What happened

Shares of Dynavax Technologies (NASDAQ:DVAX), a commercial-stage biotech, fell after the company announced a strategic restructuring that will return attention to its struggling hepatitis B vaccine. Investors unimpressed about the company's return to its roots pushed the stock 19.4% lower in midday trading on Friday, then it recovered somewhat to end up with a 9.8% loss for the day.

So what 

In 2017, less-than-thrilling sales of its hepatitis B vaccine, Heplisav-B, led Dynavax to restructure its organization around a couple of experimental toll-like receptor 9 (TLR9) agonists for the treatment of cancer. The furthest along the development pathway, SD-101, produced some embarrassing data in a combination study with Keytruda from Merck & Co. (NYSE:MRK) recently that are forcing Dynavax to make some tough decisions.

Tired guy in a suit holding a downward sloping arrow.

Image source: Getty Images.

Investigators reported tumor shrinkage among an impressive 71% of patients receiving 2 mg of SD-101 plus Keytruda. Unfortunately, just 49% of patients in the group receiving 8 mg of SD-101 plus Keytruda exhibited a response.

It's extremely unusual for a smaller dose of any cancer therapy to outperform a larger dose. Investors are more likely to assume that Keytruda's doing all the work while SD-101 is getting in the way.

The company's second immuno-oncology candidate, DV281, is an inhaled TLR9 for lung cancer patients. Unfortunately, it didn't appear to do much when added to Opdivo from Bristol-Myers Squibb

Now what

Focusing on Heplisav-B sales instead of trying to develop a first-in-class cancer treatment is the right move, finally. Earlier this year, CEO Eddie Gray seemed ready to acquire more early-stage oncology candidates with money the company can't afford to lose. Gray won't get that chance because he's heading out the door along with the company's immuno-oncology team.

Gray's leaving Dynavax saddled with $177.3 million in loans that bear a 10.2% effective interest rate and mature at the end of 2023. The loan agreement requires the company to record at least $30 million in Heplisav-B sales this year, and Dynavax isn't even close.

The company recorded just $5.6 million in sales of the vaccine during the first three months of 2019. If a new streamlined Dynavax can't push up vaccine sales soon, the stock will fall much further.

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