Dynavax Technologies - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered solid growth with total revenues of $72.0M (+30% Y/Y) and HEPLISAV-B net product revenue of $71.1M (+39% Y/Y); GAAP diluted EPS was $0.05 versus $0.00 a year ago, while Q/Q seasonality drove a sequential step-down from Q3’s $80.6M total revenue and $0.12 diluted EPS.
• 2025 guide introduced: HEPLISAV-B net product revenue $305–$325M (midpoint +17% Y/Y) and adjusted EBITDA ≥$75M, underpinned by Medicare Part B retail access and HEDIS inclusion that should support retail and IDN adoption; HEPLISAV-B gross margin expected “around 80%” in 2025.
• Strategic catalysts: shingles readout in Q3 2025 (Phase 1/2 top-line) and initiation of a DoD‑funded plague vaccine Phase 2 in Q3 2025; $200M buyback program with $100M ASR completed in Q1 2025 and the remainder targeted by year-end 2025.
• S&P Global consensus estimates for Q4 were not retrievable due to access limits; comparison to Street is unavailable (see Estimates Context) [Functions:GetEstimates error].

What Went Well and What Went Wrong

• What Went Well

  • Strong commercial execution: HEPLISAV-B net product revenue grew 39% Y/Y to $71.1M; full-year HEPLISAV-B revenue grew 26% to $268.4M; U.S. total HBV market share reached ~44% at 2024 year-end.
  • Policy-driven tailwinds: management highlighted two 2025 levers—Medicare Part B roster billing enabling retail pharmacy access and HEDIS inclusion emphasizing series completion—expected to support share gains in retail and IDN.
  • Margin and profitability progress: FY24 HEPLISAV-B gross margin reached 82% vs 76% in 2023; company delivered FY24 profitability (net income $27.3M) and Q4 adjusted EBITDA of $13.4M.

• What Went Wrong

  • Sequential revenue decline: Q4 total revenue ($72.0M) fell from Q3’s $80.6M on typical holiday seasonality and retail cadence shifts, despite strong Y/Y growth.
  • Operating expense intensity: Q4 R&D rose to $18.7M (+32% Y/Y) as pipeline progressed; FY25 R&D is guided to increase by a high-teens percentage, which will weigh on near-term earnings leverage as trials advance.
  • Estimates visibility: Street consensus was unavailable via S&P Global at time of analysis, limiting precision on beat/miss diagnostics for traders (see Estimates Context) [Functions:GetEstimates error].

Transcript

Operator (participant)

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.

Paul Cox (VP of Investor Relations)

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 a 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 factor section on 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 investor section of our corporate website at dynavax.com. And with that, I will now turn the call over to Ryan.

Ryan Spencer (CEO)

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 us up for even greater 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-$325 million, fueled by the expanding adult hepatitis B vaccine market in the U.S., along with expected market share gain by HEPLISAV-B. We also expect 2025 to be a transformational year for our 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 multi-billion-dollar annual market dominated by a single product. We know the profile required for a competitive vaccine to be successful and disruptive in this market 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 Z-1018 program. As a reminder, we've already completed a dose-ranging phase one study where we saw comparable vaccine response rates to Shingrix while demonstrating a high CD4 T-cell response and meaningfully lower rates of moderate to severe local and systemic post-injection reactions.

For our ongoing phase I/II study, we expect to report our top-line readout in the third quarter, which will be based on one-month data following the last vaccine dose in the study. We expect this study to establish proof of concept for this program and to select the dose and regimen to take into our phase II extension study in patients over 70 years old, along with further studies. We expect these data will support our dialogue with regulators and potential strategic partners ahead of a global phase III launch. We also expect to begin our next clinical trial for our plague vaccine program, which is partnered with the U.S. Department of Defense. Rob will speak more about our clinical pipeline in a few minutes.

We are proud of the company we are building around our core assets of HEPLISAV-B and CpG 1018, which have together helped protect millions of people around the world while establishing Dynavax as a leading vaccine company. Driven by continued top-line revenue growth and operational discipline, our strong financial position has enabled us to also return capital to shareholders as part of our balanced capital allocation strategy. We will also continue to pursue external opportunities to generate sustainable long-term value for our shareholders. This will be an exciting and important year ahead for Dynavax, and I look forward to providing you with updates on our progress along the way. I'd like to turn the call over to Donn Casale.

