NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dynavax Technologies Corporation (“we,” “our,” “us,” “Dynavax” or the “Company”), is a clinical-stage immunotherapy company focused on leveraging the power of the body’s innate and adaptive immune response through toll-like receptor (“TLR”) stimulation. Our current product candidates are being investigated for use in multiple cancer indications, as a vaccine for the prevention of hepatitis B and as a disease modifying therapy for asthma. We were incorporated in California in August 1996 under the name Double Helix Corporation, and we changed our name to Dynavax Technologies Corporation in September 1996. We reincorporated in Delaware in 2000.
Subsidiaries
In April 2006, we completed the acquisition of
Dynavax GmbH
, a wholly-owned subsidiary in Düsseldorf, Germany.
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation and Principles of Consolidation
The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include our accounts and those of our wholly-owned subsidiary. All significant intercompany accounts and transactions among the entities have been eliminated from the consolidated financial statements.
We operate in one business segment: the discovery and development of biopharmaceutical products.
Liquidity and Financial Condition
We have incurred significant operating losses and negative cash flows from operations since our inception. As of December 31, 2016, we had cash, cash equivalents and marketable securities of
$81.4 million
and cash used in operating activities of $107.1 million. We adopted FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40) effective December 31, 2016. We have evaluated and concluded there are no conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern for a period of one year following the date that these financial statements are issued.
We expect to continue to spend substantial funds in connection with the development and manufacturing of our product candidates, particularly SD-101, our lead investigational cancer immunotherapeutic product candidate, human clinical trials for our other product candidates and additional applications and advancement of our technology. In order to continue our development activities and if HEPLISAV-B
TM
is approved, we will need additional funding or a partnership to enable commercialization. This may occur through strategic alliance and licensing arrangements and/or future public or private debt and equity financings. Sufficient funding may not be available, or if available, may be on terms that significantly dilute or otherwise adversely affect the rights of existing stockholders. If adequate funds are not available in the future, we may need to delay, reduce the scope of or put on hold one or more development programs while we seek strategic alternatives, which could have an adverse impact on our ability to achieve our intended business objectives.
The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors, including, but not limited to, the market demand for the Company’s common stock, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management’s estimates are based on historical information available as of the date of the consolidated financial statements and various other assumptions we believe are reasonable under the circumstances. Actual results could differ materially from these estimates.
44
Foreign Currency
Translation
We consider the local currency to be the functional currency for our international subsidiary, Dynavax GmbH. Accordingly, assets and liabilities denominated in this foreign currency are translated into U.S. dollars using the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing throughout the year. Currency translation adjustments arising from period to period are charged or credited to accumulated other comprehensive income (loss) in stockholders’ equity. For the years ended December 31, 2016, 2015 and 2014, we reported an unrealized loss of $0.7 million, $1.3 million and $1.6 million, respectively. Realized gains and losses resulting from currency transactions are included in other (expense) income in the consolidated statements of operations. For the years ended December 31, 2016, 2015 and 2014, we reported a gain of $0.2 million, $0.1 million and $0.4 million, respectively, resulting from currency transactions in our consolidated statements of operations.
Cash, Cash Equivalents and Marketable Securities
We consider all liquid investments purchased with an original maturity of three months or less and that can be liquidated without prior notice or penalty to be cash equivalents. Management determines the appropriate classification of marketable securities at the time of purchase. In accordance with our investment policy, we invest in short-term money market funds, U.S. Treasuries, U.S. government agency securities and corporate debt securities. We believe these types of investments are subject to minimal credit and market risk.
We have classified our entire investment portfolio as available-for-sale and available for use in current operations and accordingly have classified all investments as short-term. Available-for-sale securities are carried at fair value based on inputs that are observable, either directly or indirectly, such as quoted market prices for similar securities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the securities, with unrealized gains and losses included in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value, if any, judged to be other than temporary on available-for-sale securities are included in interest income or expense. The cost of securities sold is based on the specific identification method. Management assesses whether declines in the fair value of investment securities are other than temporary. In determining whether a decline is other than temporary, management considers the following factors:
|
•
|
Whether the investment has been in a continuous realized loss position for over 12 months;
|
|
•
|
the duration to maturity of our investments;
|
|
•
|
our intention and ability to hold the investment to maturity and if it is not more likely than not that we will be required to sell the investment before recovery of the amortized cost bases;
|
|
•
|
the credit rating, financial condition and near-term prospects of the issuer; and
|
|
•
|
the type of investments made.
|
To date, there have been no declines in fair value that have been identified as other than temporary.
Concentration of Credit Risk and Other Risks and Uncertainties
We determine our segments based on the way we organize our business by making operating decisions and assessing performance. In fiscal years 2016, 2015 and 2014, 92%, 85% and 96% of our revenues were earned in the United States, respectively, and the remaining revenues were earned in Germany. As of December 31, 2016 and 2015, 17% and 11%, respectively, of our long-lived assets were located in the United States and the remaining long-lived assets were located in Germany.
Financial instruments that are subject to concentration of credit risk consist primarily of cash equivalents, marketable securities and accounts receivable. Our policy is to invest cash in institutional money market funds and marketable securities of the U.S. government and corporate issuers with high credit quality to limit the amount of credit exposure. We currently maintain a portfolio of cash equivalents and marketable securities in a variety of securities, including short-term money market funds, U.S. government agency securities, U.S. Treasuries and corporate debt securities. We have not experienced any losses on our cash equivalents and marketable securities.
Our products will require approval from the U.S. Food and Drug Administration (“FDA”) and foreign regulatory agencies before commercial sales can commence. There can be no assurance that our products will receive any of these required approvals. The denial or delay of such approvals have had a material adverse impact on our business and may impact our business in the future.
We are subject to risks common to companies in the biopharmaceutical industry, including, but not limited to, new technological innovations, clinical development risk, establishment of appropriate commercial partnerships, protection of proprietary
45
technology, compliance with government and environmental regulations, uncertainty of market acceptance of products, product liability, the vo
latility of our stock price and the need to obtain additional financing
.
Long-Lived Assets
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Additions, major renewals and improvements are capitalized and repair and maintenance costs are charged to expense as incurred. Leasehold improvements are amortized over the remaining life of the initial lease term or the estimated useful lives of the assets, whichever is shorter.
