West Coast Editor

Dynavax Technologies Corp.'s licensing deal with Merck & Co. Inc. to develop the Phase III hepatitis B virus vaccine Heplisav provides $31.5 million up front with $105 million in potential milestone payments plus royalties, as Dynavax continues managing the pivotal studies and the two firms gear up for a biologics license application filing, possibly in the first quarter of 2009.

"At this point, the BLA is in Merck's hands," said Dino Dina, CEO of Berkeley, Calif.-based Dynavax, shares of which (NASDAQ:DVAX) closed Thursday at $5.18, up 18 cents.

Of the milestone payments, a "very large portion" will vest in the next 24 months, and the arrangement with Merck, of Whitehouse Station, N.J., gives Dynavax "the flexibility and freedom to decide in a much more deliberate way how to deal with our other products" in ragweed allergy and influenza, Dina said.

There's particular opportunity in flu, he added, and "we believe we're going to have the wherewithal to carry that forward to completion if we want to." The flu program is preclinical, and partly funded by the National Institutes of Health. Dynavax is testing Tolamba, the immunotherapy for ragweed allergy, in Phase II trials.

Under the terms of the Heplisav deal with Merck, Dynavax will make the HBV surface antigen component at its Dusseldorf, Germany, facility, and a new facility will be established later to meet market needs.

Merck has been a player in HBV prevention since 1986, when the pharma firm introduced the first recombinant vaccine, Recombivax HB, which sells about $270 million per year, and Merck holds patents in the U.S. covering HBV vaccines that some feared might present a problem.

"We took steps to ensure that the intellectual-property scenario was completely cleaned up," Dina told BioWorld Today. "Big pharma doesn't like any uncertainties."

Over the summer, Dynavax gained a nonexclusive license to the immunostimulatory oligonucleotide patent estate owned by Wellesley, Mass.-based Coley Pharmaceutical Group Inc., which includes TLR9 and covers Heplisav.

Dynavax watchers expected a deal for Heplisav with Merck or with GlaxoSmithKline plc, of London, which markets the HBV vaccine Engerix-B, selling about $450 million annually. Heplisav - which targets toll like receptor 9 - is being compared with Engerix-B in the study known as PHAST (Phase III HeplisAv Short-Regimen Trial) in Canada and Germany. PHAST pits a two-dose regimen of Heplisav against the conventional three-dose regimen of Engerix-B. (See BioWorld Today, June 28, 2007.)

GSK holds patents related to HBV in the U.S., too, but the firm and Merck have made cross-licensing agreements that keep Heplisav out of trouble, Dina said.

Dynavax enjoyed a 32 percent stock boost about a year ago when findings from a Phase III trial showed Heplisav superior to Engerix-B in the difficult-to-immunize population of older Asian adults between 40 and 70 years old. The 400-patient study was called "supportive but not critical" to eventual marketing. (See BioWorld Today, Nov. 30, 2006.)

Along with PHAST, Heplisav is undergoing a U.S. study - also enrolling patients ages 11 through 55 - and results from that work, plus the Phase III trials in Canada and Europe, along with lot-to-lot consistency trials (starting in the second half of this year), will help make up a safety database of about 4,000 subjects.

A key part of the BLA package will be further studies using commercial-grade vaccine, "typically done in a few hundred people," Dina said. "In this case, we are going to do a much larger set of studies, which is part of the discussions we're having with Merck."

Those studies would start early next year, and could involve several thousand patients, he said. Also to come are data with Heplisav in patients with end-stage renal disease, who are notoriously difficult to immunize. Spreading HBV can wreak havoc on dialysis wards.

Success with Heplisav "differentiates this use of TLR9 agonists from everything else that's been going on in the field," Dina said, referring to setbacks with drugs tried by Coley and by San Diego-based Anadys Pharmaceuticals Inc.

"We aren't totally immune," he added. The allergy product, Tolamba, took a hit at the start of the year when interim data from the 738-patient, Phase III trial showed no meaningful ragweed-specific allergic disease in any of the treatment or placebo groups, making it impossible to measure the drug's treatment effect. (See BioWorld Today, Jan. 9, 2007.)

Dina called that failure "not technology driven, but study design driven," and the Tolamba program since has restarted. Dynavax recently kicked off a 300-subject environmental exposure chamber study, with data due in the first half of 2008. If positive, they will trigger a pivotal field study in the 2009 ragweed season, with a potential BLA submission in 2010.

"Our original working hypothesis was to take a product that works and improve it, fill the gap," Dina said. "We would like to apply the same concept to other products" than Heplisav, including Tolamba but, more importantly, the flu vaccine.

The currently used vaccines gain only modest efficacy in the elderly, and "the biggest difference we can make [in HBV] is in people over 55," he said. "The paradigm, I think, is going to hold very well there."

Separately Thursday, Dynvax reported third-quarter earnings, in which analyst Bret Holley with CIBC World Markets found "no surprises." The firm listed a non-GAAP loss per share of 35 cents, above CIBC's 22-cent estimate, mainly due to lower than expected revenues and offset a little by lower than expected operating costs. Revenues totaled $2.9 million, with expenses at $19 million. At the end of the third quarter, Dynavax had $68.7 million in cash and securities held by funder Symphony Dynamo Inc., of Rockville, Md.

Dynvax updated financial guidance for the year, increasing year-end cash from a range topping at $42 million (estimated in February) to as high as $89 million, thanks to the Merck deal, as well as adjustments in the SDI program and funding from Deerfield Management in New York, related to the Tolamba program. Over the summer, Deerfield agreed to provide $30 million over a three-year period, based on milestones with Tolamba.

Farther back in the Dynavax pipeline are a therapy for non-Hodgkin's lymphoma in Phase II trials, one for metastatic colorectal cancer in Phase I and a therapy for HBV, also in Phase I.