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Good day everyone and welcome to the Dynavax Technologies First Quarter 2008 Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Ryan Spencer. Please go ahead.
Thank you for joining us on our first quarter 2018 conference call. With me today are Eddie Gray, CEO; Michael Ostrach, CFO; and Rob Janssen, CMO of Dynavax Technology.
Before discussing today's topic, we need to advice that we use forward-looking statements that are subject to a number of risks and uncertainties. Actual results or outcomes may differ materially from due to the risks and uncertainties inherent in our business, including our ability to successfully commercialize HEPLISAV-B are building to successfully develop and timely obtain regulatory approval of SD-101 and DV281 and our other early stage compound.
Our business collaboration and regulatory strategy, our ability to manufacture commercial supply and meet regulatory requirement, uncertainty regarding our capital needs and future operating results and profitability and anticipated source of fund. And other risk detailed in the risk factor section of our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission.
These forward-looking statements are based on the information currently available to us today, the 8th of May 2018. Actual results or events could differ materially, except as required by law, we have no obligation to update any such statement, we may not actually achieve the plans to carry out our intentions or meet the expectations disclosed in our forward-looking statements. And you should not place undue reliance on our forward-looking statements.
I would now like to turn the call over to Eddie Gray.
Thank you, Ryan. It is an exciting and busy time, since the beginning of the year, we have launched our first commercial product having sort, hired and trained highly experienced sales force. Our product approval at the end of last year, which reinforced by a unanimous recognition from the CDC's Advisory Committee on immunization practice. Adoption of that recommendation by the CDC and its publication in the Morbidity and Mortality Weekly Report.
This is a significant milestone for any immunization, because it triggers reimbursement coverage in a significant number of plans. We also saw FDA approval of our pre-filled syringe, which is valuable as the pre-filled syringe is a popular presentation with many customers. In our immuno-oncology program, we have shown encouraging interim data in both head and neck squamous cell carcinoma, and advanced melanoma when combining SD-101 with anti-PD-1 therapy. And we look forward to an important poster presentation at ASCO, with considerably more data in melanoma patients.
To support these efforts, we also secured an attractive term loan agreement for up to $175 million, I predict the rest of the year will only being more exciting.
Let me comment on HEPLISAV-B. Most of you are aware, the launch of our pharmaceutical product if often an important determinant of its long-term success. Introducing a new buy and build vaccine in a variety of settings included integrated delivery networks, independent hospitals and clinics, public health clinics, and other institutions is a complex and critical process. Establishing a solid base within institutional accounts ensures long stay, long-term stable revenue generation with opportunity for continued growth.
So whilst we are pleased to have some product sales I quarter one, the foundations for long-term success lie beyond that number. Our launch strategy as you know is to focus all our efforts on the shift of market share from our competitors to HEPLISAV-B, before moving to market growth initiatives. This requires strong execution of market access objectives specific to each segment and access to customer accounts for personal promotion.
The launch of our field team was staged to coincide with the ACIP recommendation and as such resulted in just over one month of activity prior to March the 31st. Following publication of the MMWR by the CDC on April the 19th, we can confirm just two weeks later, the HEPLISAV-B is covered by plans representing 100% of Medicare ensured lives, 74% of commercially ensured lives and 60% of lives under state Medicaid plans.
This securement of positive reimbursement is a particularly critical step to a successful vaccine launch. As providers must purchase the vaccine and build the insurance plans when the vaccine is administered. Our poor experience when seeking reimbursements can set a vaccine product launch back a considerable way. We expect most remaining insurance plans to confirm reimbursement within the next 30 to 60 days. With reimbursement secured, our customers are able to verify appropriate coverage and we have successfully removed the first barrier to adoption.
The decision making process for vaccines within the largest accounts is most often characterized by committee approval. The benefit of this is successful approval provides system wide access, the downside is the committee processes and timelines are fixed. However, I am delighted that the profile of HEPLISAV-B along with the experience of our field team has allowed us to penetrate a significant proportion of our target accounts in rapid time and begin to move HEPLISAV-B through the process for review and adoption.
