Every Monday we feature “A Stock to Sell” as our daily post. With every stock or investment we recommend as a sell, we give you a full explanation of why we advise against investing in it at this time. Today, a look at how the gauntlet of clinical trials and high development costs make most drug stocks high risk investments.

Dynavax Technologies Corp. (symbol DVAX on Nasdaq; www.dynavax.com) develops drugs and vaccines that aim to treat and prevent infectious diseases by strengthening the immune system.

The company’s main focus is on Heplisav-B, a hepatitis B vaccine. Hepatitis refers to inflammation of the liver, as well as a group of viral infections that also affect the liver.

Dynavax shares rose as high as $54 in 2012, when Phase III clinical trials—the stage prior to commercialization—showed some positive results.

However, the U.S. Food and Drug Administration (FDA) and its European counterpart felt the sample size Dynavax used was too small to warrant approval. That caused the shares to drop as low as $10 in mid-2013. They have risen steadily since then to today’s price.

The company now has a much larger Phase III trial underway, with 8,300 subjects. It should release the results later this year or in early 2016.

Heplisav-B’s main advantage is that it only requires two injections over four weeks, while current vaccines need three shots over a six-month period. According to feedback from doctors, 30% or more of current vaccination programs do not complete the full course of shots over the six months, making it less likely that they’re providing adequate protection.

In addition, the earlier Phase III trials indicated that Heplisav-B is more effective than the Energix-B vaccine of competitor GlaxoSmithKline (see our article on GlaxoSmithKline here).

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High risk stocks: Dynavax forms partnerships with larger firms to help offset high development costs

Meanwhile, Dynavax continues to work on a variety of other drugs, including a flu vaccine and treatments for asthma, hepatitis C and other autoimmune and inflammatory diseases. To help offset its high development costs, the company has formed partnerships with larger firms, including AstraZeneca.

In the three months ended March 31, 2015, Dynavax lost $26.2 million, or $0.97 a share, compared to a loss of $13.8 million, or $0.53, a year earlier. Its research costs jumped 67.9% in the latest quarter, to $22.2 million from $13.2 million.

Revenue—mainly funds from collaboration deals and government grants—fell 82.1%, to $627,000 from $3.5 million. That’s mainly because Dynavax completed a clinical trial for AstraZenica, while a second partnership, with GlaxoSmithKline, expired in 2014.

As of March 31, 2015, the company held cash of $97.6 million, or $3.37 a share, and its long-term debt was just $8.9 million, or 1% of its market cap. It’s using up its cash at a rate of $25 million per quarter, so it should have enough to finish the current Phase III trial on Heplisav-B without having to raise more funds.

TSI Network recommendation: SELL