Dynavax Technologies Corp (NASDAQ:DVAX)

CAPS Rating: 3 out of 5

A biopharmaceutical company that discovers and develops Toll-like Receptor 9 and agonist-based products to treat and prevent infectious diseases, allergies, cancer and chronic inflammatory.

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Player Avatar zzlangerhans (99.78) Submitted: 9/27/2011 11:37:35 AM : Outperform Start Price: $1.99 DVAX Score: +54.14

Dynavax rose as high as 3.16 in advance of phase III data for hepatitis B vaccine Heplisav, then fell to 2.43 after the data showed a 90% seroprotection rate for Heplisav vs 70% for the standard-of-care vaccine Engerix-B. The catch in the data was the failure of Heplisav to meet pre-specified consistency criteria for antibody produiction in recipients after 8 weeks, which meant that Heplisav technically failed to meet the primary endpoint of the trial. Also, three significant autoimmune adverse events occurred in the Heplisav group.

A short while later, the share price ripped back north of 3 when the company reported receiving communication from the FDA that "clinical consistency of three consecutively manufactured lots of HEPLISAV has been demonstrated." Those are the company's quote marks, not mine. Apparently the FDA agreed with the company that consistency in antibody should be measured 8 weeks after the LAST vaccine dose, which allowed the data to meet the primary endpoint.

Unfortunately for Dynavax, these events occurred just before the August broad market meltdown. When investors are fleeing speculative stocks like microcap biotechs, the bear thesis has the upper hand on everything. I do believe that Heplisav has about a 70% chance of being approved by the FDA, so I think there's a good chance the stock will recover if the BLA is submitted before the end of the year as promised.

When playing with Dynavax, keep in mind that the share price plunged three years ago after the FDA informed the company that Heplisav did not have an acceptable risk/benefit profile for the general population. This decision may have been due to a single case of an autoimmune disease, Wegener's granulomatosis, in a test subject. It remains to be seen how the FDA reacts to the three cases of autoimmune disease seen in the most recent trial. Also remember that the Heplisav BLA will be restricted to hyporesponsive populations aged 40 and older, mainly patients with chronic kidney disease. While this represents a substantial population, it is still only a small fraction of the total market for hepatitis B vaccine and it the commercial potential of Heplisav approval is therefore questionable. A sharp sell-off on or shortly after approval is a strong possibility.

This is not a buy-and-hold investment. Feel for a low point, look for a run-up, and bail before the PDUFA. Put options might be a good bet before the PDUFA if they're reasonably priced.

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