March 20, 2015 - 9:35am EST by
2015 2016
Price: 23.19 EPS NM NM
Shares Out. (in M): 29 P/E NM NM
Market Cap (in $M): 671 P/FCF NM NM
Net Debt (in $M): -131 EBIT 0 0

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  • Biotech
  • FDA approval
  • Vaccine


Investment Thesis:
Dynavax (“DVAX” or the “Company”) is a clinical stage biotechnology company with a focus on infectious and inflammatory diseases. The investment case centers around one drug Heplislav, a Hepatitis B adjuvant vaccine. The stock offers a binary outcome of a multi-bagger or a near zero investment value and at the outset we acknowledge that it is not a typical VIC submission. However, certain unique characteristics of the FDA process can give one comfort to the risk/reward dynamic.
DVAX has already completed a successful phase III trial that showed both positive efficacy and safety data. However, in November 2012, the FDA felt that the data set of 2,400 patients was not sufficiently large to assuage their safety concerns. The FDA panel did approve Hepislav on efficacy grounds by a vote of 13-1, but failed on safety by by an 8-5 vote. Many of the concerns raised by the FDA Adcom in 2012 have not been substantiated at the time and reflected theoretical concerns. In response, in April 2014 DVAX initiated a trial of 8,250 patients. The trial has completed enrollment. The trial is being monitored not only by DVAX, but also by the FDA. Every few months, an FDA panel reviews the trial process from a safety perspective and determines whether to continue. The trial has met the appropriate thresholds on two occasions with a final review scheduled for late July and trial completion in October. In addition, since 2012, the scientific literature has become more robust and reduced concerns surrounding the connection between adjuvants and autoimmune disease. In addition, the initial patients in the Phase III studies have not shown increased adverse events in the past few years. If approved (expected early 2016), Hepislav is expected to be approximately a $400 million peak sales drug.
Hepislav is an adult Hepatitis B TLR adjuvant vaccine that has demonstrated greater efficiency and has an easier administration schedule than existing alternatives.  Given these attributes, it is expected that Hepislav will capture a significant share of the Hepatitis B market. In its Phase III trial, Heplisav showed that 95% of subjects who received 2 doses of Heplisav over one month developed the protective antibody to HBV versus 81% of subjects who received three doses of current market leader Engerix- B.  The fact that Hepislav only requires two injections is a significant benefit as it helps ensure patient compliance with the vaccination protocol. Hepislav initial phase III trials reflected similar safety data to existing treatments.
Initial FDA Failure:
In November 2012, the FDA did not approve Heplisav. The committee voted 13-1 in favor of recommending Heplisav for efficacy and voted 8-5 against recommending Heplisav for safety. The major issues cited against approval fit into two categories. First, the panel had concern about the size of the phase III trial patient population. The initial phase III study only had 2,400 patients. The study currently underway has 8,250.  Combined, the number of patients will be consistent with the guidance provided by some members of the FDA ADCOM hearing. Second, the FDA had concerns about the
possibility of rare autoimmune events among patients taking the treatment. At the time, there was literature that postulated that adjuvant vaccines lead to heightened autoimmune response. Some clinical studies in mice seemed to point to the potential for such adverse effects. However, at the time, these concerns had not been tested in humans. Since 2012, additional research has been completed. The mice trials have not been validated and the general prevailing literature has pointed to the lack of any conclusive scientific evidence of a connection between adjuvant vaccines and auto-immune events:
“So far, there is no compelling clinical evidence that adjuvants are causally related to any autoimmune phenomena. . . The animal models used in autoimmunity research are not adequate to be used for risk assessment for potential AID for new adjuvanted vaccines in this respect.”  (van der Laan JW, et al. Safety of Vaccine Adjuvants: Focus on Autoimmunity. Vaccine (2015))
An integrated analysis of 68,000 adolescents and young adults who received Cervarix, an approved adjuvant vaccine for HPV, demonstrated that there were low rates of autoimmune disorders, with no evidence of an increase in relative risk. The fact that the second trial of Heplisav has proceeded past two safety reviews is a positive data point. In addition. Participants in the first trial have not shown a heightened number of adverse events.
Other Assets:
DVAX has a number of other early stage programs including a promising cancer clinical program that will be entering a Phase I/II trial in the near future.. However, given their early stage and the focus on the Hepislavtrial to the Company’s value, these programs are marginal to value at this stage.
At present, DVAX has essentially no revenue and its only assets are hard to value drugs in development. Absent approval, it is fair to say that DVAX will have little to no value. However, upon approval the Company will quickly become valued on a peak sales multiple. The obvious upside to approval is demonstrated below:
Equity Value Upside:
      Eq. Value Upside
Sales Multiple Ent. Value Equity Value Per Share to Current
3.0x $1,149.0 $1,279.6 $46.85 102.0%
4.0x 1,532.0 1,662.6 60.87 162.5%
5.0x 1,915.0 2,045.6 74.89 222.9%
Failure of Heplisav approval


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


1) In July 2015, the final safety check is expected. Assuming no negative events, a positive check will allow for the completion of the trial in October 2015.  After the late February safety check, the stock appreciated nearly 30% in the ensuing few weeks. Similar appreciation is expected, assuming there is not a negative event.
2) Trial completion in October 2015 should result in further positive sentiment to the stock.
3) FCC approval  A further FDA panel review is expected in early 2016.
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