Within those first 60 days we have confirmed that accounts representing over 15% of our addressable market of either already held or of scheduled committee review meetings for the evaluation HEPLISAV-B. This is a tremendous accomplishment in such a short time.
Once the decision to purchase is made by the respective committees and we become part of an institutions formulary, subsequent steps include set up of electronic medical records, depletion of existing inventory and communication of changes in vaccination policy to physicians and nurses amongst the logistical efforts.
Experience with our earliest adopter so far suggest it generally takes them about six to eight weeks to proceed from a decision or a positive decision to the actual ordering of the product. As we speak, we have 60 individual customers that have already provided P&T Committee approval of HEPLISAV-B of whom 11 have progressed to purchase HEPLISAV-B and one who was completed the full journey and implemented HEPLISAV-B right throughout their system. As a result our expectations remain unchanged, the purchases will start slowly, but accelerate quarter-by-quarter as we support these customary use and adoption of HEPLISAV-B.
Let me move on to the immuno-oncology program. And the key to an effective immuno-oncology therapy is becoming clearer. Firstly, you must efficiently enable the immune system to recognize the cancer, which is the objective of checkpoint inhibitors and where that's not enough you must also enhance the response through activation of T-cells. The latter is the intent of our Toll-like Receptor biology.
In preclinical and clinical trials our TLR9 agonist has been shown to trigger T-cell activation through the induction of cytokines and maturation of dendritic cells. TLR9 is found in every active immune system, which means virtually anybody is a likely responder.
Think about HEPLISAV-B for example. Up to 10,000 patients that have been vaccinated in clinical trials, only a handful of subjects did not respond and go on to develop protection. Our clinical trial program will show where the stimulating an immune response at the correct dose with the correct combination products can meaningfully impact tumor burden in a durable way.
To-date, in these early phase trials with the limited number of patients our adverse events have been transient in nature not dissimilar to a flue infection. This tolerability profile will be of considerable benefit in a combination setting.
At the recent AACR Annual Meeting, we presented interim data from the Phase 1b/2 clinical trial investigating SD-101 in combination with KEYTRUDA Merck's anti PD-1 therapy. The data represented the initial response rates in 18 patients with head and neck cancer who were naïve to anti-PD-1 treatment. Based on this early readouts 6 of 18 patients achieved the response of 33% overall response rate. And so value of patients those that have had at least one scan on the study the rate was 38%.
Although it is difficult to draw strong conclusions from early phase trials when comparing separate studies a 33% of ORR seems to convey favorably with a 15% response rate reported for pembrolizumab alone in this same population.
Complementing this nature of head and neck cancer, we presented longer term durability data in advanced melanoma patients. Whilst also a small set of patients both anti-PD-1 treatment naïve and experienced were included. Original safety and response data were presented for these patients at ASCO last year where we showed a response in seven out of nine naïve patients and 2 out of 30 anti-PD-1 experienced patients. 86% of the initial 7 responses in advanced melanoma patients' naïve to treatment were ongoing after a median of 18 months.
Among these patients the median progression free survival, duration of response and overall survival have not yet been reached. The two responders in the refractory cohort achieved a partial stable disease response for at least 10.5 months. Again these limited data appear to be improvements over the reported results for KEYTRUDA alone.
We will continue expanding on this dataset during the year. At ASCO this June, we will be presenting clinical and transitional data on over 50 melanoma patients, including comparison of the two doses being studied in order to select the dose for a registrational trial.
In addition to presenting a poster, we have been invited to take part in a poster discussion session that will highlight a handful of the posters from the melanoma skin cancer session at ASCO and discuss the data in context, focused on its application to clinical practice and future research. We continue to expect initiation of the Phase 3 study in melanoma by the end of the year.
Further updates on melanoma naïve patients, melanoma progresses and head and neck naïves have been submitted to the ASMO in the fall. Data from the DV281 dose escalation study for safety remains on track to report at the end of the year.
