Despite all of Wall Street’s conflict and contention, a fortunate few companies enjoy unanimous support among professional analysts. If the market’s movers and shakers all believe these companies will beat the long-term averages, well, surely they will — right?
Not so fast! With help from Motley Fool CAPS, the 180,000 member-driven investor community that translates informed opinion into stock ratings of one to five stars, we’ll see whether these highflying favorites deserve analysts’ unwavering support.
Today, we’ll take a look at drug developer Dynavax Technologies Corporation (NASDAQ:DVAX), whose hepatitis-B vaccine Hepsilav is coming up for FDA review later this month. The stock was crippled late last year after an agency advisory panel offered up seemingly contradictory opinions: It voted 13-1 in favor of the vaccine’s approval, but 8-5 that the data didn’t support its safety. The heightened sensitivity over how the agency might react to a drug with an uncertain safety profile led the market sell off Dynavax’s shares.
Amongst the analysts that CAPS tracks, five have weighed in on Dynavax and they unanimously agree it will outperform the indexes. The investor community, however, is hedging its bets: While 94% rate the drugmaker to outperform the broad market averages, they also assign it a middling three-star CAPS rating suggesting perhaps they understand the sometimes fickle nature of the FDA approval process.
Of course, just because Wall Street loves ‘ em doesn’t mean you have to. Analyst sentiment is only just the jumping off place for your own research.
Yes, no, maybe so
If you just followed the headline news about the advisory panel decision, you’d have sold off your Dynavax shares, too. The FDA has come under fire in the past for approving drugs that were subsequently deemed unsafe and has cracked down on those that didn’t reach the higher bar it’s set. It just rejected Novo Nordisk A/S (ADR) (NYSE:NVO)‘s diabetes treatment Tresiba saying the pharmaceutical had to first conduct a comprehensive cardiovascular safety trial — a big risk the Fool’s Keith Speights highlighted last year as a potential outcome — despite the drug gaining acceptance in international markets and the regulatory agency’s own advisory panel approval recommendation.
So, its cautionary note about Hepsilav’s safety had investors running for the exits — only they should have read further on to see it might not be as devastating as it appeared. While they were split in the opinion, it was based on not having enough data at hand, not its efficacy, which is why no new trials were recommended. Their affirmative approval vote shows they uniformly believe the vaccine works, but they wanted to see more data.
The full agency could very well approve Hepsilav for those with the highest risk of the disease, but also give it a broader indication once they’ve had the chance to review Dynavax’s results it already has in hand. Of course, as the Tresiba case shows, you can’t count your chickens before they’re hatched when it comes to the FDA, because the agency could have approved the drug with the requirement Novo Nordisk concurrently run safety trials.
A big opportunity
The worldwide market for adult hep-B vaccines is estimated at approximately $700 million annually, according to Dynavax, and is currently dominated by GlaxoSmithKline plc (ADR) (NYSE:GSK)‘s Energix-B and Twinrix, as well as Merck & Co., Inc. (NYSE:MRK)‘s Recombivax-HB. The benefit Hepsilav offers over Energix-B is greater seroprotection rates — or the protection that’s obtained from vaccination — but with one fewer dosage, so treating more people in high-risk populations where sticking to a dosage regimen is one of the biggest obstacles speaks in its favor.