Another name GlaxoSmithKline might be interested in acquiring is Dynavax (DVAX).
On Dec. 17, 2008, GlaxoSmithKline signed an agreement with Dynavax in which Dynavax received $10 million, with the potential for $800 million in payments from GlaxoSmithKline under a deal to develop autoimmune and inflammatory disease treatments.
The agreement gives GlaxoSmithKline an exclusive option on four Dynavax programs focused on diseases including lupus, psoriasis and rheumatoid arthritis. Along with the agreement, Dynavax will conduct research and early clinical development, at which point GlaxoSmithKline can exercise its exclusive option and license each program going forward.
When the deal was announced, shares of Dynavax surged higher, going from 26 cents on Dec. 16 to a high of $1.74 on Dec. 17h on almost 50 times its normal trading volume, suggesting investor appetite and approval for the deal going forward.
However, as the global economy and capital markets went into basic free fall starting in late December, investors seem to have forgotten about Dynavax, its agreement with GlaxoSmithKline and the stock's potential.
In Monday morning trading, Dynavax was at 51 cents per share. It has a current market capitalization of $21.1 million, $64.3 million in cash sitting in the bank and no debt on its balance sheet, which equates to roughly $1.62 in cash per share.
In total, Dynavax currently has partnerships with leading pharmaceutical companies such as GlaxoSmithKline, AstraZeneca AB and Novartis Vaccines and Diagnostics, as well as funding from Symphony Dynamo and the National Institutes of Health
Currently, Dynavax has six drugs in its pipeline:
1. Heplisav, its key hepatitis drug, which showed positive results in phase III testing.
2. HCV, a hepatitis C drug in phase I testing.
3. HBV, a hepatitis B drug in phase I testing.
4. A flu vaccine, in preclinical testing
5. An asthma drug in preclinical testing
6. An autoimmunity/inflammation drug in preclinical testing.
Half of Dynavax’s drugs are focused on the hepatitis market, which reinforces GlaxoSmithKline’s efforts to improve the company’s product offering to the that market going forward. Additionally, GlaxoSmithKline also owns HepatitisBHelp.com which is one of the largest hepatitis-based Web sites in the world.
On March 18, 2008, Dynavax dropped more than 50% after the FDA put a clinical hold on a late-stage trial for its hepatitis B vaccine Heplisav. Dynavax and partner Merck (MRK) said that one patient in a 2,500-person study outside of the U.S. was diagnosed with an uncommon disease causing blood vessel inflammation.
The study did indeed meet its final endpoint goals, showing that Dynavax’s Heplisav had a 95.1% positive result, compared with 81.1% from Engerix-B, a leading hepatitis drug in the space.
It is important to point out here that the FDA halted the trial because of one patient out of 2,500 and that Dynavax more than adequately met its endpoint goals. Dynavax, which believes it already has the additional information the FDA is requesting, will likely file the data shortly, with an FDA review sometime in 2009.
BVF, a well-known biotech hedge fund, owns 21.7% of Dynavax shares. This is both a short-term and long-term positive for Dynavax’s chances as a public company dealing with the FDA or even in a possible merger with GlaxoSmithKline.
BVF believes Dynavax is undervalued. Why else would it own almost 22% of a single company?
There are several ways to win with Dynavax, making it an attractive investment going forward.
1. On a net-cash basis, Dynavax is trading at about 280% below its net cash in the bank. Even if the company were to liquidate and return the capital back to the shareholders, you are looking at north of $1.50 per share in cash. Let’s not even factor Dynavax’s proprietary drugs.
2. Dynavax has six drugs in its pipeline.
3. BVF could turn to shareholder activism to increase shareholder value if it sees fit.
4. Dynavax has a current partnership with GlaxoSmithKline in which Dynavax may receive up to $800 million.
For more information on Dynavax, GlaxoSmithKline and other companies, visit the GlaxoSmithKline Strategic Mergers on portfolio on Stockpickr.
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