlets to drive the market share. So we're very confident and continue to grow the share in both those critical segments. And again, those are the two segments that will have disproportionate growth in the marketplace as we maintain high share and grow share. It will obviously pick up the overall total market share in line with what we are guiding to by 2030.

Thanks. And on the shingles program, maybe you mentioned this a little bit, but just kind of going over again what you think is the non-inferiority level that you need to show? I think you've said it before, like 75% or greater of Shingrix. And is that on just CD4 response rate? Or again, looking at that kind of three or four positive activation signal T cells?

Yes. So I'll let Rob handle the details here, Matt. But I think what's important to note is the trials that we're running now or dose-finding trials, we selected an adjuvant as our CpG-1018 clinical trial is designed to test the adjuvant with and without an as well as varying doses of the antigen. And so I just want to make sure it's clear that the trial is not powered or designed for statistical analysis of these various immunogenetic markers. And as you noted in Rob's prior comments, generically, there's a number of markers in the constellation of data that we're going to have evaluate, not a simple objective measure of CD4 T cell frequencies alone. Rob, you maybe can comment on prior -- some of the prior information we've given around the level of expectation for CD4?

Yes. The 75% really is about 75% of the median quantity for T cell quantity as well as full change. Full change helps to some extent correct for any differences at baseline. So we're really looking at that. And that in itself gives us a good sense of the probability of success going forward. But as Ryan said, we also think what's important is the quality of T cell responses, and we've seen this before with 1018, our COVID partners saw it. And we still have in our Phase I study where our quality of CD4 T cells with three or four activation markers is very similar to Shingrix, so we think that's going to be important, too. Durability of T cell responses, so what did T cell responses look like? What do antibody responses look like at one month, but also at six months as well. So, we'll be looking at this whole constellation to get the best sense we can of what going forward in the Phase III efficacy study city would look like.

Okay. Thanks Rob. And one last question maybe for Rob again. When we look at the safety, both from your previous Phase I, the Shingrix label and also the [indiscernible] Phase II. Just wondering if there's any differences in kind of collection methods or definitions for some of these. Just wondering what we should be comparing to looking across some of those data sets?

We don't really have access to their data collection instruments. However, FDA does that -- FDA does insist on these e-diaries that subjects fill out dream trials. They're pretty standard. They're not always standard in that the same events aren't always included in every trial, but across the main ones like fever injection site pain, swelling for low like fatigue and fever. Those things are uniformly collected and pretty much in the same way. So, -- but I understand also in these early studies, they're certainly not powered to be looking at this kind of data. We have great data from the COVID vaccines in combination with elements as well as HEPLISAV on what tolerability looks like for 1018.

Great. Thanks for taking my questions.

Thanks Matt.

Thank you. Our next question or comment comes from the line of Roy Buchanan from Citizens. Mr. Buchanan, your line is open.

Hey. Thanks for taking the question. I guess a couple on Shingrix and just following up on the durability, the data coming in 3Q. How much you're going to be able to tell from the one month post second dose results in terms of durability? And do you have any, I guess, longer follow-up data from the Phase I that you reported in 2023 that gives you confidence in durability?

Roy, I'll comment and Rob clean it up. We don't have long-term data from the prior initial Phase I that was the sort of dose ranging on the adjuvant. But we have designed this Phase I in particular, at six-month and 12-month follow-up data. And so we will look at the initial response, one-month post second dose. I don't think we're able to determine durability from that initial result. But importantly, as we advance the program, you heard in my comments that we will be moving forward from there into an extension study in your own 70-plus rural population and that study to read out along with the six-month data will provide us another sense of the strength of the product profile.

Yes. So, I think in terms of durability, we've certainly seen durability data for 1018 from HEPLISAV as well as from our partners with COVID vaccines that use 1018 and alum. As Ryan said, we only looked at one month's data, but the mantra in vaccines is the higher the better, the higher at peak, the longer for both antibodies and CD4 T cells but that's not always true. And there can be differential antibody or CD4, particularly in the first six months. So I think we'll be able to pick up any changes or similarities during that period of time.

Okay. Perfect. Thank you. And then on the extension study in the older adults, just what's the logic of that? I know they did a trial in that population for Shingrix and maybe that's the reason. But is -- are you looking to differentiate? Is this a regulatory request? Can you just elaborate a little bit? Thanks.

It's two things. One -- sorry Ryan.

Yeah. Go ahead, Rob.

Yeah. So it's really two things. One is to be certainly immunogenicity in that older age group looks similar to the younger age group. And this is the highest risk for shingles increases with increasing age. So the place we really want to work very well is in the 70 years and older age. It's that, but then also it's collecting safety data on this age group because you can't go into a Phase III study with no safety data on the age group point. They are going to be a critical population enrolled in a Phase III study.