We evaluate the carrying value of long-lived assets, including intangible assets, whenever events or changes in business circumstances or our planned use of long-lived assets indicate, based on undiscounted future operating cash flows, that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. When an indicator of impairment exists, undiscounted future operating cash flows of long-lived assets are compared to their respective carrying value. If the carrying value is greater than the undiscounted future operating cash flows of long-lived assets, the long-lived assets are written down to their respective fair values and an impairment loss is recorded. Fair value is determined primarily using the discounted cash flows expected to be generated from the use of assets. Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected cash flows. No impairments of purchased intangible assets or material impairments of tangible assets have been identified during the years presented.
Goodwill
Our goodwill balance relates to our April 2006 acquisition of Dynavax GmbH. Goodwill represents the excess purchase price over the fair value of tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized but is subject to an annual impairment test. In performing its goodwill impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If after assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, we will proceed to perform a test for goodwill impairment. The first step involves comparing the estimated fair value of the related reporting unit against its carrying amount including goodwill. If the carrying amount exceeds the fair value, impairment is calculated and recorded as a charge in the consolidated statements of operations. We determined that we have only one operating segment and there are no components of that operating segment that are deemed to be separate reporting units such that we have one reporting unit for purposes of our goodwill impairment testing. We evaluate goodwill for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual impairment tests indicate that the asset might be impaired. No impairments have been identified for the years presented.
Revenue Recognition
Our revenues consist of amounts earned from collaborations, grants and fees from services and licenses. We enter into license and manufacturing agreements and collaborative research and development arrangements with pharmaceutical and biotechnology partners that may involve multiple deliverables. Our arrangements may include one or more of the following elements: upfront license payments, cost reimbursement for the performance of research and development activities, milestone payments, other contingent payments, contract manufacturing service fees, royalties and license fees. Each deliverable in the arrangement is evaluated to determine whether it meets the criteria to be accounted for as a separate unit of accounting or whether it should be combined with other deliverables. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the arrangement and evaluates which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. We recognize revenue when there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.
Non-refundable upfront fees received for license and collaborative agreements and other payments under collaboration agreements where we have continuing performance obligations related to the payments are deferred and recognized over our estimated performance period. Revenue is recognized on a ratable basis, unless we determine that another method is more appropriate, through the date at which our performance obligations are completed. Management makes its best estimate of the period over which we expect to fulfill our performance obligations, which may include clinical development activities. Given the uncertainties of research and development collaborations, significant judgment is required to determine the duration of the performance period. We recognize revenues for costs that are reimbursed under collaborative agreements as the related research and development costs are incurred.
Contingent consideration received for the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is defined as an event having all of the following characteristics: (i) there is substantive
46
uncertainty at the date the arrangement is entered into that the e
vent will be achieved, (ii) the event can only be achieved based in whole or in part on either the entity’s performance or a specific outcome resulting from the entity’s performance and (iii) if achieved, the event would result in additional payments being
due to the entity.
Our license and collaboration agreements with our partners provide for payments to be paid to us upon the achievement of milestones. Given the challenges inherent in developing biologic products, there is substantial uncertainty whether any such milestones will be achieved at the time we entered into these agreements. In addition, we evaluate whether milestones meet the criteria to be considered substantive. The conditions include: (i) work is contingent on either of the following: (a) the vendor’s performance to achieve the milestone or (b) the enhancement of the value of the deliverable item or items as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone; (ii) it relates solely to past performance and (iii) it is reasonable relative to all the deliverable and payment terms within the arrangement. As a result of our analysis, we may consider our development milestones to be substantive. Milestone payments that are contingent upon the achievement of substantive at-risk performance criteria are recognized in full upon achievement of those milestone events in accordance with the terms of the agreement. All revenue recognized to date under our collaborative agreements has been nonrefundable.
Our license and collaboration agreements with certain partners also provide for contingent payments based solely upon the performance of our partner. We expect to recognize the contingent payments as revenue upon receipt, provided that all other revenue recognition criteria have been satisfied.
Revenues from manufacturing services are recognized upon meeting the criteria for substantial performance and acceptance by the customer.
Revenue from royalty payments is contingent on future sales activities by our licensees. Royalty revenue is recognized when all revenue recognition criteria have been satisfied.
Revenue from government and private agency grants is recognized as the related research expenses are incurred and to the extent that funding is approved.
Research and Development Expenses and Accruals
Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services and non-cash stock-based compensation. Research and development costs are expensed as incurred. Amounts due under contracts with third parties may be either fixed fee or fee for service, and may include upfront payments, monthly payments and payments upon the completion of milestones or receipt of deliverables. Non-refundable advance payments under agreements are capitalized and expensed as the related goods are delivered or services are performed.
We contract with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. Our accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations. We may terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the date of termination, although in certain instances we may be further responsible for termination fees and penalties. The Company estimates its research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to the Company at that time.
There have been no material adjustments to the Company’s prior period accrued estimates for clinical trial activities through December 31, 2016.
47
Stock-Bas
ed Compensation
Stock-based compensation expense for restricted stock units and stock options is estimated at the grant date based on the award’s estimated fair value and is recognized on a straight-line basis over the award’s requisite service period, assuming estimated forfeiture rates. Fair value of restricted stock units is determined at the date of grant using the Company’s closing stock price. Our determination of the fair value of stock options on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number of subjective variables. We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value-based measurement of our stock options. The Black-Scholes model requires the use of highly subjective assumptions which determine the fair value-based measurement of stock options. These assumptions include, but are not limited to, our expected stock price volatility over the term of the awards, and projected employee stock option exercise behaviors. In the future, as additional empirical evidence regarding these input estimates becomes available, we may change or refine our approach of deriving these input estimates. These changes could impact our fair value of stock options granted in the future. Changes in the fair value of stock awards could materially impact our operating results.
Our current estimate of volatility is based on the historical volatility of our stock price. To the extent volatility in our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation cost recognized in future periods. We derive the expected term assumption primarily based on our historical settlement experience, while giving consideration to options that have not yet completed a full life cycle. Stock-based compensation cost is recognized only for awards ultimately expected to vest. Our estimate of the forfeiture rate is based primarily on our historical experience. To the extent we revise this estimate in the future, our share-based compensation cost could be materially impacted in the period of revision.
Income Taxes
We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Additionally, we assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. We have provided a full valuation allowance on our deferred tax assets at December 31, 2016 and 2015 because we believe it is more likely than not that our deferred tax assets will not be realized as of December 31, 2016, and 2015.
The Company is required to file federal and state income tax returns in the United States and Germany. The preparation of these income tax returns requires the Company to interpret the applicable tax laws and regulations in effect on such jurisdictions, which could impact the amount of tax paid by us. An amount is accrued for the estimate of additional tax liabilities, including interest and penalties, for any uncertain tax positions taken or expected to be taken in an income tax return. We update the accrual for uncertain tax positions as more definitive information becomes available.
