Good day, ladies and gentlemen, and welcome to the Dynavax Technologies Second Quarter 2020 Conference Call. As a reminder, this conference call is being recorded. At the end of the Company’s prepared remarks, we will open the call for questions and provide specific instructions at that point.

I would now like to turn the conference over to Nicole Arndt, Senior Manager, Investor Relations. You may begin..

Thank you, operator. Good afternoon. Welcome to the Dynavax second quarter 2020 financial results and corporate update conference call.

Joining me on the call today are Ryan Spencer, Chief Executive Officer; Michael Ostrach, Chief Financial Officer; Robert Janssen, Chief Medical Officer, Senior Vice President Clinical Development; Donn Casale, Vice President, Commercial.

Before we begin, I advise you that we will be making forward-looking statements today, including statements regarding HEPLISAV-B’s commercial profile, revenue expectations, potential peak revenue, the completion of post-marketing studies and regarding vaccine development potential with CpG 1018.

These statements are subject to a number of risks and uncertainties and could cause actual results to differ materially. These risks are summarized in today’s press release and are detailed in the Risk Factors section of our current 10-Q and 10-K periodic reports filed with the SEC, which we encourage you all to review.

I will now turn the call over to Ryan Spencer, CEO of Dynavax..

Thank you, Nicole. And thank you all for joining us today for an update on Dynavax and to review our second quarter 2020 results. The current global pandemic has certainly highlighted the ongoing need for effective vaccines to prevent the spread of infectious diseases.

While vaccines clearly play an essential role in protecting people against infectious disease, it is often the case that patients with the greatest risk of severe disease are unfortunately also less responsive to vaccines due to a weakened immune system brought on from advanced age or other chronic health conditions.

It is becoming increasingly clear that vaccine adjuvants play a critical role in addressing these patient populations. In addition, because of the scale needed to address global populations, vaccine adjuvants can contribute to expanding the number of doses available by reducing the amount of antigen required to achieve the desired results.

Over the recent years, we have seen advancements in flu, shingles and hepatitis B vaccines, all from the use of adjuvants. Currently, our industry is focused on developing an effective vaccine to prevent COVID-19.

We believe the use of adjuvants is likely to provide an improved immune response and reduce the amount of antigen necessary to address this global demand. Dynavax is focused on developing adjuvanted vaccines to provide high levels of protection to all patients.

Our first commercialized product HEPLISAV-B is an adult hepatitis B vaccine adjuvanted with CpG 1018. We are expanding the use of CpG 1018 beyond HEPLISAV-B through multiple collaboration, focused on developing adjuvanted vaccines, currently including COVID-19, pertussis and universal influenza.

Let me first review the opportunity and our progress for HEPLISAV-B, our adjuvanted adult hepatitis B vaccine. Over 250 million people worldwide and over 850,000 people in the U.S. are infected with hepatitis B. Hepatitis B is a highly infectious and potentially deadly virus with increasing infection rates.

Thankfully, it can be prevented with effective vaccination. HEPLISAV-B is the first advancement in vaccination against adult hepatitis B in over 25 years. It is the only two-dose adult hepatitis B vaccine that has been approved by the FDA, offering protection to adults in just one month.

HEPLISAV-B has demonstrated higher rates of protection in head-to-head clinical studies compared to the three-dose regimen of the current market leader. Importantly, challenges with compliance are well known with only approximately 22% to 54% of patients completing the legacy product’s three-dose regimen over six months.

As you can imagine, the potential improvement in compliance from a two-dose one month regimen means that HEPLISAV-B offers an opportunity for greater protection for patients.

In addition, HEPLISAV-B provided seroprotection rates in patients between 18 and 70 years old of 92% compared to 73% for the competitor product and even larger difference was seen in people living with diabetes, who are known to be less responsive to vaccines where HEPLISAV-B provided seroprotection rates of 90% compared to 65% with the competitor product.

This dosing regimen and seroprotection profile gives us confidence HEPLISAV-B will become the market leader and standard of care for adult hepatitis B vaccination in the U.S. And because of these unmatched characteristics, we are confident in the long-term commercial success of HEPLISAV-B.

The second quarter of this year was a period of significant disruption to the adult vaccine sector and our HEPLISAV-B business. Net product revenue for HEPLISAV-B in the second quarter of 2020 was $2.4 million. The ongoing COVID-19 pandemic caused a significant decline in utilization across the entire adult hepatitis B vaccine market.

