Dynavax Technologies (NASDAQ:DVAX) is a small-cap, early commercial-stage biotech with a lot of promise. The company's hepatitis B vaccine Heplisav-B can be dosed less frequently than the current cohort of standard-bearers, which should lead to significantly higher compliance rates.
What's more, it also confers superior immunogenicity when pitted against other well-established hepatitis B vaccines like GlaxoSmithKline's Engerix-B. Dynavax believes that Heplisav-B can eventually achieve peak sales in the U.S. of around $500 million. That's quite a payday for a company with a market cap of about $430 million right now.
Despite the attractive value proposition, however, Dynavax's shares have slid by 10.5% since the start of 2020. In total, the biotech's stock has now lost a staggering 54% of its value over just the prior 12 months. Should bargain hunters pounce on this beaten-down biotech stock, or is it best to stick to the safety of the sidelines? Let's dig deeper to find out.
Dynavax's near-term challenges
Dynavax's core value proposition is fairly simple to understand. The biotech is presently valued at a fraction of Heplisav-B's commercial opportunity. That's a seriously pessimistic take in light of the fact that most commercial-stage biotechs sport premiums that are several multiples of the peak sales estimates for their flagship products. So what gives?
There are two interrelated issues weighing this stock down at the moment. First and foremost, Heplisav-B's commercial launch has unfolded in slow motion. For the full year of 2019, the biotech expects net sales to come in at $34 million to $36 million. In turn, Dynavax has been bleeding money of late. That leads us into the second key issue: Investors are clearly concerned about the biotech's ability to morph into a profitable operation before it runs out of cash.
Will Dynavax face a cash crisis before Heplisav-B takes flight? Per the company's third-quarter earnings release, it still had cash, cash equivalents, and marketable securities of $174.9 million remaining in the bank at the end of last September. Dynavax's average quarterly cash burn over the past year works out to approximately $33 million. So, with the enormous year-over-year growth in Heplisav-B's sales that's expected to unfold in 2020, Dynavax should have a cash runway of a least two and a half years from this point forward.
So while it will indeed be close, the biotech should ultimately become profitable before hitting a liquidity crisis. Fleshing this point out, Dynavax is on track to eke out a modest profit by the second half of 2021 (assuming the company doesn't change strategy yet again).
That said, management would arguably be wise to tap the public markets for another $40 million or so within the next 12 months. It's never a good idea to raise cash from a position of weakness, after all. Shareholders, therefore, shouldn't be too upset if they get diluted by perhaps another 8% to 10% before the company crosses the finish line on the profitability benchmark.
Time to buy?
Although Dynavax is in decent financial shape and Heplisav-B's sales are finally starting to ramp up, there's no overarching reason to buy this stock right now. In brief, Dynavax is definitely a worthwhile watch list candidate, but a rebound probably won't take shape until Heplisav-B truly starts to gobble up market share. That key buy signal, unfortunately, appears to be a mid- to late-2021 event.