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…

Thaumaturgical Disclaimer: As a practicing person of magic and aspiring warm-hearted wizard, I’ve utilized tarot cards as a basis for the sub-analysis of biotech equities for the past three years and in my personal life for nearly four decades. These readings sometimes play a role in my ideational constructs but must be consistent with the facts at hand and not run counter to a logical assessment of the equity considered.
Mental Illness Disclaimer: I’ve been diagnosed as suffering from manic depression. Therefore, my reactions to events can sometimes be more pronounced than the facts warrant. I owe investors complete transparency and am the only ideator in biotech to provide that. Please focus on the ideas presented and don’t hesitate to contact me with any factual errors found in the article text.
General Disclaimer: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute a suggestion to buy, sell, hold or adopt any investment strategy for this stock or any stock that may be mentioned. Reliance upon information in this article is at the sole discretion of the reader. The sole purpose of my article is to entertain by providing an opinion and information the accuracy of which is as good as the public sources it was derived from. For example, KOL’s often utilize exaggerative terminolgy to describe a product or asset they are promoting on behalf of a biotechnology company they’re associated with. Do not act on anything I have written, a CEO has spoken of, or a sell side analyst has stated. Rather, do your own due diligence and consult a professional investment advisor before making any investment decision. Acting on what any one writer has imparted to you is foolish at best. I have no better access to resources than you do. I sometimes make mistakes. And there are a myriad of things, which can happen in lieu of any forward-looking statement I have made. Any stock featured or mentioned in an article I compose is subject to all manner of influences, which can change its value in dramatic fashion both higher and lower. These events can be of a wide variety – news related; managerial decisions; trial failures; stock manipulations; and so on. I make every effort to declare positions I have in stocks I cover or mention in an article but reserve the right to move in and out of said investments at my own discretion based upon the wisdom of doing so. I implore you to do your own due diligence and invest at your own considerable risk attaining the just reward your efforts have wrought. Additionally, if you are aware of any misstatements of fact contained in this or any article I have written, you are encouraged to email me immediately at the link given in the header above or address them in the comments section.

The Slow Motion Crash Of Dynavax

Declaration: I hold no position in Dynavax Technologies (DVAX) and have no intention of initiating a position over the next 72 hours.

  • Today’s near billion dollar market-cap will be cut by 50-75% in one year’s time.
  • Even if approval is granted in November the launch will be abysmal.
  • SEC docs and the CEO’s own words confirm my opinion.
  • A $125m public offering becomes $75m in a day’s time and the offering price is reduced by 19.5% over the August 8th closing price. Why?
  • Biotech CEO’s are today’s magicians – masters of the misdirect.  And Eddie Gray is no exception.

From Michael S Ostrach CFO/CBO Dynavax Technologies August 3, 2017 Regulatory Update Conference Call

Actual results or outcomes may differ materially due to the risks and uncertainties inherent in our business including, for example, the risks we cannot agree with the FDA on the post-marketing study or the label for heplisav-b; whether the FDA will ultimately approve heplisav-b, notwithstanding the advisory committee votes in favor of both safety and immunogenicity; and other risks detailed in the risk factors section of our quarterly reports on form 10Q filed with the SEC.

On a certain night, long ago, while driving the route 26 inbound on Westlake Avenue just north of downtown Seattle, I noticed a motorcyclist whiz by my driver’s side view mirror at some incalculable rate of speed. Such is the nature of frenzy when passion overrides all of our senses. Though he was safely a thousand feet from the bend in the road ahead forged by the lake’s shore, I could already tell that he wasn’t going to make it. Perhaps, he had no intention of navigating the curvature as death will always have the allure of freedom that the chains of suffering in this world lack. More likely, though, he was simply ignorant of the relationship between his speed and geography, captivated by some illusion, subject to distraction, buoyed by hubris, or heaving with emotion. All symptoms of alcoholic impairment and, ironically too, of biotechnology stock ownership in moments of great success.

