Is Dynavax on the Right Track?

Investors in Berkeley, Calif.-based biotech Dynavax (NAS: DVAX) have had their faith in the company rewarded over the past 52 weeks. Shares of Dynavax have shot up 40% over that time, but even bigger things are just over the horizon. With the Food and Drug Administration prepared to release a verdict on promising hepatitis B vaccine Heplisav in early 2013, now's not the time to take your eyes off this stock. Let's see how Dynavax performed for the third quarter, as the company awaits the FDA's ruling.

Healthy money
The company's losses in earnings per share decreased in the third quarter, but Dynavax's release on Friday still missed analyst expectations. For the three months ending on Sept. 30, Dynavax recorded an EPS loss of $0.10 a share, up $0.02 from a loss of $0.12 in the third quarter last year. Analysts had expected losses of $0.08.

Revenues followed a similar pattern, as the company's recorded $2.9 million in sales more than doubled last year's result but still trailed analyst expectations rather significantly. Research and development costs weighed down the bottom line, increasing by more than $1 million from last year to $12.9 million.

While the quarterly results sent shares up around 1% in after-hours trading on Friday, it doesn't really matter what the analysts were expecting in the immediate term. Dynavax's cash on hand -- $148 million in total cash, cash equivalents, and securities -- is more than enough to compensate for its slim burn rate of just over $4.2 million per month. That's less than it was in 2011, and with the FDA setting an action date for Heplisav in February, the company will be more than capable of conducting business as usual until then.

Looking up
Heplisav's prospects look very good. The drug will need to compete with Merck's (NYS: MRK) Recombivax-HB and GlaxoSmithKline's (NYS: GSK) Twinrix and Engerix-B -- the latter of which is the current standard-bearer of the hepatitis B market. In studies, however, Heplisav has outperformed Engerix-B significantly with fewer doses of vaccine required. That's a positive sign for FDA approval -- and for the company, particularly with Dynavax estimating the hep B market at nearly $700 million annually.

Given Heplisav's optimistic outlook, Dynavax also looks like a juicy takeover target for larger pharmaceutical players. The company has already entered a deal with AstraZeneca (NYS: AZN) in which the big pharma company will pay Dynavax $20 million to take an early stage asthma drug through phase 2a trials. Dynavax said last week that it will take the drug, known as AZD-1419, into phase 1, triggering a $6 million payout from AstraZeneca. With this kind of partnership breeding familiarity between the companies, it's not unthinkable that AstraZeneca could approach Dynavax about a potential buyout down the road.

Regardless, investors shouldn't stress about this quarter's earnings too much. Heplisav looks on track to succeed, and an FDA approval will reward investors handsomely. The FDA advisory committee will meet on Nov. 15, giving you a better idea of the drug's fate -- and if it provides the thumbs-up that I expect, shares of Dynavax will have nowhere to go but up.

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The article Is Dynavax on the Right Track? originally appeared on Fool.com.

Fool contributor Dan Carroll has no positions in the stocks mentioned above. The Motley Fool owns shares of AstraZeneca plc (ADR) and GlaxoSmithKline. Motley Fool newsletter services recommend GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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