DVAX Stock Forecast: Table Is Being Set – Revenue Growth Is On The Way

 

The article was written by Amber Zhou, a Financial Analyst at I Know First.

DVAX Stock Forecast

“We believe there’s a great opportunity for Dynavax to contribute to the overall health of the adult population with diabetes”—said Dr. Rob Janssen, Chief Medical Officer of Dynavax.

(Source: mmm-online.com)

 

Highlights:

  • Competitive Edge and Huge Market Potential from Heplisav-B®
  • Market Doubts about Trial Data of Immuno-Oncology Platform
  • Strong Cash Position from Debt Financing
  • Current I Know First Bullish Forecast For DVAX

Dynavax Technologies Corporation (NASDAQ: DVAX) is a fully-integrated clinical-stage biopharmaceutical company develops novel vaccines and immune-oncology therapeutics to prevent infectious disease, treat autoimmune and inflammatory diseases and cancer. Dynavax leverages the power of the body’s innate and adaptive immune responses through cutting-edge Toll-Like Receptor (TLR) stimulation. Their flagship commercial product and major asset, HEPLISAV-B® [Hepatitis B Vaccine (Recombinant), Adjuvanted], was approved by the U.S. Food and Drug Administration (FDA) in November 2017. Dynavax’s lead immunotherapy product, SD-101, is an investigational cancer immunotherapeutic currently being evaluated in Phase 1/2 studies and its second cancer immunotherapeutic, DV281, is in Phase 1 development.

(Source: Dynavax)

DVAX price shot up over 60% to $15.85 at the end of July 2017 when a voting result in favor of Dynavax’s experimental Hepatitis B vaccine from FDA was announced. Hence market was encouraged with expectation of FDA’s final approval decision. The stock further rose as the company was said to be reviewing strategic options for HEPLISAV-B®, including a potential sale, a licensing deal or its own commercial launch in 2018. Yet the stock price struggled in a downtrend since then, because the company decided to pursue the commercialization on its own without partnership and many investors were pessimistic about the company’s marketing ability to transit from a research company to a commercial entity.

However, after conducting a fundamental analysis, I believe that the stock is undervalued and it might be a good purchasing point now. Despite some worries and controversies about the trial data of its immune-oncology platform, the cash flow generated from Heplisav-B is believed to be sufficient to support the undervalued conclusion.

 

Competitive Edge and Huge Market Potential from Vaccine Business

On November 9, 2017, HEPLISAV-B was approved by FDA. It is the first new hepatitis B vaccine in the United States in more than 25 years and the only two-dose hepatitis B vaccine for adults. On January 8, 2018, HEPLISAV-B was officially launched and commercialized in the United States for the prevention of infection caused by all known subtypes of hepatitis B virus in adults age 18 years and older.

(Source: spokesman.com)

The current widely-used hepatitis B vaccine, also HEPLISAV-B’s direct competitor, Engerix-B®, has a six-month, three-shot regime. However, it is estimated that around 50% of the patients miss the third dose. In contrast, HEPLISAV-B’s one-month, two-dose schedule owns great competitive advantage for the medical community, given similar safety profile and even higher rates of protection.

Dynavax presented the results of a post hoc analysis of data from the pivotal Phase 3 trial of HEPLISAV-B® at the 2018 American Diabetes Association (ADA) Annual Meeting on June 25. Given the fact that adult patients with diabetes have a greater risk of contracting hepatitis B virus (HBV), the trial was conducted for type 2 diabetes patients aged 60 to 70 in comparison with the results of Engerix-B. According to the test results, the seroprotection rate for HEPLISAV-B was 85.8%, significantly higher than the 58.5% rate for Engerix-B. Moreover, HEPLISAV-B had a similar safety profile compared to Engerix-B, regardless of study subgroup, including smoking status, body mass index and sex.