Okay. Great. And then last one for me, maybe just on the buybacks. You guys see accelerated first bit of the $200 million. I know you're guiding to the rest by the end of the year. But what's your appetite for maybe -- and obviously, more -- if you get to midyear and you concluded the extra $100 million on the $200 million. How are you guys thinking about additional buybacks potentially earlier than the end of 2025? Thanks.

Yeah. Thanks, Roy. Thanks for the question. I mean, we definitely agree that buybacks are a great tool to return capital to shareholders when the IRR is out. It has the opportunity to outperform all their investments. I think very importantly for us, our primary objective to drive long-term value for all shareholders. First and foremost, looking for opportunities to maximize HEPLISAV. Also, we have the opportunity to drive real progress in our clinical stage pipeline, including shingles through the end of the year and continue to look for opportunities to leverage our fully integrated organization that has significant capability to bring bear for potentially other assets that could fit nicely in with our skill set. To the extent that we get through the remainder of the authorized program, which we have committed to, and we're very serious about we absolutely will consider whether or not it makes sense to add additional buybacks. As you mentioned, we are actively still ongoing with the current program. So at this point in time, it doesn't make sense to -- to extend -- to expand the program, but it certainly is something on the list of opportunities for us as we learn more and get towards the second half of the year.

Okay. Thank you.

Thank you. Our next question or comment comes from the line of Jonathan Miller from Evercore ISI. Mr. Miller, your line is open.

Hi, guys. Thanks for taking my question, and congrats on all the happy progress. I guess building on that last question, obviously, there's been an investor pressure to return more capital. But looking at your capital allocation strategy slide, it seems like you'd rather be doing development, both internal and external. But how confident are you at this point that there are good deals to do in your target areas from a BD perspective? And then sort of relatedly, what's giving you confidence that you'll be able to achieve those BD goals in a reasonable time frame, given how long you've been looking at this point?

Yeah, Jon, I'll take that one. So obviously, we continue to evaluate the landscape in which I think it's important to recognize it's an ever-changing landscape. It's does not stay -- it does stay still at all. So we've been very active in looking at ideas. We've set a very high bar for this. We recognize the company has a certain risk profile. We recognize we have certain capabilities, and we want to leverage those. So we do believe through our efforts that there are reasonable targets for us to consider and there's additional developments that will continue to evolve over the course of the year. So our confidence that there are high-value transactions for us that fit, Dynavax is pretty high. And I think beyond that, we really can't comment, because this is complex. And so we're not going to able to comment beyond the fact that we have a clear strategy, we're confident in our ability to execute it, and we look forward to seeing how we progress against those objectives.

All right. Maybe on shingles, then I'll just ask, since we've had a couple of questions on durability and efficacy. But what level of safety differentiation do you view as commercially relevant and maybe to a stronger extent, what level of differentiation would drive the sort of market share gains that you're hoping to see for like an HBV dominant market share?

Well, we're going to -- as we progress and have more robust and reliable data, we'll have to test the product profiles with traditional market research to make sure we operate with the right assumptions. I think the kind of differences we saw in our prior Phase 1, are meaningful. And I think an important point here is commercial execution is critical, whether it's Hep-B or shingles. It's not -- the product profile is a tool, but your commercial prowess and the ability to engage with customers are equally important. So we believe an improved safety profile is critical for us to be able to have something that allows us to address customers in a way that leverages our strength with our customer engagement. The specific levels, I'm not able to comment on right now, I would say that the levels we saw in our phase prior Phase 1, we would suggest are significant, and we're part of the reason we are confident in continuing to advance the program.

Makes sense. On Hep-B then maybe just finally, you've identified a couple of opportunity areas to grow market share in 2025, which is obviously great to hear. But as we start thinking about that long tail that you're talking about post 2030 and beyond, how do the -- how durable is your market share going to be next to high weight commercial competitors that have portfolios of products and can do bundling and discounting and long-term contracting? How durable are your current market share opportunities as we look to that tail?

Hey Jonathan, it's Donn. I think it's very durable. It goes beyond the contract. It goes around partnership. So we've established ourselves extensively within retail, for example, with partnerships and engagements over the last several years. We're working with these partners with a shared goal. They're looking to expand their utilization with Hep-B vaccine, specifically HEPLISAV-B, and we've been there from day one. And so we enable them to have success, and so that's going to continue, obviously, moving forward. So we feel very good about that. And then to the long tail around where there's a lot of customers that we don't call on, those patients engage and go out to retail as well. So we feel like we're going to capture patients to the retail channel that are originating in the sole practitioner, small clinics that originate in the U.S. So that strategy within retail, and that's why we believe this segment will be -- the segment grow substantially over the next several years, and we're well positioned, maintain and grow share as well as market size within retail with our partners.