To the Dynavax shareholder there is only one possible outcome in November – approval of heplisav-b with a follow on Phase-4 study to dismiss the notion of associated cardio or adverse event risks. I’ll identify a more likely and troubling outcome. Shareholders will readily point to the well documented efficacy of the vaccine; the recent adcom in which safety received an overwhelming 12-1 vote of approval (while remaining silent on the importance of the 3 abstentions); and refer you to the conference call following the FDA’s unexpected 3-month delay in which an unnamed agency rep spoke with company execs of a shared desire for expediency in resolving the application, hereafter known as, the head fake.  The most ardent among them will speak of an expanding population of Hepatitis B candidates from the pools of diabetic patients and of an imminent partnership or buyout on approval.  All bungled logic predicated upon wishful thinking.

Affix Oxygen Masks Please

I am now going to detail for you in the simplest possible terms why a short thesis is a far more logical approach in navigating the perilous road ahead.  Deconstructing rosy pictures is not something I like to do but I’ve been fooled by enough by them them over the years to appreciate the value of doing so sooner rather than later.

To reject any advance, saying “no” is only the most direct response.  Other avenues are available to achieve the same outcome.  Where the FDA is concerned, the label now becomes the vehicle upon which rejection, albeit, a temporary one can be implemented.  If it contains a warning of a possible, serious, adverse event risk, resolved only by positive data from a post-marketing study, then commercial uptake of Heplisav-B will be so slow that marketing the drug will be next to impossible.

Biotech CEO’s Are Linguistical Magicians

They have to be!  Their job is to enhance shareholder value.  Complete transparency would undermine that process.  Similar to an accomplished basketball player, they can’t telegraph their next move.  And the head fake becomes an integral part of their game.  Consequently, our job as retail investors is to keep our feet on the ground separating what’s impotant from what’s not in terms of what’s been said.

Can you identify the misdirect in this response by Eddie Gray at the regulatory update conference call regarding discussions with the FDA on the Heplisav-B label?

They seem to have taken two themes from the VRBPAC panel. They talked about how the panel had been very much in favor of the vaccine, represented, sort of, by the twelve-one vote and their other theme, really, was the fact that the panel had been ensuring that the FDA paid attention to the details of the study.

So, we raised the question of the label and I think it’s fair to say that they indicated it would just continue in parallel with our ongoing discussions on the study. We had, of course, been discussing the label with them before the VRBPAC so it’s a continuation of a, sort of, process.

It isn’t hard, is it?  When an adult child calls a parent in need of something, the very first positive statement is prelude to what’s really on their mind.  CEO’s are no different.  The real meat and potatoes of this statement are that the panel wanted the FDA to focus on the details of the application that left a full 25% of them (4 of 16) unable to say “yes” to safety and that these ongoing discussions have been relevant long before the panel convened.

Now, when it comes to head fakes, the one that had most retail investors leaving their shoes came at the 11:39 mark of the conference call when CEO Gray stated this.

Now, obviously, one of the things we want to be doing is working with the FDA to complete the review as efficiently as possible so that it’s not a question and, to be fair, I mean, the FDA, I think, were, you know, very much of a mind that they wanted to move this forward (laughing) Rob, correct me if I’m wrong here, but I think Rob was pressing them at one point on the issue of, sort of, timing and he was stopped by somebody at the agency who said; “No, no, you need to understand, we’re working to get this over and done with as well.”

I have no doubt that the above statement is true and accurately conveyed. But what exactly does it tell you? Who made the remark and is it not something that the agency could and would say regarding any application? Does the statement give you a clear indication of what their ultimate disposition will be? The answers to these questions are painfully obvious to the casual observer. But to those vested in the outcome, the answers can only suggest one thing – approval! Meanwhile, the company goes to the capital markets with shoeless investors holding an $18 share price firmly in place.

Seasoned investors at Cowen, RBC Capital Markets and William Blair, however, didn’t buy the narrative quite so much. They insisted on a near 20% discount on the secondary offering price and there weren’t enough of them requiring a 40% paring of the original $125m ask to $75m. And even then, the offering closed a day late.  I would further argue that the price per share decided upon doesn’t reflect their confidence in Dynavax, Heplisav-B or the FDA so much as their trust in retail investors to provide an early short-term exit point and put options to protect them from downside loss.

CEO’s Aren’t The Only Pump Fakers On The Court Of Biotech Play

Sell-side analysts are adepts at this as well. Take, for instance, William Blair analyst, Katherine Xu. On that euphoric day of adcom relief it was reported by Reuters that Xu tickled new initiates with a SOC market opportunity of $650m for Heplisav-B.

