There is a large unmet need right now in the hepatitis B space. A recent study has revealed only half of the individuals that receive hepatitis B vaccinations are actually gaining any sort of immunity to the virus.
How can this be?
The current standard-of-care vaccination rests on a long and drawn out administration regimen. Patients (often newborns) receive an initial dose, then receive two or three further doses across a three to four-month period subsequent to the initial dose. These patients then require monitoring, and further dosing may be required in a portion of the population. In other words, it is a cumbersome, hit and miss process; one that many individuals simply do not follow through to completion.
To exacerbate the problem, there is a large portion of the global population for which the current vaccination simply does not work. Studies have shown current vaccines in the space induce response rates of as low as 54% in patients with diabetes. The Centers for Disease Control and Prevention estimates the coverage for the diabetes population is just 26.3% for those aged 19 to 59 years.
Similar trends are seen in the portion of the global population that suffers from renal disease (especially at the later stages) and in the elderly. A study in 2013 suggested just 16% of the over-50 population have completed a three-dose course of vaccination.
In short, the market needs an upgraded alternative to what is available. A vaccine that can be effective based on a reduced dosing regimen and that can induce an immunogenic response in the subsectors of the population for which the current version does not work.
This has not gone unnoticed, of course.
A number of companies are working on getting a vaccine to market that builds on the current standard of care in the space, and there is a lot of investor capital allocated to, and in turn reliant on, the success of these companies in doing just that.
One of the most closely followed over the last 10 years is Dynavax Technologies Corp. (DVAX, Financial). The company is a California-based development stage biotech, and it is working toward the commercialization of a vaccine called Heplisav-B. We will go into the vaccine in more detail shortly, but at core, it is an attempt by Dynavax to address the cumbersome dosing regimen side of the problem described above. Unfortunately for the company and its shareholders, however, the development pathway to this point for Heplisav-B has been anything but smooth.
Before we get into why, let's look at what makes the vaccine different from the currently approved alternative.
Vaccines work by training the immune system to recognize and fight pathogens. In this instance, the pathogen in question is HBV, a virus, but vaccines also exist that help build up a resistance to certain bacteria. When vaccines first came into widespread use, they consisted of a fragment of the virus against which the drug was designed to bring about immunity. This works, but it is risky. Use too much and the patient can become infected. Use too little and there is no immunogenicity effect. The more recent iterations of vaccinations are not actually a fragment of virus, but a part of the virus called an antigen, which is attached to a yeast-derived cell. The antigen is the part of the virus the immune system recognizes. When introduced in combination with the yeast cell (with the latter serving as a sort of delivery vehicle), it is enough to spark an immune response to its presence.
In the case of HBV, the antigen the virus expresses is called the S Antigen, and it is this antigen on which both the current vaccinations and Dynavax's Heplisav-B are based. The difference between the former and the latter is Dynavax has added what is called an adjuvant to the mix. Instead of just yeast cell and S Antigen, Heplisav is yeast cell, S Antigen and adjuvant. The adjuvant serves to amplify the immune response, and this allows for a reduced dosing regimen; specifically, a two-dose, one-month administration.
That is the science. The development pathway has not been nearly as clean cut.
Dynavax thought it had completed the development of Heplisav-B back in early 2012, when it submitted an April 2012 Biologics License Applicaton to the Food and Drug Administration. The FDA accepted the BLA a couple of months later, and set February 2013 for Prescription Drug User Fee Act. In November 2012, an advisory panel voted 13 to one the vaccine demonstrated immunogenicity (efficacy), but also voted eight to five there was insufficient data to adequately support the safety of the vaccine.
That is when the trouble really started.
The FDA issued a complete response letter (CRL) in February 2013, requesting additional data from Dynavax's process validation program and clarifying information on the manufacturing controls and facilities related to the assurance of the quality of the commercial product. The company met with the agency, got what it thought it needed together, resubmitted a response to the agency and the FDA set an advisory panel meeting for November 2016.
In September last year, however, the agency cancelled the meeting, following the cancellation with a November 2016 CRL – the second for the company. The FDA also noted it would not consider immunogenicity data relating to a diabetes population study, as well as some other subpopulation studies, and that these would need to be resubmitted as part of supplemental BLA following the initial approval (if it comes) for Heplisav.