I will now turn the call over to Michael Ostrach, our CFO to review our financial results for the quarter. Michael?
Thank you, Eddie and good afternoon everyone. Today I'll review our quarterly financial results and current financial position for the first quarter of 2018. Because this is the first quarter in which we are reporting product revenues, I'll also explain how the new U.S. accounting policy governing revenues applies to us. We plan to conduct financial results conference calls each quarter going forward. We will not be providing sales or other financial guidance today and will not until we have adequate experience to do so reliably.
With only six weeks in the field and a complex adoption process that Eddie has outlined, the data from which to make reliable projections are insufficient at this time. A new accounting standard for revenues became effective this year coincidence with our first year of commercial sales. The new standard is called ASC Topic 6,206 revenue from contracts with customers.
Those of you who are familiar with a former standard may I recall that most new launches for young commercial companies inevitably led to so-called sell through revenue accounting, which meant revenues would not be recorded until there was a history have actual returned in charge-backs and other fees sufficient to be a reliable indicator of what the net revenue would be.
The new standard encourages so called sell in revenue accounting requiring us to estimate a net and gross sales taking into account returns charge-backs, discounts and other contracted variable consideration to the extent it's probable with a significant reverse going cumulatively recognized revenue will not occur in the future.
We launched our sales team in late February and recorded net product sales of $165,000 for the quarter, representing a net revenue we've estimated will recover from sales of HEPLISAV-B after all adjusting such as discounts and returns are realized.
Actual amounts we ultimately received may differ from these estimates and if actual results do vary from our estimates we'll adjust revenues and earnings in the period the variances will come down. In making these estimates we use the best information available to us, which is blended data at this time and thus as Steve announced may not be representative of the net we will achieve in the future.
Costs of product sales was $205,000 for the quarter and consists of fill, finish overhead costs for HEPLISAV-B while incurred only after FDA approval. Prior to approval all costs related to manufacturing HEPLISAV-B will charge to R&D expense in the period it incurred and so at approval we had already expensed a considerable portion of the costs nearing to approximately 1 million dose equivalents and that's why our costs of product sales of HEPLISAV-B would low for the quarter and will increase in future periods as we produce and then sell inventory that reflects the full costs of manufacturing.
R&D expenses for the quarter were $19 million compared to $16.3 million in the first quarter of 2017. The overall increase reflects increased compensation and personnel costs related to ongoing development of SD-101, DV281 and earlier stage oncology programs, costs associated with resuming operating activities at our Dusseldorf production facility and costs associated with manufacturing of pre-filled syringes prior to approval.
Selling, general and administrative expenses for the first quarter were $16.9 million compared to $6.5 million in the first quarter of last year. The increase is due to an overall increase in HEPLISAV-B sales, marketing and commercial activities, including full-deployment of the contract sales force, costs post-marketing studies and consultants for commercial development services.
We use $39.4 million of cash during the quarter, consisting of just under $30 million for operating activities and $9.5 million in fees and respective patent licenses relating to HEPLISAV-B. We expect quarterly operating expenses to increase somewhat from the first quarter, each quarter during 2018, as we increase commercial manufacturing activities and expanding clinical trial activity.
However actual quarterly results may not reflect perfectly these things occur and will depend on the timing of when large expenditures become due. At March 31, we had $250.8 million of cash and marketable securities. That balance includes the proceeds from the initial $100 million charge of the $175 million loan financing we've included in February.
This strong financial position should support the HEPLISAV-B launch and continued advancement of the immuno-oncology program with several opportunities for realization as the value we are creating within these two businesses.
I will now turn the call over to the operator for questions.
Thank you. [Operator Instructions] We'll take our first question from Brian Abrahams with RBC Capital Markets.
