This article is in response to the press release of June 10, 2013 from Dynavax (NASDAQ:DVAX) regarding ongoing discussions with the FDA and the pros and cons of potential courses of action by current investors together with the author's conclusion.
Dynavax is a clinical-stage bio-pharmaceutical company with an under development product named "Heplisav" , a vaccine for the prevention of Hepatitis B. In November, 2012, the company received the FDA's advisory committee's report and in February of this year received an answer from the FDA that it agreed with the -committee. Basically, it stated that a wider study of the safety of the vaccine was required. At the same time they agreed that the vaccine was superior to the current vaccine treatment available through GlaxoSmithKline (NYSE:GSK). There was some thought that a relatively quick approval could be obtained for persons in the 18 to 70 age group. The old "bad news, good news" routine. At the time, the company announced that it was going to schedule meetings with the FDA to determine exactly what was required.
In addition, the company has submitted the vaccine for approval of use in Europe. That submittal has been in process for some time. The new CEO of DVAX, Eddie Gray, in today's statement said no further information on the submittal was available and that he did not believe the vaccine's status in the United States had any bearing on the European submittal and vice-versa. (For instance, he did not believe results of trials in Europe could be used to satisfy FDA requirements)
For a much more detailed and scientific report on DVAX, I refer the reader to Dr. Theodore Cohen's SA articles on the company. This step is certainly necessary to make an informed opinion of what action an investor should take. Some of the above background is my recollection from my reading those articles.
Today's News and Reaction
Dynavax, as of the close of the 6/10/13 market, dropped over 43% from $2.47 to $1.40. This was in direct reaction to DVAX's press release and a podcast from its officers.
The press release and podcast seem to state two main items of importance. One was that the FDA had suggested a study involving some 30,000 subjects and the company stating that such a study was not doable by a company the size of Dynavax. The present Phase III study covered some 2,500 subjects and according to the company cost some $25,000,000. It is unfortunate that DVAX had not come to an agreement on the size of the sample, as without that, they could not state the expected cost and more importantly, the time frame such a study could take. Showing his detailed knowledge of the industry, one analyst inquired as to whether it might take "60 days or 6 months". Mr. Gray was able to state with some certainty that it would not be 60 days. The Advisory Committee had mentioned the figure of 10,000 subjects and Dr. Cohen has estimated that it would take around two years.
The second item of importance, in my opinion, was the suggestion that the company would only slow things down if they attempted to obtain approval for use of the vaccine by an age controlled group. This is in reference to the possible approval for use in the 18 to 70 age group.
The stock dropped steadily throughout the day, closing below its 52 week low. While there may be some recovery tomorrow by those seeing an entry point, I would not expect it to recover a significant portion of today's loss and possibly to decline even more.
What are the Choices
One, of course, is to do nothing regardless of whether you presently own stock or are looking to buy stock. While you may opt for this position dependent on your cost, total and/or per share, a more likely reason is pure shock or Newton's "objects at rest tend to stay at rest". Let's look at some other choices.
One could decide to sit tight on the basis that one believes that the vaccine will be approved in a two year period or sooner. This is separate choice from above, in that there is a conscious decision to hold fast. This of course ignores the time value of money and alternative investments that could be made in the meantime. The company has other products in the pipeline but none anywhere near to generating revenue. These are also additional reasons for just sitting tight if you have a position.
One could decide to jump in and either take a position or add to a position on the basis that this is a good entry point and that it is only a matter of time for this admittedly useful and helpful product to come to fruition. Again, time is money and shouldn't be ignored.
I don't want to skip the negative side of this situation. Perhaps the wise thing to do is to dump the stock now. After all, the reasoning could be that we have from one to three years to wait and approval is never a certainty. Who knows what may come out of the extended testing? Who knows what other products may be developed by then? Can Dynavax afford the cost of extended trials especially in light of the time frame?
And then there is the wild card. A buyout of Dynavax. I am sure there are several other candidates but I cannot think of a more logical one than GlaxoSmithKline. While they can just sit back knowing they probably have two or so more years of life for their vaccine, they could take advantage of Dynavax's sad turn of events and gather up the company and its vaccine for a song.
It is at times like these that I wish we were publishing in print so that the reader has to turn a page to find the exciting ending.
Please remember, every investor has his own level of risk taking. Not all positions are created equal. What is a significant part of my portfolio may be a drop in the bucket for others. I'd take a greater risk with the drop.
As for my position, I am for staying the course and depending on future details coming to light, possibly increasing my position. I like the fact that I am still playing with the house's money, that European approval will soon come about and that the wild card may yield pay-off in a much shorter time than expected.
I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only and nothing in this article should be taken as a recommendation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion.
Disclosure: I am long DVAX. 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.