Donn Casale (Chief Commercial Officer)

Thank you, Ryan. At Dynavax, we are proud to be the leader in the U.S. 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 its position as the market leader. This rapid advancement in a few short years demonstrates 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 the U.S. 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 of 2024. These results reflect significant growth compared to prior years. The growth of HEPLISAV-B is supported by two key segments: retail pharmacy and integrated delivery networks, or IDNs. 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 doses. 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 U.S.

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 in 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 U.S. 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 it alongside other high-volume adult vaccines. We believe this change is likely to enhance focus and utilization in IDNs in large clinics, while also increasing market share as the measure focuses on series completion, which we believe aligns well with HEPLISAV-B's two-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-$650 million in 2024.

This progress tracks with our long-term outlook for HEPLISAV-B market opportunity in the U.S., 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 the call over to Rob to take you through our clinical pipeline.

Robert Janssen (CMO)

Thank you, Donn. I'll begin with our shingles vaccine program, Z-1018. As Ryan mentioned, we previously reported results from our phase I clinical trial designed to evaluate our investigational shingles vaccine, Z-1018, compared to Shingrix in 150 participants. We studied different regimens of Z-1018, including a low and high dose of CpG 1018 adjuvant, and we selected the high dose of CpG 1018 adjuvant to take into future studies. One month following the second vaccine dose, antibody and CD4-positive T-cell vaccine response rates were similar in the high CpG 1018 adjuvant dose groups to Shingrix. In the high dose Z-1018 groups, the antibody vaccine rate was 96%-100% compared with 100% for Shingrix. CD4-positive T-cell vaccine response rates were 88%-92% in the Z-1018 groups compared to 96% in the Shingrix group.

The quality of CD4-positive T-cells was also similar between the Z-1018 and Shingrix groups. The proportion of subjects with gE-specific activated CD4-positive T-cells that expressed three or four activation markers was 79%-82% in the Z-1018 groups and 82% in the Shingrix group. Z-1018 showed favorable tolerability compared to Shingrix without observed safety concerns. The rate of solicited moderate and severe local post-injection reactions was 8% for Z-1018 and 37% for Shingrix, while moderate and severe systemic post-injection reactions were 26% for Z-1018 and 43% for Shingrix. The ongoing phase 1/2 trial is designed to select the antigen dose and regimen to take into future studies, and we're evaluating 441 adults aged 50-69 years. Immunogenicity and safety results at one month after the second dose are expected in the third quarter.

With the understanding that there's no accepted correlative protection for shingles vaccines, CD4-positive T-cells are thought to be an important but not only factor in preventing reactivation of the varicella-zoster virus. In this descriptive study, we seek to demonstrate a CD4-positive T-cell frequency that is similar to Shingrix. Demonstrating a similar distribution and quality of T-cell responses, durable T-cell responses, and similar antibody responses will also be important. If observed, this constellation of findings would suggest to us a high probability of demonstrating comparable efficacy in a phase III trial. Following the one-month data, we expect to select a dose regimen to advance into a phase 2 extension study evaluating adults 70 years of age and older while we await the six-month follow-up data from the 50-69-year-old groups.

Regarding the plague vaccine program, Dynavax and the Department of Defense recently executed a new agreement for approximately $30 million through the first half of 2027 to support additional clinical and manufacturing activities. We plan to initiate a phase two clinical trial in the third quarter of 2025. Given that the program is focused on preventing the spread of pneumonic plague in a biological attack, our goal in the phase two study is to maximize a rapid antibody response through dose ranging of the CpG 1018 adjuvant and optimizing the dosing regimen. Now turning to our program to develop a fourth dose HEPLISAV-B vaccine regimen for adults on hemodialysis. We previously reported that the FDA issued a complete response letter for our sBLA that's on file.

We continue to work with FDA to incorporate data from an observational retrospective cohort study in the sBLA filing with a goal of resubmitting this year. We look forward to providing future updates on this program. I'll now turn the call over to Kelly to review our financial results.

