We are intrigued by Dynavax's proprietary Immuno-Stimulatory Sequence (ISS) technology, but disappointed with the clinical hold on its lead candidate Heplisav. The clinical hold on Heplisav will certainly delay the approval of this drug. In a worst-case scenario, Heplisav may never reach the market.

The clinical hold may also hurt the relationship with Merck and Company (MRK) that the company established in late 2007. With the delay or elimination of Heplisav approval, we do not model any royalties on Heplisav sales now until we get additional update on this issue. Although the Tolamba program will be delayed by two years, we still believe that Tolamba is efficacious and viable.

We believe the company's ISS technology is a broad and powerful platform technology for enhancing immune system response. As investors become more aware and comfortable with ISS, value will be applied to several other ongoing early-stage candidates testing ISS in cancer and asthma indications.

We arrive at our target price of $3 using P/S multiple of 6.5 x multiplied by our estimated 2011 estimated revenue of $63.5 million, discounted at 30% for three years assuming 55 million shares outstanding. The 6.5x P/S ratio is less than biotech industry average P/S ratio of 10x. This discount is warranted due to the uncertainty of Heplisav. We downgrade Dynavax shares to Hold from Buy based on the clinical hold on Heplisav.

Value Apparent on Newcastle

Newcastle Investment Corporation (NCT) reported 4Q07 and full-year 2007 recurring EPS of $0.70 and $2.84 per share, respectively. Including asset impairments, NCT reported a loss of $1.52 per share in 2007.

Operations are holding up amidst the current turmoil in the commercial and residential debt markets. There has been a broad-based sector sell-off due to continuing residential mortgage problems. At this time, we are maintaining our Buy rating due to yield.

The dividend has been cut more than 50% to $0.25 per share as the company tries to conserve cash in an uncertain environment. We believe the current payout is sustainable in 2008 and the share price will stabilize as the company continues to strengthen its balance sheet through debt reduction.

On a forward P/E basis, NCT trades in line with sector averages. In addition, the company is trading at 1.38x GAAP book value. Although, on an adjusted basis (assuming all assets marked to market), NCT is valued at 0.47x book, which is well below peers and leads us to believe that the company is undervalued.

The entire mortgage industry is in turmoil as investors are worried about credit qualities on residential loans in addition to continued difficulties selling CDOs. Despite the sell-off, we still rate NCT a Buy as we think the market has overreacted on one of the best positioned commercial lenders. The company is generating very attractive yields on invested capital through its diversified loan portfolio.

The lowered dividend is safe and the yield is still well in excess of 10%. Given the high yield, recent share price declines and moderate exposure to residential sub prime loans (10%), we think NCT is attractively valued. We are setting our price target at $9 per share or 4.5x 2008 EPS estimates.

Kyocera Corp. Revises Guidance

As a diversified company with several strong businesses, Kyocera Corporation (KYO) has excelled in industrial product areas, such as fine ceramics and components. Over the long-term, the outlook for components for digital consumer equipment is good. Meanwhile, high-volume consumer products have been weak as the company has been struggling to compete on a cost basis amid competition from cheaper producers, forcing Kyocera to exit the Chinese mobile market.

In the light of compounding fears over a deceleration in the world business environment, Kyocera effected a downward revision of its guidance of net sales and profit from operations for the full fiscal year 2008 ending March 31, 2008. Kyocera also revised its forecast for the average US$ and Euro exchange rates for the fourth quarter of 2008 to YEN 107 and YEN 155, respectively.

Moreover, given current economic concerns as well as slowing individual consumption in the U.S. and Europe, we adjust our price target to $86 and retain a Hold rating on KYO shares. Kyocera is currently trading at 15.9x our estimated EPADS for 2009.

Higher demand for components is expected to drive an improving top line at Kyocera over the near term. In addition, cost-cutting efforts are expected to improve margins to support bottom-line growth.