Dynavax Technologies’ Heplisav-B Offers No Competition Whatsoever To GSK’s Engerix-B

 

  • The market’s reaction to nonexistent Heplisav-B sales in 2018 won’t be fair though it certainly will be crushing.
  • Sales won’t begin in earnest until well into Q2 of this year.
  • Existing stockpiles of entrenched competitor Engerix-B will have to be run down before customers can even commit to trying Heplisav-B.
  • Large organizations often purchase vaccines as part of contract bundles that can’t be parsed out and negotiated separately from other therapeutic products contained within them.
  • Heplisav-B revenue inflection points, therefore, won’t be realized until 2019.
Declaration: I hold no position in Dynavax Technologies (DVAX) and have no intention of initiating a position over the next 72 hours.
Full Disclosure: I have not, and will not, receive compensation from any corporate entity for this or any other article I author and publish on this platform at my own expense.
Saturday, January 13th 2018 – Always do your own due diligence and consult a professional financial advisor before making any investment decision.

The Slow-Motion Crash Of Dynavax Technologies Is Fully Under Way

Millions of investment dollars are daily leaving Dynavax Technologies as smarter, wiser investors and impatient traders are moving away from an equity skidding out of control. CEO Eddie Gray is deliberately downplaying the logistical nightmare set before him. He barely mentions the mothballed manufacturing facility that needs to be brought back to commercial life and possibly recertified by the FDA. He speaks repeatedly of a centralized marketplace for hepatitis-b vaccine administration when common sense tells us that’s simply not true. And he publishes a graphical reference to a market of diabetic patients that today does not exist and likely won’t without a supplemental NDA (sNDA).

Strangely though, he has already acknowledged at the J.P. Morgan 36th Annual Healthcare Conference held on January 11th that 2018 Heplisav-B sales will be slow if not abysmal. In his own words.

In 2018, we forsee two phases. In the early part of the year, our teams will be focused on those factors which support access to Heplisav-B reimbursement contracting and institutional review and process. With that baseline, we’re in position to begin accelerating sales of Heplisav-B and support expanding access to the market. By engineering this foundation correctly, we will then drive additional (we will additionally drive) significant revenue inflections through 2019 and 2020.

That’s right! Eddie Gray sees no “significant revenue inflections” during the eleven months remaining in 2018 and neither should you. The problem for investors is that when a biotechnology company first transitions from developmental to commercial stage, sales are all that matters. Investors want to see real-world validation of the company’s product, technology and pipeline. By suggesting that Heplisav approval was mandated with a clean label and that managerial expertise is now in place, Gray has raised the bar of expectation extremely high.

The Two Secret Saboteurs Of Heplisav-B Commercial Uptake

Saboteur #1: Stockpiles Of Engerix-B

Often times, burried beneath the many words of a CEO at an investor conference are a few that prove essential to an effective contemplative process. I’ve extracted, for your examination, the single most significant statement made by CEO Eddie Gray at J.P. Morgan.

All U.S. customers currently have stocks of Engerix-B that they will need to run down before committing to Heplisav-B.

It becomes effortless to gauge the magnitude of that remark once it is isolated from those of lesser import. Heplisav-B sales won’t start until units of Engerix-B at provider facilities everywhere are exhausted. One need only imagine how competitor GlaxoSmithKline (GSK) delt with this reality over the past many months prior to and following Heplisav approval. Have they, for instance, increased the volume of doses delivered by offering discounts to slow Heplisav uptake? And this isn’t the only strategic move that they could have made.

Saboteur #2: The Crippling Effect Of Product Bundling

Eddie Gray is controverting his own message of confidence every day by noting that it will likely fall into the second quarter of this year before Heplisav-B is added to insurance reimbursement schedules. However, he slapped intoxicated longs briskly across their smitten faces when he noted, for the first time, a significant new barrier to break through. An impregnable shield that will likely hamper Heplisav-B uptake for years to come.

We will clear important access hurdles in complex organizations. Some hepatitis-b vaccine utilization in large process driven organizations such as IDN’s requires achieving formulary, pharmacy or therapeutic committee approval. Procurement review processes and contract discussions particularly in situations where current vaccines may be part of a complex product basket contract, (and they) will be a main focus during this initial launch period to support our long-term success.

What Gray is intimating here is yet another crucial aspect to our understanding of Heplisav-B launch viability. Big pharma companies, and the sales organizations that serve them, have an ongoing practice of bundling products together in packages. This allows them to sell a variety of therapeutics to buyers at discounted prices. The result is the formation of a mote around certain low value propositions such as vaccines which aren’t easily extracted when the discounts apply to other higher cost items. The genius to this approach at preemptively eliminating competition can’t be understated. It has held once promising commercial stage biotechnology companies such as bone graft manufacturer Xtant Medical (XTNT) helpless for years.

A Clean But Unusually Busy Label Is Potentially Off-Putting To Physician Prescribers

When I first penned a cautionary thesis on Dynavax Technologies in August of last year, my concerns about possible label warnings regarding adverse events incited a cascade of relentless personal attacks and belittling dismissals of those concerns. All the while and unbeknownst to me a secret deluge of calls to investor relations from panicked investors was taking place. Don’t believe me? Here’s Eddie Gray at the FDA Approval Call on November 9th of 2017.

We are especially pleased that the label presents the safety and immunogenicity data in a manner consistent with the needs of physicians making clinical decisions. And I would like to highlight a few elements of the label that have been the theme of your questions leading up to today’s approval.

And again, a bit later.

Consequently, there are no special precautions or warnings in the label regarding any adverse events observed in the trial, a question some of you have raised with us in recent weeks.

Overlooked, however, even by me, was a label that has to read more like a science manual than anything standard in the world of vaccine packaging. Here’s another shade of Gray.

The label includes details of events observed organized by each individual trial. So, for example, each trial lists the observed rates of serious adverse events including acute myocardial infarction or AMI thereby showing a numerical imbalance in AMI rates in HBV-16 towards Engerix and in HBV-23 towards Heplisav-B and that there were no AMI’s in HBV-10. Additionally, the discussion of AMI’s in HBV-23 includes clarification that the data as presented in the label and additional analyses did not support a causal relationship between Heplisav-B administration and AMI’s.

Consequently, the label does, in fact, play a dissuasive role in product uptake as physicians will have to wonder why so much information is provided about a product that claims as its central virtue so few doses. Not nearly as much of an issue as product bundling or Engerix-B stockpiling but a hurdle nonetheless.

In Conclusion

Heplisav-B enters into a $270m market with an entrenched product competitor in GSK’s Engerix-B. Existing stockpiles of that vaccine which must be sold prior to customers considering Heplisav administration; inextricable product bundling; and a busy label argue against market uptake. Many an upstart commercial drug company sporting a better product has encountered a level of resistance that is unexpected at first and formidable at last. MannKind’s (MNKD) Affreza would be a perfect example of this.

I see no way around a product launch that will be as disappointing as any that we have witnessed over the past four years. GSK is not an idle competitor and will relinquish market control begrudgingly. Any thought of an acquisition or partnership on favorable terms has to be measured against this foreboding backdrop of circumstance. As a result, those are non-eventualities to the reasonably minded.

Always be well…

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