Good day, ladies and gentlemen, and welcome to the Dynavax Technologies First Quarter 2021 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 call over to Nicole Arndt, Senior Manager, Investor Relations. You may begin..

Thank you, Operator. Good afternoon. Welcome to the Dynavax first quarter 2021 financial results and corporate update conference call. Joining me on the call today are Ryan Spencer, Chief Executive Officer; Kelly MacDonald, Chief Financial Officer; Rob Janssen, Chief Medical Officer; and Donn Casale, Senior Vice President, Commercial..

Thank you, Nicole. And thank you all for joining us today. I'm very happy to welcome Kelly to the team as well. I'm excited to share our first quarter results during which we generated our highest quarterly product revenue in the company's history at $83.3 million.

And to discuss our outlook for 2021, which we believe has the potential to be a transformational year for Dynavax. The ongoing pandemic is focused worldwide attention with a profile that gives it the potential to become the standard of care in the U.S. The U.S.

represents a large current existing market with a potential for growth from improvement in regimen compliance, and overall coverage rates for recommended populations.

Importantly, the CDC Advisory Committee on Immunization Practices is evaluating significantly increasing the number of adults that are recommended for heavy vaccination by establishing a universal recommendation for all previously unvaccinated adults to support the CDC goal of eventually eliminating Hepatitis B as a public health threat.

Our second asset is CpG 1018 is the advanced adjuvant which contributes to the impressive profile of Hepatitis B. We're utilizing CpG 1018 adjuvant to help develop new and improved vaccines for various diseases through internal development and through collaborations with multiple vaccine developers globally.

Our COVID-19 vaccine collaborations have already begun to generate significant revenue for the company and have the potential to provide a meaningful long term revenue stream. Let's walk through each of these important assets. To take you through our update on how to HEPLISAV-B I will turn the call over to Donn Casale.

Donn?.

Thank you, Ryan. I'm pleased to provide an update on our continued progress within the U.S. market. HEPLISAV-B our first commercialized product is an adult Hepatitis B vaccine which is adjuvanted with CpG 1018. HEPLISAV-B was engineered to deliver higher rates of protection in a shorter period of time.

Despite the availability of traditional three dealt Hepatitis B vaccine over three vaccine, Hepatitis B continue to be on the raise in the United States. Given its stimulus safety profile and significantly higher rate of protection over -- with only two doses in one month. HEPLISAV-B is an important adjuvant in Hepatitis B prevention..

Thanks Donn. As you see from Donn's update HEPLISAV-B provides an important foundation for our company. Our second assets CpG 1018 is our advanced adjuvant is being used in a variety of other vaccine targets.

Under scoring going CpG 1018 versatility our collaboration and development efforts span multiple technology platforms across various indications including COVID-19, tetanus, diphtheria, and acellular pertussis or DTaP and universal influenza.

These CpG 1018 collaborations provide a pipeline of opportunities for Dynavax either as a vaccine developer, or as a supplier of adjuvant through commercials supply agents.

As a supplier of our adjuvant we have made dramatic progress with our efforts to enable development of COVID-19 vaccines despite the success of the initial vaccination campaign in the West the ongoing global need for COVID-19 vaccines is massive.

Even with the emergency or conditional authorizations of multiple vaccines, some of the world's most dense population centers lack sufficient quantities of vaccine.

With the uncertainty regarding to ratio protection and the emergence of new mutations, it is likely that additional vaccine supply will be needed and that booster vaccination will be necessary, providing continued demand for multiple vaccines.

CpG 1018 has demonstrated the ability to increase neutralizing antibodies and stimulate T-cells, with especially favorable tolerability profile. Our collaboration strategy has resulted in multiple opportunities for conditional or emergencies authorization in 2021 for CpG 1018 ad event of COVID-19 vaccine.

Our partnerships are moving forward to the next stage of development in preparation for commercial spot. And specifically in preparation for commercial supply in 2021, our agreement with the collation for epidemic initiative or CEPI has recently been expanded.

Under the terms of the expanded agreement CEPI will increase funding by $77 million to a total of $176 million which will increase the available volume of CpG 1018 2021, for CEPI funded COVID-19 vaccine development progress.

This agreement represents a key strategic investment by CEPI to increase overall availability of COVID-19 vaccine doses in 2021. .

Kelly MacDonald:.

Your first question comes in the line of Matt Phipps from William Blair. Your line is now open..

Hi, good afternoon. Congrats on a nice quarter here and thanks for taking my questions.