Recent Accounting Pronouncements
Accounting Standards Update (“ASU”) 2014-09
In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance codified in ASC 606, Revenue Recognition, Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition,
which provides
a single comprehensive
model
for
entities
to use in accounting
for
revenue
arising
from
contracts
with customers
and will supersede
most
current
revenue
recognition
guidance.
In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim periods within those periods)
, with early application permitted
. The FASB issued supplemental adoption guidance and clarification to ASU 2014-09 in March 2016, April 2016 and May 2016 within ASU 2016-08 "Revenue From Contracts With Customers: Principal vs. Agent Considerations," ASU 2016-10 "Revenue From Contracts with Customers: Identifying Performance Obligations and Licensing," and ASU 2016-12 "Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients," respectively. We are currently evaluating the impact (if any) this guidance will have on our consolidated financial statements.
We anticipate adoption of ASC 606 using the modified retrospective method
with a cumulative catch-up adjustment to the opening balance sheet of retained earnings at the effective date,
during the first quarter of 2018. The Company will continue to review variable consideration, potential disclosures, and the method of adoption in order to complete the evaluation of the impact on the consolidated financial statements. In addition, the Company will continue to monitor additional changes, modifications, clarifications or interpretations undertaken by the FASB, which may impact the current conclusions.
48
Accounting Standards Update 2016-02
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842). The ASU requires management to recognize lease assets and lease liabilities by lessees for all operating leases. The ASU is effective for annual periods beginning after December 15, 2018 and interim periods therein on a modified retrospective basis, with early application permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
Accounting Standards Update 2016-09
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 modifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes and classification on the statement of cash flows. The standard becomes effective beginning in the first quarter of 2017. Early adoption is permitted for any entity in any interim or annual period. Therefore, the Company has early adopted this new standard as of December 31, 2016. The adoption of this standard did not have a material impact on our consolidated financial statements as of December 31, 2016.
3.
|
Fair Value Measurements
|
The Company measures fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
|
•
|
Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities;
|
|
•
|
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
|
|
•
|
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities; therefore, requiring an entity to develop its own valuation techniques and assumptions.
|
The carrying amounts of cash equivalents, accounts and other receivables, accounts payable and accrued liabilities are considered reasonable estimates of their respective fair value because of their short-term nature.
Recurring Fair Value Measurements
The following table represents the fair value hierarchy for our financial assets (cash equivalents and marketable securities) measured at fair value on a recurring basis (in thousands):
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
18,981
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,981
|
|
U.S. Treasuries
|
|
-
|
|
|
|
3,499
|
|
|
|
-
|
|
|
|
3,499
|
|
U.S. government agency securities
|
|
-
|
|
|
|
30,437
|
|
|
|
-
|
|
|
|
30,437
|
|
Corporate debt securities
|
|
-
|
|
|
|
24,941
|
|
|
|
-
|
|
|
|
24,941
|
|
Total
|
$
|
18,981
|
|
|
$
|
58,877
|
|
|
$
|
-
|
|
|
$
|
77,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
21,193
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
21,193
|
|
U.S. government agency securities
|
|
-
|
|
|
|
17,622
|
|
|
|
-
|
|
|
|
17,622
|
|
Corporate debt securities
|
|
-
|
|
|
|
152,749
|
|
|
|
-
|
|
|
|
152,749
|
|
Total
|
$
|
21,193
|
|
|
$
|
170,371
|
|
|
$
|
-
|
|
|
$
|
191,564
|
|
49
Money market funds are highly liquid investments and are actively traded. The pricing information on these investment
instruments is readily available and can be
independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.
U.S. Treasuries, U.S. Government agency securities and corporate debt securities are measured at fair value using Level 2 inputs. We review trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.
There were no transfers between Level 1 and Level 2 during the twelve months ended December 31, 2016 and 2015.
4.
|
Cash, Cash Equivalents and Marketable Securities
|
Cash, cash equivalents and marketable securities consist of the following (in thousands):
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Estimated Fair Value
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
3,557
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,557
|
|
Money market funds
|
|
18,981
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,981
|
|
U.S. government agency securities
|
|
1,751
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,751
|
|
Total cash and cash equivalents
|
|
24,289
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,289
|
|
Marketable securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
|
3,499
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,499
|
|
U.S. government agency securities
|
|
28,685
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
28,686
|
|
Corporate debt securities
|
|
24,938
|
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
24,941
|
|
Total marketable securities available-for-sale
|
|
57,122
|
|
|
|
8
|
|
|
|
(4
|
)
|
|
|
57,126
|
|
Total cash, cash equivalents and marketable securities
|
$
|
81,411
|
|
|
$
|
8
|
|
|
$
|
(4
|
)
|
|
$
|
81,415
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
4,561
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,561
|
|
Money market funds
|
|
21,193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,193
|
|
Corporate debt securities
|
|
19,052
|
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
19,058
|
|
Total cash and cash equivalents
|
|
44,806
|
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
44,812
|
|
Marketable securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities
|
|
17,628
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
17,622
|
|
Corporate debt securities
|
|
133,679
|
|
|
|
71
|
|
|
|
(59
|
)
|
|
|
133,691
|
|
Total marketable securities available-for-sale
|
|
151,307
|
|
|
|
71
|
|
|
|
(65
|
)
|
|
|
151,313
|
|
Total cash, cash equivalents and marketable securities
|
$
|
196,113
|
|
|
$
|
78
|
|
|
$
|
(66
|
)
|
|
$
|
196,125
|
|
The maturities of our marketable securities available-for-sale are as follows (in thousands):
|
|
December 31, 2016
|
|
|
|
Amortized Cost
|
|
|
Estimated Fair Value
|
|
Mature in one year or less
|
|
$
|
57,122
|
|
|
$
|
57,126
|
|
Mature after one year through two years
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
57,122
|
|
|
$
|
57,126
|
|
There were no realized gains or losses from the sale of marketable securities in the years ended December 31, 2016, 2015 and 2014. All of our investments are classified as short-term and available-for-sale, as we consider them available to fund current operations and may not hold our investments until maturity.