The end user demand for HEPLISAV-B declined in line with the overall market. In addition to the reduction in demand, our distributors reduced inventory levels, resulting in a further $1 million to $1.5 million decrease in revenue as a portion of the end user demand for HEPLISAV-B was fulfilled out of existing channel stock.

Despite these unprecedented and tumultuous times, our market share in accounts targeted by our field sales force remained consistent from the previous quarter. Finally, we are pleased to report that we have begun to see a rebound in the market in the latter part of the quarter and are optimistic that this growth trend will continue.

Our commercial team maintained a high level of engagement with key decision makers and thought leaders at leading national and retail accounts during the second quarter. Based on these interactions, we have confidence that we will continue to advance national customers towards adoption in the near future.

In addition to the progress with national accounts, the sales team was also able to consistently deliver highly effective extended calls with key decision makers and thought leaders in a remote setting across all of our field targets.

We saw increased remote promotional activity each week during the quarter and expect this productivity trend to continue for the remainder of the year.

Despite the COVID-19 headwinds in the second quarter, we are confident that HEPLISAV-B will have a strong rebound and we remain confident in HEPLISAV-B’s long-term value, particularly with the focus on vaccination efforts coming out of this pandemic. Now, let’s turn to our second asset, CpG 1018.

We are developing CpG 1018 as a broad vaccine adjuvant platform. As you may know, adjuvants are added to vaccines to boost the immune response and may enhance the efficacy of a vaccine by helping to drive a response from particular types of immune system cells.

We’ve embarked on a global strategy to establish collaborations aimed at demonstrating the capability of CpG 1018 to enhance the immune response to a variety of vaccine antigens. Our open collaboration approach allows us to support multiple vaccine development efforts.

And underscoring CpG 1018’s versatility, these collaborations span multiple technology approaches to vaccine development across varied indications. Our approach has been successful so far with CpG 1018 currently in multiple collaborations to develop adjuvanted vaccines.

During the second quarter, we announced new adjuvanted COVID-19 vaccine collaborations with Valneva, Sinovac Medigen, and Medicago. We expect to announce additional strategic relationships in the future.

Two of our collaboration partners, Clover Biopharmaceuticals, and Medicago have entered first in human clinical testing, and we expect results from their Phase 1 trials by September and October, respectively. In addition, two more of our collaboration partners, Valneva and Medigen are expected to begin Phase 1 testing later this year.

Moving beyond COVID-19 collaborations, we recently announced a collaboration with the Icahn School of Medicine at Mount Sinai to develop a universal influenza vaccine.

Mount Sinai’s current work in this area is funded under a contract award from the National Institute of Allergy and Infectious Disease, as part of their Collaborative Influenza Vaccine Innovation Centers or CIVICs program.

The Mount Sinai CIVICs team will evaluate a novel approach they have developed which is designed to protect against all strains of influenza in combination with Dynavax’s CpG 1018 adjuvant. The U.S. CDC estimates 35 million people were infected with influenza in the U.S. during the 2018-2019 season.

It is our hope that an adjuvanted universal influenza vaccine could broaden protection against influenza with potential to also be valuable in the case of a novel influenza pandemic.

Our broad suite of CpG 1018 collaborations provide a pipeline of potential adjuvanted vaccine opportunities for us as a supplier of adjuvant and in some cases have the potential for Dynavax to lead development and commercialization.

In summary, with the prospects we see for HEPLISAV-B and CpG 1018, we are confident in the Dynavax vaccine business model, and the long-term investment opportunity it represents. I will now turn the call over to Michael to discuss our financial results..

Thank you, Ryan. Good afternoon, everyone. Our financial results are detailed in the press release we issued this afternoon. So, I’ll just provide some highlights and additional color.

HEPLISAV-B product revenue was $2.4 million in the second quarter compared to $8.3 million in the same period in 2019 due to lower sales volume caused by the COVID-19 pandemic. For much of the second quarter, medical centers and physician practices restricted activities at their facilities.

And this led to a significant decline in adult hepatitis B vaccine utilization, which fell as much as approximately 70% in April. In addition, for HEPLISAV-B, product sales to distributors were lower than end user demand as the distributors elected to reduce inventory levels during the quarter.

With states beginning to reopen, medical centers have gradually expanded their services under strict social distancing rules. And adult hepatitis B vaccine utilization began to increase in mid-June, reached approximately 60% of pre-COVID levels in July and is expected to continue growing as the U.S. returns to more normal conditions.

R&D expenses for the second quarter decreased by 64% to $5.9 million from $16.2 million in the second quarter of last year.

