Does Dynavax Need A Partner?

| About: Dynavax Technologies (DVAX)

Summary

In the post-CRL conference call, Dynavax said they can’t go ahead with Heplisav-B without a partner.

The company is facing a cash crunch and will be out of cash by June.

A partner is needed to focus on SD101 and the rest of its pipeline, and to market Heplisav-B if it gets approved.

In all that happened with Dynavax (NASDAQ:DVAX) in the last couple of months with the adcomm cancellation and the CRL, one of the most critical matters of concern was the management's statement that they will need a partner to continue with Heplisav-B. They said this in the conference call immediately following the CRL that they do not have the time and resources to continue with Heplisav-B by themselves and are actively searching for a partner.

Analysts from JPMorgan asked DVAX management during the post-CRL call whether they will need to wait to find a partner before answering the FDA questions, and they said no. Another analyst from RBC Capital asked them why they need a partner if they are not expecting more trials for Heplisav-B. They said they need to focus on the pipeline, and also they have an ongoing cost to maintain manufacturing facilities for Heplisav-B.

The time it will take for Heplisav-B to approach another approval decision at the FDA is roughly nine months according to company estimates. This includes the 3 months it will take the company to provide a response to the CRL questionnaire, which they confirmed will be done before December 31. Then they expect another 6 months for the FDA to review everything and get ready for a decision. So that is June 2017, or roughly, 3 entire quarters starting from the CRL.

Now, Dynavax had $109mn in cash at September end, and a burn rate of 30mn per quarter. So, this money would be almost depleted by June next year. Assuming the vaccine manages to get approved, there will be no money left to market it, or for the company to continue with the rest of its pipeline.

Dynavax' pipeline has been largely ignored by investors, however, its SD101 TLR agonist should not be overlooked. This product is about to start a phase 1/2 trial in combination with Merck's anti-PD1 drug Keytruda for metastatic melanoma. According to the company, a TLR9 agonist works in synergy with immune checkpoint inhibitors with "tumor volume reduction and improved survival rates, as well as CD8+ T cell infiltration into tumors compared to anti-PD-1 alone." This has been well-researched in the last decade that blocking PD-1/PD-L1 signalling can augment the anti-tumor effects of TLR agonists. A number of big companies including Roche and many smaller companies are engaged in research combining a TLR agonist with an anti-PD1 drug.

Dynavax needs the money to develop this pipeline, and its financial condition is precarious. I believe the company was banking on a quick approval for Heplisav-B which would have triggered some cashflow for the company by the time its cash ran out in the middle of next year. Now that this is not happening, the company does not want to keep backing a dead horse at the expense of its pipeline. I think that is the thinking here behind Dynavax' desire to look for a partner at this stage.

If the company had a lot of faith in Heplisav-B or in the FDA, I guess they would have gone all out for approval. With the money they have, they can do either the one or the other - go all out on Heplisav-B hoping it will pay back by the time its cash runs out, or look for a partner here and spend the money it has on the pipeline.

However, the second course of action is just as chancy as the first one. And even with that, the money is not going to last. SD101 has only passed a phase 1 trial, and there's probably another 5-6 years before it can come anywhere near an NDA. $100mn is not going to last them 5-6 years, so there's going to be a cash crunch.

So the question is not if Dynavax needs a partner, but the question is, why they did not focus on getting one much earlier, say in June or so when Heplisav-B produced better results than Glaxo's Engerix-B in a phase 3 trial? That would have been the most opportune time to look for a partner.

Like I said in a previous article on DVAX, let's not lose hope on a drug that has produced excellent results in trial. But in the last article I hinted at mismanagement at the FDA. In this article, I want to say that it appears that the DVAX management did not properly plan for all contingencies.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.