Questions Arise After Dynavax Offering

Some investors in Dynavax (DVAX) must be marveling at their good fortune, at least those who were able to buy shares of the Berkeley, Calif.-based biotech company at $4.40 in a hastily arranged stock offering on Wednesday, Oct. 4.

Imagine their glee when the stock opened Thursday at $6.35 and closed at $7.70 after a New England Journal of Medicine article was released Wednesday night stating that Dynavax's allergy therapy "appeared to offer long-term clinical efficacy in the treatment of ragweed allergic rhinitis." A 75% one-day gain. As my boss on the trading desk used to say, "That's some sweet corn!"

Who Knew What, and When?

Several questions come to mind when looking at this deal. If the company knew that the positive data were going to be released, why did management rush to do an offering on Wednesday?

The NEJM alerts the scientific media on Fridays to what it will publish in the coming week's edition, and journal subscribers get the news on Tuesdays, rather than Wednesdays. Dynavax acknowledged it knew as early as Friday that the positive article would be published Wednesday. It also acknowledged that the stock offering deal was put together overnight.

Dynavax sold 6.2 million shares at $4.40, grossing roughly $27 million. Had it waited a day and sold at Thursday's closing price, Dynavax could have taken in nearly $48 million -- quite a difference for a company with $60 million in cash and negative operating cash flow of $34 million over the past 12 months.