Monthly Archives: November 2016

Dynavax’s 2nd CRL, Overburdened FDA and Could I Have Invested Better?

Dynavax’s Heplisav-B got 2nd CRL

This analyst note summarizes the CRL:

  1. First, the FDA wants more details in regards to a numerical imbalance in cardiac events in the firm’s most recent HBV-23 pivotal trial.
  2. Second, the agency requires additional background on adverse events of an autoimmune nature, which Xu notes “did not include questions on Bell’s palsy, a previous concern on the Street.”
  3. Third, DVAX must produce new analyses of the integrated safety database across different time periods, which Xu deems as potentially “beneficial,” particularly if the time between an adverse event (AE) striking compared to when the vaccine dose was last taken has a considerable gap, proving less of a likelihood that the vaccination caused the AE.
  4. Fourth, the agency requests supplemental information on post-marketing commitments.

The management were not happy at the conference call:

  1. FDA could not finish review due to the organization structure. The vaccine unit simply could not get cardiac unit’s expert consultation in the time left (1~2 month left).
  2. It took too long for them to prepare the questions. “You should ask why it took 6 months for FDA to ask those questions. That is the question you should ask.” CEO Eddie Grey in response to analyst’s question.

They now cannot advance Heplisav-B on their own. They have to find a pharmaceutical or financial partner due to the cost to maintain the pre-launch efforts.

“We have decided to maintain our Outperform rating at this juncture because we believe there is still a good chance for Heplisav to garner eventual approval, and because the immuno-oncology program SD-101 is reading out substantial data starting in 2017, which if successful should start to be ascribed value by the Street. We have updated our model and as a result, we lower our price target to $17 from $45. Currently, our valuation does not include SD- 101 or the oncology pipeline,” Xu concludes.

Overburdened FDA

One major lesson I learned is that even if everything is fine, 6~9 months may not be enough for overburdened FDA to finish reviewing huge trial data sets like what have been done for Heplisav-B.

  1. New data: huge HBV-23 trial.
  2. New issues emerged from new data. Such as cardiac events.
  3. Integrating with old data. Even larger. 10,000 Heplisav and 4000 controls.
  4. Agency structure within FDA made impossible for vaccine unit to get experts opinion from cardiac unit in time.

Investment Thesis: Why did I invest in DVAX?

Big market: back to bull market after correction in 2015. Made new high twice on Brexit and Trump surprises.

Biotech Sector: Relatively weak but regulation risk is gone after trump winning. Back to uptrend along with big market.

Dynavax:

  1. 10 reasons for Heplisav-B’s approval.
  2. AZD1419 potential
  3. SD-101 promising data
  4. IPO was done at $27.5. My average price was $19. I thought it was cheaper than IPO price.

What was my problem:

  1. TA was obviously weak, the weakest of all my holdings. Didn’t wait for uptrend confirmation or 200MA breakout.
  2. Didn’t consider counter argument or worst case scenario of another CRL.
  3. Ignored dangerous Panel meeting announcement then subsequent more-dangerous cancellation.
  4. Didn’t expect FDA’s overburden.
  5. Underestimated the complicity of reviewing huge data sets and new issues emerged in new data analysis.
  6. Relied too much on biased confirming opinions online.
  7. Put too much (too early) hope on early clinical assets (SD-101 and  AZD1419). Apparently the market focused its valuation solely on late stage asset Heplisav-B vaccine.

    Our $45 price target includes $44 per share for the Heplisav franchise and $1 in net cash by midyear 2017; all other pipeline candidates, including SD-101, remain upside to our valuation. William Blair 9/8/2016 after AdCom cancellation.

How could I have done differently?

Probably not much. The best I could have done is to hold on capital until I see TA confirmation of a uptrend.

I am unable to take loss due to my track record. If I have better track record, I may be able to take loss with less emotion.