Kelly MacDonald (CFO)

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 19% 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 of 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 the 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 of 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-$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, an advancing pipeline with key milestones this year, and a strong financial profile with a balanced capital allocation strategy. We're very proud of this progress, and 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 (participant)

Ladies, and gentlemen, if you have a question or comment at this time, please press star one-one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star one-one again. Again, if you have a question or comment at this time, please press star one-one on your telephone keypad. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Matt Phipps from William Blair. Mr. Phipps, your line is now open.

Matthew Phipps (Equity Research Analyst)

Hi. Hello. Sorry. 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 and market share, I know you guys have given 2030 guidance, but what is the kind of entrance to get into more accounts and continue to drive market share growth? So what do you think is the barriers that you need to overcome? Is it just that you've gotten the fast adopters and now you 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?

Ryan Spencer (CEO)

Hey, Matt. Thanks for the question. Donn, why don't you take that one? One thing I want to highlight is we recognize that our market is broken up into two key segments between IDN and retail, so probably a little commentary on both would be helpful.

Donn Casale (Chief Commercial Officer)

Yeah. Hey, Matt. How are you doing? So great question. When we think about market share, I alluded to it on the call. There's two major market events that are going to help support continued growth of 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 also having the HEDIS measure, which again is going to focus on series completion, which obviously is going to favor HEPLISAV-B and its two-dose completion. So those are two events that will continue to support market share gains, and then it's a continuation to continue to work with customers and various outlets to drive the market share. So we're very confident in continuing 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 growth share, it will obviously take up the overall total market share in line with what we are guiding to by 2030.

Matthew Phipps (Equity Research Analyst)

Thanks, Donn. 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?

Ryan Spencer (CEO)

Yeah. So I'll let Rob handle the details here, Matt. But I think that what's important to note is the trials that we're running now or dose-finding trials. We selected an adjuvant dose or CpG 1018 dose. And the current trial is designed to test the adjuvant with and without alum, 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 immunogenicity markers. And as you noted in Rob's prior comments, generically, there's a number of markers and a constellation of data that we're going to have to evaluate, not a simple objective measure of CD4 T-cell frequencies alone. Rob, you maybe can comment on some of the prior information we've given around the level of expectation for CD4s.

Robert Janssen (CMO)

Yeah. The 75% really is about 75% of the median quantity for T-cell quantity, as well as fold change. And fold 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 saw it in our phase I study where our quality of CD4 T-cells with three or four activation markers is very similar to Shingrix. And we think that's going to be important too. Durability of T-cell responses. So what do 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 a phase III efficacy study would look like.

Matthew Phipps (Equity Research Analyst)

Okay. Thanks, Rob. And one last question for Rob again. When we look at the safety, both from your previous phase I, the Shingrix label, and also the curve of 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.

Robert Janssen (CMO)

We don't really have access to their data collection instruments. However, FDA does. And FDA does insist on these e-diaries that subjects fill out during 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 local, like fatigue and fever, those things are uniformly collected in pretty much the same way. But 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 alum, as well as HEPLISAV-B, what tolerability looks like for 1018.

Matthew Phipps (Equity Research Analyst)

Great. Thanks for taking my questions.

Ryan Spencer (CEO)

Thanks, Matt.

Operator (participant)

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

Roy Buchanan (Research Analyst)

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 are you 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 the durability?

Ryan Spencer (CEO)

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 to, in particular, look 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 were able to determine durability from that initial readout, 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 the 70-plus-year-old population, and that study's readout, along with the six-month data, will provide us another sense of the strength of the product profile.

Robert Janssen (CMO)

Yeah. I think.

Yeah. So I think in terms of durability, we've certainly seen durability data for 1018 from HEPLISAV-B, as well as from our partners with COVID vaccines that use 1018 and alum. As Ryan said, we only looked at one-month 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 decay, 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.

Roy Buchanan (Research Analyst)

Okay. Perfect. Thank you. And then on this 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 are you looking to differentiate? Is this a regulatory request? Can you just elaborate a little bit? Thanks.

Robert Janssen (CMO)

It's two things. One. Oh, sorry, Ryan.

Ryan Spencer (CEO)

No, go ahead, Rob. You got it.

