Quarterly Report (10-q)

Date : 08/07/2019 @ 8:10PM
Source : Edgar (US Regulatory)
Stock : Dynavax Technologies Corp (DVAX)
Quote : 5.7  0.01 (0.18%) @ 5:00AM
After Hours
Last Trade
Last $ 5.50 ▼ -0.20 (-3.51%)

Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           .

Commission file number: 001-34207

 

Dynavax Technologies Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

33-0728374

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer
Identification No.)

2100 Powell Street, Suite 900

Emeryville, CA 94608

(510) 848-5100

(Address, including Zip Code, and telephone number, including area code, of the registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading symbol(s):

Name of each exchange on which registered:

Common Stock, $0.001 par value

DVAX

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   No 

As of August 2, 2019, the registrant had outstanding 65,154,729 shares of common stock.

 

 

 


INDEX

DYNAVAX TECHNOLOGIES CORPORATION

 

 

Page No.

PART I FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements (unaudited)

4

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

4

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018

5

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018

5

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018

6

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

7

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

Item 4.

Controls and Procedures

28

 

PART II OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 5.

Other Information

44

Item 6.

Exhibits

45

 

SIGNATURES

47

 

2


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to a number of risks and uncertainties. All statements that are not historical facts are forward-looking statements, including statements about our ability to successfully commercialize HEPLISAV-B® and our anticipated market opportunity and level of sales of HEPLISAV-B, our ability to successfully develop and timely obtain regulatory approval of SD-101, DV281 and our other early stage compounds or successfully pursue strategic alternatives for such compounds, our business, collaboration and regulatory strategy, our ability to achieve anticipated cost reductions and whether or not we may incur other material charges not currently contemplated due to events that may occur as a result of, or associated with our restructuring, our intellectual property position, our product development efforts, our ability to manufacture commercial supply and meet regulatory requirements, the timing of the introduction of our products, uncertainty regarding our capital needs and future operating results and profitability, anticipated sources of funds, liquidity and cash needs, as well as our plans, objectives, strategies, expectations and intentions. These statements appear throughout this Quarterly Report on Form 10-Q and can be identified by the use of forward-looking language such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” or “intend,” or the negative of these terms or other variations or comparable terminology.

Actual results may vary materially from those in our forward-looking statements as a result of various factors that are identified in “Item 1A—Risk Factors” and “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this document. No assurance can be given that the risk factors described in this Quarterly Report on Form 10-Q are all of the factors that could cause actual results to vary materially from the forward-looking statements. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. We assume no obligation to update any forward-looking statements.

This Quarterly Report on Form 10-Q includes trademarks and registered trademarks of Dynavax Technologies Corporation. Products or service names of other companies mentioned in this Quarterly Report on Form 10-Q may be trademarks or registered trademarks of their respective owners. References herein to “we,” “our,” “us,” “Dynavax” or the “Company” refer to Dynavax Technologies Corporation and, where appropriate, its subsidiary Dynavax GmbH.

 

 

 

3


PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

Dynavax Technologies Corporation

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

 

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

 

(unaudited)

 

 

(Note 1)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

34,225

 

 

$

49,348

 

Marketable securities available-for-sale

 

106,269

 

 

 

96,188

 

Accounts and other receivables, net

 

7,582

 

 

 

3,704

 

Inventories, net

 

36,629

 

 

 

19,022

 

Prepaid expenses and other current assets

 

6,745

 

 

 

6,102

 

Total current assets

 

191,450

 

 

 

174,364

 

Property and equipment, net

 

34,393

 

 

 

17,064

 

Intangible assets, net

 

7,147

 

 

 

11,717

 

Operating lease right-of-use assets

 

29,533

 

 

 

-

 

Goodwill

 

2,131

 

 

 

2,144

 

Restricted cash

 

628

 

 

 

619

 

Other assets

 

1,799

 

 

 

4,976

 

Total assets

$

267,081

 

 

$

210,884

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

11,226

 

 

$

5,278

 

Accrued research and development

 

5,501

 

 

 

9,714

 

Accrued liabilities

 

19,550

 

 

 

16,041

 

Other current liabilities

 

8,296

 

 

 

7,000

 

Total current liabilities

 

44,573

 

 

 

38,033

 

Long-term debt, net

 

176,636

 

 

 

100,871

 

Long-term portion of lease liabilities

 

34,641

 

 

 

-

 

Other long-term liabilities

 

643

 

 

 

8,915

 

Total liabilities

 

