Dynavax's Evolving Business Model
By Ben Comer, Chief Editor, Life Science Leader
Early-stage drug developers working in the field of immunology face a serious but often unappreciated challenge: how and when to commit their ongoing research programs to specific disease targets, while continuing to follow the science into sometimes unanticipated areas. As a former immuno-oncology and vaccines company which is now exclusively focused on vaccines for infectious diseases, Dynavax was forced to make some difficult choices regarding company priorities over the last five years. One was the choice to exit immuno-oncology drug development and reorganize the company, a process that led to layoffs and the departure of CEO Eddie Gray, in 2019.
That restructuring and renewed focus on infectious disease vaccines included driving growth and market share for Heplisav-B, a hepatitis B vaccine, and supplying the Heplisav-B adjuvant, a toll-like receptor 9 agonist called CpG 1018, to global companies developing and commercializing COVID-19 vaccines during the height of the pandemic. “Sound financial management against a revenue stream is not the core of biotech,” says Ryan Spencer, Dynavax’s current CEO, appointed in late 2019. “The core of biotech is saving the world with innovation.” The aspirational latter “core,” however, usually requires the former.
Heplisav-B Approval, Launch, And Company Reorg
Heplisav-B, Dynavax’s sole commercial product, had a long and winding road to market. Approved in 2017 and made available to patients beginning in 2018, Heplisav-B was initially partnered with Merck in 2007 for late-stage development and commercialization. However, a single patient (among 2,500 patients in current and preceding Heplisav-B trials at that time) developed Webener’s granulomatosis, a rare autoimmune disorder, during a Phase 3 trial, which triggered an FDA clinical hold, and ended Merck’s development and commercialization partnership.
Spencer joined the company in 2005 as an interim controller, filling in for a friend out on maternity leave. From there, he worked in a variety of roles with increasing responsibility, including financial planning and analysis, commercial operations, a stint as senior product developer for Heplisav-B, from 2015 until its approval in 2017, and corporate communications among other roles, before his CEO appointment in 2019. In short, Spencer was there for the trials and tribulations of bringing Heplisav-B successfully to market, the decision to exit immuno-oncology, and the development of an adjuvant supply operation for global COVID-19 vaccine developers.
Dynavax’s focus on financial management was a driving force in the decision to exit immuno-oncology – the company sold its SD-101 oncology asset to TriSalus Life Sciences, in 2020 – and to focus on growing Heplisav-B. “We made the decision that you can’t take a tangible asset like Heplisav-B, that we worked so hard to get approved, and mortgage it on the back of a highly speculative and underfunded plan in immuno-oncology,” says Spencer. “Instead, we focused solely on Heplisav-B and building out a vaccine portfolio behind the adjuvant, which is what makes Heplisav-B different from the legacy hepatitis B vaccine products.” With a myopic focus on growing Heplisav-B revenue, the company would eventually be able to invest in other things, despite some necessary but unfortunate recapitalization activities conducted during a period when the stock price sagged, says Spencer. “We used to joke that we have two things to do: make and sell Heplisav-B.”
Dynavax’s Heplisav-B vaccine is dosed twice, one month apart, compared to other commercially available hepatitis B vaccines such as GSK’s Engerix-B (three doses over six months), Merck’s Recombivax HB (three doses over six months), and VBI Vaccines’ PreHevbrio (three doses over six months). Heplisav-B’s fewer doses and shorter administration schedule is the product’s key benefit, although Spencer adds that Heplisav-B’s seroprotection rates are higher, after two doses, than GSK’s Engerix-B, a credit to the company’s proprietary adjuvant.
Leading with Heplisav-B’s dosing advantage over competitors, Dynavax worked to promote and commercialize the product beginning in 2018, and quickly discovered the “tremendous amount of blocking and tackling that has to happen within health systems … I think we were probably a little bit optimistic about what that would look like in the first two years,” says Spencer. But by the end of 2019 and into the first quarter of 2020, the commercial team was making strong progress and inroads with physicians and health systems. Then the pandemic hit, and the hepatitis B vaccine market utterly evaporated. No one was coming into the doctor’s office to get a hepatitis B shot.
Pandemic Strategy
After the hepatitis B vaccine market disappeared in the second quarter of 2020, Dynavax found itself in a tricky predicament. The reorganization in 2019 had focused the company’s efforts exclusively on two things: growing Heplisav-B, and building an infectious disease vaccine portfolio around the company’s proprietary adjuvant. The company made two key decisions that ultimately proved essential for its future, explains Spencer. The first was not to cut the field team or commercial resources. “We didn’t know how long the pandemic would last, but we knew that we’re committed to Heplisav-B,” says Spencer. Despite a few knee-jerk reactions to maintaining the full sales force, Spencer said the proposition of backtracking on the company’s core asset in the middle of trying to capture market share wouldn’t end well. “What would we have when the pandemic ended? You can’t just turn field teams down and up quickly … you lose all the goodwill you’ve built.”
With the board’s support, Dynavax’s commercial team adopted Zoom and other digital tools, and set targets on things that were achievable during lockdowns, without trying to do things that weren’t going to happen. The commercial team worked to build the brand with customers, despite the fact that no shots were being given to patients. “We ended up building a lot of share gain, even though there was no volume,” says Spencer. “As the market started to come back, we had been sneakily adding share in the background for two years.”
