That means opportunity. As Dynavax's lead product approaches the commercial finish line, more institutions will buy and the stock should soar. Buying now entails greater risk, but brings the potential for much bigger rewards.   
The minimum investing goal of each new Flaherty Special Situation is to achieve a gain of 50% to 100% within two years. Based upon decades of good picks Larry Auriana has made as part of our annual Flaherty Favorites of the Famous "If You Could Love Only One" panel, we believe that investors will do at least this well by buying DVAX.
 
Heplisav™ Hepatitis B vaccine gives greater immunity faster with fewer injections.
 
The whole idea of undergoing the nuisance and pain of vaccines is that those who get them don't get the disease, which in this case can lead to cirrhosis or liver damage or cancer. Here Dynavax appears to have a better mouse trap-a superior vaccine to the ones currently in use. Its Heplisav™ (for hepatitis, liver and save) looks like a winner. In a trial in Canada and Germany 97% of the Heplisav™ patients had an adequate response while only 81% passed criteria for those receiving GSK's Engerix-B. This means that protection of 19% of patients with the standard vaccine falls short. Results widen for patients over 40 or with weakened immune systems. Moreover, Heplisav™ patients only need two shots given one month apart versus three over six months for Engerix-B. Also some of the latter patients like health care workers may need blood drawn to see if the vaccine has achieved its purpose since the failure rate is so high and they are in high risk situations.
End Stage Renal Patients need Dynavax's new vaccine badly.  
 
Infectious disease is one of the most common causes of death in End-Stage Renal Disease (ESRD) patients. These patients are immune compromised and, as a result, catch infections quite easily. What makes it even more difficult is that ESRD patients, as well as people 40 years and older, respond less to vaccines that are currently on the market.
Right now, there are about 750,000 ESRD patients in the U.S. and the five major European markets, with about 150,000 new patients each year. About 35% of those immune compromised ESRD patients do not respond to hepatitis B vaccination and 20% require boosters. That's a lot!
Dynavax Technologies' hepatitis B vaccine Heplisav™ has so far demonstrated in clinical trials that it has the potential to significantly improve the situation.In September, the FDA gave Dynavax the green light to start a phase III registration trial for Heplisav™ in 600 adults with ESRD. The company expects to initiate a second registration trial, a phase III lot-to-lot consistency trial, in early 2010.
"We currently expect to complete these two registration trials within the next 24 months," says Dino Dina, M.D., president and CEO of Dynavax. Here are the details:
After being randomized 1 to 1, patients will receive three doses of Heplisav™ at months 0, 1, and 6, or eight doses of GlaxoSmithKline's hepatitis B vaccine Engerix-B, with two doses at months 0, 1, 2 and 6. The primary endpoint is seroprotection rate at month 7.
Unlike other vaccines that are now on the market, Heplisav™ is designed to provide increased, rapid protection with fewer doses. Heplisav™ combines hepatitis B surface antigen with a toll-like receptor 9 (TLR9) agonist to enhance the immune response, for populations that are less responsive to current licensed vaccines, including adults older than age 40, and patients with ESRD. Toll-like receptors are proteins on the outside of certain cells that identify and help destroy disease-causing organisms that have entered the body.
"Anybody over 40 begins to respond less and less to commercial vaccines," says Dr. Dina. "We can completely overcome that problem and compensate for that huge disadvantage and fully immunize people who are older than 40. The vaccine also works a lot better in people who are partially immune compromised."
To date, over 2,500 individuals have been vaccinated with Heplisav™. Results of the company's phase III PHAST study, which was conducted in Canada and Germany, demonstrated that participants 40 years or older receiving two doses of Heplisav™ over one month achieved a seroprotection rate of 92%, compared with 75% of subjects who received three doses of Engerix-B over a six month period.
For individuals with ESRD, clinical data from a small phase I and partially completed phase II trial will be reported on October 30 to November 1 at the 47th Annual Meeting of the Infectious Disease Society of America, in Pennsylvania, PA.
Dynavax holds the commercial rights to Heplisav™, after former partner Merck & Co. pulled out of its November 2007 development and commercialization agreement. Merck had paid Dynavax $31.5 million up front, with Dynavax also eligible to receive up to $105 million more plus royalties in exchange for the worldwide licensing rights to Heplisav™.
Barring any hitches, Dr. Dina anticipates reaching the commercial stage in late 2012 and ramping up to full scale production in 2013.
In the U.S., ESRD patients get vaccinated regularly at dialysis centers. As a result, these centers represent a highly concentrated, renewable market that can be served by cost-effective, targeted sales and distribution networks. "The government is going to be concerned with this segment in that they provide vaccines for the Centers for Disease Control and health clinics," Dr. Dina says.
Dynavax plans to expand its market reach beyond the U.S. and Europe especially to China, India and Southeast Asia. Traditionally, these countries use relatively inexpensive hepatitis B vaccines, which do not provide good immunity to people who are infected with the hepatitis C virus, HIV or ESRD. "We will be seeking alliances for penetrating international markets such as Southeast Asia and India, where by definition you have to have a local company," says Dr. Dina. In China alone 120 million are already infected with hepatitis B and the need to protect the rest of the population is acute.
 
