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Can Dynavax Technologies Still Run the Gauntlet?

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When a stock's share price is lower than a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as fortunes change and the market warms to a stock's prospects, its price can heat up in a hurry. Unfortunately, it's hard tell that a stock is melting investors' hearts until after it's made that upward leap.

Taking the market's temperature
But using Motley Fool CAPS' proprietary ratings, aggregated from the opinions of the 180,000 member-driven investor community, can help us find previously low-rated companies that recently enjoyed a bump in investor confidence. We can see whether they're truly heating up -- or headed back to the deep freeze.

Recently drug developer Dynavax Technologies (Nasdaq: DVAX  ) moved from a two-star rating on CAPS to three stars (out of five) as its hepatitis B vaccine Heplisav came up for review before a Food and Drug Administration advisory panel. Hopes were high that it would get the nod, but a split decision weighing heavily against approval sent its stock -- though not its CAPS rating -- plunging.

Obviously, that's why you don't automatically buy the stock on this data point alone but rather use the heightened interest as a starting point for further research. If some of the best investing minds are taking notice of a stock and upgrading their prospects, maybe we should, too.

Caution: Contents may be hot
Although the advisory panel ruling appears crippling, it's not as bleak as all that. Heplisav's efficacy is not in question as evidenced by the 13-1 vote in favor of its approval; what the panel couldn't agree on was its safety. Now that might look to be a death blow, but really the panel said it didn't have enough data to make a determination and recommended additional studies, which was the basis for its 8-5 vote on the issue.

Normally that would kill its chances when it came before the full FDA in February, but the regulatory agency has been known to go its own way. There are a number of benefits to Heplisav over GlaxoSmithKline's (NYSE: GSK  ) Engerix-B and Merck's (NYSE: MRK  ) Recombivax-HB, and because Dynavax's technology works faster than rival treatments, the ability to treat greater percentages of high-risk populations where sticking to a dosage regimen is one of the biggest obstacles speaks in its favor.

Safety at some point
A recent Forbes article indicates the fears raised by the committee over possible negative outcomes are actually no worse than those presented by already approved treatments, and the committee's suggestion of larger, more diverse patient populations doesn't hold up to scrutiny when compared to approvals that the agency has granted in similar circumstances.

So asking for it to go back and perform long-term, late-stage safety studies don't make much sense, particularly when the need for more and better hep B vaccines is so acute. As the Fool's Brian Orelli writes, "One possibility is the FDA could approve the vaccine for those with the highest risk of being infected with hepatitis B, which might make the benefit outweigh the potential for rare side effects."

The global market for hepatitis B drugs was about $3.1 billion in 2011, and is estimated to hit $4.4 billion by 2019, a 4.8% compounded annual growth rate, markedly slower than the 8.6% rate realized over the last five years. The reason for the slowdown, however, has been the rise in vaccinations.

Since 1982, the CDC has recommended that all adults and children be vaccinated, and between 1990 and 2009, the number of new infections dropped 90% in children and by 75% in other age groups. Sanofi's (NYSE: SNY  ) hep B work is geared toward children rather than adults. Even so, 38,000 people were infected with hepatitis B and some 2,000 to 4,000 people will die from it every year.

Send lawyers, guns, and money
Although financial concerns remain present for Dynavax, collaborations on other drugs with big-name pharmas like Glaxo and AstraZeneca (NYSE: AZN  ) suggest that won't happen. Moreover, there's a growing sense among analysts that there's more of a need for Heplisav that actually weighs in its favor more than the risks weigh against it. With sales for the vaccine estimated to be close to $700 million by the end of the decade, it doesn't quite put it in the class of vaccines proffered by Merck's Gardsil, which added more than half a billion dollars to the pharma's third-quarter revenues, or Pfizer's (NYSE: PFE  ) Prevnar 13, which generated $868 million in quarterly sales, but it would be a substantial business nonetheless.

Let me know in the comments section below whether you believe the FDA will agree the benefits outweigh the risks and give Heplisav the nod.

Checking the mercury
For nearly 100 years, Merck's cutting-edge research has led to a number of medical breakthroughs. Today, however, this pharma stalwart is staring down a steep patent cliff and facing generic competition for its top-selling drug. Will Merck crumble under its own weight, or will it continue to pay dividends to investors for another century? To find out if this pharma giant has the stamina to keep its Bunsen burners alight, grab your copy of our brand new premium research report today. Our senior biotech analyst Brian Orelli, Ph.D., walks you through both the opportunities and threats facing Merck, and the report comes with a full 12 months of updates. Claim your copy now by clicking here.

Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 27, 2012, at 11:37 AM, DSmod wrote:

    The FDA is a department which has many times blocked potentially life saving drugs from use due to non-life-threatening side effects while patients whose lives may have been saved/prolonged/improved by said drug suffer and/or die. On the flip side, they have approved drugs which proved to be life-threatening later on. Given this reality, betting on what the FDA judgment will be in any individual case is essentially that--a bet.

  • Report this Comment On November 27, 2012, at 9:01 PM, CBRT wrote:

    what happened to DVAX basically is conflict of interesting by some paid consultants, but FDA really cares?

  • Report this Comment On December 04, 2012, at 10:55 AM, gailceleste wrote:

    I'm going to buy, so I hope so.

    Rich, I really enjoyed your colorful writing in this article!

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