50
5.
|
Property and Equipment
|
Property and equipment consist of the following (in thousands):
|
Estimated Useful
|
|
December 31,
|
|
|
Life
(In years)
|
|
2016
|
|
|
2015
|
|
Manufacturing equipment
|
5-14
|
|
$
|
10,086
|
|
|
$
|
6,880
|
|
Lab equipment
|
5-13
|
|
|
6,280
|
|
|
|
6,096
|
|
Computer equipment
|
3
|
|
|
4,010
|
|
|
|
2,577
|
|
Furniture and fixtures
|
3-13
|
|
|
1,566
|
|
|
|
1,362
|
|
Leasehold improvements
|
5-8
(1)
|
|
|
8,942
|
|
|
|
5,768
|
|
Assets in progress
|
|
|
|
2,298
|
|
|
|
6,645
|
|
|
|
|
|
33,182
|
|
|
|
29,328
|
|
Less accumulated depreciation and amortization
|
|
|
|
(16,008
|
)
|
|
|
(15,524
|
)
|
Total
|
|
|
$
|
17,174
|
|
|
$
|
13,804
|
|
(1)
|
Leasehold improvements are amortized over the remaining life of the initial lease term or the estimated useful lives of the assets, whichever is shorter.
|
Depreciation and amortization expense on property and equipment was $2.3 million, $1.4 million and $1.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.
6
.
|
Current Accrued Liabilities and Accrued Research and Development
|
Current accrued liabilities and accrued research and development consist of the following (in thousands):
|
December 31,
|
|
|
2016
|
|
|
2015
|
|
Payroll and related expenses
|
$
|
3,753
|
|
|
$
|
5,866
|
|
Legal expenses
|
|
275
|
|
|
|
202
|
|
Litigation settlements accrual (Note 7)
|
|
4,975
|
|
|
|
-
|
|
Third party research expenses
|
|
2,784
|
|
|
|
5,241
|
|
Third party development expenses
|
|
2,002
|
|
|
|
2,072
|
|
Return of unused development funding to AstraZeneca (Note 9)
|
|
-
|
|
|
|
7,345
|
|
Other accrued liabilities
|
|
2,451
|
|
|
|
1,972
|
|
Total
|
$
|
16,240
|
|
|
$
|
22,698
|
|
7
.
|
Commitments and Contingencies
|
We lease our facilities in Berkeley, California (“Berkeley Lease”) and Düsseldorf, Germany (“Düsseldorf Lease”) under operating leases that expire in June 2018 and March 2023, respectively. The Berkeley Lease provides for periods of escalating rent. The total cash payments over the life of the lease are divided by the total number of months in the lease period and the average rent is charged to expense each month during the lease period. We entered into sublease agreements under the Düsseldorf Lease for a certain portion of the leased space.
Total net rent expense related to our operating leases for the years ended December 31, 2016, 2015 and 2014, was $2.2 million, $2.0 million and $1.7 million, respectively. Deferred rent was $0.3 million and $0.5 million as of December 31, 2016 and 2015, respectively. Accrued loss on lease was $0.3 million and $0.5 million as of December 31, 2016 and 2015, respectively.
51
Future minimum payments under the non-cancelable portion of our
operating leases at December 31, 2016, excluding payments from sublease payments, are as follows (in thousands)
:
Year ending December 31,
|
|
|
|
|
2017
|
|
$
|
2,560
|
|
2018
|
|
|
1,491
|
|
2019
|
|
|
638
|
|
2020
|
|
|
644
|
|
2021
|
|
|
515
|
|
Thereafter
|
|
|
561
|
|
Total
|
|
$
|
6,409
|
|
During 2004, we established a letter of credit with Silicon Valley Bank as security for our Berkeley Lease in the amount of $0.4 million. The letter of credit remained outstanding as of December 31, 2016, and is collateralized by a certificate of deposit for $0.4 million, which has been included in restricted cash in the consolidated balance sheets as of December 31, 2016 and 2015. Under the terms of the Berkeley Lease, if the total amount of our cash, cash equivalents and marketable securities falls below $20 million for a period of more than 30 consecutive days during the lease term, the amount of the required security deposit will increase to $1.1 million, until such time as our projected cash and cash equivalents will exceed $20 million for the remainder of the lease term, or until our actual cash and cash equivalents remains above $20 million for a period of 12 consecutive months.
During 2004, we also established a letter of credit with Deutsche Bank as security for our Düsseldorf Lease in the amount of 0.2 million Euros. The letter of credit remained outstanding through December 31, 2016 and is collateralized by a certificate of deposit for 0.2 million Euros, which has been included in restricted cash in the consolidated balance sheets as of December 31, 2016 and 2015.
In addition to the non-cancelable commitments included above, we have entered into contractual arrangements that obligate us to make payments to the contractual counterparties upon the occurrence of future events. In addition, in the normal course of operations, we have entered into license and other agreements and intend to continue to seek additional rights relating to compounds or technologies in connection with our discovery, manufacturing and development programs. Under the terms of the agreements, we may be required to pay future up-front fees, milestones and royalties on net sales of products originating from the licensed technologies, if any, or other payments contingent upon the occurrence of future events that cannot reasonably be estimated.
We rely on and have entered into agreements with research institutions, contract research organizations and clinical investigators as well as clinical and commercial material manufacturers. These agreements are terminable by us upon written notice. Generally, we are liable only for actual effort expended by the organizations at any point in time during the contract through the notice period.
From time to time, we may be involved in claims, suits, and proceedings arising from the ordinary course of our business, including actions with respect to intellectual property claims, commercial claims, and other matters. Such claims, suits, and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on us because of legal costs, diversion of management resources, and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in substantial damages, fines, penalties or orders requiring a change in our business practices, which could in the future materially and adversely affect our financial position, financial statements, results of operations, or cash flows in a particular period.
On September 7, 2016, Dynavax entered into a Stipulation of Settlement to settle the case entitled In re Dynavax Technologies Securities Litigation. The settlement, which was approved by the U.S. District Court for the Northern District of California on February 6, 2017, provides for a payment of $4.1 million by Dynavax and results in a dismissal and release of all claims against all defendants, including the Company. The settlement was paid for by the Company’s insurers. The Company recorded an accrual of $4.1 million reflected in accrued liabilities in the consolidated balance sheets and does not expect any significant additional charges related to this matter. In addition, the Company records anticipated recoveries under existing insurance contracts when recovery is assured. As the settlement will be paid by our insurers, we have recorded a current asset in the amount of $4.1 million reflected in prepaid expenses and other current assets in the consolidated balance sheets.