The decrease is a result of several factors, reductions in personnel costs, facilities overhead, cost allocations, and non-cash stock compensation due to lower R&D headcount following the May 2019 restructuring, as well as a decrease in outside services costs as we wound our immuno-oncology programs.

SG&A expenses increased by about 6% for the second quarter of 2020 compared to last year, comparable quarter, due to increased administrative expense, expenses related to the post-marketing studies and facility costs resulting from a higher overhead allocation to SG&A offset by a decrease in compensation and related personnel costs due to lower headcount and business travel caused by COVID-19 travel restrictions.

I should mention that earlier this week, we announced the sale of our SD-101 to TriSalus Lifesciences. With this transaction, we secured a path to realize on the potential of SD-101 to benefit cancer patients and the Dynavax and its stockholders if those efforts succeed.

Cash, cash, equivalents, and marketable securities totaled $200.7 million at June 30, 2020. I’ll now turn the call back to Ryan..

Thanks, Michael. The importance of protecting against vaccine preventable diseases is getting more attention and understanding as we collectively work to mitigate the ongoing coronavirus pandemic.

Vaccines offer a tremendous value to the healthcare system, and they also represent a valuable long-term business with the potential for steady recurring revenue.

Dynavax is leveraging our expertise in vaccine development and commercialization to build a leading vaccine company around the pipeline opportunities from our vaccine adjuvants, CpG 1018 in multiple pandemic and endemic diseases, and our FDA approved adult hepatitis B vaccine that has a large current market opportunity along with clear drivers for future growth.

Despite the disruptions of this year, we remain on track for several important milestones, including advancing the ongoing study of HEPLISAV-B in patients on hemodialysis with final immunogenicity data expected in the fourth quarter of this year with publication planned in the first quarter of 2021; the completion of the safety follow-up for HEPLISAV-B post-marketing studies in Q4 of 2020, which supports the consideration of a preferential recommendation by the ACIP in 2021; completion of Phase 1 enabling animal studies and toxicology for an improved pertussis vaccine with CpG 1018; developing CpG 1018 as a pandemic adjuvant with initial data from two adjuvanted vaccine Phase 1 clinical studies expected in the coming months; and finally, we expect to announce additional strategic relationships focused on establishing CpG 1018 as a leading adjuvant.

We look forward to updating you on our progress and accomplishments as we build Dynavax into a leading commercial stage vaccine company. We thank all of our investors and team members for their commitment to this goal. Operator, we would now like to open the Q&A portion of today’s call..

[Operator Instructions] And our first question is from the line of Phil Nadeau with Cowen & Company. Please go ahead. Your line is open..

Good afternoon. Thanks for taking my questions. First, maybe one on HEPLISAV’s commercial, acknowledging that the market for the vaccine was very much disrupted or the access to the vaccine was disrupted in Q2.

Can you talk a bit more about your sales efforts and the traction you may or may not have gotten using virtual calls on new institutions and new group purchasers in order to get HEPLISAV on the formularies? Were you able to make some progress in that arena during the quarter, despite the fact that medical centers were shut down?.

Yes. So, we can dive into that a little bit. There is two elements. I’ll let Donn explain a little bit further. But obviously, customers probably were much more willing to engage in a remote environment, which is a great opportunity for us, given the fact that we have to cover the nation with our team. So, we actually saw some efficiency.

But Donn, why don’t you elaborate a little bit?.

Yes. Phil, to my point, I mean, we did find quite a bit of efficiencies. And we found, actually, during the quarter, a lot of success engaging remotely through video conferences. And we found every week, as Ryan mentioned, kind of our productivity increasing week-over-week. We have seen many customers advance a longer sales cycle.

We saw roughly 100 departments over the quarter advance to implementation phase. What’s challenging though obviously is these customers, as they continue to advance, they themselves are trying to manage the COVID frontline. So, we find the kind of ebb and flow.

But, from a promotional standpoint, we saw a lot of success and we’ve been highly effective we believe over the quarter..

And Phil, I’ll just add on, because we review this very closely, and some of the things that I found interesting in looking at our call activity prior to coronavirus.

When Donn says it’s been increasing, it’s not increasing from a low, it’s actually increasing above previous call activities, different, not in person, but we’ve been able to actually increase our volume of activity because of the remote environment..

That’s very helpful. Then second, maybe on the COVID efforts, one question that we get quite frequently is on the economics that you receive from your partners. I believe, in the past, you’ve said that nothing had been specifically negotiated.

