The back story: Dynavax Technologies – a clinical-stage biopharma company — has an advisory committee meeting set on July 28, a panel of experts who will recommend whether the Food & Drug Administration should approve the company’s Hepatitis B drug. The official FDA decision date is August 10.
Ahead of this catalyst, the stock has been moving, up from $4 per share to a recent high of $10.50.
Why others are buying it: You have the potential for a double catalyst – the advisory meeting followed by the FDA approval date – and the stock has retraced from its recent high, giving it some room to grow if the news is good.
Why I’m not: I typically sell out before a catalyst event occurs, the lead-up – rather than the actual positive or negative impact of the news – is the impetus for buying the stock.
In the case of DVAX, however, the risk-reward at this point is poor. The positive side of the news has been baked in, with only that dollar of pop left to recent highs; meanwhile, if the news is negative, DVAX could be cut in half.
At this point, there’s too much risk for the limited reward that’s left in the days leading up to the news event.
Kyle Dennis runs Kyle Dennis’ Biotech Breakouts (biotechbreakouts.com). He is an event-based trader, who prefers low-priced and small-cap biotech stocks. He currently has no shares, options or open orders in DVAX; he last owned the stock on June 21, when he played it profitably as a day trade.
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