I have a new name for the portfolio, a platform-like play on potential COVID-19 vaccines. The company is called Dynavax, the symbol is DVAX, and it’s a small cap stock so don’t go nuts chasing it if it spikes here. (I collaborated on this write-up with a friend of mine who’s a biotech hedge fund investor.)
In order to understand Dynavax’s technology, it is worth taking a short detour into vaccines. Vaccines are designed to trick the body into believing it has been attacked with an infectious agent (such as measles, mumps, polio, etc.). An effective vaccine will trigger the body’s immune system in much the same way it reacts to a real viral infection, where the immune system ramps up to fight it off and also generates lasting immunity – priming the immune system to fight again the next time you are exposed. With a vaccine, you get the benefits of having had the infection without the discomfort and risk, and you are usually protected against a real infection if you are exposed in the future.
Classic vaccines have done this with either a killed or weakened (attenuated) version of the real virus which is unable to multiply and cause a real infection, but still looks enough like the real virus that the immunity it triggers will protect you in the future. Since a killed or weakened virus is not especially threatening to the immune system, usually an adjuvant is added to the mix. An adjuvant is a non-specific immune stimulating agent, and when injected along with the killed or weakened virus it “wakes up” the immune system and helps the body mount a more rigorous immune reaction to the vaccine. For most of the modern medical history, the adjuvant used in vaccines was Alum or a derivative of Alum. In recent years, a few new adjuvants have been developed – but only 5 adjuvants have ever been developed and used commercially. Dynavax’s core technology is one of these, something called CpG 1018.
Dynavax’s adjuvant, CpG 1018, is made of certain short sequences of DNA that are common in bacteria but rare in humans. These are known to be potent immune stimulators and in particular stimulators of something called Toll Like Receptor-9 (TLR-9), which trigger the release of a cascade of potent immune molecules (cytokines, chemokines, etc) and also trigger the growth of key immune cells such as B-cells and T-cells. In theory, by triggering this powerful immune response when the vaccine is administered, the body will have a more effective reaction to the killed or weakened virus.
Getting FDA approval for a new vaccine adjuvant is a major undertaking. In addition to showing that it can generate a strong immune response and protective immunity, the safety hurdles are extremely high because vaccines are administered to large numbers of healthy individuals. Dynavax’s CpG 1018 has been approved in a new Hepatitis B vaccine (Heplisav-B), and has been studied in nearly 15,000 individuals. Not only is the vaccine considered safe, but it provided better immune protection than an existing Hepatitis B vaccine (Glaxo’s Energix-B), and only requires 2 doses over a period of 1 month vs Energix-B which requires 3 doses over a period of 6 months.
Since Dynavax has an approved and proven vaccine adjuvant, they have partnered up with several vaccine efforts related to COVID-19. In particular, they have announced a collaboration with Sinovac, which has one of the most advanced COVID-19 vaccines in development – currently being dosed in humans.
The company has a research collaboration with Clover Biopharmaceuticals; the University of Queensland and the Coalition for Epidemic Preparedness; and Sinovac Biotech Ltd. for the development of a vaccine candidate to prevent coronavirus (COVID-19). Dynavax Technologies Corporation has partnership with the Coalition for Epidemic Preparedness Innovations (CEPI) to create a vaccine against COVID-19 infection; and a collaboration with Valneva SE to initiate a vaccine program for the coronavirus, COVID-19.
In other words, DVAX gives us some exposure to several potential COVID-19 vaccines, along with its current growing business lines. Revenues have gone from $8 million to $35 million and should hit more than $50 million this year even without any COVID-19 revenues. Analysts are looking for revenues to hit nearly $90 next year. So there’s some good growth here. But let’s not ignore the risks.
The company’s not profitable yet and is burning more than $100 million a year right now. They might have to raise cash at some point, which is partly why the stock has traded down from $20 to $4 over the last two years here. The market cap is less than $400 million right now, so it could be quite expensive to current shareholders if the company were to try to raise the money now (or at lower prices if the stock falls from here). You sort of have to consider yourself a venture capitalist investor in a situation like this.
So to be clear, this is a small cap stock and it could spike when all of you receive this report, so please don’t go wild plowing into it all at once here. I’ve built up a small position in the name at this point, but as usual, I’m leaving myself some room to buy more in coming days and weeks depending on how the news and stock prices change. Dynavax reports earnings tomorrow after the close and I have no idea how the stock will react or what the company will say in its updates on the COVID-19 vaccine front, so there’s some risk the stock could tank or spike after that report.
Regardless, I finished doing my homework on DVAX this week and I liked what I saw with this risk/reward scenario here for the long-term, so I’ve started building my position.