In February 2017, we tentatively agreed to a settlement for derivative complaints filed in 2013, all of which will be paid by the Company’s insurers. The Company recorded an accrual of $0.9 million reflected in accrued liabilities in the consolidated balance sheets and does not expect any significant additional charges related to this matter. In addition, the Company recorded a current asset in the amount of $0.9 million reflected in prepaid expenses and other current assets in the consolidated balance sheets. Amounts recorded for contingencies can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Use of Estimates in Note 1.
52
In conjunction with a financing arrangement with Symphony Dynamo, Inc. and
Symphony Dynamo Holdings LLC (“Holdings”) in November 2009
, we agreed to make contingent cash payments to Holdings equal to 50% of the first $50 million from any upfront, pre-commercialization milestone or similar payments received by us from any agreement with any third party with respect to the development and/or commercialization of cancer and hepatitis C therapies originally licensed to Symphony Dynamo, Inc., including SD-101. We have made no payments and have not recorded a liability as of December 31, 2016.
9
.
|
Collaborative Research, Development and License Agreements
|
AstraZeneca
Pursuant to a research collaboration and license agreement, as amended, with AstraZeneca we discovered and performed initial clinical development of AZD1419, a TLR9 agonist product candidate for the treatment of asthma.
Under the amended agreement we received non-refundable payments of $3.0 million and $5.4 million in 2011 and in 2014, respectively. These payments were deferred and recognized over the estimated period of performance at the time of payment, as subsequently revised.
We have also received payments for development work of $3.0 million, $6.0 million and $8.0 million, in 2011, 2012 and 2014, respectively, which were deferred and recognized as research and development expenses were incurred.
In January 2016, we amended our agreement with AstraZeneca whereby AstraZeneca will conduct the Phase 2a safety and efficacy trial of AZD1419 in patients with asthma that originally was to be conducted by Dynavax. Under the terms of the January 2016 amendment, unused amounts remaining from the $8.0 million payment received in 2014 will be returned to AstraZeneca or offset against future milestone payments that may be earned by us under the agreement, net of amounts we recognized as development work that was performed.
In June 2016, all of our remaining contractual obligations under our agreement with AstraZeneca were completed. As no further performance obligations remain, we revised the estimated period of performance of development work to June 2016 from September 2016, and recognized remaining deferred payments as revenue as of June 30, 2016. The revision of the performance period led to the recognition of an additional $0.8 million in collaboration revenue during 2016.
In November 2016, AstraZeneca initiated the Phase 2a trial of AZD1419 in asthma patients. Upon AstraZeneca’s initiation of the Phase 2a trial, Dynavax earned a milestone payment of $7.2 million, which was offset against the $7.4 million in unused development funding previously advanced by AstraZeneca. Dynavax recognized the $7.2 million milestone as revenue during the fourth quarter of 2016. The remaining balance of unused development funding, net of the $7.2 million milestone payment, was $0.2 million which we recognized as a current liability on the accompanying consolidated balance sheets as of December 31, 2016.
Under the terms of the agreement, as amended, we are eligible to receive up to $100 million in additional milestone payments, based on the achievement of certain development and regulatory objectives. Additionally, upon commercialization, we are eligible to receive tiered royalties ranging from the mid to high single-digits based on product sales of any products originating from the collaboration. We have the option to co-promote in the United States products arising from the collaboration, if any. AstraZeneca has the right to sublicense its rights upon our prior consent.
The following table summarizes the revenues earned under our agreement with AstraZeneca, included as collaboration revenue in our consolidated statements of operations (in thousands):
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Initial and milestone payment
|
|
$
|
7,722
|
|
|
$
|
238
|
|
|
$
|
681
|
|
Subsequent payment
|
|
|
1,953
|
|
|
|
892
|
|
|
|
2,554
|
|
Performance of research activities
|
|
|
103
|
|
|
|
1,635
|
|
|
|
2,174
|
|
Total
|
|
$
|
9,778
|
|
|
$
|
2,765
|
|
|
$
|
5,409
|
|
As of December 31, 2016, no deferred revenue from the initial payment, subsequent payment and development funding payments remained. Total deferred revenue from these payments as of
December 31, 2015 was
$2.7 million.
53
Absent early termination, the agreement will expire when all of AstraZeneca’s payment obligations expire. AstraZeneca has the right to terminate the agreement at any time upon prior written notice and either party may terminate the agreement e
arly upon written notice if the other party commits an uncured ma
terial breach of the agreement.
GlaxoSmithKline (“GSK”)
In November 2014 our research and development collaboration and license agreement with GSK expired and we recognized as collaboration revenue $2.5 million, which represented the remaining unrealized portion of the initial $10.0 million payment on signing of the agreement. Revenue from the initial payment from GSK was deferred and was being recognized over the estimated period of performance. Upon expiration of the agreement with GSK in November 2014, we regained global rights to continue the development of DV1179 and other TLR 7/9 inhibitors for all indications. As of December 31, 2016 and 2015
no deferred revenue relating to the initial payment remains.
Note Purchase Agreement
In October 2016, we entered into a Note Purchase Agreement pursuant to which the Company would borrow $100.0 million upon approval of HEPLISAV-B. The Company paid the prospective lender $1.0 million upon entering into the Note Purchase Agreement and incurred additional expenses of $1.6 million in securing the Note Purchase Agreement. No notes were ultimately sold by the Company under the Note Purchase Agreement.
In December 2016, the Company terminated the Note Purchase Agreement and paid a termination fee of $1.5 million. The $1.0 million paid upon entering in the note purchase agreement and $1.5 million termination fee are included in other expense in the consolidated statements of operations. The additional expenses of $1.6 million related to securing the Note Purchase Agreement are included in loss from operations in the consolidated statement of operations.
Hercules Loan and Security Agreement
In December 2014, we
entered into a Loan and Security Agreement (“Loan Agreement”) with Hercules Technology Growth Capital, Inc. (“Hercules”) under which we could borrow up to $40.0 million in two tranches.
We drew down the first tranche of $10.0 million upon closing of the transaction on December 23, 2014. The second tranche, of $30.0 million,
was available to
be drawn at our option any time prior to September 30, 2015. No additional amounts were drawn down under the terms of the Loan Agreement.
In September 2015, we repaid all outstanding amounts under the Loan Agreement, at which time our obligations under the Loan Agreement terminated and Hercules released its security interests in all collateral under the Loan Agreement. We paid to Hercules $11.0 million, which consisted of $10.0 million outstanding principal, accrued but unpaid interest of $38 thousand, end of term fee of $0.8 million and prepayment charges of $0.2 million. We recognized the repayment to be a substantial modification to the debt instrument and applied debt extinguishment accounting to record a one-time loss on extinguishment of debt in the amount of $1.7 million.