256,493

 

 

 

147,819

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock: $0.001 par value; 5,000 shares authorized at June 30, 2019 and

  December 31, 2018; no shares issued and outstanding at June 30, 2019 and

  December 31, 2018

 

-

 

 

 

-

 

Common stock: $0.001 par value; 139,000 shares authorized at

  June 30, 2019 and December 31, 2018; 65,155 and 62,862 shares

  issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

65

 

 

 

63

 

Additional paid-in capital

 

1,161,115

 

 

 

1,131,241

 

Accumulated other comprehensive loss

 

(1,983

)

 

 

(2,015

)

Accumulated deficit

 

(1,148,609

)

 

 

(1,066,224

)

Total stockholders’ equity

 

10,588

 

 

 

63,065

 

Total liabilities and stockholders’ equity

$

267,081

 

 

$

210,884

 

 

See accompanying notes.

4


Dynavax Technologies Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue, net

$

8,301

 

 

$

1,254

 

 

$

13,928

 

 

$

1,419

 

Collaboration revenue

 

-

 

 

 

-

 

 

 

146

 

 

 

-

 

Total revenues

 

8,301

 

 

 

1,254

 

 

 

14,074

 

 

 

1,419

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales - product

 

2,141

 

 

 

5,177

 

 

 

3,941

 

 

 

5,382

 

Cost of sales - amortization of intangible assets

 

2,297

 

 

 

2,298

 

 

 

4,570

 

 

 

4,715

 

Research and development

 

16,196

 

 

 

16,273

 

 

 

37,402

 

 

 

35,239

 

Selling, general and administrative

 

17,861

 

 

 

15,653

 

 

 

36,209

 

 

 

32,544

 

Restructuring

 

8,777

 

 

 

-

 

 

 

8,777

 

 

 

-

 

Total operating expenses

 

47,272

 

 

 

39,401

 

 

 

90,899

 

 

 

77,880

 

Loss from operations

 

(38,971

)

 

 

(38,147

)

 

 

(76,825

)

 

 

(76,461

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

979

 

 

 

1,153

 

 

 

1,714

 

 

 

1,893

 

Interest expense

 

(4,598

)

 

 

(2,691

)

 

 

(7,332

)

 

 

(3,852

)

Other (expense) income, net

 

(123

)

 

 

241

 

 

 

58

 

 

 

18

 

Net loss

$

(42,713

)

 

$

(39,444

)

 

$

(82,385

)

 

$

(78,402

)

Basic and diluted net loss per share

$

(0.66

)

 

$

(0.63

)

 

$

(1.28

)

 

$

(1.26

)

Weighted average shares used to compute basic and diluted net loss

   per share

 

65,088

 

 

 

62,346

 

 

 

64,436

 

 

 

62,047

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

$

(42,713

)

 

$

(39,444

)

 

$

(82,385

)

 

$

(78,402

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities available-for-sale

 

108

 

 

 

17

 

 

 

176

 

 

 

(5

)

Foreign currency translation adjustments

 

340

 

 

 

(1,314

)

 

 

(144

)

 

 

(624

)

Total other comprehensive income (loss)

 

448

 

 

 

(1,297

)

 

 

32

 

 

 

(629

)

Total comprehensive loss

$

(42,265

)

 

$

(40,741

)

 

$

(82,353

)

 

$

(79,031

)

 

See accompanying notes .

5


Dynavax Technologies Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2019

Shares

 

 

Par Amount

 

 

Additional

Paid-In Capital

 

 

Accumulated Other

Comprehensive

(Loss) Income

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balances at March 31, 2019

 

65,020

 

 

$

65

 

 

$

1,151,421

 

 

$

(2,431

)

 

$

(1,105,896

)

 

$

43,159

 

Issuance of common stock upon exercise of stock

   options and restricted stock awards, net

 

91

 

 

 

-

 

 

 

19

 

 

 

-

 

 

 

-

 

 

 

19

 

Issuance of common stock, net of issuance costs

 

44

 

 

 

-

 

 

 

326

 

 

 

-

 

 

 

-

 

 

 

326

 

Stock compensation expense

 

-

 

 

 

-

 

 

 

9,349

 

 

 

-

 

 

 

-

 

 

 

9,349

 

Total other comprehensive income

 

-

 

 

 

-

 

 

 

-

 

 

 

448

 

 

 

-

 

 

 

448

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(42,713

)

 

 

(42,713

)

Balances at June 30, 2019

 

