What I’m Holding: Dynavax

Since I mentioned Dynavax yesterday, I thought I would talk a little bit about why I own the stock. My relationship with Dynavax started in October of 2012. I frequently watch Jim Cramer’s show Mad Money on CNBC to get Cramer’s take on what is going on in the market. I tend to disregard the opinions of almost everyone I hear on TV, but I still like to hear what they have to say. If you want to learn more about why the people that pick stocks on TV tend to be, for lack of a better word, terrible at picking stocks, read the chapter on TV experts in my book about trading the stock market entitled Beating Wall Street with Common Sense. The book is currently unavailable, but I plan on making it less unavailable in the near future, so stay tuned.

But back to Dynavax. Jim Cramer believed very strongly in DVAX in late 2012. When the stock was trading near $5 a share, he predicted the stock could potentially double once its Hepatitis B vaccine, Heplisav, gained FDA approval. I certainly am not a blind Cramer follower, but he made a compelling case when he ran through the numbers for the vaccine. I decided DVAX was a pretty good risk/reward situation, and so I bought a small position at $4.80 per share. Then in November 2012, the FDA shockingly voted not to approve Heplisav until further safety testing had been completed. Needless to say, the stock tanked on the news, and I ended up selling my DVAX shares at $2.40. At the time, the 50% one-month loss was the worst trade I had ever made and the biggest monetary loss I had ever endured. Fortunately, I was well aware that there would be risk involved in the trade, and the fact that I took a relatively small position saved me from losing too much money.

I wrote off DVAX for quite some time, only checking on it every once in a while. I didn’t even consider buying it again until the price dropped below $1.50. Every time I saw the price fall a little bit, I heard the voices in my head: “Wow, DVAX sure is getting cheap!””Don’t lose any more money on that crappy company! Move on!””All they need is more safety testing. The data on the vaccine was promising!””You’re going to feel so stupid if you make the same mistake with the same stock again!”

Eventually in June of 2013, DVAX touched $1.00, and my limit buy order was triggered. My new position was the same size money-wise as the position I had sold in 2012, but this time I bought nearly 2.5 times as many shares. At $1.00 per share, the risk/reward balance had been tipped so far to the reward side that I simply couldn’t resist. There’s a great case to be made for DVAX (and Heplisav) in the long run, and rather than summarizing William Wellner’s article at Seeking Alpha, I’ll just link it here.

Mr. Wellner does an excellent job describing Dynavax’s current position and why he feels the stock could gain up to 500% in the next three years. I agree with his assessment of the situation. I doubt I will stick around long enough to see 500% gains, but the fact of the matter is that a volatile biotech stock like DVAX doesn’t even need good news to produce huge gains. In fact, in the eight months since I bought DVAX at $1.00, it is up 88% without any major news catalyst! I believe that at some point in the next couple of years, DVAX will see an  large spike in share price. Whether the spike is due to a short squeeze, a rumor, anticipation of a FDA ruling, study results, or another major announcement, I want to be around when it happens. If I get burned on DVAX again, so be it. Sure, I will feel stupid, but successful traders never make decisions based on emotions like fear, greed, panic, or embarrassment.