- Both short and long-term trade possibilities.
- Expecting Approval of Hepislav which is currently in Phase 3.
- Recent Institutional Buying and Extremely High Relative Ownership.
Dynavax Technologies (NASDAQ:DVAX) warrants attention of investors who are seeking potential long-term gains coupled with short term trade possibilities. DVAX is a clinical stage drug manufacturer that specializes in infectious disease treatment and prevention. They are partnered in pharmaceutical programs with AstraZeneca (NYSE:AZN) and GlaxoSmithKline (NYSE:GSK). Additionally, they have a subsidiary in Europe named Rhein Biotech, which manufactures the hepatitis B surface antigen for their HEPLISAV TM Hepatitis B vaccine, which is currently in Phase 3 trials.
Recent attention has deservedly been focused on HEPISLAV, which in my opinion has a high probability of being approved by the FDA once final safety values have been established. Two Motley Fool articles in recent months echo this view, one noting that DVAX is one of two biotechs to watch and the second listing DVAX as a Top Health Care Story.
HEPLISAV was accepted for review in June of 2012 for immunization from all subtypes of the hepatitis B infection. A complete response letter was given to the company in February of 2013 and, after intensive collaboration with the FDA, the Phase 3 trial was designed to make a final determination on safety and efficacy of the drug as compared to Engerix-B, a three dose vaccine developed by GSK. The European Medicines Agency's Marketing Authority Authorization filing is also expected to be re-filed once the Phase 3 study is complete. Dynavax believes the worldwide market potential for Hepatitis B vaccines is $680 million, the US market being $270 million per year. It should be noted that the Advisory Committee on Immunization Practices recommend that all adults with type 1 and 2 diabetes should be immunized against Hep-B. The Center for Disease Control and Prevention (NASDAQ:CDC) estimates 1.5 million new cases of diabetes will be diagnosed every year in addition to 20 million currently afflicted.
Other ongoing trials for Dynavax include Phase 1 trials for Cancer Immunotherapy, a TLR Inhibitor for Lupus, and Asthma Therapy. Dynavax has partnered with GSK to develop its Autoimmunity/Inflammatory and disease pipeline. GSK is able to exercise exclusive options to license this pipeline. Should GSK exercise this option, DVAX would receive approximately $125 million, which is approximately 11 times its entire FY 2013 sales. They are also able to receive an additional $60 million dollar payment if worldwide sales milestones are achieved. In my view, such milestones are easily attainable given the marketing power of GSK and the fact that the autoimmune disease market generates over $30 billion in worldwide sales.
In the Asthma therapy segment, DVAX is partnered with AZN, with Dynavax to receive milestone payments for development, royalties on worldwide product sales, and the option to co-promote these products in the United States. A $5.4 million milestone was awarded to the company in March, with the ability to obtain an additional $100 million for the program. This payment was deferred and the revenue will be recognized over a 24 month period. Asthma and COPD are also tremendous with $25 Billion dollars in annual sales.
The aformentioned partnerships with larger pharmaceutical companies make Dynavax an ideal candidate for a buyout, especially if Phase 3 trials of HEPISAV are successful as Dynavax has exclusive ownership of this product.
Dynavax has a fantastic management team in place. The Chief Executive Officer and Director, Eddie Gray, has extensive background in the pharmaceutical space. Mr Gray joined Dynavax in May of 2013. His previous position was President of Pharmaceuticals Europe for GlaxoSmithKline, which he had held since 2008. Prior to that he was Senior Vice President and General Manager of Pharmaceuticals UK from 2001-2007. His role heavily influenced the vaccine portfolio of GSK in both positions. The rest of the team reads like a who's who in Pharmaceutical Development, but Mr. Gray's strong connections to GSK are noteworthy.
ANALYST VIEWS AND FINANCIALS
Analyst coverage for DVAX is provided by Cowen, Jeffries, JP Morgan, MLV, and William Blair. Price targets are all in excess of $4 per share, ranging from approximately 150-450% above the current share price. MLV issued an Upgrade to Buy from hold in late November 2013 and raised the price target from $1.50 to $5. Dynavax is gaining further recognition, as it recently participated in two Conferences, including Jeffries Global Healthcare and William Blair Growth Stock.
DVAX reported in line 1Q results in May and 2Q results are due on the Tuesday, Aug 5, 2014 at an unspecified time. Revenues are driven by Grants and Collaboration revenue and expenses are nearly all devoted to research and development. The company has plenty of cash to maintain operations for a couple of years, so there is little threat of near-term dilution. Last results reported a much narrower loss than the two previous quarters. (.-.05 vs .09). DVAX has nearly 263 million shares outstanding with 11% of the shares short, while the average volume per day is 2 million shares.
Here is the current chart. There has been nice recent activity in the stock, suggesting a larger move may be at hand. On July 29th, a 3 million+ share block purchase went through, and as you can see on the chart, there are steady volume upticks at fairly regular intervals. Institutional ownership is nearly ¾ of the float, which is very high in comparison to other companies in this sector and price range including: ALXA, AMRN, APRI, BIOD, CPIX, DRRX, OREX, PRAN, SCLN, SGYP, and TPI. The high volume this week is likely an institutionally driven buy ahead of earnings, and thus I expect a form SEC 13A or Form 4 to show up early this week. In my opinion, the wedge on this daily chart indicates a likely upside move with limited risk to the downside at these price levels. Friday's trading also had high volume interest on both the bid and ask throughout the day. The stock may encounter some resistance at the 50 and 200-day moving averages. It seems that was the case Friday, along with a continuation of a hard market correction from Thursday that DVAX held well. My near term price target is 1.65, which is the overhead resistance and the 200-day EMA area. With the current volume and earnings coming Tuesday, I would not be surprised to see a catalyst event to break this resistance level and propel it substantially higher toward an intermediate price of 2.00. Longer term investors could be awarded substantially more on HEPLISAV approval, a buyout offer or other pipeline-related catalysts where the possibility of reaching the MLV&Co $5.00 price target and beyond exist.
Disclosure: The author is long DVAX. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This is not an offer to buy or sell securities. There is no guarantee of any performance. Please consult with an investment professional before investing.