Dynavax (NASDAQ:DVAX) is a clinical stage biopharmaceutical company that develops novel products using toll-like receptor technology for the prevention and treatment of infectious, inflammatory and neoplastic conditions. The company's lead product candidate, HEPLISAV is a hepatitis B vaccine that targets adult patients. This vaccine has taken investors through a roller coaster ride of 3 pivotal Phase III trials and once already through the FDA, so to end up yet again with a second chance for approval in the next 6 months.
The company's lead product has demonstrated unequivocal superior efficacy to one of the current vaccines in the market supplied by GlaxoSmithKline (NYSE:GSK) especially in the adult hypo-responsive population including patients with diabetes and renal disease. As I am sure investors are aware, one of the main advantages of this vaccine is that it is given in only two doses a month apart as opposed to the traditional hepatitis B vaccine that is given in 3 doses over 6 months. Compliance rates for the latter have been as low as 55% in some studies demonstrating a clinical need to solve this problem.
In this article, I will provide some background about the hepatitis B virus, its clinical significance and impact in the healthcare world. I will go through the clinical trials to make an independent evaluation of the safety profile of HEPLISAV, discuss the FDA's Complete Response Letter and evaluate the likely outcome in or before December.
Hepatitis B is a significant and relatively common infection that causes severe morbidity and mortality. Its main mode of transmission is sexual or through needle sharing. It is estimated that 2 billion people have been infected with hepatitis B worldwide. Around 350 million have chronic, lifelong infections. Hepatitis B is the cause of up to 50% of primary liver cancers. Hepatitis B is 10-fold more virulent than the Hepatitis C virus and around 100-fold more virulent than the HIV virus.
The general rule of thumb is that you have a 30% chance of contracting hepatitis B from a known carrier. That number goes down to 3% for hepatitis C and 0.3% for HIV. Vaccinating adults is imperative for what is and should be a worldwide initiative to eradicate this virus. Currently, hepatitis B vaccination is recommended to all new-borns in the United States. We have eradicated small pox and supposedly polio through worldwide vaccination, and hepatitis B has been proposed to be next on the list.
This virus is of extreme importance in public health. Hepatitis B virus causes chronic liver disease, liver cirrhosis and potentially liver cancer. The most sick and costly patients in the healthcare industry are patients with end stage liver disease. Their mortality in some cases is 50% in one year, going up to 75% in 3 months in severe cases. These are devastating consequences for an illness that is potentially preventable.
Currently, up to 2.2 million people are estimated to be living with chronic hepatitis B in the US alone. The potential for transmission is still extremely significant especially taking into account the virulence of this virus. Patients with the highest risk of exposure are men who have sex with men, people with multiple sexual partners, injection-drug users, dialysis patients, diabetics, travelers to endemic areas and patients with chronic liver disease and HIV.
The first clinical trial of HEPLISAV (DV2-HBV-10) involved 2,427 patients receiving the novel vaccine and the Engerix-B GSK vaccine in a ratio of 3:1 respectively. During the tail end of that trial, a rare autoimmune event of Wegener's granulomatosis occurred, a severe autoimmune disease that affects the sinuses, lungs and kidneys. The progression of the disease is such that it can eventually cause bleeding into the lungs and kidney failure requiring dialysis. This event was thought to be possibly related to the HEPLISAV vaccine and led to the halt of the vaccine's development program. Subsequently, Merck (NYSE:MRK) terminated its relationship with Dynavax retiring all its rights to the HEPLISAV vaccine.
After thorough analysis of the safety data, the clinical hold was lifted in 2009 and Dynavax proceeded to conduct another Phase III trial (DB2-HBV-16) to replicate its data from the first one. In that second trial of 2,449 patients randomized in a 4:1 ratio, similar rates of adverse events were obtained in both groups. In addition, there was no evidence of Wegener's granulomatosis or any ANCA associated diseases (explained later).
Dynavax filed a Biologics License Application in 2012 armored with the combined data from those 2 Phase III trials only to get rejected by the FDA for lack of sufficient safety data. The Vaccine and Related Biological Products Advisory Committee voted 13 to 1 for the proven efficacy of the vaccine. The committee voted 8 to 5 for insufficient data to adequately support the safety of HEPLISAV.
The risk of autoimmune diseases such as Wegener's granulomatosis was still weighing in heavily at this point and the FDA wanted to see more data to ensure that HEPLISAV does not significantly increase the risk of autoimmune diseases. Furthermore, amongst the FDA's concerns were the lack of demographic diversity of patients and the failure to test or co-administer HEPLISAV with other common vaccines such as the flu vaccine.
It is important to emphasize that the FDA did not deem the vaccine unsafe, it just requested more numbers! On a different note, but of equal importance, the FDA also required more data on the process validation program to ensure compliance with Good Manufacturing Practice (GMP).
