Dynavax: The BioRunUp Trade Into An FDA Panel

NEW YORK ( TheStreet) -- BioRunUp trading is a form of swing trading designed to capitalize on biotech share price volatility that almost always takes place around widely known catalysts like FDA drug approvals and clinical trial results.

Explained simply, Biorunup trading involves first identifying a date (or date range) on which an important biotech stock event is expected to take place, then positioning trades (equities and options both work) to capture profits as share prices inevitably "run up" into the chosen event.

The most profitable BioRunUp trades usually involve FDA drug approval decision dates. These are often referred to in jargon shorthand as "PDUFA dates" for the Prescription Drug User Fee Act that sets the rules and timelines by which FDA reviews and approves new drug applications.

FDA-appointed PDUFA dates are a gift to BioRunUp traders. History shows that biotech share prices almost always rise -- "run up" -- as the FDA approval decision date nears because investors and traders place their bets on approval and the resulting benefits to the company. As the PDUFA date draws close, this increased trading activity can snowball as momentum, technical and day traders get involved, thus increasing the share price even more.

BioRunUp traders like myself try to stay well ahead of the pack when it comes to playing PDUFA dates, which are typically known six to 10 months in advance depending on the length of the FDA review. Paying attention to PDUFA dates well in advance allows for early entry into a trade and the opportunity to hold a long position in a stock for one to three months prior to the event. The goal of the BioRunUp trade is to profit from the increased visibility and trading activity that typically shines on a biotech stock prior to the actual FDA drug approval decision being announced.

If there is one cardinal rule in BioRunUp investing, it is this: Never hold a biotech stock trade through the FDA drug approval decision. Let me be extra clear, the goal of BioRunUp investing is to trade and book profits before the event occurs. I am not in the business of trying to predict if the FDA will approve or reject a drug. I leave that work to others.

What goes up, must come down so swing trading in biotech stock does work in the opposite direction as well, but I'll leave discussion about "BioRunDown" trading for a future column.

Let's put the BioRunUp trading strategy into action. Dynavax ( DVAX) is seeking FDA approval for Heplisav, a vaccine to protect against hepatitis B infection in adults age 18-70. The assigned PDUFA date is Feb. 24th, 2013. While I consider this Dynavax PDUFA catalyst too far out on the calendar to trade effectively now, the FDA has also scheduled an advisory panel to review Heplisav on Nov. 14. This bumps Dynavax's tradable catalyst up by three months, and sets it up for a nice run up over the next two months.

Dynavax has a large cash position after completing a substantial share offering this May at $4.25 per share. The company's current share price is below the offering price. This financing should alleviate concerns over the possibility of dilution before the FDA advisory panel. Biotech companies often take advantage of stock price run ups to bolster their cash reserves.

As the Heplisav FDA panel nears, I expect investor anticipation and speculation to increase causing Dynavax's share price to rise -- a nice set up for an 8-10 week BioRunUp swing trade. As always, make sure to close the Dynavax position before FDA releases briefing documents for the Heplisav panel on Nov. 12 -- two business days before the panel.

BioRunUp swing trading is also an effective biotech investing strategy for clinical trial data announcements. Nailing down the timing on a clinical trial swing trade is more difficult because companies rarely pre-announce a specific date for the release of data from studies. However, companies do often provide rough guidance i.e. late September or the fourth quarter.

Like with swing trades involving PDUFA dates, the knowledge that clinical trial results are pending tends to push biotech stock prices higher. The same phenomenon is at work: Investor hope and greed mix to create bullish momentum that accelerates as the expecting release of clinical data nears. BioRunUp traders profit by playing the run up in share price that precedes the release of clinical trial data. But again, remember the cardinal rule: Do not hold the trade into the event. If the swing trade works, a BioRunUp trader books a nice profit without having to risk worrying about whether a clinical trial produces positive results or not.

I've been able to turn a few thousand dollars into a few hundred thousand dollars in my personal trading account using the BioRunUp swing trading strategy. Subscribers to the BioRunUp.com trading community web site that I helped found have, collectively, booked millions of dollars in verified profits.

In future columns for TheStreet, I will be discussing the BioRunUp strategy in more detail with actionable trading ideas.

Messier is currently long Dynavax shares.

Follow Mark Messier on Twitter.

Mark Messier is the founder of BioRunUp.com. Messier is a DOJ-certified Criminal Intelligence Analyst and former IT professional, specializing in law enforcement applications. In April 2010, Messier founded the subscription-based stock-trading web site BioRunUp.com to share his biotech trading ideas with the online investor community. Messier enjoys spending time with his wife and two young boys and visiting his "home away from home" in Costa Rica.

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