As readers can probably imagine, and as many will already be aware, Dynavax collapsed on the news. The company fell from just short of $12 a share to $4 a share overnight, and remained in and around that price until the end of February. Then, Dynavax's fortunes turned around a little.
The company announced on Feb. 28 the FDA had accepted its response to the second CRL and that it had established Aug. 10 as a PDUFA date. As things stand, there does not appear to be an advisory meeting in place, meaning the FDA feels it has all it needs to make a decision.
This has brought about a fresh wave of risk however. This is a company that markets had all but written off six months ago. The latest development has brought with it a shift in sentiment, but not a reversal. There is finally something to be hopeful about for shareholders, but many of these same shareholders have been on the Dynavax ride for a decade, and have been in this position twice before, only to see Heplisav fall down.
That is long term and current shareholders – what about someone looking to pick up a fresh exposure to the hepatitis B space? Is the recent news from Dynavax enough to justify the initiation of a position in the company ahead of the August PDUFA?
Well, yes and no.
Yes, because there is a very large upside revaluation potential if the FDA finally gives the drug a green light for commercialization. Analysts put peak sales for Heplisav-B at more than $700 million. This is a more than three times multiple on Dynavax's current entire market capitalization. If the FDA approves Heplisav-B, we are going to watch Dynavax revalue to the tune of high double-digit percentage points, and likely even higher.
No, because there is very little clarity available as to what degree of response Dynavax has given to the FDA's concerns – those that warranted the first two CRLs. We are not just talking manufacturing concerns here either, the second CRL specifically referenced adverse events and some rare autoimmune concerns. Dynavax is going to have to present data that completely alleviates these concerns (as this is what the advisory panel based its safety vote on). If it does not, and there is a chance it has not, even though the FDA has accepted the response, Heplisav-B is going to get turned down.
There is also a distinct capital risk. The company announced last year it is going to need a partner to get this drug to market. That has changed slightly now the FDA has accepted the response, but it suggests there is no cash left to fund commercialization, so a partner is still going to be required before the drug starts generating revenues. A partner will dramatically reduce the portion of peak sales Dynavax receives. No partner, and the company will need to raise cash through equity issue. This will be dilutive and will weaken a shareholder's exposure to the market capitalization appreciation that derives from commercialization.
In short, the somewhat muted market response to the company's announcement at the end of February suggests there is some reluctance to gain exposure to the binary risk of the upcoming PDUFA, and there is plenty to justify said reluctance.
So what are the alternatives?
As mentioned, the large unmet need that exists in this space means Dynavax is not the only company working on bringing an asset to market that seeks to fill the gaps. Investors looking to gain exposure to the sales potential of the next generation of hepatitis vaccines, but not wanting to do so through Dynavax and the uncertain future of Heplisav-B, should consider one of the alternative players in the sector.
One of the most promising of these right now is VBI Vaccines Inc. (VBIV, Financial). This one is a Cambridge, Massachusetts-based company working on a pipeline of development-stage assets across a spectrum of target indications. VBI also has an approved asset outside of this development pipeline. It is a hepatitis B vaccine called Sci-B-Vac. It is not available (or approved) in the U.S. or Europe, but it is approved in 15 countries worldwide, including Israel where it is administered to 50% of newborn children.
The company is working toward U.S., European and Canadian approval right now, which we will discuss shortly. Before we do, however, let's look at the science.
Unlike Heplisav-B, which is classified as a second-generation vaccine, Sci-B-Vac qualifies as third generation. It is built using a technology proprietary to VBI that allows the company to build vaccines with mammalian cells as opposed to the previously discussed yeast cells. The company then combines the mammalian cells with not just the S Antigen (also mentioned above) but also two further antigens expressed by HBV, called pre-S1 and pre-S2 surface antigens.
The theory behind this triple expression and mammalian-based delivery system is it increases the similarity between the vaccine and the natural virus, which in turn increases the immune response. The more antibodies that recognize the virus (or vaccine), the better. So the more antigens expressed, the higher the likelihood of some antibodies (that might not recognize just the S Antigen) recognizing the vaccine (because it expresses S1 and S2).