Yes. I think the important to add on here just to have the full picture is this will be a durable product that Donn laid out for all the reasons, but it will require us to maintain an effort in the marketplace. So this is not a situation and that should not be used the situation where we establish market share and we don't have to cultivate that market continuously. So we -- I think Kelly is clear about expectations around flattening of SG&A. And so we do believe we're right sized. But you should expect that we have to maintain a commercial effort to maintain the strength of this brand.

Great. Thank you very much.

Thank you. Our next question or comment comes from the line of Phil Nadeau from TD Cowen. Mr. Nadeau, your line is open.

Good afternoon. Thanks for taking our questions and congrats on the progress. A couple of commercial then one back on the shingles program. So on the commercial, in terms of seasonality in HEPLISAV business, can you discuss what you're seeing now this winter in 2025? It does seem like seasonality was there in Q4, but maybe a bit less. What does the beginning of 2025 look like?

Hey, Phil, thanks for the question. Yes, yes, in Q4, we saw the, I would say, traditional seasonality as it relates to the holiday season the two weeks where there's less healthcare utilization. So that was typical, and that's what we saw in Q4. Specifically around Q1, Q1 is also a stronger start relative to Q1 last year, and we're very excited about the start thus far within retail in particular. We've noticed that the customers are focusing on non-respiratory vaccines much faster and sooner this year than last year. And so we're seeing a lot of momentum, and we're very excited about what we've seen thus far and really supports our guide in the range that we put out there today with what we're seeing here in Q1.

Got it. And so last year, there was another sequential decrease from Q4 to Q1. It sounds like you're suggesting that may not be the case this year. Is that fair? Or is there still likely to be sequential decline?

I think it will be different than last year. I think it won't be as profound, as you saw last year from Q4 to Q1, given the fab start. So we'll have to wait and see how, obviously, the quarter plays out. But again, like I said before, early read is that Q1 is progressing very strong and much faster than in years past.

Got it. And in terms of the Medicare reimbursement, can you go into a bit more detail, I guess, exactly what's changed and what impact do you think that could have on HEPLISAV share in that channel?

Yes. So basically, hepatitis B vaccines were under Part B in Medicare. And so pharmacists could not reimburse under Part B., only Part D and data. And so what has happened is hepatitis B has been recognized similar to flu and pneumococcal vaccines under Part B under roster billing. And so that allows pharmacies to reimburse the vaccine at the retail setting. And so it basically opens up the Medicare patient population for hep B vaccine, whereas before, it was only Twinrix, which was a Part D vaccine. And so it's important because within the retail pharmacy setting, the 60-plus cohorts about one-third of the market. Obviously, Medicare is a big piece of that. So potentially, it's allowed HEPLISAV-B to be on equal footing from an access perspective. So we absolutely believe that we'll, as I said before, support not only market share gains, but also market growth for HEPLISAV-B here in 2025 and beyond.

Great. That's really helpful. And then last on the shingles program, it's sort of a follow on to Matt's question. You mentioned the CD4 positive T-cells and the antibody responses are important, but then also the durability of the responses. I mean it seems like there's at least 4 or 5 different elements of the responses you're going to be looking at. Can you give us some sense of kind of is there a hierarchy of which of those are more important? Like, how are you going to aggregate all the data, integrate it and decide to make a go no-go decision?

Yes. So I'll give you the high-level answer. We haven't been shy about the fact that we believe CD4 are critically important. So that hasn't changed. I think the reality is it's an element of the overall constellation of information that has to be considered when assessing immunogenicity, there is no correlate. So, this is one of the challenges of vaccine development. You're in a position where you have to set the [indiscernible] to approximate efficacy. And CD4s, we believe are critically important. However, all the elements of the immune responses have to be considered. Rob, anything to add?

No. I think you said it pretty well, Ryan. I think CD4 seemed to be critical. People who lack CD4s are the people at highest risk for shingles. When they get it, it's the most severe disease, but antibodies also seem to play a role. Quality of T-cells matters and antibodies matter, too. So we will be looking at all of them, but CD4 response itself will probably be, let's say, a little more important than everything else.

Got it. Thanks for taking our questions.

Thank you, Phil.

Thanks, Phil.

Thank you. Our next question or comment comes from the line of Paul Choi from Goldman Sachs. Mr. Choi, your line is now open.

Hi everyone. This is [indiscernible] for Paul. Thank you so much for taking our question. I guess like a couple of quick ones from me. Just on your guidance, I know someone brought this up already, but given the flu season this year being worse than last year. And last year, with the pressure and the fewer opportunities to vaccine was on non-respiratory vaccines. You said that there's a strong -- been a stronger start to Q1 this year. And I was just wondering what was driving that? Is it more like access that's driving that stronger start than last year? Because it seems like cases -- there's more cases than there were last year? And then how much of that is baked into your guidance? And then secondly, just on OpEx. I know you mentioned the high teens growth in 2025. Just wondering, how to think about that from a timing perspective that things we ramp up towards the second half of the year? Or is it kind of right happening right now? Thank you so much.

