Dynavax Technologies: A Surprising COVID-19 Play

Summary

• Today, we revisit Dynavax Technologies after the company posted fourth quarter numbers last week.
• Surprisingly, this hepatitis B vaccine concern has morphed itself into a surprising COVID-19 play that could unlock shareholder value.
• We update our investment thesis on Dynavax given recent results and events in the paragraphs below.
• I do much more than just articles at The Biotech Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Dynavax Technologies (NASDAQ:DVAX) is a name I have held and followed for years. I have watched it go through a long run to get its best of breed hepatitis B vaccine approved after several attempts (due mainly to FDA intransigence) and into early day of commercialization. The company posted fourth quarter results last week which we will review. More importantly, the company has all of a sudden become a significant COVID-19 play. We update our analysis on this small-cap vaccine concern in the paragraphs below.

Company Overview:

Dynavax Technologies is a small vaccine developer based in California. The company has leveraged its toll-like receptor [TLR] immune modulation platform to produce a hepatitis B vaccine (Heplisav-B) that has resulted in Hepislav-B, which is superior in a couple of important ways from long-term standard of care Entergix-B and is just starting to roll out on a large scale basis. Interestingly, the company developed an adjuvant (CpG 1018) that complements HEPLISAV-B. That adjuvant has become more important to the company's future than few imagined a few months ago as it looks like it will be core part of some COVID-19 vaccine products. The stock currently is trading at just under $9.00 a share and sports an approximate $1 billion market cap.

Source: Company Presentation

Fourth Quarter Highlights:

Last week the company posted fourth quarter results. Here are some of the highlights:

Net product revenue for Heplisav-B came in at $11.5 million. This was an 8.5% year-over-year improvement from $10.6 million for the fourth quarter of 2019. For FY2020, net product revenues came in at $36 million, a four percent increase from the same period a year ago. Given how the pandemic dominated 2020, Dynavax managed through the impacts quite well in my opinion.

Source: Company Presentation

They made significant progress on the cost and cash burn fronts. A sharp decrease in R&D costs was a significant driver of this. Those expenses for the fourth quarter fell to $9.5 million, compared to $12.3 million in the same period a year ago. FY/2020 R&D expenses were $28.6 million compared to $62.3 million for FY/2020. The winding down of our immuno-oncology programs (SD-101) and a restructuring in spring of last year were the primary drivers of lower R&D costs.

Net loss last quarter was $15.5 million, a sharp drop from the net loss of $36.8 million for the fourth quarter of 2019. FY/2020 net loss decreased to $75.2 million compared to $152.6 million in FY2019.

A Stealth COVID-19 Play

Dynavax has recently become a "stealth" play on the COVID-19 front in somewhat of a surprising way. Dynavax originally developed an adjuvant that was to be used with Heplisav-B called CpG 1018. At the end of the third quarter, Dynavax signed a supply CpG 1018 for the use of the COVID-19 vaccine candidate developed by Valneva SE. Leadership stated on its fourth quarter press release, subject to regulatory approval for the vaccine from Valnex, the company expects the partnership to yield ~$230 million in revenue for Dynavax in FY2021, including ~$40 – 60 million in the first quarter.

Source: Company Presentation

Dynavax is scheduled to supply CpG 1018 to produce up to 100 million doses of adjuvant Valneva's vaccine in 2021 provided it is approved and has a successful rollout.

Source: Company Presentation

Dynavax also is set to provide CpG 1018 to Clover Biopharmaceuticals which also is developing a COVID-19 vaccine. Clover is planning on initiating a global Phase 2/3 efficacy trial for their candidate in the near future. Interim results from this study should be out in mid-2021. Dynavax also estimated CpG 1018 to be used in 500M – 1.5B doses of vaccines annually starting in 2022. Finally, the Coalition for Epidemic Preparedness Innovations or CEPI has agreed to provide funding of up to $99 million for advanced manufacturing of CpG 1018 for use in COVID–19 vaccines developed by CEPI grantees to ensure product availability in 2021 upon emergency use authorization.

Source: Company Presentation

Analyst Commentary and Balance Sheet:

Over the past month, DVAX has received four Buy reiterations from analyst firms including William Blair and Cowen & Co. Price targets proffered within these ratings have ranged from $14 to $20. On Feb. 8, Evercore ISI reiterated its Outperform rating and $14 price target on Dynavax. Evercore's analyst declared at the time 'There were a few updates for Dynavax this past week that are "worth explaining since they're a bit nuanced" in a note to investors earlier that was partially titled "big vaccine update week." Clover selected Dynavax's CpG1018 + alum as adjuvant for its recombinant vaccine approach and "expects to produce hundreds of millions of doses this year" in what "could emerge as a lucrative partnership" for Dynavax. Meanwhile, COVID vaccine partner Valneva received an order for 40M more vaccine doses for 2022 and CEPI provided Dynavax with a roughly $100M forgivable loan to stockpile CpG1018 adjuvant."

After posting a lower loss than expected of $11.9 million in the fourth quarter, the company has approximately $165 million of cash and marketable securities on the balance sheet. It also has approximately $180 million in debt.

Source: Company Presentation

Verdict:

Heplisav-B sales should pick up significantly in 2021, both as a result of the impacts of the pandemic fading and also because the vaccine was recently approved in Europe. The company did state on its fourth quarter conference call that these impacts will linger at least through the first quarter of this year resulting in lower Heplisav-B sales in the opening frame of 2021. Sales should pick up as vaccine distribution becomes widespread, however.

Source: Company Presentation

The stock has nearly doubled since we last profiled it early in January. However, if management's projections around CpG 1018 revenues going forward proved to be anywhere close to accurate, I don't believe investors are properly factoring in these recent developments on the COVID-19 front. I added significantly to my exposure to Dynavax in trading Friday on the recent news utilizing my standard covered call strategy.

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum.

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.