Is there anything to report, do you have any economic contracts that have been signed or can you give us any framework, as we try to think of the economic value to you of CpG 1018 in a potential COVID vaccine?.

There’s nothing to report yet as far as defined contracts. We’re obviously entering in the clinic with two of our collaborators, and hopefully, we’ll have two more right behind. The critical part here is building the product and knowing which regions and which areas that these different products are going to be sold in.

One of the challenges as it relates to talking about economics generically is our approach is global. So, we’re going to -- this adjuvant hopefully will end up being used to help address the global demand, which spans many different regions and territories.

And you look very familiar with the reality around front pricing and high versus low income countries. So, that’s something we have to navigate as we move forward, supplying the adjuvant to a variety of programs. So, we’d like to -- we’ll update you on that when we have more clarity on which programs are advancing and when.

But until then, I think it’s a little bit premature to get into the economics. The main point here I think that I’d like to highlight is we have a number of programs which give us many shots on goal for success. And like I said before when we had this conversation, success looks like hundreds and millions of doses.

And so, we do believe that Dynavax will be able to generate significant value to the extent we can supply large coronavirus programs. So, we’ll get into the economics a little bit later down the road. But for now, we’re pretty happy with the breadth of our collaborations..

Great. And one last question to a point that you just made.

If there was success, have you disclosed how many doses of CpG 1018 you can manufacture next year? Have you given any idea of what volume would be possible?.

Yes. The interesting thing -- it depends on when you start, right? I mean, when you start manufacturing high quantities at risk and that’s going to help figure out how much you can make, because there’s a stockpile element. Our CMO that we work with to produce CpG 1018 has significant install capacity.

We’re working on scale up right now to move from the scale up, which we made adjuvant for HEPLISAV, which is a much smaller scale obviously to what would be needed for global pandemic support. So that scale up work is ongoing and it’s going very well. Because again, we’re not building new facilities here, we’re using existing installed capacity.

So, we have estimated between 600 million and 1 billion doses are available with existing installed capacity. It’s just a matter of what investments we choose to make around how that capacity is used related to staffing and other downstream processing. So, the range is 600 to a 1 billion.

And then, I think beyond that would require us to be a little bit more creative. But, I wouldn’t even rule out being able to go beyond that when we have a better insight into the demand..

That is very helpful. Thanks for taking my questions and congrats on progress..

Thanks, Phil..

Our next question is from the line of Matt Phipps with William Blair. Please go ahead. Your line is now open..

Hi. Thanks for taking my call. This might be a bit of a rambling question. So, I apologize in advance. But, you mentioned we have two upcoming results from COVID-19 vaccines from some of your collaborators. And I think, it’s really interesting point, some of these is that they’ll be evaluating both CpG 1018 and GSK’s pandemic adjuvant.

And you guys are also looking at different schedules or maybe dosages of CpG 1018, with and without [indiscernible] the different programs. So, just wondering if you can kind of help us think about what to expect.

And really, is it something where right at the bat, we’re going to be looking for differences or in a healthy volunteer population maybe it’d be a little bit hard to tease something out, and that’s really when you get into more of the elderly or at risk populations where hopefully CpG 1018 would provide a greater separation from other constructs?.

Well, I mean, if the question is what are we going to see as it relates to the comparison to the other adjuvants? We don’t know. I think, the reality is there are a couple of different factors here.

You highlighted one, which could be, what are the populations that could show the greatest -- could show a difference, right? A healthy -- young healthy volunteers would probably be hard to tease out a difference, harder anyway, it’s possible. Elderly could be an area where we could see a difference between the adjuvant.

But even beyond clinical differentiation within the adjuvant, there’s also the issue that there’s a lot -- there’s a lot of demand for products that’s going to come out of this. And so, the supply components I think are always going to be critical too, as it relates to how Dynavax moves forward with all of our collaborators.

So, in these two trials that you mentioned coming up, we don’t have to see the data Matt. And we’ll have to see how the programs fit to the overall demand. And we’ll have to talk to our collaborators on how they’re going to make that decision.

But for now, what we’re focused on is being prepared to deliver the adjuvant to the global population and then we’ll let the clinical data speak for itself when we have it available.

But, at this point, it’s hard to tell what we would need to see or what we’ll be seen from the Phase 1 trials?.

And a question on the kind of inventory drawdown or whatever you want to call it. But, you mentioned 1 million to 1.5 million potentially in Q2, obviously with kind of reduced demand from COVID.

