The Case For Dynavax Corporation
Fundemental Outlook
Dynavax Corporation (DVAX) is a production level biopharmaceutical company, focused on the development and commercialization of novel vaccines. I have been following this company before and through the pandemic and this is what I have found.
Dynavax has entered into multiple Covid-19 vaccine deals, providing the a booster to all of these potential vaccines in the form of their FDA approved adjuvant, CPG-1018. This adjuvant helps induce a higher immune response, or in layman’s terms, it helps make a vaccine work better. In the proceeding sections I provide an outline of the 4 companies that they work with in creating these vaccines, and highlight the different revenue potentials that can be created for Dynavax through these deals, as well as highlight the potential revenues created by Dynavaxs own product, a hepatitis b vaccine, Hepslav B.
Valneva
Valneva is a french based, specialty vaccine developer. They have partnered with Dynavax in the creation of their Covid-19 Vaccine.
- Valneva has signed a deal with the UK government to supply 100 million vaccines into 2022. [1] https://valneva.com/press-release/valneva-announces-uk-government-exercise-of-option-for-40-million-doses-of-its-inactivated-adjuvanted-covid-19-vaccine/
- The UK government has the Option to purchase up to 90 million more vaccines from 2023-2025
- [2] https://valneva.com/press-release/valneva-announces-uk-government-exercise-of-option-for-40-million-doses-of-its-inactivated-adjuvanted-covid-19-vaccine/
- Valneva is in advanced discussions with the European Union to purchase 30 million vaccines (up to 60 million total) [3]https://www.europarl.europa.eu/doceo/document/E-9-2021-002264-ASW_EN.html
- Dynavax Recorded ~$2.30 of revenue per dose in Q1 2021, with a cost per adjuvant of ~$0.67.
- In the Q1 earnings call, Dynavax stated that they should receive roughly $230 million dollars in total revenue from Valneva, with 40% coming in the first half of 2021, and the other 60% in the second half of 2021. [4]https://www.fool.com/earnings/call-transcripts/2021/05/07/dynavax-technologies-dvax-q1-2021-earnings-call-tr/
- Of this $230 million total revenue, $75 Million was recorded in Q1 2021, meaning $155 million is to be earned through the rest of 2021.
- Potential Catalysts
- Phase 3 Trial Results expected in September
- Other Potential Deals with specific EU countries, Australia.
Biological E Limited
Biological E Limited is an Indian biopharmaceutical company that specializes in the production of low cost vaccine production. They have also partnered with Dynavax Corporation in creation of their Covid-19 Vaccine.
- Have signed an agreement with the Indian Government for 300 million doses for the end of 2021 and into 2022. [5]https://www.reuters.com/world/india/india-signs-deal-with-domestic-vaccine-maker-biological-e-300-mln-doses-2021-06-03/
- Vaccine Total cost is estimated at 200-300 Rupees per dose ($2.69-$4.00). [6]https://timesofindia.indiatimes.com/india/bio-es-corbevax-may-be-indias-cheapest-vaccine-at-rs-250-per-dose/articleshow/83249282.cms
- India gave $205 million dollars in advanced payments to Biological E.
- A Doctor at the Baylor college of Medicine (working to help create vaccine) gave an estimate of $1.50 cost per dose.
- Has the Ability to start vaccine production in August and produce 75-80 million doses per month
- Catalysts
- Emergency Use Authorization(EUA) (July-September)
- Can Sign Other deals
- *Important to note that estimated vaccine price will be split between Dynavax, Biological E, and THIRD PARTNER.
Medigen (MVC)
Medigen Vaccine Biologics Corp. is a vaccine maker based out of Taiwan, and you guessed it, they too have a vaccine deal for Covid-19 with DVAX.
- Has Deal with Taiwan Government for 5 million doses, up to 5 million more. [7]https://www.taipeitimes.com/News/biz/archives/2021/05/31/2003758315
- Have seen nothing on price points here, I would expect DVAX to net roughly $1.5 in revenue per dose, time will tell more information
- The is is the first approved vaccine out of DVAXs partnerships, receiving EUA in July[8]https://www.medigenvac.com/public/en/news/detail/83?from_sort=2
- Residents in Taiwan have started to take the vaccine, including the President.[9]https://www.taiwannews.com.tw/en/news/4259914
- Catalysts
- Asia Pacific countries looking for vaccines, (Philippines, Indonesia, Thailand, Malaysia, Vietnam).[10]https://www.taiwannews.com.tw/en/news/4223481
Clover Biopharmaceuticals
Clover Biopharmaceuticals is a vaccine developer based in Hong Kong, and is the last company thet DVAX has partinered with in creation of a Covid-19 Vaccine.
- 414 million dose deal, 64 million of which are scheduled to be delivered before end of 2021, option of 350 million in 2022 and beyond [11]https://www.prnewswire.com/news-releases/clover-announces-advance-purchase-agreement-with-gavi-for-over-400-million-doses-of-clovers-covid-19-vaccine-for-the-covax-facility-301322819.html
- Pricing was confusing to find through COVAX the range is large ~$3.10-~$8.95 per dose. [12]https://www.who.int/publications/m/item/covax-facility-explainer
- DVAX has potential to make royalties off of vaccine if clover sells outside of GAVI.