Business
 
Berkeley, CA-based Dynavax Technologies is a biopharmaceutical company that discovers and developments TRL candidates to prevent and treat infectious diseases. Clinical-stage products include Heplisav™, a hepatitis B vaccine; a hepatitis C therapy, and a hepatitis B therapy. Products in preclinical development include a universal flu vaccine, an asthma therapy and an autoimmune and inflammatory disease therapy. 
 
Initial Commercial opportunity for Heplisav™:
Heplisav™ is a phase III investigational adult hepatitis B vaccine that is designed to provide more rapid and increased protection with fewer doses than current licensed vaccines. Current vaccines do not provide rapid and increased protection for less responsive, underserved populations such as ESRD patients and people 40 and over.
The ESRD market, a high-value economic sector, is large, growing rapidly and is widely recommended for vaccination. There are approximately 750,000 ESRD patients in the U.S. and the five major European markets. Approximately 35% of these immune compromised ESRD patients do not respond to vaccination and 20% require boosters. About 150,000 new patients are added to the ESRD population each year. Since vaccination for these patients occurs regularly at dialysis centers, among other clinics, it provides the company with a significant market opportunity.
 
Commercial opportunity for hepatitis C therapy:
There are 170 million people worldwide chronically infected with the hepatitis C virus (HCV), according to the World Health Organization. Dynavax estimates the current worldwide market for HCV therapeutics is about $2.5 billion a year. 
Dynavax's HCV therapy is currently in Phase I clinical development. This HCV therapy utilizes a novel second-generation TLR9 and may offer a more effective therapeutic option for patients chronically infected with HCV.
The company is financing the development of this therapy with its $50 million Symphony Dynamo, Inc. funding agreement. Phase I studies have demonstrated this hepatitis C therapy's safety, tolerability and antiviral activity.
The HCV therapy is designed to be used in combination with oral antiviral therapy to stop HCV viral replication and induce a long-lasting T-cell immune response.
Current therapies on the market for HCV such as pegylated interferon alpha and the antiviral drug ribavirin may cause significant side effects and are only effective in treating half of all patients infected with HCV.
 
Commercial opportunity for hepatitis B therapy:
Over 350 million individuals worldwide are chronically infected with the hepatitis B virus (HBV), which can lead to cirrhosis of the liver and liver cancer. Dynavax estimates the current worldwide market for HBV therapeutics is over $900 million a year.
The HBV therapy is currently in Phase 1 clinical development. This novel treatment approach, which for the first time combines both the surface and core HBV antigens, may offer a more effective therapeutic option for patients chronically infected with HBV. The company has retained all commercial rights to this product.
Currently approved HBV therapies consists of lengthy treatment with antiviral medication or interferon-alpha. These therapies may cause significant side effects, can lead to resistance and do not always cure HBV.
Dynavax's HBV therapy, used in combination with existing antiviral therapies, is expected to induce a potent immune response against HBV-infected cells in the liver to eradicate HBV infection and may offer a more effective therapeutic option for chronically infected patients.
 
Commercial opportunity for asthma therapy:
Asthma affects 300 million people worldwide. Asthma is a chronic disease of the lungs and is caused primarily by allergic inflammation of the airways. In addition, 210 million people worldwide are affected by chronic obstructive pulmonary disease (COPD), a term used to describe chronic lung diseases that limit airflow in the lungs. Analysts estimate the current worldwide market for asthma and COPD therapies to be over $15 billion a year.
Partnered with AstraZeneca, Dynavax is developing AZD1419, a novel candidate drug for asthma. The company's asthma therapy utilizes a second-generation TLR9 and represents a new strategy for the treatment of allergic respiratory diseases such as asthma. This therapy is designed to modify the course of these diseases by changing the basic immune response to environmental allergens, such as house dust and pollens, leading to prolonged reduction in asthma symptoms.
Dynavax is currently working on a second candidate drug and has extended its research collaboration with AstraZeneca to provide research funding for a third candidate.
 