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period and giving effect to all potentially dilutive common shares using the treasury-stock method. For purposes of this calculation, outstanding stock options, stock awards, warrants and Series B Convertible Preferred Stock are considered to be potentially dilutive common shares and are only included in the calculation of diluted net loss per share when their effect is dilutive.
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Basic and diluted net loss per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(112,444
|
)
|
|
$
|
(106,794
|
)
|
|
$
|
(90,722
|
)
|
Denominator for basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
38,506
|
|
|
|
32,881
|
|
|
|
26,289
|
|
Basic and diluted net loss per share
|
|
$
|
(2.92
|
)
|
|
$
|
(3.25
|
)
|
|
$
|
(3.45
|
)
|
54
Outst
anding warrants, stock options, stock awards and
Series B Convertible Preferred Stock were excluded from the calculation of net loss per share allocable to common stockholders as the effect of their inclusion
would have been anti-dilutive.
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Outstanding securities not included in diluted net loss per share calculation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and stock awards
|
|
|
4,673
|
|
|
|
3,086
|
|
|
|
1,998
|
|
Series B Convertible Preferred Stock (as converted to common stock)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,343
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1,081
|
|
|
|
|
4,673
|
|
|
|
3,086
|
|
|
|
7,422
|
|
12.
|
Common Stock and Warrants
|
Common Stock Outstanding
As of December 31, 2016, there were 38,598,618 shares of our common stock outstanding.
On November 12, 2015, we entered into an At Market Issuance Sales Agreement (the “2015 ATM Agreement”) with Cowen under which we could offer and sell our common stock from time to time up to aggregate sales proceeds of $90 million through Cowen as our sales agent.
We will pay Cowen a commission of up to 3.0% of the gross sales proceeds of any common stock sold through Cowen under the Agreement.
As of December 31, 2016, we have sold no shares of common stock under the 2015 ATM Agreement. For information on sales under the 2015 ATM Agreement subsequent to December 31, 2016, see Note 17.
In
July 2015, we completed an underwritten public offering of 5,227,273 shares of our common stock, including 681,818 shares sold pursuant to the full exercise of an overallotment option previously granted to the underwriters. All of the shares were offered at a price to the public of $27.50 per share. The net proceeds to us from this offering were approximately $134.9 million, after deducting the underwriting discount and other estimated offering expenses payable by us.
In June and July 2015, we sold an aggregate of 2,125,439 shares of common stock under an At Market Issuance Sales Agreement (the “2014 ATM Agreement”) with Cowen and Company, LLC (“Cowen”) resulting in net proceeds to us of approximately $49.0 million.
The 2014 ATM Agreement terminated in July 2015.
Warrants
As of December 31, 2016 and 2015, no warrants were outstanding. During the year ended December 31, 2015 and 2014, warrants were exercised to purchase an aggregate of approximately 383,000 and 11,000 shares, respectively, of our common stock.
13.
|
Equity Plans and Stock-Based Compensation
|
Stock Plans
Under the 2004 Stock Incentive Plan (“2004 Plan”) options to purchase 173,832 shares of common stock remained outstanding as of December 31, 2016.
Under the 2010 Employment Inducement Award Plan (“Inducement Plan”) options to purchase 12,450 shares of common stock remained outstanding as of December 31, 2016.
55
The 2011 Equity Incentive Plan (“2011 Plan”) was approved by the Company’s stockholders and
adopted in January 2011. On May 31, 2016, the stockholders of the Company approved an amendment and restatement of the 2011 Plan to increase the number of shares of common stock authorized for issuance under the plan by 3,200,000. The 2011 Plan, as amended
, provides for the issuance of up to 8,743,442 shares of our common stock to employees and non-employees of the Company and became effective on January 6, 2011. The 2011 Plan is administered by our Board of Directors, or a designated committee of the Board
of Directors, and awards granted under the 2011 Plan have a term of 7 or 10 years unless earlier terminated by the Board of Directors. After the adoption of the 2011 Plan, no additional awards were granted under either the 2004 Plan or the Inducement Plan
. As of January 6, 2011, all shares subject to awards outstanding under the 2004 Plan and Inducement Plan that expire or are forfeited will be included in the reserve for the 2011 Plan to the extent such shares would otherwise return to such plans. As of D
ecember 31, 2016, options to purchase 3,78
7,754
shares of common stock remained outstanding under the 2011 Plan. As of December 31, 2016, there were 3,157,399 shares of common stock reserved for issuance under the 2011 Plan.
Activity under our stock plans is set forth below:
|
|
Shares Underlying Outstanding Options (in thousands)
|
|
|
Weighted-Average Exercise Price Per Share
|
|
|
Weighted-Average Remaining Contractual Term (years)
|
|
|
Aggregate Intrinsic Value (in thousands)
|
|
Balance at December 31, 2015
|
|
|
2,891
|
|
|
$
|
23.34
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
1,414
|
|
|
|
19.56
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(16
|
)
|
|
|
13.81
|
|
|
|
|
|
|
|
|
|
Options cancelled:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited (unvested)
|
|
|
(84
|
)
|
|
|
18.23
|
|
|
|
|
|
|
|
|
|
Options cancelled (vested)
|
|
|
(230
|
)
|
|
|
36.64
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
3,975
|
|
|
|
21.38
|
|
|
|
6.68
|
|
|
$
|
-
|
|
Vested and expected to vest at December 31, 2016
|
|
|
3,951
|
|
|
|
21.40
|
|
|
|
6.67
|
|
|
$
|
-
|
|
Exercisable at December 31, 2016
|
|
|
1,836
|
|
|
|
23.94
|
|
|
|
5.73
|
|
|
$
|
-
|
|
The total intrinsic value of stock options exercised during the years ended December 31, 2016, 2015 and 2014 was $0.2 million, $0.4 million and $0.1 million, respectively. The total intrinsic value of exercised stock options is calculated based on the difference between the exercise price and the quoted market price of our common stock as of the close of the exercise date.
The total fair value of stock options vested during the years ended December 31, 2016, 2015 and 2014 was $12.1 million, $6.9 million and $5.6 million, respectively.