65,155

 

 

$

65

 

 

$

1,161,115

 

 

$

(1,983

)

 

$

(1,148,609

)

 

$

10,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

62,862

 

 

$

63

 

 

$

1,131,241

 

 

$

(2,015

)

 

$

(1,066,224

)

 

$

63,065

 

Issuance of common stock upon exercise of stock

   options and restricted stock awards, net

 

831

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

Issuance of common stock under Employee Stock

   Purchase Plan

 

75

 

 

 

-

 

 

 

407

 

 

 

-

 

 

 

-

 

 

 

407

 

Issuance of common stock, net of issuance costs

 

1,387

 

 

 

2

 

 

 

13,947

 

 

 

-

 

 

 

-

 

 

 

13,949

 

Stock compensation expense

 

-

 

 

 

-

 

 

 

15,519

 

 

 

-

 

 

 

-

 

 

 

15,519

 

Total other comprehensive income

 

-

 

 

 

-

 

 

 

-

 

 

 

32

 

 

 

-

 

 

 

32

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(82,385

)

 

 

(82,385

)

Balances at June 30, 2019

 

65,155

 

 

$

65

 

 

$

1,161,115

 

 

$

(1,983

)

 

$

(1,148,609

)

 

$

10,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2018

Shares

 

 

Par Amount

 

 

Additional

Paid-In Capital

 

 

Accumulated Other

Comprehensive

(Loss) Income

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balances at March 31, 2018

 

62,254

 

 

$

62

 

 

$

1,112,321

 

 

$

(213

)

 

$

(946,283

)

 

$

165,887

 

Issuance (withholding) of common stock upon

   exercise of stock options and restricted stock

   awards, net

 

354

 

 

 

1

 

 

 

(124

)

 

 

-

 

 

 

-

 

 

 

(123

)

Stock compensation expense

 

-

 

 

 

-

 

 

 

6,290

 

 

 

-

 

 

 

-

 

 

 

6,290

 

Total other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,297

)

 

 

-

 

 

 

(1,297

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(39,444

)

 

 

(39,444

)

Balances at June 30, 2018

 

62,608

 

 

$

63

 

 

$

1,118,487

 

 

$

(1,510

)

 

$

(985,727

)

 

$

131,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2017

 

61,533

 

 

$

62

 

 

$

1,107,693

 

 

$

(881

)

 

$

(907,325

)

 

$

199,549

 

Issuance (withholding) of common stock upon

   exercise of stock options and restricted stock

   awards, net

 

1,017

 

 

 

1

 

 

 

(550

)

 

 

-

 

 

 

-

 

 

 

(549

)

Issuance of common stock under Employee Stock

   Purchase Plan

 

58

 

 

 

-

 

 

 

255

 

 

 

-

 

 

 

-

 

 

 

255

 

Stock compensation expense

 

-

 

 

 

-

 

 

 

11,089

 

 

 

-

 

 

 

-

 

 

 

11,089

 

Total other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(629

)

 

 

-

 

 

 

(629

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(78,402

)

 

 

(78,402

)

Balances at June 30, 2018

 

62,608

 

 

$

63

 

 

$

1,118,487

 

 

$

(1,510

)

 

$

(985,727

)

 

$

131,313

 

 

See accompanying notes .

6


Dynavax Technologies Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(82,385

)

 

$

(78,402

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

3,196

 

 

 

1,658

 

Amortization of right-of-use assets

 

2,046

 

 

 

-

 

Accretion of discounts on marketable securities

 

(875

)

 

 

(681

)

Stock compensation expense

 

15,519

 

 

 

11,089

 

Cost of sales - amortization of intangible assets

 

4,570

 

 

 

4,715

 

Non-cash interest expense

 

2,135

 

 

 

1,139

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts and other receivables, net

 

(3,878

)

 

 

(450

)

Inventories, net

 

(17,607

)

 

 

(4,800

)

Prepaid expenses and other current assets

 

(643

)

 

 

(186

)

Other assets

 

3,177

 

 

 

(834

)

Accounts payable

 

2,817

 

 

 

1,623

 

Lease liabilities

 

(761

)

 

 

-

 

Accrued liabilities and other liabilities

 

(3,574

)

 

 

1,330

 

Net cash used in operating activities

 

(76,263

)

 

 

(63,799

)

Investing activities

 

 

 

 

 

 

 

Acquisition of technology licenses

 

(7,000

)

 

 

(9,500

)

Purchases of marketable securities

 