Hey, thanks very much for taking my questions and congratulations on all the progress. Two questions, one on HEPLISAV and one on 101. I guess on HEPLISAV, appreciate all the specific and detailed metrics, and I'm sort of curious, how consistent is the process and the timeframe from initial interaction to conversion are there key organizations that might come on board first or those that might come on board later. Just wondering if we should be thinking about this as gradual purchasing curve or whether there were perhaps key accounts that treat broad numbers of individuals that could take longer to get through this process?
So, I don't think there are any particular standout customers view to look for Brian. The market is characterized by quite a large number of sort of medium size accounts, some are obviously a little bigger than others. I think in terms of timing, I think I indicated that our early experience is committee approval through to purchase seems to be about sort of six to eight weeks.
I think in many ways the biggest time factor is really do we turn up just before a P&T committee meeting scheduled or have we just missed one and there isn't another one for three months. That's probably at this point in time looks the biggest determinant of the entire process.
That's very helpful. And then, on SD-101, just given the evolving data, how were you benchmarking overall response rate expectations for checkpoint inhibitors alone in treatment naïve melanoma is there a bar that you've set for yourself in terms of moving forward with either of the doses into Phase 3?
And then I guess as an extension to that are there Phase 3 designs that you could potentially deploy, that would I guess reduce the inherent risk of proceeding based on open label data with some recent historical uncertainty as to what PD-1s alone covert? Thanks.
I'll ask Rob Janssen to respond to that.
So our bar is other combination so the approved combination is [indiscernible]. So for an ORR that's in the mid-50s. So I think we have look at something probably over 50% as an ORR we would want to achieve to be able to move forward. There are designs that we are thinking about right now, in terms of the Phase 3 trial, we're already thinking about it and there are designs because of that uncertainty this is a - we don't compare to pembro monotherapy to the historical trial of data.
There are design where we can accumulate some of those data and a adapted design for an example for our Phase 3 trial. We haven't made any final decisions about our trial design at this point.
Got it. And maybe just if I could squeeze one last one in. Would you guys proceed into Phase 3 without a collaboration partner or would that be a gating factor? Thanks.
I think as a general rule, if you are in any negotiation with a company considerably larger than yourself and all of the available potential partners are significantly larger than ourselves, then you may prefer a partnership, but you should always be ready to walk away. But I think it's fair to say that as we look at the landscape here, our preference would be to have a partner.
Thanks, again.
We'll go next to Joseph Bom [ph] with Cowen and Company.
Hi, there and thank you for taking my question and congratulations on the progress. I guess the first one on SD-101, when talking about the Phase 3 trial initiation…
Sorry, Jim, if I wonder if I could you ask to speak a little louder, we are having trouble hearing you.
Yes, of course. On the Phase 3 trial initiation, I guess what still remains gating on that, are there FDA communications that need to happen or meetings that need to be scheduled and I noticed that you said only in melanoma first what are the timeline for maybe entering pivotal study for head and neck and the expectations there?
In terms of the melanoma trial, we are looking to start that by the end of the year. There are ongoing discussions partner discussions as well as study design discussions right now. Nothing is really gating it , I think it's going to take that amount of time to get such a large trial going anyway.
In terms of head and neck, we are looking at data as it comes in and I think we would be looking to start a Phase 3 in head and neck sometime early next year, I would think.
Great, excellent. And then just one question on the HEPLISAV launch, if I can. I guess based on your early marketing attempts, are you identifying maybe specific subsets of patients that are most amendable or seem to have the most unmet need for HEPLISAV? And has that changed any of your attempts to add marketing it to population?
No, we've covered that I would say. Customers in every possible segments and I think the - so the very positive response that we're indicating today has been highly consistent across all patient types.
Great. Excellent, thanks.
Thank you.
We'll go next to Katherine Xu with William Blair.
Yes, hi, good afternoon. Do you plan to institute price increases for HEPLISAV?
Well, we don't have any plans to do so at the moment, and we've only just launched.
Going forward, annually.
I - the honest answer is we will concentrate of our first efforts on ensuring that we have market share, we will have a look at what the impact in the market is things like discounts and the feedback from our customers by the benefit they're getting from the improved profile of HEPLISAV. And then in the future obviously we will on a regular basis address the question of whether we are charging the appropriate gross.
