Several companies are using CpG 1018, an adjuvant developed by Dynavax Technologies (DVAX 2.81%), in developing their COVID-19 vaccines. One of them, French biotech Valneva (NASDAQ:VALN), has recently received some bad news with the U.K. canceling a supply deal. In this Motley Fool Live video recorded on Sept. 15, Motley Fool contributors Keith Speights and Brian Orelli discuss how Valneva's setback might impact Dynavax.

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Keith Speights: Some more COVID-19 news. The United Kingdom recently pulled out of a supply agreement with French biotech Valneva for its COVID-19 vaccine VLA2001. This vaccine uses the CPG 1018 adjuvant made by Dynavax Technologies, ticker for Dynavax is DVAX.

How will the Valneva setback in the UK impact Dynavax, Brian?

Brian Orelli: Yes, the UK deal was worth 1.65 billion for Valneva, Dynavax's only contributing the adjuvant. That's the part of the vaccine that stimulates the immune system to attack the active part of the vaccine that Valneva made.

Dynavax is only getting a small percentage of that 1.65 billion. It's not actually a royalty per se, but you can think of it that way. If Valneva sells more they don't need more adjuvant and then they will buy more adjuvant from Dynavax. The sales indirectly affect Dynavax because they will only get orders from Valneva if Valneva is actually selling its vaccine.

During the first half of the year Dynavax recorded $89.4 million in revenue from selling the adjuvant to Valneva. Presumably, that's mostly clinical trial supply. The vaccine is in Phase III development right now. But maybe there's some at-risk commercial supply in there too. I wasn't able to figure out whether Valneva was actually manufacturing and right now for commercial supply, but presumably, they would, because the Phase III data is expected in the fourth quarter. We'll know soon enough whether the vaccine actually works.

Overall, I'd say that data readout is going to be a lot more important to Valneva and Dynavax than the UK contract. They can always go back and sell the vaccine to the UK, as well as the other countries if the vaccine works, but obviously, if the vaccine doesn't work they're not going to get any sales. Then Dynavax sales are going to dry up. Then of course Dynavax has other partners that it sells its adjuvant to. I mean, it expects revenue from between 300 million and 400 million in sales of the adjuvant this year.

Speights: When you and I had spoken several days ago, we talked about COVID-19 vaccine stocks to watch that aren't the leaders, that are not the ones that are already have vaccines on the market. Dynavax was one that I'd thrown out there.

This is a stock to watch, the market caps think around $1.7 billion or so. It also has a hepatitis B vaccine that uses that adjuvant as well. I think this is still a stock to watch even with this setback for Valneva.

Orelli: Yeah. I mean, 300-400 million off of that market cap is not bad. As with any other vaccine makers, you've got to make sure that as revenues are going to continue well into the future.