Dynavax Inventory: A Coronavirus Progress Story (NASDAQ:DVAX)

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In my October article, I covered Dynavax (DVAX) in quite some detail and how its CpG 1018 asset would always be its main earner. The company’s delays with the FDA and lack of early commercial success led then-CEO Eddie Gray to focus on SD101, an oncology asset that was a nonstarter from the start. The company got rid of both assets — the molecule and the CEO — in 2019, and with the arrival of the coronavirus, CpG 1018 finally had its day. It has proven to be a very effective adjuvant against several SARS-COV2 variants and soon a number of companies lined up at Dynavax to acquire this vaccine adjuvant to develop their Covid vaccines.

CpG 1018 is developed using yeast, as opposed to GlaxoSmithKline’s (GSK) adjuvant, which is made from animals. Shark-derived squalene is used in some adjuvants, including some GlaxoSmithKline adjuvants. Squalene can also be derived from other products, including yeast, which DVAX uses to make its adjuvant. CpG 1018 was used to develop the HEPLISAV-B vaccine against hepatitis B. In clinical studies, the vaccine differed significantly from ENGERIX-B, GlaxoSmithKline’s vaccine at the time. Despite the clinical success, HEPLISAV-B did not fare well for reasons I discussed in my previous article. In the meantime, CpG 1018 has developed further as a corona success story. There we were in October.

Just two days after my article, in October 2018, Valneva announced very successful pivotal phase 3 data for its vaccine candidate, showing “superior neutralizing antibody titers compared to AstraZeneca’s active comparator vaccine AZD1222 (ChAdOx1-S)”. Valneva’s VLA 2001 uses CpG 1018. This was a big morale boost for Dynavax, who now had late-stage data from one of their partners. Although the UK Government’s Valneva order was cancelled, Dynavax was already supplying a majority of the Valneva order prior to the cancellation.

Other partners at the time included Clover and India’s Biological E. A Taiwanese vaccine using CpG 1018 was also approved under an EUA in that country.

Clover, a Beijing-based private company, announced in September encouraging data from the study of SCB-2019, the company’s adjuvanted protein-based candidate, which showed 79% efficacy over the Delta variant.

Meanwhile, big news broke on the Hep-B front in early November when the CDC added HEPLISAV-B to its list of recommended vaccines. The new CDC guidelines have raised the market significantly to an estimated $600 million. There are significant differences between the new and old directives. As FiercePharma says:

While the CDC’s previous guidance indicated that all adults “can” get a vaccine, its recommendation for those who “should” get it focused only on adults who were at high risk. With the CDC panel’s 15-0 vote this week, everyone between the ages of 19 and 59, regardless of risk factors, is now included in the category of those who should receive the vaccine. Those aged 60 and over who are at risk should also get vaccinated, the panelists said. Other adults who wish to be vaccinated also remain eligible.

HEPLISAV-B still has a competitive disadvantage compared to the other two approved vaccines (now three), namely that it is only approved for adults. However, the market estimate remains, as do the superior results. Investors are therefore confident that sales will continue to rise. I notice that short-term interest rates, which were 20% in October, have fallen to less than 15% today.

The Indian approval of CORBEVAX, the vaccine developed by Biological E. Limited using CpG 1018, was another shot in the Dynavax arms. Although CORBEVAX is not exactly a profit-intensive project – that is, it is patent-free, low-cost, and intended for low-income countries – DVAX can still benefit from the expanded access that CORBEVAX can gain in low-income countries.

The advancement of CpG 1018 as the adjuvant of choice for a number of second and third generation vaccine developers has created a new Dynavax. As Ryan Spencer, the CEO, said:

The transformative value proposition we experienced in 2021 resulted from our company’s strategic realignment to focus on vaccines, driving growth in HEPLISAV-B® and adjuvant delivery strategy CpG 1018® with a diverse portfolio of COVID-19 advance vaccine developers. We anticipate continued product sales growth in 2022, which will enable further investment in our clinical pipeline leveraging our proven adjuvant technology and help advance our vision to build a leading vaccines company.

Dynavax is focused on increasing revenues from HEPLISAV-B and CpG 1018 as part of its growth strategy. It is also using the newly created fund to move other CpG 1018-based vaccines through the clinic. The current pipeline looks like this:

Dynavax pipeline

Dynavax pipeline

corporate website

The company’s press release states that two data reads are due in 2022:

  • Topline data from the Company’s ongoing Phase 1 clinical trial, Tdap-1018, evaluating safety, tolerability and immunogenicity in adults is expected in the first half of 2022, with data in adolescents expected in the second half of 2022 .

  • Top-line data from a Phase 1 clinical trial evaluating the safety, tolerability and immunogenicity of the Company’s CpG 1018-adjuvanted shingles vaccine candidate is expected by the end of 2022.

Tdap stands for Tetanus, Diphtheria and Whooping Cough, also known as DPT vaccine, and in this program the Serum Institute of India, the world’s largest vaccine manufacturer, is the partner.

The company history of the last few years is summarized in the following graphic:

Strategic execution of Dynavax

Execution at Dynavax

company presentation

finance

DVAX has a market capitalization of $1.6 billion, cash and cash equivalents of $414 million and debt of $258 million. 2021 was the company’s most successful year to date, with most of the growth coming from new CpG 1018 sales, as shown below:

Dynavax revenue and other financial metrics

Dynavax Earnings

company presentation

The company in November raised the CpG 1018’s full-year 2021 revenue guidance to between $375 million and $425 million.

Below is a brief summary of spending (in dollars, in millions):

3rd Quarter 2020

3rd quarter 2021

cost of sales

4

60.1

R&D

8.5

6.2

SG&E

21.5

26.9

Source Author, PR

The table above tells a good story about the company. Sales are increasing, the company has very low R&D costs and management has kept SG&D under control.

Here’s another interesting tidbit from the conference call:

Now let’s get to our bottom line. Dynavax generated a GAAP net loss of $28.4 million in the third quarter. This compares to a net income of $4.4 million in the same quarter last year. Importantly, our GAAP net loss and earnings include non-cash fair value adjustments for our outstanding warrants, which fluctuate from quarter to quarter in conjunction with movement in our stock price. During the third quarter and due to recent increases in our stock price, the impact of this fair value adjustment on net income was a loss of $45 million compared to a profit of $21 million in the third quarter of the prior year. We expect these quarterly fluctuations to continue until the warrants expire in February 2022.

The expiration of these warrants will have a positive impact on the bottom line in the coming quarters.

bottom line

DVAX has gone from a near-failure in 2019 that required restructuring and other cost-saving measures to a growth story with the launch of SARS-COV2 and the use of CpG 1018 as an adjuvant in various vaccines. The CDC recommendation for HEPLISAV-B also boosted sales. However, CpG 1018 has always been Dynavax’s core story, and it now appears that with the long-standing nature of the pandemic, DVAX will continue to move forward with its revenues. The stock has been trading sideways for about 3 months and I consider this a buy.

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