Our non-vested stock awards are comprised of restricted stock units granted with performance and time-based vesting criteria. A summary of the status of non-vested restricted stock units as of December 31, 2016, and activities during 2016 are summarized as follows:
|
Number of Shares (In thousands)
|
|
|
Weighted-Average Grant-Date Fair Value
|
|
Non-vested as of December 31, 2015
|
|
195
|
|
|
$
|
17.52
|
|
Granted
|
|
856
|
|
|
$
|
12.42
|
|
Vested
|
|
(139
|
)
|
|
$
|
7.24
|
|
Forfeited or expired
|
|
(213
|
)
|
|
$
|
21.46
|
|
Non-vested as of December 31, 2016
|
|
699
|
|
|
$
|
12.12
|
|
Stock-based compensation expense related to restricted stock units was approximately $2.4 million for the year ended December 31, 2016. The aggregate intrinsic value of the restricted stock units outstanding as of December 31, 2016, based on our stock price on that date, was $2.8 million.
The weighted average grant-date fair value of restricted stock units granted during the years ended December 31, 2016, 2015 and 2014 was, $12.42, $20.05 and $17.92, respectively. The total fair value of restricted stock units vested during the years ended December 31, 2016 and 2015 was $1.0 million and $0.1 million, respectively. No restricted stock units vested during 2014.
56
Stock-Based Compensation
Under our stock-based compensation plans, option awards generally vest over a four-year or three-year period contingent upon continuous service and unless exercised, expire seven or ten years from the date of grant (or earlier upon termination of continuous service). The Company has also granted performance-based equity awards to certain of our employees under the 2011 Plan. As of December 31, 2016, approximately 70,000 shares were outstanding related to options and restricted stock units subject to these performance-based vesting criteria. The fair value of each option is estimated on the date of grant using the Black-Scholes option valuation model and the following weighted-average assumptions:
|
|
Stock Options
|
|
|
Employee Stock Purchase Plan
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Weighted-average fair value
|
|
$
|
9.54
|
|
|
$
|
13.37
|
|
|
$
|
15.16
|
|
|
$
|
7.86
|
|
|
$
|
9.18
|
|
|
$
|
7.45
|
|
Risk-free interest rate
|
|
|
1.4
|
%
|
|
|
1.7
|
%
|
|
|
1.8
|
%
|
|
|
0.6
|
%
|
|
|
0.4
|
%
|
|
|
0.2
|
%
|
Expected life (in years)
|
|
|
4.9
|
|
|
|
5.9
|
|
|
|
5.9
|
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Expected Volatility
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
1.4
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.9
|
|
Expected volatility is based on historical volatility of our stock price. The expected life of options granted is estimated based on historical option exercise and employee termination data. Our senior management, who hold a majority of the options outstanding, and other employees were grouped and considered separately for valuation purposes. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Forfeiture estimates are based on historical employee turnover. The dividend yield is zero percent for all years and is based on our history and expectation of dividend payouts.
Compensation expense is based on awards ultimately expected to vest and reflects estimated forfeitures. For equity awards with time-based vesting, the fair value is amortized to expense on a straight-line basis over the vesting periods. For equity awards with performance-based vesting criteria, the fair value is amortized to expense when the achievement of the vesting criteria becomes probable.
We recognized the following amounts of stock-based compensation expense (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Employees and directors stock-based compensation expense
|
|
$
|
14,126
|
|
|
$
|
9,316
|
|
|
$
|
6,062
|
|
Non-employees stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
Total
|
|
$
|
14,126
|
|
|
$
|
9,316
|
|
|
$
|
6,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Research and development
|
|
$
|
6,742
|
|
|
$
|
4,123
|
|
|
$
|
2,868
|
|
General and administrative
|
|
$
|
7,384
|
|
|
|
5,193
|
|
|
|
3,221
|
|
Total
|
|
$
|
14,126
|
|
|
$
|
9,316
|
|
|
$
|
6,089
|
|
In addition, the cash-settled portion of stock compensation expense was $0.6 million and $0.4 million for the years ended December 31, 2016 and 2015, respectively. No cash-settled portion of stock compensation expense was incurred during 2014.
As of December 31, 2016, the total unrecognized compensation cost related to non-vested stock options and awards deemed probable of vesting, including all stock options with time-based vesting, net of estimated forfeitures, amounted to $22.4 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.3 years. As of December 31, 2016, the total unrecognized compensation cost related to non-vested stock options not deemed probable of vesting, net of estimated forfeitures, amounted to $0.5 million.
57
Employee Stock Purchase Plan
The 2014 Employee Stock Purchase Plan, as amended, (the “Purchase Plan”) provides for the purchase of common stock by eligible employees and became effective on May 28, 2014. On May 31, 2016, s
tockholders approved an amendment to the Purchase Plan to increase the aggregate number of shares of common stock authorized for issuance under the plan to
250,000. The purchase price per share is the lesser of (i) 85% of the fair market value of the common stock on the commencement of the offer period (generally, the sixteenth day in February or August) or (ii) 85% of the fair market value of the common stock on the exercise date, which is the last day of a purchase period (generally, the fifteenth day in February or August). As of December 31, 2016, employees have acquired 45,547 shares of our common stock under the Purchase Plan and 182,474 shares of our common stock remained available for future purchases under the Purchase Plan.
As of December 31, 2016, the total unrecognized compensation cost related to shares of our common stock under the Purchase Plan amounted to $0.5 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.7 years.
14.
|
Employee Benefit Plan
|
We maintain a 401(k) Plan, which qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating employees may defer a portion of their pretax earnings. We may, at our discretion, contribute for the benefit of eligible employees. The Company’s contribution to the 401(k) Plan approximated $0.2 million for the years ended December 31, 2016 and 2015. No contributions were made during the year ended December 31, 2014.
Consolidated income (loss) before provision for income taxes consisted of the following (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S.
|
|
$
|
(114,484
|
)
|
|
$
|
(107,450
|
)
|
|
$
|
(91,121
|
)
|
Non U.S.