The FDA initially hinted it would work with Dynavax to get the vaccine approved for targeted populations such as adults with chronic kidney disease or diabetes but this seemed to have been overshadowed by the need for more safety data. The median safety database size for the 12 most recent FDA approved vaccines was 9,500. At that point, Dynavax only had around 5000.
HBV-10 and HBV-16 safety
Starting with the biggest concern, autoimmune diseases, there were no reported cases in the population of a 1000 candidates who received the vaccine prior to initiating any of the Phase III clinical trials. During the DV2-HBV-10 trial, two reported cases of ANCA vasculitis emerged (autoimmune diseases that are diagnosed with the presence of ANCA antibodies in the blood) including Wegener's granulomatosis (mentioned before) in the HEPSILAV group and microscopic polyangiitis in the Engerix-B group. Both occurred in older women, where the incidence of these diseases is highest. Both diseases have equally severe consequences.
The case of Wegener's in the HEPLISAV group occurred 5 months after the second dose of the vaccine injection and one month after the placebo injection, whilst the autoimmune disease that occurred in the other arm happened 3 months after the vaccine administration. The investigators concluded that the adverse event in the novel group is possibly related to the vaccine, however, the one in the control group, is probably not related to the vaccine.
Generally speaking, the closer the time of event or disease to the administration of the vaccine, the stronger the argument for correlation. If both vaccines were novel one would think that the Engerix vaccine would be more likely to cause an autoimmune disease than the HEPLISAV vaccine since it occurred 3 months after injection as opposed to 5 months.
However, my speculation is that since the control vaccine has been around for such a long time with much more data on its safety this conclusion was not reached. Due to the rare nature of Wegener's granulomatosis and the small size of the patient population tested, it may be fair to assume that the vaccine is possibly related to the occurrence of disease. Having a similar autoimmune disease in the control arm however, somewhat negated the significance of this finding.
To further analyze the risk of autoimmune disease, available blood specimens taken at baseline, 3 and 7 months into the trial were tested for ANCA antibodies. Those antibodies are necessary for diagnosing those specific autoimmune diseases. The idea is to check how many patients converted from negative to positive after the vaccine was administered. The investigators discovered that none of the samples tested were positive apart from the 2 patients mentioned above. In the entire HEPLISAV program, the rate of ANCA associated vasculitis was 0.04% in the HEPLISAV recipients and 0.11% in the control (one on each side).
Dynavax proceeded to test other antibodies that are associated with autoimmune diseases like lupus including ANA and anti-dsDNA antibodies. In terms of ANA antibodies, the % of patients who went from ANA-negative to positive was 2.4% in the HEPLISAV group and 3.2% in the Engerix-B group. In terms of the anti-dsDNA antibody test, 0.48% and 0.59% of patients went from negative to positive in the respective groups.
In terms of ALL autoimmune adverse events (AIAE) that occurred in the pooled data prior to the last Phase III trial, 7 of 2500 patients (0.28%) in the HEPLISAV recipients and 4 of the control recipients (0.43%) had an AIAE. None of the data above showed any statistical significance due to the rarity of the occurrence of such events.
Autoimmune diseases are probably the most important factor for the FDA to measure the safety of a vaccine, especially in this case. In my opinion, Dynavax went above and beyond to prove its safety from this standpoint. Having no Wegener's granulomatosis in the last Phase III trial also aids in nipping this issue in the bud. Death and anaphylaxis would be other major safety concerns and the vaccine has not been linked to either.
Adverse events of special interest (AESI) included the autoimmune diseases that were reported in both groups. 8 events were found in the HEPLISAV group, 3 of which were possibly related to the vaccine. Those were, Wegener's disease, erythema nodosum (a painful rash that occurs mostly in the lower extremities) that resolved, and vitiligo (a discoloration of the skin). Six AESI occurred in the Engerix group all of which were deemed not related to the vaccine. Two further events that were subsequently classified as autoimmune diseases (adjudicated autoimmune events) occurred in the HEPLISAV group and were mild to moderate in severity.
The relative risk of an adverse event of special interest and adjudicated autoimmune events was 0.77 (CI 0.27-2.18) indicating no difference between both groups. The reason more of these diseases are popping up in the HEPLISAV group is likely related to the larger patient population tested (remember the ratio of the trials was 3:1 and 4:1). Apart from the ANCA associated vasculitis, none of these diseases would be of severe concern. Such diseases have been reported in lots of post-marketing data by vaccines. As long as there is no statistically significant differences in the trials, we can safely assume that this is not a major concern for the FDA.
There were two deaths that occurred during the clinical development program of HEPLISAV (prior to the last Phase III trial), one in each group, and both, fortunately, unrelated to the vaccines. Serious adverse events were similar in frequency between both groups (2.8% vs. 3.3% in the control group).
