Dynavax's Heplisav: Vaccinated Against Failure?

| About: Dynavax Technologies (DVAX)
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Dynavax is a small cap biopharmaceutical company engaged in the development of new drugs for treating and preventing infectious and inflammatory diseases. On November 15, 2012, a Vaccines and Related Biological Products Advisory Committee convened to evaluate the safety and efficacy of Heplisav, Dynavax's adult Hepatitis B vaccination. The committee voted 13-1 in favor of recommending Heplisav for efficacy and, by a narrow margin, 8-5 against recommending Heplisav for safety.

As a result of the negative advisory committee meeting, shares of Dynavax plummeted approximately 40% before leveling off. With a decision regarding Heplisav expected from the FDA by February 24, 2013, Dynavax presents a good opportunity for catalyst investors. Long-term investors should be optimistic about the likelihood of FDA approval and consider buying deeply discounted shares of DVAX.

After examining transcripts of the 131st Vaccines and Related Biological Products Advisory Committee, it appeared that sentiments among panel members and FDA doctors were cautiously optimistic with regards to Heplisav. The 8-5 vote against recommending Heplisav for safety to the FDA appeared to be the result of: incomplete FDA analyses, a conflict of interest, and insufficient data.

Advisory Committee Meetings (ADCOM)

Advisory committees play an important role in the FDA approval process. They consist of leading experts from different disciplines who convene to evaluate the safety and efficacy of a new drug. During the meeting, committee members determine whether or not the new drug is safe and effective. The meeting concludes with panel members voting yes or no, and a recommendation is made to the FDA.

While advisory committee recommendations are a meaningful part of the FDA's decision process, it is not uncommon for the FDA to act counter to the committee's recommendations.

131st Meeting of the Vaccines and Related Biological Products Advisory Committee (VRBPAC)

Transcripts available on the FDA's Website.

On November 15, 2012, an advisory committee, chaired by Dr. Robert Daum, convened to discuss and make recommendations on the safety of Heplisav, Dynavax's adult Hepatitis B vaccine. The meeting concluded with a vote of 13-1 in favor of Heplisav immunogenicity, with Dr. Daum casting the sole vote against recommendation.

If approved Dynavax's Heplisav would be a direct competitor of GlaxoSmithKline's (NYSE:GSK) Engerix-B. The worldwide market for Hepatitis B vaccines is estimated to be about $700 million. With a reduction in number of required doses, and possibly time till immunity is developed, Heplisav is poised to capture a substantial portion of that market.

In 2009, Dr. Robert Daum received $4,646 in consulting fees from GlaxoSmithKline. Dr. Daum is also director of the Pediatric Immunization Program, which receives annual support from GlaxoSmithKline.

Lastly, the committee voted on safety. A conservative analysis of the transcripts revealed a generally optimistic attitude towards Heplisav and the need for adjuvanted vaccines. The line of contention was drawn at whether more data and time were needed to evaluate Heplisav's safety. The following exchange took place during the meeting, and supports my analysis that the passage of time will increase Heplisav's odds of receiving FDA approval.

November 15, 2012 ADCOM Transcripts, pages 110-111:

DR. DAUM: Sort of on the same subject, is a question for FDA presenters. Is your analysis complete? Some of the things I noticed were ongoing. Are you still analyzing data that are coming in? Or are you sort of done?

DR. SMITH: We are very close to being done, but probably not 100 percent. There are still some outstanding information requests that we have. Is that question pertaining to one of the particular analyses or just a general question?

DR. DAUM: It is a general question.

DR. SMITH: I would say it is very close to being done. However, obviously this is occurring relatively early in the review cycle. So there still is some outstanding information.

DR. DAUM: I would presume that what is not done is safety follow-ups. Can you give us some idea whether you are weeks, months, or years from being done?

DR. SMITH: Hopefully not years.

DR. GRUBER: I don't think that we will share that information. I think we have to say that we are of course doing our review within the prescribed timelines, PDUFA timelines. But Lorie, it is fair to say that the clinical review regarding safety follow-ups is still ongoing. However, of course, we have certain PDUFA mandated timelines in which we are supposed to complete a review. But this is not close to being wrapped up.

With regards to that exchange, it is not surprising that the resulting vote was 8 against and 5 in favor of approving Heplisav for recommendation to the FDA. While I do believe the question of whether or not enough analysis had been completed was valid at the time, four additional months will have elapsed from the time of the ADCOM until we can expect a decision from the FDA.

Fundamental Analysis

In Q3 2012, Dynavax held cash and equivalents of $113,961,000 and operated with a net loss of $44,330,000 for the quarter. A decision by the FDA regarding the future of Heplisav is expected in February 2013. As it stands, Dynavax has enough cash to maintain operations well into Q2 2013 without seeking additional funding.

Analyst consensus on Dynavax is bullish -- target prices range from $6-$10. Currently, 85% of shares are held by institutional owners and support at current price levels is strong.


Dr. Daum's affiliations with GlaxoSmithKline should have been reason enough for him to have recused himself from chairing this meeting. The fact that some of us our now left doubting the veracity of his opinions regarding Heplisav are proof enough of the need to avoid conflicts of interest.

I cannot guarantee that the FDA will approve Heplisav, however, the vaccine was clearly demonstrated to be effective, with fewer doses than its competitor. Time has elapsed, which should strengthen the argument against incomplete analysis, and we can be cautiously optimistic that the FDA will approve Heplisav with a request for post marketing safety studies.

With a strong chance for approval of Heplisav and deeply discounted share prices, Dynavax presents a solid opportunity for both biotech speculators and long-term investors.

Disclosure: I 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.