Dynavax Technologies stock: stunning results, but little respect
When I was a child, my parents moved a lot, but I always found them.” – Rodney Dangerfield
Dynavax Technologies (NASDAQ: DVAX) beat third-quarter expectations by releasing quarterly numbers after the bell on Thursday. Despite constant blows quarterly results, the stock has largely languished in 2022 on fears that its Covid adjuvant sales will fall sharply in 2023 as the Covid pandemic ebbs. However, the company is a schemer’sum of a part‘ story that doesn’t seem to be respected by the markets right now. An analysis follows below.
Dynavax Technologies is based just outside of San Francisco. Its main long-term product is HEPLISAV-B. It is a vaccine against hepatitis B, which is rapidly gaining market share because it is more effective (95% compared to 81%) than the previous standard of care Entergis-B. It can also be delivered via two doses over one month rather than three doses over six months, achieving a much higher level of compliance. HEPLISAV-B was developed from Dynavax’s toll-type receiver [TLR] immune modulation platform.
However, what is currently fueling the company’s growth and earnings is an adjuvant (CpG 1018) developed by Dynavax that has become a core component of several COVID-19 vaccine products primarily outside the United States. Currently, the stock sells around twelve dollars worth of stock and has an approximate market capitalization of just under $1.5 billion.
Third quarter results:
On Thursday, the company released third quarter numbers. Dynavax posted a GAAP profit of 43 cents, a penny a share above expectations. Revenue rose 55% year-over-year to $167.8 million, beating consensus of about $8 million.
The bulk of the quarter’s overall revenue came from sales of CpG 1018 adjuvant. They were $126.3 million compared to $84.3 million in the third quarter of 2021. However, product revenue HEPLISAV-B vaccine showed a larger percentage increase year over year. Net sales during the quarter were $37.5 million, compared to $22.7 million in the same period a year ago. HEPLISAV-B also increased its overall market share from 25% to 32%.
Management has also provided the following forward-looking guidance to investors for fiscal 2022.
Finally, the company continues to advance two early/mid-stage vaccine candidates for shingles and Tdap using its CpG1018 adjuvant technology.
Analysts’ comments and results:
Since the third quarter earnings release, Goldman Sachs ($21 price target), JMP Securities ($22 price target) and HC Wainwright ($28 price target) have all reissued buy ratings on the action.
Surprisingly, nearly 14% of the stock’s outstanding float is currently held short. One director sold nearly $45 million of his shares in mid-August at just under $15.00 a share, but still retains just over 60% of his holdings. Other insiders have sold about $3 million in total of their shares so far in 2022. The company ended the third quarter with just over $585 million in cash and marketable securities on its balance sheet versus a just over $200 million in long-term debt.
Current analyst consensus is that the company will make $1.70 per share of earnings in fiscal 2022, with revenue growing nearly 60% year-over-year to $695 million. They expect Dynavax to suffer a slight loss in fiscal year 2023, thanks to lower adjuvant sales that drive revenue down 40%. It should be noted that there is a large discrepancy for the next fiscal year, both in sales and earnings estimates.
There’s a lot to love about Dynavax’s long-term history. Its main vaccine HEPLISAV-B continues to gain market share. The company has huge net cash and is developing a few other vaccines using its proven CpG 1018 adjuvant technology platform. The central question for investors is how quickly CpG 1018 Covid vaccine sales are falling from by 2023 as the pandemic ebbs globally.
The one big insider sell in August is of some concern, but the stock is well below analysts’ firm price targets that have been released in the past 24 hours. Given the company’s recent quarterly beats, there is a good chance Dynavax will remain profitable in fiscal 2023 as HEPLISAV-B continues to gain market share and the company further advances its vaccine candidates.
The options around these stocks are both liquid and lucrative, which is why I continue to hold most of my core stake in DVAX via covered call positions. It’s been a profitable strategy for a few years now, and I expect it to continue to be so as Dynavax continues to perform better than the company is respected in the market.
The way my luck is turning, if I was a politician I’d be honest.” – Rodney Dangerfield