Day 210: Dynavax a Dog?

Will this dog hunt?

This week all eyes are on Dynavax Technologies (DVAX). Well, not all eyes but at least those following the MLH Portfolio since DVAX has been our best performer year to date. Stock prices in general reflect what investors believe shares will be worth in the future and catalysts, events that can trigger increases in earnings, revenue and growth, can push prices higher. This is especially true of small cap biotech companies like Dynavax. The events this week that will have a material impact on DVAX are an FDA AdCom meeting on July 28th and a PDUFA on August 10th for their Heplisav-B vaccine. Investors are worn out waiting on DVAX considering that the original application for Heplisav-B was submitted in early 2012 and then denied approval a year later. Though there were no issues of efficacy the FDA requested additional trials. 3 years later DVAX submitted the requested data and was rejected again in 2016; again not due to any issues with efficacy. In fact Heplisav-B has been shown in one of the largest trials ever that it is superior to the current treatment of choice. With 14,000 subjects in the trial, heplisav-B demonstrated protective qualities roughly 95% vs. about 81% for existing treatments. What's even better is that heplisav-B is administered in two doses over a month instead of the three doses over six months required by competing drugs. July 28th will be the third attempt to obtain FDA approval. So What? The potential sales for Heplisav-B is estimated to be larger than the current market cap of DVAX. Plus DVAX has other notable drugs in the pipeline, most notably SD-101, an oncology drug that was shown to produce better outcomes in advanced melanoma cases when combined with Keytruda from Merck. Keytruda has already achieved blockbuster status so finding new applications could make for some significant royalty streams to Dynavax. Some analysts have estimated that SD-101 could also be worth more than the current market cap of DVAX. Given the potential sales of these two drugs I'm estimating DVAX could have a market cap of $1.5 to $3.0 billion if both drugs receive FDA green lights and subsequent success in distribution. This assumes about a 2X multiple. I like to look at options trading when a company gets this hot to learn more about what I think investors are thinking. The August 18, 2017 $10 Calls have some significant implied volatility (IV). IV is an indicator of how much price movement investors expect by that call date. Since Calls are a bullish trade I think investors are expecting a big move to the upside in DVAX shares following the July 28 and August 10th events.

Stay invested

Clay Baker