Watch These April Biotech Catalysts

Summary

• April is set to play host to a number of impactful biotech catalysts.
• This article addresses two catalysts scheduled in the next two weeks.
• Ultragenyx has a date with PDUFA destiny for Burosumab, a treatment for a rare bone disease.
• Dynavax will be presenting important further data on SD-101, its cancer immuno-therapy used in combination with Merck's Keytruda.
• Both companies have near-term, as well as long-term, upside potential and are worthy of investors’ further interest.

Anticipating and reacting to event-driven catalysts is a key piece of the biotech investing game. And each new month brings new catalysts for investors to watch. Today, we will discuss two interesting biotechs with catalysts this month: Ultragenyx Pharmaceutical (RARE) and Dynavax Technologies (DVAX). We will likely follow this article up in a week or two with a couple more interesting catalysts to watch in April.

Let's take a look at each of these companies, their catalysts, and the likely outcomes.

Ultragenyx: A RARE Chance to Shine?

Ultragenyx specializes in developing therapies for rare genetic diseases. Its principal product candidate is Burosumab, which has been tested, or is being tested, in a few different diseases. The lead indication is in the treatment of X-Linked Hypophosphatemia, or XLH, an exceptionally rare bone disease brought about by the excess activity of a hormone that reduces serum levels of phosphorus and vitamin D, leading to weakness, pain, and a host of skeletal and growth abnormalities. In April 2017, the company reported that positive results from its pivotal Phase 3 clinical trial. It followed up in December with additional data showing further improvement in patients, as well as improvements in patients switched at the halfway mark from placebo to study group. Armed with positive trial results for the treatment of a rare and painful disease, Ultragenyx is now awaiting the FDA's verdict on approval.

The Catalyst

The FDA PDUFA decision on Burosumab is scheduled for April 17th. Ultragenyx is preparing for the commercialization of this ultra-rare therapy, for which the current treatment is infusions of phosphorus and vitamin D. A drug that can attack the hormone causing the deficiencies in the first place would be a major advancement in the treatment of XLH. Burosumab already enjoys Breakthrough Therapy Status. The question now is whether the FDA is sufficiently convinced by the data.

What Should Happen

Given that the Phase 3 trial met its endpoints, as well as demonstrating follow-on efficacy, there should be little doubt that approval is in the cards. That is made even more likely by the fact that there is no treatment on the market that addresses the root cause of XLH. Approval should see the stock shoot up considerably, perhaps as high as $70, where it was trading soon after the Phase 3 trial results were announced. Since then, secondary offerings have diluted the stock somewhat, but at the current share price of about $50, there is considerable upside potential. Investors should expect some of the gap to be closed in the next week as accumulation in advance of the catalyst elevates the stock price. However, there should still be upside on the other side of the catalyst.

If Things Go Wrong

The FDA could always say no. If that happens, the share price will no doubt tumble precipitously. However, the downside of a negative outcome should be mitigated somewhat by a healthy cash balance that can see Ultragenyx through about mid-2019 at the current cash burn rate, as well as a fairly deep pipeline that includes further indications for Burosumab, as well as earlier-stage treatments including gene therapies.

The Verdict

Right now, there appears to be a decent upside advantage and moderately low risk in terms of approval. Entering a position now to ride a potential run-up in advance of the PDUFA could prove wise. If the price stays flat, holding through the catalyst is likely merited, though not without risk. However, if the price manages to climb in the next two weeks and reach anywhere around $60, it might be wise to close out half, or even all of the position, given the reduced upside - and thus increased comparative risk - such a run-up would entail.

Dynavax: SD-101 Gets Its Time in the Sun

In 2017, the Dynavax story was all about Heplisav-B, its novel Hepatitis-B vaccine. After receiving a complete response letter, or CRL, in late 2016, it looked like the vaccine might be done for. In January 2017, the company publicly shifted focus toward its immuno-oncology pipeline. However, it soon became clear that Heplisav-B would get one more shot at approval after all. In November, the FDA made Dynavax investors' dreams come true, giving approval with a clean label. With the market so focused on Heplisav-B, the budding immuno-oncology pipeline received little love. That is set to change as SD-101, an intratumoral TLR9 agonist currently being tested in combination with Merck's (MRK) Keytruda, is set to take some of the spotlight in 2018, even as the Heplisav-B commercialization project powers ahead.

The Catalyst

On April 16th and 17th, Dynavax will be presenting new data from its ongoing SD-101 trials in two poster presentations at the American Association for Cancer Research, or AACR, Annual Meeting. The first presentation will cover the results from a Phase 1b/2 "open label, multicenter study of intratumoral SD-101 in combination with pembrolizumab in anti-PD-1 treatment naïve patients with recurrent or metastatic head and neck squamous cell carcinoma". The second is a durability study of a prior Phase 1 trial of SD-101 and Keytruda in the treatment of advanced metastatic melanoma. The initial results of the melanoma study presented last year at the June meeting of the American Society of Clinical Oncology, or ASCO, caused a moderate stir when it showed an overall response rate of 100%. The presentations will be closely watched to see if SD-101 continues to show such remarkable promise.

What Should Happen

Given the past remarkable efficacy of SD-101 in the melanoma study, hopes are high for the durability study, as well as the results of initial human testing in head and neck cancers. At a February investor presentation, CEO Eddie Gray predicted that 2018 would be a "year of us rolling out immuno-oncology data". The April presentations will be the first test of that. Given the company's vocal enthusiasm about its pipeline, and the highly positive - if limited - clinical trial results of SD-101, there is ample reason to expect impressive results at this month's AACR. Impressive efficacy (in the case of the head and neck study) and durability (in the melanoma study) should see the share price get a modest bump, though it will likely not be anything terribly exciting.

If Things Go Wrong

It is, of course, possible that the results of the studies being presented are not so impressive. However, even if that is the case, they are relatively early studies. An ongoing Phase 2 trial for melanoma is underway and expected to see a data readout mid-year. That will be the real test of SD-101's near-term value. Overall, investors should expect little downside from these presentations as the SD-101 pipeline still lacks significant attention.

The Verdict

Dynavax's current share price is driven almost exclusively by expectations around Heplisav-B's commercial prospects. That is likely to continue for a while, even if this year's AACR sees phenomenal results. However, positive outcomes this month will help set expectations for the Phase 2 melanoma trial which will be showing results later this year, probably at the June meeting of the American Society of Clinical Oncology. Once those results drop, SD-101 will come off the bench of "potential assets" and be lined up beside Heplisav-B as a huge potential profit-machine. We should expect to see more attention paid to Dynavax's immuno-oncology assets this year, and that should begin to be reflected in the share price.

Analyst’s 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.