Let me take that first part of the question. So flu the season, the extended flu season or the second peak, if we have it, that's going to be a little bit outside of the flu vaccination protocol. So we're pretty late into the flu season here. The common stone we're making it off a fast start as we're going to get relatively limited guidance. We're still in the middle of the quarter. Q1 was really highlighting the retail pharmacies focused on non-respiratory vaccine initiatives. And we're seeing retail pharmacy makes the pivot internally to non-respiratory a little bit earlier than we saw last year. That's really where the commentary is. And so -- well, yes, we recognize the flu season was a bit extended. That's too subtle the detail for us to work specifically through the HEPLISAV-B guidance at this point. But overall, the faster start this year in retail is supportive of continued growth in the year and our market share. Kelly, do you want to handle the OpEx?

Sure. So the guide on research and development expenses specifically was the expectation that we expect R&D expenses to increase by high teens percent as you noted. Yes, I mean, to be honest, this is really driven by -- this is activity-based, and there are two things going on in the clinics this year, sort of full steam ahead. One, the DoD play program. That Phase II contract kicked off late last year. So we'll have a full year -- we'll expect a full year of expenses there. Again, just a reminder from prior disclosures, that contract is $30 million and will go through the first half of 2027. And then secondly, we expect through the first 3 quarters to have expenses to support our ongoing efforts for Phase I/II shingles study.

Got it. That’s all the helpful context. Thank you so much.

Thank you. Our next question or comment comes from the line of Ed White from H.C. Wainwright. Mr. White, your line is open.

Thank you for taking my questions. So just going back to shingles. Assuming the Phase -- the 1-month and 6-month data are positive, let's just focus on the Phase III global study. Can you just give us your expectations for that study as far as size goes and maybe timing for that study?

Thanks, Ed. We still have some work to do on that with the regulators. Obviously, we need to see this data, meet with the regulators and develop the overall plan. There's a couple of different options we're considering on how to run that study, and we want to evaluate all the data that we received from our current Phase I/II as well as our BD and partnering efforts to optimize that plan. So it's a little premature for us to provide too many details on that study. I think for a point of reference, you -- there is the Shingrix development plan that you can reference as far as what it takes to drive a placebo-controlled shingle study. But we don't have -- we're not prepared to comment specifically on that trial design or time line.

Okay. Thanks, Ryan. And just on the plague program, as we all know, there's no approved vaccine in the U.S. I wanted to get your thoughts on what -- how are you thinking about the size of the potential market here in stockpiling for the U.S. and perhaps also globally?

Yeah. The reality is it depends, Ed, on how the threat is assessed by the government. There's very specific processes for the government to assess threats for biological measures or countermeasures. And so you see different options. And right now, the arrangement with the DoD, which was funding the work here, we would assume that the minimum is focused on the DoD or troops, which is a much lower opportunity than a threat that is deemed to be a concern for the entire population. It's frankly too premature for us to understand how that would be seen. And I think, frankly, that also has -- the overall global climate has an impact on that. So for now, the goal is to do the work, create an optimized product profile, and then we'll have to see how the opportunity kind of unfolds as we progress further.

Okay. Thank you.

Thank you.

Our next question or comment is a follow-up from Mr. Roy Buchanan from Citizens. Your line is open sir.

I actually got most of it. But I guess what's your -- it's a bit in the future, but your willingness to pay for the Phase IIIs for shingles, assuming that they're likely to be large to some extent? Thanks.

Right. Thanks, Roy. That's actually very helpful just to make sure it's very clear. We have a very clear stage strategy for business development for this program, focusing on ex-US markets. Ex-US markets for shingles, we believe, will be quite significant in a large value driver for the program, which provides a great opportunity for us to leverage it from a BD perspective to reduce the overall financial risk of advancing to Phase III. We also think it's a very valuable point to validate our interpretation of the data and the opportunity. So we plan to leverage the Phase I/II data 1 month, six months in the 7-year old data as part of an ongoing BD strategy to support risk reduction for Dynavax and that shareholders around entering into the Phase IIb or Phase IIb/III or Phase III study. So I think right now, our willingness is high, especially, if we have the right immunogenicity profile because we believe there's room to compete in Dynavax is well-positioned to compete and capture a very significant portion of the market share. Ultimately, the best story would be for us to have an external – ex-US BD partner, both to commercialize as well as absorb the cost and risk of the Phase III trial.

Okay. Thank you.

Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Ryan Spencer for any closing remarks.

Thank you, operator. Thank you all for joining us today. We appreciate your interest in Dynavax. We're excited about our recent accomplishments, the strength of our position. We look forward to updating you on our progress, focused on protecting the world against infectious diseases. Operator, you may end the call.