I’m Going to Give This Biotech Another Shot

Dynavax Technologies (DVAX) has spent 2022 building up its cash balance as the biotech raked in revenues from its adjuvant that’s used by several Covid vaccine makers, primarily in Europe. In addition, its Heplisav-B vaccine is fast becoming the standard of care for hepatitis B. Let’s take another look at this compelling “sum of the parts” story that we visited in May.

I outlined a covered-call trade for DVAX in the late spring, when the stock traded just below ten bucks a share. I used the January $10 call strikes. Even though it has been a tough year for the biotech sector, the stock now trades for just above $11 a share. As we head into 2023, this small cap name still is set up for a nice “rinse, wash and repeat” trade.

Dynavax has approximate $1.4 billion market cap at the moment. For starters, the company has built up over $350 million in net cash on its balance sheet. Its CpG 1018 adjuvant had $126.3 million worth of revenue in the third quarter, this was up some 50% from the same period a year ago. Management expects some $550 million to $600 million in sales from CpG 1018 in fiscal 2022. Sales will drop in fiscal 2023 as the pandemic ebbs. But the company is focused on developing this adjuvant for other vaccines outside of Covid, such as shingles.

At the same time, Heplisav-B has rapidly taken one third of the U.S. market for hepatitis-B vaccines, thanks to its efficacy and compliance. Heplisav-B saw $37.5 million in sales in the third quarter, up 65% from third-quarter 2021. Leadership believes this vaccine will eventually see $600 million in peak sales in the United States.

Given this risk/reward profile at these trading levels, it is hardly surprising Goldman Sachs ($21 price target), JMP Securities ($22 price target) and H.C. Wainwright ($28 price target) have all recently reissued “Buy” ratings on Dynavax Technologies.

Option Strategy:

This is how one can execute a covered call position in DVAX. Using the July $11 call strikes, fashion a covered call order with a net debit in the $9 to $9.20 range (net stock price – option premium). This strategy provides downside protection of 18% and just over 20% of potential upside over the eight-month option duration even if the stock does nothing from current trading levels. Liquidity tends to better around these options later in the day, so I find it best to place this trade after midday. If all works out once again, we may revisit the same trade early next summer.