Since its positive AdCom review for its Hepatitis B vaccine Heplisav-B on July 28, Dynavax Technologies (NASDAQ: NASDAQ:DVAX) has soared, rocketing out of the single-digit range and gaining over 100% since then. After reaching a high of $24.45 on October 5, DVAX has started to trade downward, indicating that its remarkable run may be ending ahead of the November 10 PDUFA date.
AdCom Meeting and Subsequent PDUFA Postponement
After a 12 - 1 from the Vaccines and Related Biological Products Advisory Committee vote in favor of DVAX's safety data for Heplisav-B, shares jumped nearly 90% before closing at $15.85. Early in August, a 3-month postponement of the PDUFA date to finalize details of a post-marketing study for Heplisav-B was announced; after an initial dip, stock price surged as confidence began to grow in the likelihood of approval. After the company announced a share offering at $15 a share, a price floor developed and the stock price has consistently climbed since. Given that DVAX is very publicly cooperating with the FDA to make all the necessary arrangements for Heplisav-B, most investors are highly confident in approval. After reaching a high in the $24 range, the stock price has generally trended downward, signaling that any further upside in DVAX may be limited.
Stock Outlook
At its current share price of $22.45, DVAX has a market cap of $1.34 billion. Peak sales estimates for Heplisav-B (which will likely not be attained for 10 years or so) range from $300 million to $500 million. Additionally, DVAX will have to compete with GlaxoSmithKline's (NASDAQ: GSK) Engerix vaccine, the current standard of care. That commercial battle will not be easy, and as such, a valuation of 2.5 - 5 times (approximately equal to DVAX's current market cap) peak annual revenue seems appropriate. A price of $30 per share would mean a market cap of $1.64 billion, assuming the level of shares outstanding remained constant. While this valuation is attainable, especially considering the value posed by promising pipeline candidate SD-101, it is hard to imagine a reasonable valuation above that number at the current time. Given recent price movements it seems that investors are beginning to understand that.
Despite the positive outlook suggested by DVAX and the FDA, there still does exist a remote possibility of a CRL for Heplisav-B. With the FDA, there is no such thing as a sure thing. Unfortunately for DVAX, a CRL would essentially spell the end for the company. After the second CRL for Heplisav-B, DVAX traded in the $4 range - a third CRL would send the stock price plummeting to that level or below, considering that a fourth try at approval for Heplisav-B would be highly unlikely. Assuming a $4 floor, DVAX has a potential downside of 82.2%, far outweighing any potential pop the stock might experience on approval.
Outlook Following PDUFA
In the very probable event of an approval for Heplisav-B, I believe that the company will be able to commercialize the drug effectively. After raising $75 million in cash from its most recent stock offering, the company is well positioned to battle GSK's Engerix and establish Heplisav-B as the standard-of-care vaccine for Hepatitis B. DVAX could certainly trade between $35-45 per share by the end of next year as investors get a chance to see how DVAX moves ahead with commercializing Heplisav-B.
With that said, I do not think it is the most prudent move to hold DVAX through the PDUFA date. Without a huge amount of room to reasonably move up in stock price, the risk of a CRL merits a brief sell-off of DVAX shares until after approval is assured. After an approval on November 10, DVAX will have a chance to impress investors with a plan to commercialize. Until then, investors might be wise to realize some of the gains accumulated over the past few weeks.
