"To know what you know and what you do not know, that is true knowledge." - Confucius
Any of my readers that have followed any of my columns on speculative biotech plays for any length of time know my philosophy of taking a shotgun approach to this sector.
Stocks in this sector are highly volatile and can move 50% either way on any news such as results of test trial or buyout rumors. I take positions 1/3 of the size I do in other sectors and I spread my bets over many more stocks within the sector. I call this 'Shotgun Investing,' which I only employ in the biotech sector.
Given the huge upside when you get a call right, in the long run I expect to make a nice return although one with a huge amount of volatility. I also like investing in biotech stocks that have recent insider buying as I have found a lot of big winners have had insider buying preceding their huge runs.
Here is an update on Dynavax Technologies (NASDAQ:DVAX), A biotech stock that faced challenging times in 2013 but seems to have found some recent momentum.
Dynavax Technologies Corporation is a clinical-stage biopharmaceutical company that discovers and develops novel products to prevent and treat infectious and inflammatory diseases. Its lead product candidate is HEPLISAV, a Phase 3 investigational adult hepatitis B vaccine. Dynavax has programs partnered with pharmaceutical companies, including AstraZeneca (NYSE:AZN) and GlaxoSmithKline (NYSE:GSK).
The stock sells right at ~$2 a share and announced yesterday that it is receiving a $5.4mm milestone payment from AstraZeneca. The companies also stated they have amended their research collaboration and license agreement to transfer responsibility for conduct of further clinical trials from Dynavax to AstraZeneca, following completion of the ongoing Phase 1 clinical study of AZD1419 for the treatment of asthma.
Insiders & Recent Setbacks:
Insiders had good timing on the recent bounce in the stock as three insiders bought over $300K of stock in late October. Insiders have not sold any shares since 2012. The stock is rising even as Dynavax withdrew its application for its lead product (HEPLISAV) for consideration for use in Europe recently. This was mainly done as the trial subject size was not large enough to merit approval.
It suffered the same fate in the U.S. last year and is in the process of commencing a large Phase III trial to address those concerns. This will be a huge 8,000 patient trial to get the amount of data needed to alleviate regulatory concerns and gain approval.
This event caused the stock to fall dramatically. However, the shares have regained momentum after bouncing off of support around ~$1 a share as investors come to conclusion that these developments are more likely to delay approvals not deny them.
Balance Sheet & Leadership:
With the milestone payment the company should have just north of $80mm of net cash on the balance sheet. The shares currently sport a market capitalization right around $500mm. The company raised $125mm in a secondary last October and should be set to get through its large trials without the need to raise further funds.
The company's current CEO came from GlaxoSmithKline. He served as the President of Pharmaceuticals Europe as well as Senior Vice President and General Manager of Pharmaceuticals UK for six years prior to that role.
The company has proprietary technology, ISS and IRS; that focus on assisting the body's immune system to fight against diseases and inflammations. Although the company has several other candidates in its pipeline, the stock will be driven by the success of HEPLISAV gaining approval for the foreseeable future.
The larger FDA Phase III trial needed to address regulatory concerns will begin shortly and should conclude near the latter end of 2015. If all goes well, approval for this drug should happen in 2016. Obviously this stock is for patient investors willing to be that the company will be eventually successful in gaining approval for a drug that could bring lucrative rewards.
Analyst Commentary & Outlook:
The company has a small but loyal following among analysts. The median price target on DVAX by the four analysts that cover the stock is $4.50 a share, more than double the current price. Cowen recently named Dynavax one of its top biotech plays with significant upside in 2014. It has a price target of $8 a share on the stock.
The company presented yesterday at the 34th Annual Cowen & Company Health Care Conference in Boston. I would expect additional analyst community commentary after they digest this latest update on the company's drug pipeline. I will post additional information to this article when it becomes available.
In conclusion, Dynavax is not for the faint of heart. However, it has potentially a strong product in Phase III trials, a good balance sheet and strong support from the analyst community. For investors embracing 'Shotgun Investing' it makes for a good small speculative position in a diverse biotech portfolio.
Disclosure: I am long DVAX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.