Commercial opportunity for treating autoimmune/inflammatory diseases:
Over 20 million individuals in the U.S. and Europe have autoimmune diseases such as lupus, psoriasis and rheumatoid arthritis. Key biologic drugs used to treat these conditions generate over $15 billion in worldwide sales each year. 
Dynavax has pioneered a new approach to treating autoimmune and inflammatory diseases with its first-in-class oligonucleotide-based TLR inhibitors, called immunoregulatory sequences. Dynavax's lead inhibitor drug candidate is DV1079, a bifunctional inhibitor of TLR7 and TLR9.
The company's TLR inhibitors have demonstrated a highly targeted effect on key immune cells and pathways that play a role in multiple autoimmune and inflammatory diseases. In contrast, currently marketed and pipeline products are broadly immunosuppressive with variable efficacy and substantial toxicity.
Dynavax and GlaxoSmithKline have entered into a worldwide strategic alliance to discover, develop and commercialize novel TLR inhibitors for diseases such as lupus, psoriasis and rheumatoid arthritis. The partnership will conduct research and early clinical development in up to four programs and are eligible to receive future potential development and commercialization milestones totaling approximately $200 million per program. GSK can exercise its exclusive option to license each program upon achievement of proof-of-concept or earlier upon certain circumstances.  After exercising its option, GSK will carry out further development and commercialization of these products. Dynavax will receive tiered, up to double-digit royalties on sales and have retained an option to co-develop and co-promote one product.
 
Commercial opportunity for a universal flu vaccine:
There are an estimated 30,000 to 40,000 viral influenza-associated deaths per year in the U.S., primarily in those over 65 years of age. Influenza pandemics occur infrequently, on average every 30 to 40 years, but the next pandemic could result in millions of deaths worldwide. Analysts estimate the current worldwide market for seasonal influenza vaccines to be approximately $3 billion a year.
The universal flu vaccine is in preclinical development and is designed to offer protection against divergent strains as well as increase the efficacy and potentially reduce the dose of standard flu vaccine. This unique approach is based on combining two highly conserved antigens and Dynavax's proprietary second-generation TLR9 agonist with standard flu vaccines
Standard flu vaccines can provide protection against the influenza strains predicted to be prevalent during a season. The efficacy of these vaccines is often decreased by unpredictable changes in the actual strains causing influenza. Current vaccines are also least effective in those who need prevention the most, the elderly and others with weaker immune systems. Pandemic vaccination is further complicated by the need to produce large quantities of vaccine in a short time period.
The major advantages of Dynavax's universal flu vaccine is that it offers protection against divergent influenza strains, increases the efficacy of standard vaccines, and potentially reduces the dose of vaccine to extend the quantity available during a pandemic.
 
Management and Key Personnel
 
Dino Dina, M.D., has been president and a member of the board of directors since May 1997 and CEO since May 1998. From 1982 to 1997, Dr. Dina was an employee of Chiron Corporation, a biopharmaceutical company. At Chiron, he held a series of positions with increasing responsibility. He ultimately served as president of Chiron Vaccines (formerly Biocine Company), which he directed from its inception in 1987. Under his direction, Chiron Vaccines received the first-ever approval of an adjuvant influenza vaccine in Italy, successfully completed development of the first genetically engineered pertussis vaccine and conducted clinical trials for vaccines to prevent HIV, herpes simplex type II, cytomegalovirus and hepatitis B infections. The virology group he directed was responsible for several key scientific findings, including the discovery, cloning and sequencing of the hepatitis C virus and the cloning and sequencing of the viral genomes for HIV and hepatitis A viruses. Prior to joining Chiron, Dr. Dina was an assistant professor of genetics at Albert Einstein College of Medicine in Bronx, N.Y. He received his M.D. from the University of Genoa Medical School in his native Italy.
 
Robert L. Coffman, Ph.D., has served as vice president and chief scientific officer since December 2000. He joined Dynavax from the DNAX Research Institute where he had been since 1981. Prior to that, he was a postdoctoral fellow at Stanford University Medical School. Coffman has made fundamental discoveries about the regulation of immune responses in allergic and infectious diseases. He shared the William S. Coley Award for Research in Immunology for discovery of the Th1 and Th2 subsets of T lymphocytes, the two major types of T cells that control most immune responses.  Coffman received his Ph.D. from the University of California, San Diego and his AB from Indiana University. In 2006, he was elected to the National Academy of Sciences.
 