And I guess, going forward, as we’re seeing volumes recover, maybe not to pre-pandemic levels yet, but do you think that the distributors kind of gradually work their way up to maybe the pre-pandemic level, in line with demand or could they -- just kind of curious if there could be any kind of catch-up….

I fully expect that future periods will have -- will be in line with demand. I think -- I don’t think that we’re going to have to deal with that issue where we saw demand drop so drastically that distributors’ on hand inventory ended up becoming -- it was somewhat excessive based on the trailing sales. So, that’s gone.

I expect distributor inventory will match the end user demand from here on out, as we continue to work go back to normal levels..

And that is what is the case. So, it’s currently the case..

Yes. I mean, that’s what we’re seeing now..

Thank you. Our next question is from the line of Ed White with H.C. Wainwright. Please go ahead. Your line is now open..

So, just a couple on other opportunities, Ryan, outside of COVID and the flu. Maybe, if you can just give us -- you briefly mentioned pertussis, just wanted to get a little bit more of an update on there.

Do you think, we’ll see Phase 1 begin in 2021? And then, how are you thinking about any additional strategic opportunities for other vaccines for 1018 outside of COVID and universal flu? And then, lastly, maybe a question for Michael. But, you mentioned in the press release about headcount reduction.

Is that -- was that in the sales force due to the pandemic or was that from last year when you were referring to the lower headcount? And, how should we be thinking about headcount and administrative costs going forward? Thank you..

So, Ed, your first question was regarding pertussis. The plan is to advance into a Phase 1 study in the pertussis in early next year -- by early next year.

We have noted in our milestones and updates that we are completing preclinical work, which will be important as it relates to understanding exactly the product profile that we’re developing, on colonization is something that we’re looking for and impacting colonization in the early stage animal work.

But that aside, just understanding what -- being able to see the early stage animal work will influence our next steps. But, we are planning right now to be in the clinic with the pertussis trial early next year. As far as other vaccines, this is a little bit more complex.

We have been putting a lot of time and energy obviously into the coronavirus response. And so, what you should expect to see from us over time is a similar approach to other vaccines dependent on the different types of collaborations that we’re able to identify.

So, areas that you could envision seeing adjuvanted vaccines sort of from an obvious perspective are flu, I mean, that’s, we’ve seen a number of those for the elderly population or possibly even for an enhanced seasonal product. Pertussis, like we’ve mentioned already. RSV has been an area where there’s a target to the elderly population.

So, I would expect that you could see something from RSV as a reasonable target for an adjuvanted product. And even the shingles vaccine recently launched by GSK is an adjuvanted program but I think there could be some improvements there.

So, these aren’t promises of areas that we will move forward into rapidly, but I’m just highlighting for you the way to think about how adjuvanted collaborations can be advanced. So, we’ll provide some more details as we move into next year around the strategic areas of focus beyond COVID-19 flu and pertussis.

But, I think those are the kinds of things you should think about..

And very briefly, the head count difference, is it overall 10% difference or 11% difference in SG&A? And so, it’s just a sprinkling of people. And frankly, we’ve tried to be careful about new hires and replacing vacancies, given that -- as a result of COVID, we try to tighten up our expenditures.

It’s not directed to commercial activities or headcount there other than possible fluctuations. This has nothing to do with -- other than normal variation..

Thank you. We have no further questions at this time. I would now like to turn the call over to Ryan Spencer, CEO, for closing remarks. You may go ahead..

Thank you, operator.

We believe adjuvants play a critical role in the development of new vaccines to ensure effective vaccination for all populations, whether through the reduction of doses required or improving the immune response for all people, including the hardest to protect as seen with HEPLISAV-B, advanced adjuvants such as CpG 1018 have been shown to be essential components of multiple effective vaccines.

With all of the recent promising data about potential vaccines for COVID-19 what often gets lost or is not discussed is a protection of those with weakened immune systems, such as the elderly and those with chronic conditions. To win the war on COVID-19, we must find a solution for everyone, but particularly for these critical patient populations.

Additionally, we must ensure there’s adequate supply for effective vaccines. Advanced adjuvants, such as CpG 1018 are well-positioned to address this public health need.

While the fight against COVID-19 is currently a key priority, we will also continue to drive our business forward through the growth of HEPLISAV-B sales, which we believe will become the standard of care adult HEPLISAV-B vaccine in the U.S. with an overall market opportunity exceeding $500 million in net sales.

Thank you again for spending your time with us today. We look forward to speaking again soon. Operator, you may end the call..

Thank you, ladies and gentlemen. That does conclude today’s call. We thank you for your participation and I ask that you please disconnect your lines..