And this is not just theory.
VBI has been able to amass a vast database of safety and efficacy data, based on both its own conducted clinical trials and from data collected as part of the programs through which the vaccine is administered in the regions it is approved. To date, it has demonstrated safety and efficacy in over 300,000 patients.
In a study that compared it to Engerix-B (one of the current standard-of-care vaccinations, a second-generation asset), a single 10-microgram dose of Sci-B-Vac resulted in seroprotection (read: effective immunity) in 70% of patients compared to only 25% for those that received a single 20-microgram dose of Engerix-B. Both vaccines were able to boost this to 100% after a six-month booster dose, but the Sci-B-Vac group had a far higher concentration of anti-HBV antibodies in their system than did the Engerix-B group.
That is a higher effective rate of immunogenicity from one dose (nearly three times as high) and a far higher post-booster concentration of anti-vaccine antibodies; both of which strongly support a lower dose necessity for VBI's asset than the current standard of care.
There is also evidence to suggest the vaccine maintains an improvement in seroprotection over current treatments in the immunosuppressed populations described earlier as having a weak or no response to the currently available vaccines – elderly, renal disease sufferers, diabetes patients and so on.
So where do things stand from a regulatory standpoint?
As mentioned, VBI's vaccination is not approved in the U.S., Europe or Canada, and these three markets are where the company really wants to be from a revenue generation standpoint.
While its not quite there yet, however, VBI has made considerable strides forward over the last 12 months in bringing Sci-B-Vac to these markets. Recent developments have brought with them the potential for some strong upside catalysts near term and regulatory green lights from the relevant authorities (FDA, European Medicines Agency and Health Canada).
The company closed on $23.6 million financing from Perceptive Advisors, one of the leading global hedge funds, headed up by biotech guru Joseph Edelmen, back in December 2016. As noted by management at the time, this capital should be sufficient to carry the company through some key regulatory milestones into 2018. In addition, these milestones will carry out studies designed to underpin registration submissions to the aforementioned regulatory authorities.
In February this year, VBI followed up on this statement with the announcement it had received positive guidance from the EMA, specifically from a department of the EMA called the Committee for Medicinal Products for Human Use (CHMP), on its plans for a phase III study in Europe. The committee expressed support for the company's phase III plans and agreed the product information, as well as data from ongoing studies, supports said study and the company's planned filing of a market authorization application (MAA) for Sci-B-Vac.
A couple of weeks later, also in February, VBI announced it had received essentially the same response from Health Canada, by way of a department of the latter called the Biologics and Genetic Therapies Directorate (BGTD). This one came on the back of a pre-Clinical Trial Application (CTA) meeting, and the company is going to have to submit a CTA to Health Canada before it can carry out a phase III trial in the region (think of this as the equivalent of an investigational new drug in the U.S.), but submission is expected during the first half of this year, which roughly brings the program in line with that of the European registration program.
We are now looking out for the same announcement but with relation to the FDA as bringing the U.S. program in line with that of Europe and Canada, setting up the initiation of three registration trials in three of the world's largest markets.
Just as with Dynavax, of course, there are risks with a VBI exposure. The company is likely going to need to raise capital outside of the latest perceptive raise if it is going to fund a commercialization effort in all three markets. Further, if Dynavax manages to get Heplisav-B past the FDA and starts its marketing efforts in the U.S., it is going to have a jump on VBI doing the same with Sci-B-Vac. This could limit the latter's potential, at least in the period directly subsequent to approval. That said, Dynavax is going to have to submit supplemental Biologis License Applications to the FDA to get labeling for the subgroups, and there is a good chance VBI can pick this labelling up on the first effort.
All said, Dynavax represents a near term and direct exposure to the hepatitis B market, and specifically the filling of a large unmet need in the space. If the company picks up approval for Heplisav-B come August, it is going to enjoy a serious upside revaluation, and anyone with an allocation will benefit from the same. There is a large risk associated with any such allocation however. For an investor looking for a similar type of exposure, one that is slightly longer term but has a lower risk of regulatory setback, VBI could be a more attractive alternative.
Disclosure:Â The author has no position in any of the companies mentioned and doesn't intend to open a position within the next 30 days.Â
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