Dynavax Technologies Corporation (DVAX), biopharmaceutical company, not only has promising candidates in the pipeline, but also has an attractive technology. Its lead candidate, HEPLISAV, is currently in an FDA requested phase III safety study, cardinal for approval following safety concerns.
The Business
Dynavax Technology is a clinical stage biopharmaceutical company engaged in the discovery and development of novel products for the prevention and treatment of infectious and inflammatory diseases. The company currently has candidates in the Hepatitis, asthma therapy, and autoimmunity and inflammation diseases. The company has five candidates in its pipeline, with the lead candidate in phase III for Hepatitis B. Dynavax uses its proprietary immunostimulatory sequences (ISS) and immunoregulatory sequences (IRS), to develop its candidates.
The company has partnerships with GlaxoSmithKline (GSK) and AstraZeneca (AZN) for the development of its candidates, and will receive milestone payments. It also has two wholly owned subsidiaries Rhein Biotech GmbH in Germany a manufacturing facility, and Dynavax International B.V. in the Netherlands. Furthermore, the company has $470 million of market capitalization, 84% institutional holdings, 3.32% insider holdings, and 167 employees.
The direct competitors of the company for the Hepatitis B vaccine include GlaxoSmithKline and Merck (MRK). The competitors for the autoimmune and inflammatory diseases candidate include F. Hoffman-La Roche Ltd. (OTCQX:RHHBY) and subsidiary Genentech Inc., Amgen Inc. (AMGN), Abbott Laboratories (ABT), and GlaxoSmithKline. Lastly, the direct competitors for the asthma therapy AZD1419 are in development by Sanofi-Aventis (SNY) and Idera Pharmaceuticals (IDRA).
Technology
The company has proprietary technology, ISS and IRS, that help the body's immune system, to fight against diseases and inflammations.
Immunostimulatory sequences are short DNA sequences that intensify the immune system's ability to fight diseases and to control chronic inflammation. The ISS works by targeting the Toll-like Receptors which causes the innate immune response to activate. The ISS reprograms the immune responses that cause the disease instead of merely treating the symptoms. Additionally, when they are linked to or combined with antigens, ISS helps generate memory Th1 cells that can have long lasting therapeutic effects by reprogramming the immune system, which is effective for cancer, viral diseases, and bacterial infections.
The immunoregulatory sequences are short DNA sequences that inhibit TLRs that are associated with autoimmune and inflammatory diseases. These inhibitors have shown potential in multiple diseases such as inflammatory skin disorders, lupus, and rheumatoid arthritis.
Collaborations
The company has the strategy to advance its pipeline with the help of partnerships with leading pharmaceutical companies and by entering into funding agreements. Thus far the company has successfully entered into two partnership agreements and one funding agreement.
The company in December 2008 entered into a strategic alliance with GSK for the discovery, development and commercialization of Toll-like receptors (TLR) inhibitors. Currently, the companies are developing DV1179, an autoimmunity and inflammation candidate, in phase I of development. GSK has made Dynavax an initial payment of $10 million and is in agreement to conduct research and development in up to four programs. Dynavax is expected to receive milestone payments, and earned a total of $15 million for initiation of phase I, proof-of-mechanism trials of DV1179, and on the expansion to develop TLR8 inhibitor.
The company entered into a partnership agreement with AstraZeneca in September 2006, for discovery and development of TLR9 agonist based therapies to treat asthma and COPD (chronic obstructive pulmonary disease), for $10 million of upfront payment. On the nomination of AZD1419 for asthma, Dynavax received $4.5 million in milestone payment, and will receive $20 million if AstraZeneca chooses to advance the program on completion of Phase II/a trial. However, in case of advancement of the program AstraZeneca will retain the rights to develop and commercialize the resulting product, and Dynavax will receive future development payments and royalties from the sale of the product.
The company has a $17 million funding program with National Institutes of Health (NIH) and its National Institute of Allergy and Infectious Disease (NIAID), for the advancement of ISS technology using TLR9 agonists as vaccine adjuvants. In August 2010, NIAID granted Dynavax $1.4 million to study the differences, through systems biology approach, between patients responding or not responding to the Hepatitis B vaccination.
Candidates
The company has five candidates in its pipeline, where three are currently running clinical trials. The other two candidates are SD-101 cancer immunotherapy has a phase I/b trial for Chronic Hepatitis C infection; and DV230 a preclinical nanoparticle adjuvant technology. The development and commercialization right to SD-101 rest with Dynavax and is part of the development program available for partnership.