Mark M. Guzman, Ph.D., is vice president of CMC Technologies. He joined Dynavax in 2005 as director, technical affairs. Guzman has over 20 years of experience in scientific research. From 1999 to 2005, he worked for Pfizer as associate research fellow, chemical research and development and as a senior scientist. At Pfizer, Guzman was involved in the development of Macugen™, an oligonucleotide-based treatment for age-related macular degeneration co-developed with Eyetech Pharmaceuticals. He received a Ph.D. from the University of Pennsylvania and a BS in chemistry from the University of Illinois, Urbana-Champaign.
 
Zbigniew Janowicz, Ph.D., has served as CEO of Dynavax Europe since July 2006. In April 2006 Dynavax acquired Rhein Biotech GmbH (Dynavax Europe). Janowicz holds a Ph.D. in Biochemistry. In 1985, he was one of the co-founders of Rhein Biotech GmbH and laid the foundation for the development and commercialization of the Hansenula polymorpha technology platform used in the production of vaccine antigens and other proteins. He also led the successful development of the hepatitis B franchise of the Rhein Biotech GmbH group. From 1996 until 1999, Janowicz served as R&D director in the tissue repair business of Curative Technologies. He rejoined Rhein Biotech GmbH in 1999 where he held the position of R&D director for the Rhein Biotech Group.
 
J. Tyler Martin, M.D., is vice president and chief medical officer. Martin, who joined the company in 2009, has nearly 20 years of drug development experience. Before joining Dynavax, he served as president of Humabs LCC. From 2004 to 2006, Martin worked at Chiron as vice president, development, and from 1994 until 1997, he served as director, clinical research. During his seven years at Chiron, Martin led the team responsible for the development of the novel vaccine adjuvant MF59, the first vaccine adjuvant licensed by regulatory agencies since alum, and approved as FLUAD influenza vaccine in Europe. Martin has a B.S. in chemistry and an M.D. from the University of Nebraska.
 
Michael S. Ostrach joined the company in 2006 as vice president, chief business officer and general counsel. Prior to joining Dynavax, he was COO, CFO and general counsel at Threshold Pharmaceuticals. He holds an AB from Brown University and a JD from Stanford Law School.
 
Jennifer Lew joined Dynavax in December 2004 as vice president, finance and principal accounting officer. With 15 years of experience in finance and accounting, Lew most recently served as senior director and corporate controller for Dynavax. From 2002 to 2004, she served as assistant controller at QRS Corporation, an e-commerce provider for the retail industry. Lew has a BA in economics/accounting and government from Claremont McKenna College and is a certified public accountant.
 
William D. Turner is vice president, regulatory affairs, and global quality. He came to Dynavax in August 2006 from Neosil, where he was vice president, regulatory affairs. Turner has a BS in medical microbiology with a minor in chemistry from California State University at Long Beach.
 
Cecilia Vitug is vice president of human resources. She joined the company in June 2000. From 1997 to 2000, Vitug served as director of human resources, payroll and administrative services at Collagen Aesthetics, Inc.
 
Finances
 
For the nine months ended September 30, 2009, Dynavax reported a net loss of $0.3 million, or $0.01 per share, improving significantly from a net loss of $23.9 million, or $0.60 per share, for the same period in 2008. The improvement came from recognition of non-cash deferred revenue and a decrease in total operating expenses.
For the nine months ended September 30, 2009, revenues totaled $38.1 million compared with $25.1 million for the same period in 2008. Management attributes the significant jump in revenues to the recognition of $28.5 million of non-cash deferred revenue that was accelerated following the termination of the Merck & Co. collaboration for Heplisav™.
Management will have to raise significant funds in order to commercialize its company-making lead product in late 2012. 

History
 
Dynavax Technologies was founded in August 1996 by Dennis A. Carson, M.D., Eyal Raz, M.D. and Lawrence M. Lichtenstein, M.D., Ph.D., based on work that was being done at the University of California at San Diego. The core technologies and intellectual property relating to immunostimulatory sequences (ISS) were licensed exclusively to Dynavax by the Regents of the University of California. 
In March 1999, Dynavax filed an investigational new drug application for its first indication, ragweed allergy immunotherapy, and enrolled its first human subject in July 1999. Clinical-stage programs in three additional indications using ISS were initiated over the next few years: a hepatitis B vaccine combining ISS and HBsAg in December 2000, ISS in combination with Rituxan� for non-Hodgkin's lymphoma in March 2002, and a first-generation ISS to treat asthma in May 2002. 
In September 2003, the National Institute of Allergy and Infectious Diseases, a unit of the National Institutes of Health, awarded Dynavax $8.4 million in grants to fund development of advanced vaccines for flu and anthrax, as well as a novel approach to creating innate immunity to airborne bioterrorism agents.
In April 2006, Dynavax acquired Rhein Biotech GmbH, creating Dynavax Europe, a D�sseldorf, Germany-based subsidiary. This acquisition gave Dynavax a European Union GMP-certified vaccine manufacturing facility and a range of capabilities in the development, production, licensing and marketing of biopharmaceutical products and technologies. That same month, Dynavax obtained $50 million of committed capital from Symphony Capital Partners and its co-investors to advance its ISS-based cancer, hepatitis B and hepatitis C therapeutic programs through clinical development.
In December 2006, the funds enabled the company to initiate clinical trials of its TLR9 agonist in combination with a standard chemotherapeutic regimen for metastatic colorectal cancer, as well as for its therapy for chronic hepatitis B virus infection in March 2007.
In May 2007, Dynavax provided notice of exercise of its program option to reacquire rights to the hepatitis B therapy program. To support the development of its therapies for asthma and COPD, it entered into a collaboration agreement with AstraZeneca in September 2006, with a potential total deal value of approximately $136 million.
Collectively, Dynavax raised nearly $96 million in venture capital through four direct and one subsidiary financing rounds in its eight years as a private company.  In February 2004, the company went public, raising $46.6 million in net proceeds.  
 