(108,341

)

 

 

(186,821

)

Proceeds from maturities of marketable securities

 

99,310

 

 

 

165,450

 

Purchases of property and equipment, net

 

(11,383

)

 

 

(1,639

)

Net cash used in investing activities

 

(27,414

)

 

 

(32,510

)

Financing activities

 

 

 

 

 

 

 

Proceeds from long-term debt, net

 

74,250

 

 

 

99,000

 

Proceeds from issuance of common stock, net

 

13,949

 

 

 

-

 

Proceeds (tax withholding) from exercise of stock options and restricted stock awards, net

 

1

 

 

 

(549

)

Proceeds from Employee Stock Purchase Plan

 

407

 

 

 

255

 

Net cash provided by financing activities

 

88,607

 

 

 

98,706

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(44

)

 

 

(260

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(15,114

)

 

 

2,137

 

Cash, cash equivalents and restricted cash at beginning of period

 

49,967

 

 

 

27,213

 

Cash, cash equivalents and restricted cash at end of period

$

34,853

 

 

$

29,350

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid during the period for interest

$

5,300

 

 

$

2,713

 

Tenant improvements provided by the landlord

$

3,228

 

 

$

-

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Disposal of fully depreciated property and equipment

$

981

 

 

$

42

 

Non-cash acquisition of technology license

$

-

 

 

$

12,773

 

Purchases of property and equipment, not yet paid

$

6,920

 

 

$

327

 

Right-of-use assets obtained in exchange for operating lease liabilities

$

34,807

 

 

$

-

 

 

See accompanying notes.

7


Dynavax Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Summary of Significant Accounting Policies

Dynavax Technologies Corporation (“we,” “our,” “us,” “Dynavax” or the “Company”), is a fully-integrated biopharmaceutical company focused on leveraging the power of the body’s innate and adaptive immune responses through toll-like receptor (“TLR”) stimulation. We discover, develop and commercialize novel vaccines. We launched our first commercial product, HEPLISAV-B® [Hepatitis B Vaccine (Recombinant), Adjuvanted], in February 2018, following United States Food and Drug Administration (“FDA”) approval for prevention of infection caused by all known subtypes of hepatitis B virus in adults age 18 years and older. 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.

On May 23, 2019, we implemented a strategic organizational restructuring, to principally align our operations around our vaccine business and significantly curtail further investment in our immuno-oncology business. In connection with the restructuring, we reduced our workforce by approximately 80 positions, or approximately 36%, of U.S.-based personnel. Also in connection with the restructuring, our Chief Executive Officer, also a member of the Board of Directors (the “Board”), submitted notice of his retirement from the Company and the Board, effective August 1, 2019. We expect the restructuring to be substantially complete and the costs incurred and paid by December 31, 2019. We are exploring strategic alternatives for our immuno-oncology business.

Basis of Presentation

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. In our opinion, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which we consider necessary to present fairly our financial position and the results of our operations and cash flows. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted. Interim-period results are not necessarily indicative of results of operations or cash flows to be expected for a full-year period or any other interim-period. The condensed consolidated balance sheet at December 31, 2018 has been derived from audited financial statements at that date, but excludes disclosures required by GAAP for complete financial statements.

The unaudited condensed consolidated financial statements and these notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “SEC”).

The unaudited condensed consolidated financial statements include the accounts of Dynavax and our wholly-owned subsidiary, Dynavax GmbH. All significant intercompany accounts and transactions among these entities have been eliminated from the condensed consolidated financial statements. We operate in one business segment: discovery, development and commercialization of novel vaccines.

Liquidity and Financial Condition

As of June 30, 2019, we had cash, cash equivalents and marketable securities of $140.5 million. On March 29, 2019, we borrowed the remaining $75.0 million under our term loan agreement with CRG Servicing LLC. The principal amount of $178.2 million, which includes paid-in-kind interest, borrowed under the loan agreement has a maturity date of December 31, 2023, unless earlier prepaid.

The Company has incurred losses and negative cash flows from operations since its inception and expects to incur operating losses for the foreseeable future as we continue to invest in commercialization of HEPLISAV-B. The Company believes that its cash, cash equivalents and marketable securities of $140.5 million at June 30, 2019 and expected revenues and funds from operations will be sufficient to allow the Company to fund its current operations through the first quarter of 2020.  

