Summary
- Dynavax has executed its pandemic strategy with finesse.
- HEPLISAV-B looks to be a gift that keeps on giving for Dynavax.
- The Dynavax pipeline provides a tense example of past, perfect and future imperfect.
- What's next is the big question that management will need to address in order to preserve its current valuation.
Dynavax (DVAX) is a gem. I have followed it on Seeking Alpha since 01/2017's "Dynavax In 2017: Hero Or Zero?". Most recently in a companion article , 11/2022's "The Alphavaxers: Dynavax And Novavax - Facing The Shadow".
In this article I update the Dynavax value proposition following its 01/2023 release of preliminary Q4 2022 results (the " Results "). I also report on its 01/2023 presentation (the " Presentation ").
Dynavax took on the pandemic and Dynavax won
The pandemic has presented the world with a cruel understanding of glaring deficiencies in its public health capabilities, with vaccine response one of the few bright spots. Dynavax stands tall as a company that has done well by doing well in the world's vaccine response.
It has done so not by producing an effective vaccine like a Pfizer ( PFE ) or a Moderna ( MRNA ), but rather by providing its CpG 1018 adjuvant to a handful of vaccine makers around the world. As reported in the Results, its five CpG 1018 adjuvant commercial supply agreements generated ~$588 million in preliminary FY-2022 net product revenue.
In doing so it handily beat its base Q4, 2021 guidance for 2022 CpG 1018 revenue of at least $550 million. I had been concerned, that with the pandemic waning more and more as time progressed, the guidance might slip. It did not.
HEPLISAV-B is taking on a major role in Dynavax's value proposition
HEPLISAV-B has been a big part of Dynavax's appeal and its frustration as long as I have been covering the company. I addressed it at length in 10/2018's "Dynavax: Can Heplisav-B Carry The Load?" starting with its tumultuous CRL-strewn path through the FDA prior to its final 2017 approval.
It has addressed issues that would challenge the patience of Job. The 2022 HEPLISAV-B vaccine Net Product Revenues have been tallied at approximately $126 million; this represents 104% growth compared to 2021 showing that it is finally gaining real traction.
The excerpt from Dynavax's Presentation Core Strategic Priorities slide 4 below points to a renewed faith in this key asset:
investors.dynavax.com
Dynavax's 2022 HEPLISAV-B revenues growing by 104% since 2021 gives credibility to HEPLISAV-B's longer term potential. Dynavax has pegged the market to reach $800 million by 2027, with HEPLISAV-B "well positioned to secure a majority market share over time".
As one considers HEPLISAV-B's longer term potential one has to consider Dynavax's patent estate. Typically one must repair to a company's 10-K to get a read on its patents. I look for the length of its patents and whether it has any patent litigation of significance.
In terms of current litigation, Dynavax's latest 10-K mentions none relating to HEPLISAV-B. Similarly a Google search for any HEPLISAV-B patent litigation revealed no cause for concern.
As for its HEPLISAV-B patent coverage it was less assuring, but nonetheless gave no specific cause for alarm. In terms of specifics on US patent coverage for HEPLISAV-B, one finds only the following (10-K p. 12):
We have three issued U.S. patents relating to certain uses of HEPLISAV-B that expire in 2032.
Dynavax's above referenced assessment of HEPLISAV-B's competitive position is conservative in my view. HEPLISAV-B's safety and effectiveness are on par with current competitive products. It has the advantage of generating its impact with a two dose regimen which puts it head and shoulders above its main competitors' three doses.
Its 10-K (p. 13) includes a detailed rundown on its competitive posture as follows:
HEPLISAV-B, a two-dose in one month adult hepatitis B vaccine, competes directly with conventional three-dose over six months marketed vaccines Engerix-B from GSK, as well as Recombivax-HB marketed by Merck. There are also modified schedules of conventional hepatitis B vaccines for limited age ranges that are approved in the EU and the U.S. In addition, HEPLISAV-B competes against Twinrix, a bivalent vaccine marketed by GSK for protection against hepatitis B and hepatitis A. A three dose HBV vaccine manufactured by VBI Vaccines Inc. ("VBI") is approved in Israel and the U.S. ... we face significant competition in our longer term goal to capture a majority of U.S. market share. While we may explore additional territories outside of the U.S. and the EU to market HEPLISAV-B, in doing so we will likely face competition from these or other products and competitors.