Robert Janssen (CMO)

Yeah. So it's really two things. One is to be certain the 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 this 70 years and older age group. 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 this age group when they're going to be a critical population enrolled in a phase III study.

Roy Buchanan (Research Analyst)

Okay. Great. And then last one for me, maybe just on the buybacks. You guys did an accelerated first bid 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 announcing more buybacks? If you get to mid-year and you've completed the extra $100 million on the $200 million, how are you guys thinking about additional buybacks potentially earlier than the end of 2025? Thanks.

Kelly MacDonald (CFO)

Yeah. Sure. 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 has the opportunity to outperform other investments. I think very importantly for us, our primary objective is to drive long-term value for all shareholders. First and foremost, looking for opportunities to maximize HEPLISAV-B. 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 to bear for potentially other assets that can 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 expand the program, but certainly it's something on the list of opportunities for us as we learn more and get towards the second half of the year.

Roy Buchanan (Research Analyst)

Okay. Thank you.

Operator (participant)

Thank you.

Ryan Spencer (CEO)

Thanks, Roy.

Operator (participant)

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

Jonathan Miller (Managing Director)

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 slides, 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 timeframe, given how long you've been looking at this point?

Ryan Spencer (CEO)

Yeah. Hey Johathan, I'll take that one. So obviously, we continue to evaluate the landscape, which I think it's important to recognize it's an ever-changing landscape. It's not static. It doesn't stand still. So we've been very active in looking at ideas. We 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. And so our confidence that there are high-value transactions for us that fit Dynavax is pretty high. And I think beyond that, I really can't comment because this is complex.

And so we're not going to really be 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.

Jonathan Miller (Managing Director)

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?

Ryan Spencer (CEO)

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 are operating with the right assumptions. I think the kinds of differences we saw in our prior phase I are meaningful. I think an important point here is commercial execution is critical. Whether it's HEPLISAV or shingles, the product profile is a tool, but your commercial prowess and the ability to engage the customers are equally as important. 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 strengths with our customer engagement.

The specific levels, I'm not able to comment on right now, but I would say that the levels we saw in our prior phase I, we would suggest are significant, and we're part of the reason we were confident in continuing to advance the program.

Jonathan Miller (Managing Director)

Makes sense. On HEPLISAV-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 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?

Donn Casale (Chief Commercial Officer)

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 HEPLISAV vaccines, specifically HEPLISAV-B. And we've been there from day one. And so we enabled 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. And so we feel like we're going to capture patients through 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 that grows substantially over the next several years. And we're well-positioned to maintain and grow share as well as market size within retail with our partners.

Ryan Spencer (CEO)

Yeah. And I think an important add-on here, just to have a full picture, is this will be a durable product that's been 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 should not be viewed as a situation where we establish market share and we don't have to cultivate that market continuously. So I think Kelly was 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.

Jonathan Miller (Managing Director)

Great. Thank you very much.

Operator (participant)

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

Phil Nadeau (Managing Director)

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 the HEPLISAV-B 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?

Donn Casale (Chief Commercial Officer)

Hey, Phil, thanks for the question. Yeah, yeah. 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's off to 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 it really supports our guide in the range that we put out there today with what we're seeing here in Q1.

Phil Nadeau (Managing Director)

Got it, and so last year, there was another sequential decrease from Q4-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 a sequential decline?

Donn Casale (Chief Commercial Officer)

I think it'll be different than last year. I think it won't be as profound as you saw last year from Q4-Q1, given the fast start. So we'll have to wait to 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.

Phil Nadeau (Managing Director)

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-B share in that channel?

Donn Casale (Chief Commercial Officer)

Yeah. So basically, hepatitis B vaccines weren't under Medicare Part B. And so pharmacists could not reimburse under Part B. Only Part D was indicated. And so what has happened is hepatitis B has been recognized similar to flu and pneumococcal vaccines under Medicare Part B under roster billing. And so that allows pharmacists and pharmacies to reimburse the vaccine at the retail setting. And so that basically opens up the Medicare patient population for HEPLISAV-B vaccines. 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+ cohort is about a third of the market. And obviously, Medicare is a big piece of that. So essentially, it's allowed HEPLISAV-B to be on equal footing from an access perspective.