The second key decision made at the beginning of the pandemic was to open up the company’s adjuvant for partnering with COVID-19 vaccine developers. That move followed the 2019 decision during the company’s reorganization to look for antigen partners for its budding adjuvant platform. It is difficult to advance an adjuvant platform as an individual vaccine company, because there are “so many different antigens and so many different targets,” says Spencer. “We made the decision in 2019 to be very open with collaborations, which is rare … other adjuvant companies pulled their own proprietary adjuvants very close to the vest, to enable their own technology.” When the pandemic hit, and the search for efficacious COVID-19 antigens became a near-singular industry focus, “our foot was already on the gas,” says Spencer. “We wanted to help by making our adjuvant available.”
The result of that adjuvant platform work led to a crucial revenue stream during the pandemic period. In 2021, the company recorded net product revenue of $375.2 million via CpG 1018 adjuvant commercial supply agreements, which increased to $587.7 million in 2022 net product revenue. Global adjuvant supply partners included Clover Biopharmaceuticals, Bio Farma, Biological E. Limited (BE), Medigen Vaccine Biologics, and Valneva.
Commercial supply agreement revenue dried up in 2023, but the management calculus in 2019 had proved prescient. “The board said, ‘Don’t be a Heplisav-B company, be a vaccine company,” says Spencer. “We didn’t have enough value at risk in Heplisav-B to prevent us from being a little more promiscuous with the adjuvant. If Heplisav-B had been a $2 billion asset with this adjuvant, we wouldn’t have peppered the landscape, because if something goes wrong, we’d have too much to lose.” If the company had chosen to focus on Heplisav-B exclusively after moving out of immuno-oncology, and eschewed all other R&D and adjuvant platform building, the company reorg would have become a takeout strategy. “That’s not what we did, and it worked out really well,” Spencer says.
Taking On Big Pharma
Dynavax’s two-dose scheduling benefit versus competing hepatitis B vaccines has helped grow Heplisav-B’s market share to over 40% by the end of 2023, per Spencer. Dynavax’s sales team is composed of “just over 100” individuals in the field, and another 15 to 20 supporting the commercial function from company headquarters. The sales team has recently grown from 70 individuals, a strategy built on “expansion once you create some room to run.” On November 3, 2021, the Advisory Committee on Immunization Practices (ACIP), a committee within the CDC, voted to update its adult hepatitis B recommendation from a risk-based approach to universal vaccination for adults ages 19 to 59.
Part of Dynavax’s commercial expansion is related to breaking out the team between retail and health system customers, in response to the adult universal vaccination ACIP recommendation. Getting a hepatitis B vaccine under the risk-based recommendation is much more opportunistic, since the shots are based on distinct, individual patient circumstances, says Spencer. Vaccinating healthy adults is a completely different game, “because now you’re getting vaccinated at your wellness visit, or in the retail pharmacy. We created a growing retail pharmacy segment for Heplisav-B on the back of the universal recommendation.”
In the retail pharmacy segment, Dynavax’s sales team of just over 40 is aligned by pharmacy, says Spencer. “CVS works differently than Walgreens, and you can’t be using Walgreens lingo in a CVS channel, it just doesn’t work.” But how can Dynavax compete with the commercial resources of Big Pharma? Heplisav-B’s abbreviated scheduling compared with other hepatitis B vaccines improves compliance, which in turn improves market value, and GSK and Merck “don’t put a lot of energy” into hepatitis B commercialization. “Big Pharmas are powerhouses, and if they decide to focus on something, they are going to do very well. But we have a team that can compete with anybody, a dedicated focus on hepatitis B, and our product compares very favorably” to GSK and Merck’s vaccines. “I think they would lose some credibility trying to sell clinically against Heplisav-B, and the vaccine community just doesn’t operate that way,” says Spencer.
Dynavax will continue to focus on growing Heplisav-B revenue and market share, and hopes to expand the label into adults on hemodialysis. The FDA accepted the company’s supplemental Biologics License Application (sBLA) for that indication last year, which has a PDUFA date in May 2024.
Professional Gap Filler
Moving from interim controller all the way up to CEO, with side trips into numerous business divisions along the way, gave Spencer a unique perspective on Dynavax, and a finger in a wide variety of operations. He credits that breadth of experience – and a willingness to get to know as many aspects of the business as possible from the inside out – with helping him climb to the top of the company. Leaders also need enough humility to listen to other people, says Spencer. Having enough humility, balanced with self-confidence, is the trick. “Leaders tend to be focused, that is how they become leaders of a technical function, whether its financial or technology operations, clinical or commercial,” he says, adding that one way to step up from those functional areas is to have experience and breadth across the company, and strong teams in key areas.
Asked about the most difficult aspect of the CEO job, Spencer described himself as buttoned up, but “not an overly serious person,” although he takes the responsibilities of the job incredibly seriously. “The way my time is used is very hard to plan, because you don’t know where you’re going to be needed, and what gap you’re going to have to fill … you have to make sure everything is working, even though you don’t really run any of the functions. You’re kind of a professional gap filler, and you never stop.” Having to switch from filling a gap in one area of focus to another also requires circling back, afterward, to make sure the first gap is sufficiently closed, or hasn’t reopened, with dire consequences. “For me, that fear is the hardest part of the job,” says Spencer. “It’s not acceptable to let something fall out of focus, but there is a lot to focus on. I don’t think that is going to change any time soon.”