Exhibit 1: HEPLISAV-B Induced Significantly Higher SPR at Week 28 Compared With Engerix-B

(Source: Investor Presentations)

From the perspective of profitability, there is a huge market to penetrate and grow. First of all, the company’s current strategy is to focus on shifting market share from their competitors to HEPLISAV-B, before moving to market growth initiatives, according to Eddie Gray, the CEO and Director of Dynavax. The existing Hepatitis B vaccine market is stable, well-established and efficiently-targeted. 75% of the market sales is concentrated in 25% of total vaccine outlets. A 60-person highly-experienced sales force team was formed to establish a solid base within institutional accounts and hence capture long-term value and continued growth. Secondly, there exists great potential to expand the market value by premium pricing, increasing coverage rates and driving uptake in diabetic market, extending entry into international markets. Therefore, the short-term loss at this stage is reasonable and critical to ensure long-term benefit.

(Source: Company Website)

To conclude, with the attractive commercial profile of Dynavax’s first product, HEPLISAV-B, substantial future market potential, the company’s management expects it to be a cash generative product by the end of 2019. The cash flow created is believed to make the company well-positioned as a market leader and provide further support for investing in immuno-oncology pipeline.

 

Market Doubts about Trial Data of Immuno-Oncology Platform

On June 4, DVAX released investigating data from its ongoing Phase 1b/2 study on SD-101, an intratumoral TLR9 agonist, in combination with KEYTRUDA® (pembrolizumab), an anti-PD-1 therapy developed by Merck in patients with advanced melanoma. The results compared 2mg dose with 8mg dose. It shows that the overall response rate (ORR) for advanced melanoma patients receiving 2mg doses is 70%, significantly higher than the 38% for those who received 8mg doses.

Exhibit 2: Best Overall Response by Investigator Using RECIST v1.1

(Source: Investor Presentations)

Once the results were released, the market reacted negatively for two reasons. First, the drop in ORR from 100% in the first phase of trial announced last June disappointed the investors. More importantly, the market tends to interpret the difference in ORR for two types of doses as “kiss of death”. More specifically, based on prior clinical trials, if the small-dose group has better data than the large-dose group, it may indicate a false positive and a bad final trial result.

Nevertheless, many experts and analysts argued that this is not a “kiss of death” and there is still great market value for SD-101. First, while the ORR dropped, it is still substantially higher than then 37% ORR for pure KEYTRUDA. The addition of SD-101 improved the responses and was well tolerated with adverse events. Second, it is possible that the 2mg dose is indeed more efficient than the 8mg one.

(Source: Company Website)

 

Strong Cash Position from Debt Financing

On February 20, Dynavax announced the close of its $175 million non-dilutive term loan agreement with CRG LP, a healthcare focused investment firm. The deal will come with $100 million in a first tranche and the additional in a second tranche at Dynavax’s option. Combining with their $192 million cash on 2017 year-end balance sheet, the strong cash position would firmly support the commercialization of HEPLISAV-B in the U.S. and their continued advancement and clinical studies of the immune-oncology program products.

(Source: Company Website)

 

Analysts Recommendations

As shown from the graph below, all analysts issue either a buy or a strong buy recommendation for Dynavax. Moreover, there are more of them who believe in the company’s long-term profitability in recent two months.

(Source: Yahoo Finance)

 

Conclusion

Despite the current market skepticism of the immune-oncology product candidates being tested, Dynavax’s stock price looks undervalued even if we only focus on the economics and future cash flows brought by their core approved product, HEPLISAV-B, with the support of its current strong financial position. The company is in the process of sales preparation and accumulation of institutional and retail accounts for a steady long-term growth. Investors need to be patient to see the growing effects on bottom-line figures in the foreseeable future. Because of that, it may be a good investing point at this time point.

 

Past I Know First Success

On July 2, 2017, I Know First Algorithm gave a bullish 1-month forecast for DVAX. With a signal of 81.20 and a predictability of 0.35, DVAX has grown 66.3% one month since then.

This bullish forecast for DVAX was sent to I Know First subscribers on July 2, 2017.

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