- Seeking approval in 2nd half of 2021, and launch by end of 2021
Hepslav B
The last Revenue generating product that I would like to bring up is the first truly successful product that DVAX has created. Hepslav B is a Hepatitis B vaccine that takes only 2 doses to become effective, the only known hepatitis vaccine to do so. This was the first product to use the adjuvant CPG-1018, and was the first FDA approved product that DVAX created.
- Hepslav B alone was able to generate $8.3 million in revenue in Q1 2021[13]https://investors.dynavax.com/news-releases/news-release-details/dynavax-announces-first-quarter-2021-financial-results
- I Expect to see similar numbers in Q2 with effects of the pandemic still lingering
- Slight increases expected in Q3 and Q4 as Europe Expansion starts in Q4
- Expected total Revenue in 2021 from hep b ~$40-$50 million
- Potential Increases in Europe expansion Q4
- Catalyst of ACIP recommendation in October, Would Increase potential market in US by $300 million (current market is 300 million) Giving $600 million market size in US.
Potential Revenues 2021
When we look at all of these different partnerships the revenue and earnings outlook for DVAX starts to make you wonder why the company is still valued around $1 billion.
If we add up the number from the different potential revenue sources outlined above the case becomes even more clear. Withe several hundred million doses to be created through 2021, potential for expansion of a market that they are currently gaining share in (hepatitis b), DVAX is positioned to make moves.
Valneva- $230 million in revenue in 2021, COGS (Cost of good sold) in this contract were $.067
Biological E- I assume that they will be able to start production as early as September. It will be hard to tell when revenues will be realized for DVAX here but they should be sending CPG-1018 to Bio E before production is in full swing, I estimate that 150 million of the 300 million doses will be realized for DVAX in 2021. With the cost of Bio E being one of the lowest out there, the profit margin will be low, but I expect DVAX to gain revenues of $0.8-$1.00 per dose giving revenues of $120-$150 million.
Medigen- As of now, Medigen has inked deals for only 5 million doses. I expect this deal to be somewhere in the middle of Valneva and Bio E in terms of cost per dose, estimating $1.5 per dose for DVAX, for a total of $7.5 million in revenue.
Clover- Although this could be the largest potential deal in terms of total doses, there are only 64 million doses set to be delivered in 2021 with another option of 350 million throughout 2022. I expect pricing to be similar to that of Bio E, and expect DVAX to generate $1 per dose in revenue. That would add another $64 Million in revenue for 2021.
Hepslav B- Expecting $50 million in revenue from hepslav sales with potential for that to increase in the fourth quarter after the ACIP recommendation, and expansion into the EU slated to start then.
As of now we assume that COGS for CPG-1018 is $0.67 per dose, which we are able to find when looking at the first quarter of 2021 financials. It is normal to assume that once you produce more of a product you are able to make that cost come down, but we will for the sake of being conservative, say that this cost will stay the same even as production increases.
Adding up these totals from each avenue together we get total revenues for 2021: $471-$501 million
These are insane numbers when looking at the past, DVAX has generated roughly $40 million in revenue per year. Also worth noting, if DVAX hits my estimated revenue numbers, they will be generating sales of half of their total value (market cap)! Although sales alone do not decide the direction of the stock price, it is nice to see a company have solid fundamentals when deciding whether to invest or not.
Technical Analysis
If we are to look at DVAX away from all of the fundamentals, and take a deep dive into the charts, the case for DVAX only grows. I will be analyzing the daily chart for DVAX as I believe this to be a multiple month long trade and a daily chart provides us with the best information because of the time length.
When looking at the chart above, the first thing that comes to mind for me is the strong resistance level at $11. It has struggled to break to higher prices multiple times when rising to those levels. The goal in holding DVAX is to have enough strength based on the fundamentals in order to break out above that $11 resistance, as there is no strong resistance to stop the price until the $15-$20 range.
Highlighted with green text is a potential buy zone, an area where I think price will bounce from and continue higher, based on previous action from “Trend Line Support”.
The more time I spend within the market, the more I realize that market sentiment is the main driving factor in price action of stocks. This is brought up because we have seen in the last few weeks the markets reaction to rising concerns over the different variants of COVID-19, seeing increased selling off in higher growth plays, and moves into proven companies. Look at Apples price action over the last few months to understand what I mean. We have also see more money move back into large vaccine players, Moderna and Novavax to name a few.
What is the Goal?
In my eyes, Dynavax seems severely undervalued based on the potential revenues that they will bring in through their Covid partnerships. Looking away from that, DVAX has many opportunities for news to drive price action over the next few months, including multiple phase 3 trials concluding, multiple opportunities for EUA approvals, multiple avenues for more Covid contracts to be signed, and a doubling of the market size for their main business of Hepatitis B vaccination.
In terms of my trading plan, I intend to hold until the ACIP meeting is over, (middle of October) as I believe this to be the largest catalyst for DVAX and assume it will drive price above the $11 resistance. If price action is muted by this point I may wait to see Q3 earnings as they should be the best in the companies history. If by that point there is still no movement I will exit my position and move on from the trade.
For full discloser, I am currently holding over 1,000 shares valued at roughly $7 a share. I am looking to add to that position, potentially up to 500 shares more, or in the for of call options.
As in every investment there is risk involved, and it is up to YOU to do your own research and come to you own conclusions. These are just my thoughts and ideas, and I hope you gained some insight and my even consider investing in Dynavax Corporation.
References