There were 5 subjects with adverse events leading to study withdrawal, 3 in the HEPLISAV group and 2 in the control. The 3 in the HEPLISAV group were hyponatremia (low sodium levels, which can be dangerous in certain circumstances), Guilliane-Barre syndrome (a disease causing ascending paralysis), which occurred most likely from an influenza vaccination (5 days post flu vaccine and 110 days post HEPLISAV vaccine) and pulmonary embolism (clot in the lung). All 3 were deemed unrelated to the vaccine in question. 2 events led to termination of the subjects in the control group included blurred vision and arthritis. The investigator concluded the latter to be possibly related to the Engerix vaccine.
In terms of the less pressing reactions (the local and systemic reactions post injection), the rates of injection site swelling, redness and pain were similar in both groups. The most common systemic reactions included fatigue, headaches and malaise, which occurred in similar frequency in both groups. These issues would not have much weight on the FDA's decision but it is always reassuring to have similar data in both groups.
The investigators also examined patients with pre-existing medical conditions that can be exacerbated by immune stimulation, such as from the adjuvant component of the vaccine. Two and a half percent of the HEPLISAV group and 2.1% of the control were identified to have a pre-existing condition of special interest. These subjects mainly included patients with thyroid and skin disease. Both groups experienced a higher percentage of an adverse event 63% vs. 70% respectively compared to the pooled population as a whole (55% and 58%). When analyzed, the type of AE that occurred were similar to those of the pooled database.
Finally, to loop in the last trial result, which we have limited data on, it seems that the rate of medically attended to adverse events, serious adverse events and deaths were similar in both groups. In terms of autoimmune diseases, the rate of Bells Palsy was 0.09% in the HEPSILAV group and 0.04% in the control group. This was not statistically significant. Finally, there were no cases of Wegener's granulomatosis or any ANCA associated vasculitis in this trial. An independent specialist committee from Mayo Clinic deemed all autoimmune adverse events that occurred NOT related to the vaccine.
Post-Marketing Surveillance of Engerix-B
Many of the diseases mentioned in this article have also been reported after the launch of Engerix-B to market. Those diseases include but are not limited to erythema nodosum, Guilliane-Barre syndrome, alopecia and Bell's Palsy. This puts one's mind at ease as it seems that such illnesses are known to occur after hepatitis B vaccinations.
HEPLISAV seems to present a very favourable risk benefit ratio in adult patients, especially ones with lower immunogenicity including diabetics and patients with renal disease. Dynavax has shown that HEPLISAV is a superior vaccine with a similar safety profile to what is currently on the market. In addition, HEPLISAV offers the advantage of higher compliance rates to those who need it at a cheaper cost (2 vaccines instead of 3). The two main areas of uncertainty for the FDA were the lack of numbers and the concern for autoimmune diseases. Both those issues were fully addressed in the latest Phase III trial. The Dynavax database currently consists of 10,000 patients who received the HEPLISAV vaccine.
Based on the safety data discussed and assuming Dynavax complies with protocols of Good Manufacturing Practice, I see an 80% approval probability of HEPLISAV for the total adult population, and a near certain probability of approval for diabetics alone. I do not think the FDA can ignore such crushing efficacy of HEPLISAV over ENGERIX (90% vs. 65%) in diabetics, especially since guidelines now recommend vaccinating this subpopulation against the virus. There are 20 million existing diabetics in the US alone in addition to 1.5 million newly diagnosed diabetics each year. This presents a very lucrative market for Dynavax.
Once approved , HEPLISAV would penetrate the market in 2017. The company had 166 million in cash after the Q1 2016 with a burn rate of around 25 million per quarter. Dynavax will likely need to raise some capital post approval to help with the sales and distribution of the vaccine. I see a limited downside risk at this point since the FDA already postponed the PDUFA date. Other possible risks include negative news about the company's manufacturing facility or its pipeline, which may push the stock down further. Otherwise, I would see a steady rise in the stock in the last few months leading to the approval date.
The conservative estimate of peak sales would be around 450 million (in the US alone) with the company having free cash of 100 million by the end of this year. Going with a very conservative x3 multiple for the industry I would place a price target $35/share for potential revenue and $8/share for free cash giving a price target of $43/share at year's end. Assuming the vaccine only gets approved for diabetics, peak sales could reach a population of 2 million diabetics annually.
If one vaccine dose costs $75 (which is very reasonable), each patient vaccinated would add $150 in revenue. Peak annual sales could reach up to 300 million. This gives us a price target of $23 + $8 = $31. I would argue against using a discounted cash flow method (such as the JP Morgan analysis price target $21) as potential peak sales certainly have an impact on the stock price upon drug approval.
At its current market cap, DVAX presents a very appealing opportunity for investors to make at least 100% return in six months.
Disclosure: I am/we are 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.