And then with regard to the partnering strategy for SD-101, is it going to be a more comprehensive kind of partnership that would encompass all potential indications or is it geographical? Can you give us some color on that?
No I think, it's - we are not really in a position to comment on partnership discussions at this point in time.
So there is some sentiments on intra tumor injections, so it's becoming more feasible or popular with the TLR9 and the same classes. But there are some sentiments saying that some doctors that don't like it, it's not quite practical in practice, can you comment on that?
I think I'll ask Rob to comment on it, the only thing I'd say so far is we've experienced very little difficulty in account of clinical trials Rob would you?
Yes, I think what we've seen overtime since now we've been doing this for four years, over four years what we've seen is a gradual acceptance of intra-tumoral approach when you first start at a Lymphoma trial several years ago, it took a while we got some of those physicians comfortable within the intra-tumoral injection, our subsequent phase we've just haven't seen that at all the PI investigators we brought on have been very eager to do it.
So if you could indulge me one last question, can you just comment on the competitive landscape so there are a few TLR9 agonist in clinical trials in particularly in melanoma as well. And then this thin class which is the intra-tumoral injection as well as that are coming up behind you, any thoughts on positioning and defensive strategies?
I think as a general statement I think we would feel that in this field we have a leadership position at this point in time in terms of the number of patients that we have in our studies. The breadth across both naïve and progressive patients. And I think the clarity that we've been able to provide around the tolerability profile means claiming a leadership position at this point in time is reasonable and appropriate. Our task going forward and including a strong execution of the sort of plans Rob has made referenced to it's all about maintaining that position going forward.
Thank you.
[Operator Instructions] We'll go next to Elemer Prios with Cantor.
Yes, good afternoon gentlemen. I want to ask you about the ASCO presentation, Eddie you mentioned that there is going to be a greater than 60 patient cohort in melanoma that would be presented. What would be the minimal exposure to drug of these patients, what would be the cut-off there?
Cut-off the treatment.
Well, we'll be reporting data on patients who have a first scan at day 64 and then any scans beyond obviously.
But I think the majority of these patients like they try to save about second scan at day-127.
Yes, actually most of the patients have now had at least a day-127 we will be showing some people who just that one scan.
Okay, thank you. And maybe a bean counting question for Michael, Michael, how could we think of extending the newer line item in the P&L costs of sales. Amortization of intangible assets, is it a constant number or is it a function of revenues and cost of goods?
The amortization of intangible is the valuation of the license obligations we have, the present value of them that in fact they consists of the payments remaining to Merck for our Hepatitis B sub-license.
Okay. And it's reasonable to assume that it is on a constant schedule?
Yes.
Okay, thank you.
It's just two remaining payments of $7 million next year and the year after.
Next year and the year after, okay. So it's not a quarterly number is it?
Yes.
Okay.
It is a non-cash - it is the accounting for cash payment that's made once a year.
I see.
We expect to see amortized ratably over the period of the license term.
Got it. Understand. Thank you very much for the clarification.
And at this time, I would like to turn the call back over to Eddie Gray with any additional or closing remarks.
Thank you. The progress we've made since the beginning of the year in both our commercial efforts as well as clinical development give us a great deal to be excited about. And as I said, this is going to be an increasingly exciting time. We look forward to providing ongoing update and would encourage you to review the updated data on SD-101 in advanced melanoma, once that it has been presented at the ASCO conference in Chicago on June 4th.
We'll also be hosting an analyst and investor reception and presentation that evening following the conclusion of our poster description session. We will be joined by one of our investigators Dr. Tony Rivas [ph] and plan to review to poster data and provide an update on our immuno-oncology program. For those unable to attend we will be webcasting the event. I would like to thank you all again for joining us today and wish you all a good afternoon.
This does conclude today's conference. We thank you for your participation. You may now disconnect.