Until we can generate a sufficient amount of revenue from product sales, we will need to finance our operations through strategic alliance and licensing arrangements and/or future public or private debt and equity financings. Adequate financing may not be available to us on acceptable terms, or at all. In the absence of additional financing, these conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued. If adequate funds are not available when needed, we may need to significantly reduce our operations while we seek strategic alternatives, which could have an adverse impact on our ability to achieve our intended business objectives. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

8


Our ability to raise additional capital in the equity and debt markets, should we choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of development and business risks and uncertainties, our creditworthiness and the uncertainty that we would be able to raise such additional capital at a price or on terms that are favorable to us. Raising additional funds through the issuance of equity or debt securities could result in dilution to our existing stockholders, increased fixed payment obligations, or both. In addition, these securities may have rights senior to those of our common stock and could include covenants that would restrict our operations .

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 condensed consolidated financial statements and accompanying notes. Management’s estimates are based on historical information available as of the date of the condensed consolidated financial statements and various other assumptions we believe are reasonable under the circumstances. Actual results could differ materially from these estimates.

Summary of Significant Accounting Policies

Revenue Recognition

We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of Accounting Standards Codification (“ASC”) 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Product Revenue, Net

We sell our product to a limited number of wholesalers and specialty distributors in the U.S. (collectively, our “Customers”). Revenues from product sales are recognized when we have satisfied our performance obligation, which is the transfer of control of our product upon delivery to the Customer. The timing between the recognition of revenue for product sales and the receipt of payment is not significant. Because our standard credit terms are short-term and we expect to receive payment in less than one-year, there is no financing component on the related receivables. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.

Overall, product revenue, net, reflects our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If our estimates differ significantly from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment.

Reserves for Variable Consideration

Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration such as product returns, chargebacks, discounts, rebates and other fees that are offered within contracts between us and our Customers, healthcare providers, and others relating to our product sales. We estimate variable consideration using either the most likely amount method or the expected value method, depending on the type of variable consideration and what method better predicts the amount of consideration we expect to receive. We take into consideration relevant factors such as industry data, current contractual terms, available information about Customers’ inventory, resale and chargeback data and forecasted customer buying and payment patterns, in estimating each variable consideration. The variable consideration is recorded at the time product sales is recognized, resulting in a reduction in product revenue and a reduction in accounts receivable (if the Customer offsets the amount against its accounts receivable) or as an accrued liability (if we pay the amount through our accounts payable process). Variable consideration requires significant estimates, judgment and information obtained from external sources. The amount of variable consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If our estimates differ significantly from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment. If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of revenue that we report in a particular period. There have been no material adjustments to these estimates for the six months ended June 30, 2019.

9


Product Returns: Consistent with industry practice, we offer our Customers a limited right of return based on the product’s expiration date for product th at has been purchased from us. We estimate the amount of our product sales that may be returned by our Customers and record this estimate as a reduction of revenue in the period the related product reven ue is recognized. We consider several factors in the estimation of potential product returns including expiration dates of the product shipped, the limited product return rights, available information about Customers’ inventory , shelf life of the product and other relevant factors.

Chargebacks: Our Customers subsequently resell our product to healthcare providers. In addition to distribution agreements with Customers, we enter into arrangements with healthcare providers that provide for chargebacks and discounts with respect to the purchase of our product. Chargebacks represent the estimated obligations resulting from contractual commitments to sell product to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from us. Customers charge us for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Chargeback amounts are determined at the time of resale to the qualified healthcare provider by Customers, and we issue credits for such amounts generally within a few weeks of the Customer’s notification to us of the resale. Reserves for chargebacks consists of credits that we expect to issue for units that remain in the distribution channel inventories at each reporting period end that we expect will be sold to qualified healthcare providers, and chargebacks for units that our Customers have sold to healthcare providers, but for which credits have not been issued.

Trade Discounts and Allowances: We provide our Customers with discounts which include early payment incentives that are explicitly stated in our contracts, and are recorded as a reduction of revenue in the period the related product revenue is recognized.

Distribution Fees: Distribution fees include fees paid to certain Customers for sales order management, data and distribution services. Distribution fees are recorded as a reduction of revenue in the period the related product revenue is recognized.

Collaboration Revenue

We enter into collaborative arrangements with other companies. Such arrangements may include promises to customers which, if capable of being distinct, are accounted for as separate performance obligations. For agreements with multiple performance obligations, we allocate estimated revenue to each performance obligation at contract inception based on the estimated transaction price of each performance obligation. Revenue allocated to each performance obligation is then recognized when we satisfy the performance obligation by transferring control of the promised good or service to the customer.