The proof is in the pudding. HEPLISAV-B's 2022 performance certainly puts it on a good track.
Dynavax's pipeline is past its prime
Dynavax restructured back in 2019 to drop its immuno-oncology assets and focus on vaccines. The restructuring has been a mixed success from a pipeline perspective as reflected by its Presentation pipeline slide below:
On top is HEPLISAV-B, approved long ago. On bottom COVID-19 CpG 1018 Adjuvant Supply Agreements (partner-developed products) also in the commercial sphere. In the middle we have true pipeline projects in development.
There are only three; two in phase 1 and one in phase 2. The phase 2 is peculiar. It is funded by the U.S Department of Defense (DoD) described in its 10-K as follows:
In September 2021, we entered into an agreement with the U.S. Department of Defense ("DoD") for the development of a recombinant plague vaccine adjuvanted with CpG 1018 for approximately $22.0 million over two and a half years. Under the agreement, we will conduct a Phase 2 clinical trial combining our CpG 1018 adjuvant with the DoD's rF1V vaccine. We anticipate the Phase 2 trial will commence in 2022.
Its future is a total wild card, dependent not only on the trial outcome but also on DoD policies and concerns. Currently plague is vanishingly rare affecting 1,000-2,000 people annually world wide, ~7 cases per year in US. From a current investment standpoint I consider it as nil.
Presentation slide 20 sets out why Dynavax sees it is important. Under circumstances I hope never come to pass, that is true. Under normal circumstances, if the vaccine works, Dynavax will likely get some nice episodic emergency stocking orders, not much else.
That leaves Dynavax with a pipeline of two phase 1 products, Pertussis-Tdap and Shingles vaccines. Not only are these phase 1; there is established competition in each. It would be rash to strike these off as nil, but in terms of current investment appeal they are less than compelling.
Dynavax has an uncertain future however the Presentation helps to focus investors
Of course the future is always uncertain, but in Dynavax's case we can make educated guesses. Its two revenue sources are HEPLISAV-B vaccine and its CpG-1018 adjuvant. For HEPLISAV-B we can expect to get guidance when it reports Q4, 2022 earnings later this month.
Until then, I am going to guess that it makes continued progress towards its goal of ~$400,000 by 2027. I could see it optimistically at a 2023 range of 120-140% of 2022's $126 million. This would put its 2023 guidance at a range from ~$150-$175 million.
As shown by Presentation slide 14, HEPLISAV-B's market share has been rising steadily. Presentation slide 13 reiterates Dynavax's expectation of the entire market to grow steadily toward its $800 million target in 2027.
For CpG-1018 the die seems as if it may already be cast for 2023. Presentation slide 24 illustrates how effectively Dynavax has positioned CpG-1018 in COVID-19 vaccines around the world:
The following bullet points from this slide can serve as quasi long-term guidance for CpG-1018:
- Minimal CpG 1018 adjuvant demand expected from customers in 2023 due to inventory on hand,
- Additional potential demand for 2024 and beyond.
Based on the foregoing, I am assuming Dynavax will see 2023 revenue limited to HEPLISAV-B at a midpoint of $162.5 million. Frustratingly the Results gives no hint on its 2022 expenses. The best we can get for that will have to come from its Q4, 2022 Earnings Call (the "Call").
Its quarterly R&D expenses were $13 million, SG&A were $32 million, totaling $45 million which would annualize to $180 million. As I understood its report, its gross margin on HEPLISAV-B was ~70%.
Conclusion
Dynavax is likely in for a lean 2023. I expect the market to react poorly if I am correct in this assessment, unless Dynavax unveils an exciting BD initiative or substantially better guidance than I hypothesize.
I am more bullish about its longer-term prospects as it develops renewed CpG 1018 adjuvant demand.
For further details see:
Dynavax: Mission Accomplished, But Watch Out For 2023