The agreement covered an HBV vaccine that has been on clinical hold since March.

Merck & Co. has backed out of its agreement with Dynavax Technologies covering Heplisav™, a Phase III HBV vaccine. The vaccine has been on clinical hold since March, and the FDA recently asked for more safety information.

The company’s stock has been struggling since March and dropped a further 28% today. Dynavax opened trading at $1.10.

With the termination of the global license and development deal, all rights revert to Dynavax. The firm says that it will evaluate regulatory options for the development of Heplisave for adults outside the U.S. where there is no clinical hold. It will also assess the possibility of developing the vaccine in end-stage renal disease as suggested by the FDA.

“In the first quarter of 2009, we expect to gain additional insight into the regulatory path for Heplisav that will enable us to evaluate further development and pursue partnering agreements with potential collaborators or investors,” says Dino Dina, M.D., president and CEO.

Under its agreement with Merck, inked in November 2007, Dynavax received $31.5 million upfront and would have earned $105 million in milestones. Shortly thereafter, however, the clinical hold was placed on two IND applications for Heplisav as a result of a case of Wegener’s granulomatosis in a Phase III trial in adults. In October of this year, the FDA reaffirmed the hold, noting that the risk versus benefit profile of Heplisav was not favorable for further investigation in healthy adults.

Dynavax says that with the end of the Merck partnership, it will accelerate the recognition of approximately $31 million of noncash revenue previously reported as deferred revenue.

Dynavax has upped its expectations of total cash available at December 31 from $50 million to $65 million. This increase is mainly due to the $10 million initial payment under Dynavax’ alliance with GlaxoSmithKline.

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