There are so many problems with her assessment that I’m not sure where to begin. So let’s start with Dynavax’s own assesment visa-vie its 2016 Annual Report 10-K filing which indicates a U.S. market of $270m. And while it’s swelling to include diabetics of both the types 1 and 2 variety, Heplisav’s problematic side-effect profile almost certainly precludes them from marketing to this compromised population without a supplemental application reflecting a positive Phase-4 outcome. Consequently, Xu has breached the boundaries of believability by $380m. No small amount.

Put a label on the box that indicates even a possible cardiovascular risk and you subvert the intentions of even the most professional, aggressive and wide spread sales force until such time as the post-marketing study resolves the question. And even if you argue against this conjecture, it’s difficult to argue against a painfully slow uptake of the vaccine when you realize that Dynavax has only an existing supply on hand for the 2018 rollout as manufacturing facilities were mothballed to conserve resources in the past.

From the previously sourced 10-K.

In order to maintain the ability to pursue HEPLISAV-B through the review period we enacted a restructuring plan to suspend manufacturing activities, commercial preparations and other longer term investment related to HEPLISAV-B. If the product is approved, we plan to use existing stockpiled inventory to support initial sales.

This was confirmed by CEO Gray at the regulatory update conference call.

A Cataclysmic Conclusion

Retail investors are banking on approval of Heplisav-B in November.  I haven’t directly argued against that contention because the FDA is loathe to swim against a steep wave of adcom approval.  That noted, they’re in complete control.  A father doesn’t have to say no to his son’s request to drive the car to school 30 miles away.  He just has to leave the tank near empty.

Similarly, if the cost to sell Heplisav-B exceeds projected revenues by too great an amount, Dynavax may choose to run the post-marketing study before attempting a first sale.  And any big pharma partner with the necessary infrastructure in place to sell Heplisav-B will want a clean label before offering an attractive partnership package.

The only remaining option that would provide an exit point higher than that achieved on the day of approval would be a buyout.  And, in the case of Dynavax, that remains a possibility, although, a remote one.

Always be well…

Thaumaturgical Disclaimer: I’ve utilized tarot card readings for over four decades to provide choice guidance in matters effecting my personal life and for three years in the analysis of biotecnology equities. You may not find this credible because it doesn’t meet with your bias towards all things logical, rational and scientific. But if a tarot card reading isn’t in sync with those three elements it is ignored. Too often, however, I’ve ignored a tarot card reading in favor of so-called scientific experts only to be left disappointed. Candle stick chart reading with its doji dragon fly, double hammer and morning star are an esoteric version of scrying utilized by investors in the mainstream to predict price movements. It’s application to biotech equities is often in error and no one complains. But mention a centuries old tradition affirmed by the great mythologist Joseph Campbell and people ready their canons for ad hominem attack.  Fire away!

Mental Illness Disclaimer: I’ve been diagnosed as suffering from manic depression.  Therefore, fire gently!  And never hesitate to contact me first about any factual errors so that I can correct them.

General Disclaimer: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute a suggestion to buy, sell, hold or adopt any investment strategy for this stock or any stock that may be mentioned. Reliance upon information in this article is at the sole discretion of the reader. The sole purpose of my article is to entertain by providing an opinion and information the accuracy of which is as good as the public sources it was derived from. For example, KOL’s often utilize exaggerative terminolgy to describe a product or asset they are promoting on behalf of a biotechnology company they’re associated with. Do not act on anything I have written, a CEO has spoken of, or a sell side analyst has stated. Rather, do your own due diligence and consult a professional investment advisor before making any investment decision. Acting on what any one writer has imparted to you is foolish at best. I have no better access to resources than you do. I sometimes make mistakes. And there are a myriad of things, which can happen in lieu of any forward-looking statement I have made. Any stock featured or mentioned in an article I compose is subject to all manner of influences, which can change its value in dramatic fashion both higher and lower. These events can be of a wide variety – news related; managerial decisions; trial failures; stock manipulations; and so on. I make every effort to declare positions I have in stocks I cover or mention in an article but reserve the right to move in and out of said investments at my own discretion based upon the wisdom of doing so. I implore you to do your own due diligence and invest at your own considerable risk attaining the just reward your efforts have wrought. Additionally, if you are aware of any misstatements of fact contained in this or any article I have written, you are encouraged to email me immediately at the link given in the header above or address them in the comments section.