HEPLISAV is a Dynavax phase III candidate for adult hepatitis B, an investigational vaccine. It comprises of 1018 ISS and hepatitis B surface antigen (HBsAg), which is manufactured in the company's Rhein subsidiary. The phase III trial results demonstrated better results as compared to Engerix-B, GSK's hepatitis B recombinant vaccine, in healthy adults (n=2449) 40 to 70 years of age. However, the FDA rejected the BLA filed on the basis that the current data didn't support the safety profile of the vaccine, despite it showing superior immunogenicity results. The safety concern was for the development of autoimmune disease from the compound 1018 ISS. The FDA issued Complete Response Letter (CRL) on the BLA earlier this year, and the subsequent trial will be an 8,000 subject, safety and immunogenicity trial compared with Engerix-B. The primary objectives include overall safety and "noninferiority of peak seroprotection rate (SPR) induced by HEPLISAV to Engerix-B in subjects with type 2 diabetes mellitus". Additionally, Dynavax recently submitted the responses to the European Medicines Agency's (EMA) Day 120 List of Questions issued by Committee for Medicinal Products for Human Use (CHMP).
DV1179 is a bi-functional inhibitor of TLR7 and TLR9 in patients with systemic lupus erythematous, in phase I of trial under a strategic alliance with GSK. It's being studied for the treating autoimmunity and inflammation. Currently no activities are being undertaken for the trial, as GSK hasn't yet chosen to initiate the development under the agreement.
AZD1419 is a drug candidate for asthma currently in phase I of clinical trials, being developed in collaboration with AstraZeneca. The AZD1419 therapy is designed such that it modifies the basic immune response to allergens such as pollen and house dust, thus having a long term reduction in the symptoms of asthma. The candidate was advanced into phase I for human trials, based on preclinical studies that demonstrated that it can produce long lasting disease modifying effects in atopic asthma mouse model.
Market Performance
The company has a year to date performance of -37.2% largely attributed to the price drop earlier in the year following the FDA's request for additional safety data on HEPLISAV. However, in the past three months there has been a 51.7% increase in the share prices, which illustrates that the share prices are well on the path to recovery.
It's currently trading at $1.79 (19/12), with a mean price target of $4.50, a high target of $6 and a low target of $3. The mean recommendation for the stock is a buy. However, from the analysts covering the company, the consensus rating is a buy with an average price target of $5.57, with the highest rating of $9 (William Blair) and lowest of $2.85 (JPMorgan).
Upcoming Events
The company, in the first quarter of 2014, is expected to begin the phase III clinical trial to demonstrate safety of HEPLISAV, as per the FDA's request in the CRL. It estimates to conclude subject visits by year-end 2015, with potential approval somewhere in 2016. This initiation of the trial is expected to have a positive impact on the share prices.
In the first quarter of 2014, the company also expects to receive the Day 180 List of Outstanding Issues by the EMA. A possible approval in Europe is expected in the second half of 2014. This will have catalytic impact on the share prices in the next year.
The safety data from the first part of phase I trial of AZD1419 is expected in mid-2014. The first part of the study will include data from 45 healthy subjects, receiving inhaled doses of AZD1419 or the placebo. The data if positive will positively impact the share prices.
Fundamentals and Potential Risks
The company reported $2.9 million in revenue in the previous quarter, generated from the license agreements and grants. However, the company did post $15.7 million in loss or $0.09 loss per share. The company exited the previous quarter with $76.5 million in cash; however it generated net proceeds of $125 million from a common stock and series B convertible preferred stock offering in October 2013, bringing the cash to $201.5 million. The operating expenses of the company for the nine months ended September 30 were $61.90 million, giving a burn rate of $20.6 per quarter or $6.9 million per month. Thus the company currently must have approximately $188 million in cash, which should suffice for the next two years. However, the company does anticipate cash usage of $50-55 million for the Phase III trial of HEPLISAV. But I believe the current cash does avert the risk of dilution, for at least the next two years.
The HEPLISAV phase III trial requested by the FDA is currently the major risk for the firm. In case of serious autoimmune event there is the chance that the product would disqualify from approval. This could prove to be a major setback for the company.
If and when HEPLISAV is approved it will have to compete with other marketed products such as GSK's Twinrix and Engerix-B; and Merck's Recombivax-HB. The company estimates the worldwide market for Hepatitis-B vaccines to be approximately $700 million, which is primarily comprised of GSK and Merck. The company will have to undertake rigorous commercializing efforts to capture the market share.
Bottom-line
The company holds promise with its pipeline, technology, partnerships, and manufacturing capability. HEPLISAV alone has major potential as it provides benefits over other treatment options, since there is no cure currently for Hepatitis-B and vaccines are way to go for preventing the disease. The asthma therapy candidate also has major potential with its potential ability to have a long lasting disease modifying effects.
Also of note is that the company has had only one insider sale in the past 12 months and a number of insider purchases, further strengthening the prospects of the company. Furthermore, it is expected to begin enrollment in the HEPLISAV trial in the first quarter of 2014, which is the most imminent catalyst, among others.
Dynavax is definitely the company to watch out for in the years to come, with the lead candidate expected to be approved in Europe next year and in the U.S. by 2016. Any positive news from the HEPLISAV trail will surely push the stock prices up, and the Europe approval will result in a major rally. Based on the catalysts and related rallies the stock, in my opinion, has the potential to cross the price target of $4.50 next year. All in all, the company is a good long term investment with the potential of solid returns for investors going long at the current price.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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