Competition
 
Dynavax competes with some of the leading players in the biotechnology and pharmaceutical sectors. For instance, Heplisav™ will compete directly with three-dose marketed vaccines produced by GlaxoSmithKline, Merck and Crucell N.V., among others. Its hepatitis C therapy will compete directly with interferon alpha and indirectly with ribavirin, products currently marketed by Roche and Schering-Plough. The hepatitis B therapy will also compete directly with existing hepatitis B therapy products manufactured by Roche, Schering-Plough, Gilead Sciences, Bristol-Myers Squibb, GlaxoSmithKline and Novartis. Of course, competitors are also potential acquirers which is the way it works for a small bio-tech.
 
Risks
 
 Dynavax will not have its lead product commercial until late 2012, which hopefully will generate over $100 million annually just for starters. To date, revenue has resulted from collaboration agreements, services and license fees from customers of Dynavax Europe and government and private agency grants. With cash on hand of about $46.4 million, Dynavax will still need to raise significant financing  to get  its lead product Heplisav™, which should be the game changer, over the commercial finish line.
Undoubtedly, the company's short-term success is dependent on its ability to obtain FDA approval for its clinical-stage Heplisav™ Phase III trial. Because the FDA has restricted the Heplisav™ Phase III trial to a sicker population there is always the possibility of additional problems. The future is unknowable and there is no certainly that this technology will receive regulatory approval. Because Dynavax is up against big time competition there is always a possibility a rival may come up with a superior product. These risks are common and not unusual for many bio-techs trying for breakthroughs.   
 
CONTACT INFORMATION:
 
Dynavax Technologies Corporation
www.dynavax.com  
 
2929 Seventh Street, Suite 100
Berkeley, CA 94710-2753
Phone :( 510) 848-5100
Fax: (510) 848.1327
 
IR Contact:
Amy Figueroa
Phone: (510) 665-7211
Email: [email protected]
 
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Disclaimer: This Flaherty Special Situations Newsletter contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, and actual circumstances, events or results may differ materially from those projected.  We caution readers not to place undue reliance on any forward-looking statements and to supplement this newsletter with specific company SEC filings and their own research. Please be aware that there is risk in every company stock that you buy. Coverage or other mention of a stock in this newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. We are not investment dealers or investor advisers registered with the SEC or State Security Authorities.  We do not guarantee all the information in this newsletter is correct or will be updated. Remember some errors are inevitable. Reproduction without written permission is forbidden. No individual at Flaherty Financial News Inc. is a shareholder of Dynavax Technologies Corp. profiled in this Flaherty Special Situation, and our policy forbids editorial from buying or selling a featured stock until this issue is out at least ten business days after its issue date of October 23 , 2009.  Dynavax did not pay a fee to Flaherty Financial News Inc. to be selected as a special situation in this Flaherty Special Situation issue or for initial extra Internet distribution. Dynavax may or may not decide to pay for further distribution. Dynavax  may or may not buy a PDF of its Buy Recommendation  to make reprints or for website posting for $2,000.  In cases where a report or profile is subsidized, readers should consider such subsidized articles as paid advertorials and understand that sponsored material will not be as objective as non sponsored editorial. As FNN editor I always reserve "Final Copy Responsibility" on what to include and what to leave out of every issue. We have tried to be objective, but may have failed. We are not security analysts or stockbrokers engaged in buying or selling, but financial journalists with all the many failings of that profession. You readers must decide the merits of each company yourself and whether to invest.  -Bob Flaherty, Editor
 
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