2023-08-10 15:35:40 ET
Summary
- Dynavax's net income dropped by 97% in Q2, 2023 compared to the previous year, but analysts praised management's performance.
- The company's HEPLISAV-B vaccine has exceeded expectations and is expected to contribute to future revenue growth.
- Dynavax faces competition in the market for hepatitis B vaccines but has a positive outlook for capturing a majority of the U.S. market share.
I have followed the changing fortunes of Dynavax ( DVAX) since 01/2017's "Dynavax In 2017: Hero Or Zero ?. My most recent article was 02/2023's "Dynavax: Mission Accomplished , But Watch Out For 2023".
Now as I write on 08/09/2023 we are more than halfway through 2023. In this article, I report on its progress so far in 2023 and its prospects going forward.
Net income dropped by 97% for Q2, 2023 compared to Q2, 2022, yet the champagne corks were popping.
As shown by slide 13 of its 08/03/2023 earnings presentation , Dynavax's Q2, 2023 was one for the record books. Its net quarterly income dropped by 97%. Its top-selling individual product revenues dropped from $222.6 million for Q2, 2022 to $0.00 in Q2, 2023. Run for the hills! Not so. Analysts on its earnings call (the " Call ") were unanimous in their praise, congratulating management on a great quarter.
Dynavax is all about two great products. Its HEPLISAV-B vaccine and its CpG 1018 adjuvant. During the pandemic, its revenues from bulk CpG 1018 adjuvant grew to hundreds of millions quarterly. Dynavax telegraphed its expectations that these were due to drop to nil during 2023 as the pandemic waned and customers drew down inventories.
On the other hand, Dynavax expected HEPLISAV-B to grow its revenues, albeit at a lesser aggregate total. To its surprise and delight during the Call, Dynavax advised that HEPLISAV-B was surpassing its own optimistic expectations.
The HEPLISAV-B story is maturing to fulfill an important role for Dynavax.
Back in 12/2018 I posed a titular question that is every bit as relevant today as when I wrote the article , "Dynavax: Can Heplisav-B Carry The Load?" ("Load"). Load was written ~1 year out from HEPLISAV-B''s launch. It reviewed the vaccine's long struggle to gain FDA approval. It described Dynavax's successful efforts to ready HEPLISAV-B for market success.
Its initial sales were hardly encouraging. Nonetheless, it has soldiered on. it generated the following annual HEPLISAV-B revenues:
2018 - $6.9 million
2019 - $34.6 million
2020 - $36.0 million
2021 - $61.9 million
2022 - $125.9 million
Dynavax's latest 10-K for 2022 (p. 63) explains its > doubling in revenues as follows:
HEPLISAV-B product revenue increased by $64.1 million for the year ended December 31, 2022 compared to 2021. Approximately $56.8 million of the increase was due to higher volume, which was driven by continued improvement in market share and utilization of adult vaccines. Approximately $7.2 million of the increase was due to higher net sales price.
Future growth prospects for HEPLISAV-B are encouraging.
It appears that HEPLISAV-B's revenue path beyond 2023 will include hefty increases. Its Q2, 2023 earnings presentation slide 14 sets out its revised 2023 guidance as follows:
While specific management guidance only takes us to 2023, there are reasons to anticipate nice forward growth for HEPLISAV-B beyond 2023. The overall worldwide market for hepatitis B vaccines is significant. A Fortune Business Insights report pegs it as aggregating $8.38 billion in 2023. It lists the North American component of this in 2022 as $2.72 billion.
In its latest 10-K section, "Competition for HEPLISAV-B" Dynavax characterizes HEPLISAV-B as a two-dose in one month adult hepatitis B vaccine. It competes directly with:
- GSK's ( GSK ) three-dose over six months vaccines Engerix-B and its marketed product Twinrix, a bivalent vaccine for protection against hepatitis B and hepatitis A;
- RECOMBIVAX HB-marketed by Merck ( MRK );
- PreHevbrio, a three-dose adult hepatitis B vaccine manufactured by VBI Vaccines Inc. ( VBIV ), commercially available in multiple countries including the U.S. and
- modified schedules of conventional hepatitis B vaccines for limited age ranges that are approved in the EU and the U.S.
Dynavax set out a helpful summary of its longer term outlook for HEPLISAV-B in it latest 10-K. By 2027, it anticipates the US market for adult HBV vaccines will aggregate up to $800,000. It went on to note that HEPLISAV-B was "well positioned to secure a majority market share over time".
If Dynavax could realize on this potential, it would require that it ~double its guided midpoint 2023 revenues over a three-year span. Its growth to this point lends credibility to such a goal. However, growth rates have a tendency to moderate over time.
Dynavax's pipeline shows limited potential for near term growth beyond HEPLISAV-B.
Dynavax includes helpful pipeline graphics on its web page. This includes one for its wholly owned FDA approved HEPLISAV-B. They also include the following, which provided such wonderful revenue during the pandemic:
This CpG1018 supply business as described on its earnings presentation slide 12 carries the following notations:
- Minimal CpG 1018 adjuvant demand expected from customers in 2023 due to inventory on hand.
- Additional potential demand for 2024 and beyond
As matters now stand, only the most optimistic dare to consider this COVID era stalwart as contributing substantial future revenues. To be sure, its CpG 1018 adjuvant is a critical part of the Dynavax story. It is the adjuvant for HEPLISAV-B and for each of Dynavax's other pipeline products listed in the graphic below:
Conclusion
As a Dynavax shareholder, I am distraught that I find no reason to add to my current position. As I write on the afternoon of 08/09/2023, its current share price of $14.36 and market cap of $1.92 billion seem just about right. The only revenues currently in clear sight are HEPLISAV-B revenues.
Dynavax guides to 2023 revenues at a midpoint of $207.5 million. A bull might consider that it can generate peak HEPLISAV-B revenues of ~$400 million. If you tack on a generous multiple of 5X, you reach its current market cap. In order to support a much higher price, you would need to look to CpG 1018 rekindling. That is certainly a possibility, but not one that seems at all likely.
Checking out Seeking Alpha's Dynavax ratings summary panel, I am struck by Wall Street Analysts' Strong Buy:
seekinalpha.com
The average price target by the 5 analysts is $24.40 for a 69.92% upside. I don't agree with it, but there it is. Hopefully some readers will contribute comments supporting a more sanguine view.
For further details see:
Dynavax: Dizzy Optimism Followed -97% Q2 Net Income Decline