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Why Dynavax Stock Is Nosediving Today

By Keith Speights - May 10, 2021 at 12:18PM

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The biotech announced a senior convertible notes offering.

What happened

Shares of Dynavax Technologies (DVAX -2.41%) were nosediving 18.1% lower as of 11:42 a.m. EDT on Monday. The decline came after the company announced plans to offer $200 million in convertible senior notes due in 2026.

So what

The key word to note in Dynavax's announcement is "convertible." The notes that the company plans to issue will be able to be converted into shares. That means the value of Dynavax's existing shares could be diluted. When investors hear about potential dilution, they often head for the hills and create downward pressure on share prices. That's almost certainly why the biotech stock fell today.

$1 bill folded into an arrow pointing down

Image source: Getty Images.

Issuing convertible notes is a common practice for companies, though. Dynavax plans to use the proceeds raised to pay off debt and other obligations under its term loan agreement.

However, the company also intends to use some of the money to pay for capped call transactions. These are call options that will give Dynavax the right to purchase its own shares at a specified price. The company said that it expects these capped call transactions will offset the potential dilution to its stock.

Now what

There are several more important things for investors to watch with Dynavax than its convertible notes offering. Several of the company's partners will report results from clinical studies of COVID-19 vaccines that use Dynavax's CpG 1018 adjuvant this year. Dynavax also plans to launch hepatitis B vaccine Heplisav-B in Europe in the fourth quarter.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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