So we absolutely believe it will, as I said before, support not only market share gains, but also market growth for HEPLISAV-B here in 2025 and beyond.

Phil Nadeau (Managing Director)

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. It seems like there's at least four or five 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 is more important? How are you going to aggregate all the data, integrate it, and decide, make a go, no-go decision?

Ryan Spencer (CEO)

Yeah. So I'll give you the high-level answer. We haven't been shy about the fact that we believe CD4 are critically important. And 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 assess immunogenicity to approximate efficacy. And CD4s, we believe, are critically important. However, all the elements of the immune response have to be considered. Rob, anything to add?

Robert Janssen (CMO)

No, I think you said it pretty well, Ryan. I think CD4s seem 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.

Phil Nadeau (Managing Director)

Got it. Thanks for taking our questions.

Ryan Spencer (CEO)

Thank you, Phil.

Donn Casale (Chief Commercial Officer)

Thanks, Phil.

Operator (participant)

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

Hi everyone. This is Kelli Callahan for Paul. Thank you so much for taking our question. I guess a couple of quick ones from me. Just on your guidance, and 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 vaccinate with non-respiratory vaccines, you said that there's 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 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.

Is that something that's going to ramp up towards the second half of the year? Or is it kind of happening right now? Thank you so much.

Ryan Spencer (CEO)

Let me take that first part of the question. So the flu season, the extended flu season of the second peak, if we have it, that's going to be a little bit outside of flu vaccination protocols. So we're pretty late into the flu season here. The comments Donn was making about the fast start, because we're going to get relatively limited guidance. We're still in the middle of the quarter. On Q1, it was really highlighting the retail pharmacies' focus on non-respiratory vaccine initiatives. And we're seeing retail pharmacy make 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 of a 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, you want to handle the OpEx?

Kelly MacDonald (CFO)

Sure. So the guide on research and development expenses specifically was the expectation that we expect R&D expenses to increase by high teens %, as you noted. Yeah. 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 plague program. That phase II contract, it 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 we'll go through the first half of 2027, and then secondly, we expect through the first three quarters to have expenses to support our ongoing efforts for phase I and II shingles study.

Got it. That's all super helpful context. Thank you so much.

Operator (participant)

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

Edward White (Managing Director)

Thank you for taking my questions. So just going back to shingles, assuming the phase I, excuse me, the one-month and six-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?

Ryan Spencer (CEO)

Ed, 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 receive from our current phase I and 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, there is the Shingrix development plan that you can reference as far as what it takes to drive a placebo-controlled shingles study but we're not prepared to comment specifically on that trial design or timeline.

Edward White (Managing Director)

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 how are you thinking about the size of the potential market here and stockpiling for the U.S. and perhaps also globally?

Ryan Spencer (CEO)

Yeah. 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. Right now, the arrangement with the DOD, which was funding the work here, we would assume at a minimum is focused on the DOD or our 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 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.

Edward White (Managing Director)

Okay. Thank you.

Ryan Spencer (CEO)

Thank you.

Operator (participant)

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

Roy Buchanan (Research Analyst)

Thanks for taking my question. Ed actually got most of it. But I guess it's a bit in the future, but your willingness to pay for the phase III for shingles, assuming that they're likely to be large to some extent. Thanks.

Ryan Spencer (CEO)

Right. Thanks, Roy. That's actually very helpful just to make sure it's very clear. We have a very clear stated strategy for business development for this program, focusing on ex-U.S. markets. ex-U.S. markets for shingles, we believe, will be quite significant and 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 into 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 and II data, the one-month, six-month, and the seven-year data as part of an ongoing BD strategy to support risk reduction for Dynavax and Dynavax shareholders around entering into the phase IIb or phase IIb/III or phase III study.

I think right now our willingness is high, especially if we have the right immunogenicity profile, because we believe there's room to compete and Dynavax is well positioned to compete and capture a very significant portion of the market share. Ultimately, the best scenario would be for us to have an ex-U.S. BD partner, both to commercialize as well as absorb the cost and risk of the phase III trial.

Roy Buchanan (Research Analyst)

Okay. Thank you.

Operator (participant)

Thank you. I'm sure 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.

Ryan Spencer (CEO)

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.

Operator (participant)

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