|
|
|
2,040
|
|
|
|
656
|
|
|
|
399
|
|
Total
|
|
$
|
(112,444
|
)
|
|
$
|
(106,794
|
)
|
|
$
|
(90,722
|
)
|
No income tax expense was recorded for the years ended December 31, 2016, 2015 and 2014 due to net operating loss carryforwards to offset the net income at Dynavax GmbH and a valuation allowance which offsets the deferred tax assets. The difference between the consolidated income tax benefit and the amount computed by applying the federal statutory income tax rate to the consolidated loss before income taxes was as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income tax benefit at federal statutory rate
|
|
$
|
(38,183
|
)
|
|
$
|
(36,301
|
)
|
|
$
|
(30,818
|
)
|
State tax
|
|
|
(334
|
)
|
|
|
(394
|
)
|
|
|
1,204
|
|
Business credits
|
|
|
(1,950
|
)
|
|
|
(2,622
|
)
|
|
|
(1,484
|
)
|
Deferred compensation charges
|
|
|
3,016
|
|
|
|
1,481
|
|
|
|
2,710
|
|
Change in valuation allowance
|
|
|
36,751
|
|
|
|
36,766
|
|
|
|
28,093
|
|
Other
|
|
|
700
|
|
|
|
1,070
|
|
|
|
295
|
|
Total income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
58
Deferred tax assets and liabilities consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
249,510
|
|
|
$
|
212,074
|
|
Research tax credit carry forwards
|
|
|
29,463
|
|
|
|
26,285
|
|
Accruals and reserves
|
|
|
8,684
|
|
|
|
9,771
|
|
Capitalized research costs
|
|
|
4,457
|
|
|
|
6,553
|
|
Deferred revenue
|
|
|
-
|
|
|
|
908
|
|
Other
|
|
|
1,303
|
|
|
|
1,375
|
|
Total deferred tax assets
|
|
|
293,417
|
|
|
|
256,966
|
|
Less valuation allowance
|
|
|
(293,145
|
)
|
|
|
(256,712
|
)
|
Net deferred tax assets
|
|
|
272
|
|
|
|
254
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed Assets
|
|
|
(272
|
)
|
|
|
(254
|
)
|
Total deferred tax liabilities
|
|
|
(272
|
)
|
|
|
(254
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The tax benefit of net operating losses, temporary differences and credit carryforwards is required to be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance. The valuation allowance increased by $36.4 million, $36.2 million and $27.8 million during the years ended December 31, 2016, 2015 and 2014, respectively.
We have not recorded deferred income taxes applicable to undistributed earnings of a foreign subsidiary that are indefinitely reinvested in foreign operations. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of the deferred tax liability on such undistributed earnings.
As of December 31, 2016, we had federal net operating loss carryforwards of approximately $695.9 million, which will expire in the years 2018 through 2036 and federal research and development tax credits of approximately $21.0 million, which expire in the years 2018 through 2036.
As of December 31, 2016, we had net operating loss carryforwards for California and other states for income tax purposes of approximately $178.6 million, which expire in the years 2017 through 2036, and California state research and development tax credits of approximately $15.9 million, which do not expire.
As of December 31, 2016, $1.3 million of net operating loss is attributable to stock-based compensation. As a result of the adoption of ASU 2016-09 we have recognized the net operating losses attributable to stock-based compensation
and offset them with a full valuation allowance.
As of December 31, 2016, we had net operating loss carryforwards for foreign income tax purposes of approximately $15.9 million, which do not expire.
The Company asserts ability and intent to postpone remittance of all or part of net investment in Dynavax GmbH (including earnings) indefinitely (i.e., essentially permanently reinvest). As of December 31, 2016, we have cumulative total undistributed earnings for non-U.S. subsidiaries. Deferred income taxes have not been provided on the undistributed earnings of non-U.S. subsidiaries and any deferred tax liabilities, if recognized, are not expected to be significant.
Uncertain Income Tax positions
The total amount of unrecognized tax benefits as of December 31, 2016, 2015 and 2014 is $2.4 million. If recognized, none of the unrecognized tax benefits would affect the effective tax rate. We had no unrecognized tax benefits as of December 31, 2016.
59
The following table summarizes the a
ctivity related to the Company’s unrecognized tax benefits:
Balance at December 31, 2015
|
|
$
|
(2,426
|
)
|
Tax positions related to the current year
|
|
|
|
|
Additions
|
|
|
-
|
|
Reductions
|
|
|
-
|
|
Tax positions related to the prior year
|
|
|
|
|
Additions
|
|
|
-
|
|
Reductions
|
|
|
-
|
|
Balance at December 31, 2016
|
|
$
|
(2,426
|
)
|
Our policy is to account for interest and penalties as income tax expense. As of December 31, 2016, the Company had no interest related to unrecognized tax benefits. No amounts of penalties related to unrecognized tax benefits were recognized in the provision for income taxes. We do not anticipate any significant change within 12 months of this reporting date of its uncertain tax positions.
The Tax Reform Act of 1986 limits the annual use of net operating loss and tax credit carryforwards in certain situations where changes occur in stock ownership of a company. In the event the Company has a change in ownership, as defined, the annual utilization of such carryforwards could be limited. Due to past equity issuances and changes in ownership of Dynavax common stock, we believe that our ability to use our net operating losses and tax credits in the future may be limited.
We are subject to income tax examinations for U.S. federal and state income taxes from 1998 forward. We are subject to tax examination in Germany from 2016 forward.
16.
|
Selected Quarterly Financial Data (Unaudited; in thousands, except per share amounts)
|
|
|
Year Ended December 31, 2016
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
Revenues
|
|
$
|
942
|
|
|
$
|
2,647
|
|
|
$
|
162
|
|
|
$
|
7,292
|
|
Net loss
|
|
$
|
(27,023
|
)
|
|
$
|
(28,986
|
)
|
|
$
|
(34,694
|
)
|
|
$
|
(21,741
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.70
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(0.90
|
)
|
|
$
|
(0.56
|
)
|
Shares used to compute basic and diluted net loss per share
|
|
|
38,472
|
|
|
|
38,496
|
|
|
|
38,512
|
|
|
|
38,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
Revenues
|
|
$
|
627
|
|
|
$
|
1,550
|
|
|
$
|
1,188
|
|
|
$
|
685
|
|
Net loss
|
|
$
|
(26,217
|
)
|
|
$
|
(23,591
|
)
|
|
$
|
(30,124
|
)
|
|
$
|
(26,862
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.97
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(0.70
|
)
|
Shares used to compute basic and diluted net loss per share
|
|
|
27,065
|
|
|
|
29,335
|
|
|
|
36,532
|
|
|
|
38,429
|
|
As of March 9, 2017 we have received cash of $23.3 million
resulting from sales of 5,650,322 shares of o
ur common stock under our 2015 ATM Agreement.
In January 2017, we implemented organizational restructuring and cost reduction plans to align around our immuno-oncology business, while allowing us to advance HEPLISAV-B, our investigational hepatitis B vaccine candidate, through the FDA review and approval process. To achieve these cost reductions, we suspended manufacturing for HEPLISAV-B and reduced our global workforce by 38 percent. We expect to incur restructuring costs related to one-time employee termination benefits, currently estimated to be $3.0 million, which will be primarily paid in cash in the first quarter of 2017.
60