First of all, I guess for Donn you said 41% impact for the quarter on HPB vaccine broadly have you seen that moderating at all in the end of the quarter, say March or early into April any read on if it's covering this quickly, or if you think it'll be 41% kind of through the first half and then more of a improvement in the second half. .

So as it relates to the first quarter actually we saw utilization down about 50%, then in January, and then February, March, we saw an uptick in utilization to have an overall 41%. The initial read on April it continues to be hovering around that 40%. mark improving slightly.

So our viewpoint on second quarter is that we see a moderate increase in utilization in the second quarter and then accelerating into the second half of the year as it relates to utilization..

Okay, thanks.

And then, yes, for Kelly, the gross margin that you we could kind of back into for CpG 1018 in Q1 is that something we should assume will stay constant throughout the year and into next year? Or do you think that could improve as scale up continues?.

Thanks for the question Matt. I think CpG 1018 profit for the quarter, as you alluded to was around 71%. And it consistent predominantly of our supply to our Valneva partnership.

As we continue to play our partners and we can expect revenues and corresponding profits to vary based on a mix of high income versus low income pricing, of course, low income pricing coming with higher volume.

And then also we of course, can't be certain of ongoing profitability which will be highly dependent on continued clinical success, but are very pleased with the performance in the quarter..

Kelly MacDonald:.

I guess two COVID vaccine related questions if I may. First, so the phase three for Valneva is obviously interesting because it's a superiority trial on an immune response.

And I guess what are your thoughts on that endpoint and that's something that could allow them to get approval beyond the UK do you think or they've discussed that with other regulatory bodies that you know?.

I'll take this. And Rob, you can add any in color, as you see fit. Valneva and shortly on even study was one of the first with a developed country regulating body. So they're kind of ahead of the game on that one. We're going to see how other regulators respond as that trial moves forward, as well as other programs..

Okay and then I guess last question, just you mentioned that Clover will have access to adjuvant and produced under the CEPI agreement.

How revenue work for you guys for that? Is that mean it's already almost like pre-purchase adjuvant or is that still when they give to the Covax program, CEPI program that there would be a revenue for you all or when you send them that for their formulation stuff, would you recognize the revenue from that? But the concepts is the same, if CEPI is pre-funding the production of adjuvants.

So it's not necessarily the same as the full costs of under the supply agreements with our collaborators. But it's allowing us to manufacture enable capacity in 2021. Now ahead of our collaborators having pre-purchased that material, so it really makes it available for them.

Upon purchasing the material from us, we will then turn around and reimburse CEPI to the extent we sell all the adjuvants separate grantees.

And so as revenue is going to be as you can, I think you've kind of highlighted can be a little tricky here as far as when the period is recorded will be based on a number of factors around the collaboration and when we receive the cash from our partners. So to the extent you kind of nailed it.

There is some level of pre-purchase for the 176 million with an additional component revenue coming as we sell it forward to our collaborators, but there will be no revenue recognized until we actually deliver the product to our collaborators. .

Yes. Okay. Great. Thanks, Ryan. Congrats. .

Your next question comes from the line of Phil Nadeau from Cowen & Co. Your line is now open. .

Hi, Donn. This is for Phil, thank you for taking my call. Just a follow up quickly on the CEPI funding. You mentioned it sounds like the terms are the same as with the original agreement.

Am I correct in saying that and second is there, how many the funding distributed for the first original agreement? You had mentioned that there was going to be a first payment in the first half of the year and then a second one on Q3 distribution..

Yes let me put a little bit of back, it's the same structure, as you noted. This is for manufacturing of material through Q3 to be delivered in Q4 post-release. So it's not, that's why we call it an expansion not an extension. This isn't a time base.

We've identified additional capacity, and CEPI had to add, was willing to support the additional manufacturing. So we basically expanded the existing agreement through an amendment. And so the timing is actually similar to what we saw before as far as payments..

Okay. Thanks.

And in terms of their post marketing study, I was curious if you besides the fact that you had, for example, in the influencing the preferential recommendation, have you also have feedback from physicians, in terms of like concerns for cardiovascular safety of the drug that are now being addressed by these positive results?.

I want to turn it over to Donn to give you a quick review on how the AMI post marketing study impacted our commercial engagement throughout the launch and if there is to the extent it will be meaningful going forward.

Donn?.

Yes. No, I mean so obviously, the results that I shared are very excited about the results, certainly, but from a day to day engagement with customers that topic has not been a topic that's been any type of barrier as it relates to conversion with HEPLISAV and initially, when we first launched, certainly the questions were out there.

