Hepatitis B is a potentially life-threatening liver condition that affects up to 250 million people globally, including 850,000 in the U.S. One of the most innovative biotechs with a treatment for this condition is Dynavax Technologies (DVAX -1.18%). The company is also partnered with two companies that have entered human trials for vaccine candidates against COVID-19, the disease caused by the novel coronavirus.
While the company has come a long way, many of its investors have waited years for Dynavax's promise to come to fruition. Today, let's look at why the company is a great long-term buy due to the strength of its recent catalysts.
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A rebound in hepatitis B vaccine sales
Dynavax's outlook seemed optimistic last year when it received approval from the U.S. Food and Drug Administration (FDA) for Heplisav-B, the first advancement in vaccination to be approved for adult hepatitis B in 25 years.
In clinical studies, Heplisav-B offered significant benefits against its leading competitor. First of all, the vaccine only requires two doses and demonstrates efficacy in one month, compared to a conventional vaccine that requires three doses and takes six months to prompt results.
Second, Heplisav-B has a success rate of 92% when it comes to immune protection, compared to 73% for the standard of care vaccine. It's highly likely patients will switch en masse to receive Heplisav-B a few years into commercialization efforts. The market opportunity for hepatitis B vaccines in the U.S. is close to $500 million per year, according to Dynavax CEO Ryan Spencer.
Demand for the company's vaccine took a big hit as a result of COVID-19, falling to $8.3 million. Its CFO Michael Ostrach said, "For much of the second quarter, medical centers and physician practices restricted activities at their facilities, and this led to a significant decline in adult hepatitis B vaccine utilization, which fell as much as approximately 70% in April." By July, as the economy began to reopen, the number of patients receiving the vaccine reached approximately 60% of pre-COVID-19 levels. Management expects vaccine sales to increase further "as the U.S. returns to more normal conditions."
This recovery is much needed, as the company is currently losing a great deal of cash to stay afloat. Dynavax's net loss in the most recent quarter was $51.6 million, or $206.4 million annualized. Recently, the company resorted to filing a $150 million mixed shelf offering in order to finance its research and development expenses. A mixed shelf offering allows the company to sell securities in one or more separate occasions. Luckily, investors' patience may be paying off.
Part of the fight against COVID-19
Dynavax is developing an adjuvant against the coronavirus called CpG 1018, which consists of short DNA molecules that mimic viral genetic material. These strands are added to conventional vaccines, boosting immune response while enhancing the vaccine's efficacy.
Dynavax has several adjuvanted COVID-19 vaccine collaborations with different companies, two of which have entered human clinical trials for their candidate with results expected in the fall. If successful, Dynavax would be able to manufacture 600 million to 1 billion doses of CpG 1018 to be paired with potentially successful coronavirus vaccines.
Takeaways for investors
Dynavax has neither the same multi-billion dollar valuation as other vaccine manufacturers such as Moderna, Inovio Pharmaceuticals, or Pfizer, nor the same clinical progress. However, one key advantage the company possesses is its market cap. Currently, Dynavax is valued at just $800 million. Hence, it is easier for the stock to double, triple, or quadruple than the big players, especially if the company receives government orders for its adjuvant. However, this also makes the company riskier with fewer products on the market.
With more than $200 million in cash and equivalents on its balance sheet, this puts the company's entire enterprise value at less than $600 million. Hence, investors will be able to buy a solid clinical-stage coronavirus vaccine company at a great price. Even more, the company's hepatitis B vaccine is recovering remarkably and its growing sales should boost the bottom line over the next few years. Overall, for investors who have missed the rally on coronavirus vaccine stocks, or are looking to diversify, Dynavax stock is an attractive option.
