Dynavax Technologies (DVAX) built its cash balance in 2022 as the biotech brought in revenue from its adjuvant used by several Covid vaccine manufacturers, primarily in Europe. In addition, the Heplisav-B vaccine is fast becoming the standard of care for hepatitis B. Let’s take another look at this riveting “sum of the parts” story we visited back in May.
I outlined a covered call trade for DVAX in late spring when the stock was trading just under $10 per share. I used January’s $10 call alerts. While it’s been a rough year for the biotech sector, the stock is now trading at just over $11 a share. As we head into 2023, this small cap name is still set up for a nice “rinse, wash and repeat” trade.
Dynavax currently has a market cap of approximately $1.4 billion. For starters, the company has accumulated more than $350 million in net cash on its balance sheet. The adjuvant CpG 1018 had sales of $126.3 million in the third quarter, up about 50% from the same period a year ago. Management expects approximately $550 million to $600 million in sales of CpG 1018 in fiscal 2022. Sales will decline in fiscal 2023 as the pandemic fades. But the company is focusing on developing this adjuvant for other vaccines outside of Covid, such as shingles.
At the same time, Heplisav-B has quickly captured a third of the US hepatitis B vaccine market, thanks to its efficacy and compliance. Heplisav-B saw sales of $37.5 million in Q3, an increase of 65% over Q3 2021. Leadership believes this vaccine will eventually generate peak sales of $600 million in the United States .
Given this risk/reward profile at these trading levels, it’s hardly surprising that Goldman Sachs ($21 target price), JMP Securities ($22 target price), and HC Wainwright ($28 target price) have all recently re-issued “Buy” ratings on Dynavax Technologies .
This is how one can execute a covered call position in DVAX. Using the July $11 call strikes, create a covered call order with a net debit in the range of $9 to $9.20 (net share price – option premium). This strategy provides 18% downside protection and just over 20% of potential upside over the eight-month option life, even if the stock does nothing from current trading levels. Liquidity is usually better around these options later in the day, so I think it’s best to place this trade after noon. If all goes well again, we can revisit the same trade early next summer.
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