But over the last 6 to 12 months, that really hasn't been a topic or a part of the discussion or dialogue with customers as it relates to HEPLISAV-B and whether or not they're going to convert to HEPLISAV..

Got it. Thank you. It's helpful. Thank you for taking my questions..

Your next question comes from the line of Josh from Evercore. Your line is now open. .

Thanks for taking the questions.

First on universal recommendation for Hep B vaccines, how do you handicap the probability that that will be recommended? What insight do you have into that in that process as we think about the probability of that? What impact would you expect that to have on the market for Hepatitis B vaccines and for HEPLISAV and then on to a 1018 adjuvant how should we be thinking about quarter to quarter or year to year revenue potential because I feel like the error bars are extremely wide and we're supposed to have some kind of assumption in our model, and maybe you can help us think about what the appropriate assumptions are at this point in time and then what the rationale might be for that..

Sure, Thanks, Josh. Why don't I start with the concept of a probability of universal and Donn, you can provide some color on the market impact. And I'll pick it back up on 1018. For universal probability I mean the insight is actually not even inside. It's pretty public.

Their anticipated engagement with full HCIP is pretty positive and for them to show October --.

Josh I mean, one of the things I think is most important to note regarding the recommendation is as you know right now, it's a risk based recommendation. So what a universal recommendation would do is certainly make the ease of the recommendation at the provider level much easier.

So certainly that's going to have an impact as relates to coverage rates from a size and an opportunity and depending on the recommendation, as Ryan mentioned, whether it's up to age 59 or beyond 60. It could be upwards of the addressable market three X of what it is today.

But to put that into context, one of the things that consider certainly is current coverage rates for Hep B vaccine is approximately 25% for those 19 years of age and older and one of the things that it's probably good to look at is whether it be influenza or pneumococcal kind of the ceiling if you will of coverage rates.

And you see that upwards of 60% to 65% coverage rates start to kind of a math with that potential opportunity can be from those types of numbers. So we see it as a significant opportunity. Certainly it depends on what that recommendation will look like. But certainly, it's certainly going to expand the opportunity for us..

Thanks Donn. Josh. I'm moving to 1018 unless you have a follow up on those points. Okay..

Any obvious why the HCIP may not follow the recommendations of the working group?.

Oh, I mean, I don't think we have any insight into why that would be the case based on the dialogue that we've heard in February. I think if I had to pick a risk factor, it would be continued distraction from the COVID pandemic for people involved in immunizations.

But honestly, I think that risk is continuing to decline as the vaccination programs in the U.S. continue to be successful..

Yes. On 1018 appreciate the question. I just need to start by saying we're very excited about the long term opportunity but we also have to recognize there's a ton of complexity in how this rolls out, especially given the number of partnerships we have. But there is a lot of demand in the globe. So let's just walk through what we kind of shared today.

We have the Valneva contract which the economics and timing of that I think we've been fairly clear on what the total opportunity of up to $230 million this year with the 60% of the dose has been delivered in Q4 and 40% in the first half of the year.

And then beyond that, I think the best thing I can do for now given that we're still in the process of negotiating commercial supply agreements with our collaborators and they are still in the process of negotiating either bilateral deals or deals with Covax. It doesn't allow me to provide any specific color on those economic relationships.

But as far as order of magnitude, the quantity of CpG that we manufacture on the CEPI relationship is hundreds of millions of doses.

And the CEPI relationship is supporting the manufacturers CpG at around cost and that being $176 million gives you a baseline that which you can provide a margin assumption on top of to highlight the opportunity that this arrangement provides for near term revenue, assuming the continued success of the CEPI grantees, and as we move forward with the clinical development and as well as the commercial supply agreements and our collaborators arrangements with either governments or Covax we can be in a position to provide more clarity on the long term..

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 begin..

Thank you, operator. Well, we believe the evolving COVID-19 pandemic requires additional vaccines to support the global demand. Our CpG 1018 adjuvant through our global collaboration is well-positioned to be part of this solution.

CpG 1018 has already driven the largest quarterly revenue in the company's history, and we believe it has further potential to drive significant growth in value for Dynavax and its shareholders.

Now supporting the fight against COVID-19 is currently a key priority we're also continuing to drive our business forward through the growth of sales of HEPLISAV-B which we believe is a source of continued value creation as we grow revenue along our path to being the market leading adult vaccine Hepatitis B vaccine and to take advantage of the potential market expansion with an enhanced national recommendation.

With the combined strength of opportunities from HEPLISAV-B and CpG 1018 we believe 2021 will be a transformational year for Dynavax. Thank you again for spending your time with us today and we look forward to speaking again soon. Operator you may close the call..

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