On November 15, Dynavax's (DVAX) management was greeted by an unpleasant surprise, when the Food and Drug Administration's VRBPAC (Vaccines and Related Biological Products Advisory Committee) panel voted 8 to 5, with one abstention, against the overall benefit/risk profile of the company's lead product Heplisav, suggesting that there was insufficient data to adequately support the safety of Heplisav. Specifically, the panel raised three particular concerns: 1. Trial design and the lack of one-year safety follow-up typically required for vaccines. 2. Trial demographics which were not representative of a US population, and 3. Lack of information on concomitant use with other vaccines.
Last week, William Blair hosted Dynavax's management team at a breakfast meeting with investors in San Francisco. The firm notes that management appeared cautiously optimistic that the company might be able to achieve a "deal" on potential Heplisav approval with a restricted label and various post-marketing requirements with the FDA on or before the PDUFA (Prescription Drug User Fee Act) date of February 24. Moreover, pre approval study may not be required for U.S. approval. The management also mentioned that Day 120 questions from the European Medicines Agency (EMA) suggest a reasonably high probability that Heplisav will be approved in Europe with the full adult label of 18-70 years around year end 2013.
At this point, there are three potential outcomes:
- According to William Blair analysts, the most likely case could be that Dynavax negotiates with the FDA a restricted adult label for Heplisav, a compromise between the initially sought full adult label of 18-70 years of age and the VRBPAC's concerns on safety, with an extensive post-marketing study, as there is a higher unmet need in the restricted population and a stronger benefit-risk argument could be made. The analysts' model incorporates this scenario into the valuation and estimates sales of Heplisav in the U.S. and Europe in the range of $450-$600 million.
- The base case scenario could be that the FDA approves Heplisav for the narrowest population, CKD (Chronic Kidney Disease). The CKD patients represent the highest unmet need among various hyporesponsive populations, and is the only population mandated to be vaccinated and monitored constantly against hepatitis B. Dynavax has the Phase III study HBV‐17 data on hand in CKD patients and had been planning to submit that data to the FDA as a supplemental biological license agreement (sBLA). If Heplisav is approved only in the CKD population, management believes that it could be priced at a 50% premium to the current regimen, and the U.S. CKD market would be $70‐$80 million. For Europe, management plans to price at a premium, and certain countries may decide not to purchase Heplisav. As a result, the company estimates Heplisav's opportunity in Europe could be half of the current size of the market of $300 million. Therefore, in this base case, the Heplisav peak opportunity in the U.S. and Europe could be $220‐$230 million, which supports the current valuation of the stock.
- The worst case scenario of being required to conduct another large study before approval in the U.S. is probably unlikely, according to management. The key concern from the VRBPAC was the inadequate size of the safety database available for Heplisav, and whether a pre‐approval study will be required to strengthen the safety database.
Given the November 15 Advisory Committee's decision, there is a risk that the application does not get approved by the February 24th PDUFA. Although the application has demonstrated efficacy, concerns remain regarding the robustness of the safety database. Further, it remains to be seen whether more safety data will be required.
However, William Blair is positive on the outlook for Heplisav's approvability in the U.S. (assign a 60% probability) and the downside protection of the stock because of a potential favorable Europe outcome, and maintained its Outperform rating and $5 price target ahead of the PDUFA date.