Leases

On January 1, 2019, we adopted ASC 842, Leases, using the modified retrospective approach. Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance, ASC 840, Leases. We elected the package of practical expedients which, among other things, allowed us to carry forward the historical lease classification of leases in place as of January 1, 2019. As a result of adopting ASC 842, we recognized right-of-use asset and lease liabilities for operating leases of $34.8 million and $37.1 million, respectively on January 1, 2019. There was no adjustment to the opening balance of accumulated deficit as a result of the adoption of ASC 842.

We determine if an arrangement includes a lease at inception. Operating leases are included in operating lease right-of-use assets, other current liabilities and long-term portion of lease liabilities in our condensed consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, we use our incremental borrowing rate which represents an estimated rate of interest that we would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date.

The operating lease right-of-use assets also include any lease payments made and exclude any lease incentives. Our leases may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that we will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. We have elected not to apply the recognition requirements of ASC 842 for short-term leases.

Inventories

Inventory is stated at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. We primarily use actual costs to determine our cost basis for inventories. Our assessment of market value requires the use of estimates regarding the net realizable value of our inventory balances, including an assessment of excess or obsolete inventory. We determine excess or obsolete inventory based on multiple factors, including an estimate of the future demand for our products, product expiration dates and current sales levels. Our assumptions of future demand for our products are inherently uncertain and if we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of inventory reserves that we report in a particular period. For the six months ended June 30, 2019, there was no inventory reserve recognized.

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We consider regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval are not capitalized as inventory but are expensed as research and development costs. We begin capitalization of these inventory related costs once regulatory approval is obtained.

HEPLISAV-B was approved by the FDA on November 9, 2017, at which time we began to capitalize inventory costs associated with HEPLISAV-B. In March 2018, we received regulatory approval of the pre-filled syringe (“PFS”) presentation of HEPLISAV-B. Prior to FDA approval of HEPLISAV-B, all costs related to the manufacturing of HEPLISAV-B that could potentially be available to support the commercial launch of our products, were charged to research and development expense in the period incurred as there was no alternative future use. Prior to regulatory approval of PFS, costs associated with resuming operating activities at the Düsseldorf manufacturing facility were also included in research and development expense. Subsequent to regulatory approval of PFS, costs associated with resuming manufacturing activities at the Düsseldorf facility were included in cost of sales – product, until commercial production resumed in mid-2018 at which time these costs were recorded as raw materials inventory.

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. We estimate research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to us at that time. There have been no material adjustments to the prior period accrued estimates for clinical trial activities for the six months ended June 30, 2019 .

Restructuring

Restructuring costs are comprised of severance, other termination benefit costs and stock-based compensation expense for stock award and stock option modifications related to workforce reductions. We recognize restructuring charges when the liability is incurred. Employee termination benefits are accrued at the date management has committed to a plan of termination and affected employees have been notified of their termination date and expected severance benefits.

Recent Accounting Pronouncements

Accounting Standards Update 2016-13

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments. The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. In April 2019, the FASB issued targeted clarification to ASU No. 2016-13 within ASU No. 2019-04. In May 2019, the FASB issued targeted transition relief to ASU No. 2016-13 within ASU No. 2019-05. These ASUs are effective for annual periods beginning after December 15, 2019 with early adoption permitted. We are currently evaluating the impact this standard will have on our condensed consolidated financial statements.

Accounting Standards Update 2017-04

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the test for goodwill impairment by eliminating a previous requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. The ASU is effective for annual periods beginning after December 15, 2019 with early adoption permitted. The adoption is not expected to have a material impact on our condensed consolidated financial statements.

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Accounting Standards Update 2018-13

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), that eliminates, adds and modifies certain disclosure requirements of fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The ASU is effective for annual periods beginning after December 15, 2019 with early adoption permitted. The adoption of this standard is not expected to have a material impact on our condensed consolidated financial statements.

Accounting Standards Update 2018-15

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other –Internal-Use Software (Subtopic 350-40). This ASU requires a customer in a cloud computing arrangement (i.e. hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. ASC 350-40 requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as incurred. The ASU is effective for annual periods beginning after December 15, 2019 with early adoption permitted. The adoption of this standard is not expected to have a material impact on our condensed consolidated financial statements.

 

2. Fair Value Measurements

We measure 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.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy.

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.

As of June 30, 2019, we measured the fair value of our $7.0 million payment to Merck Sharpe & Dohme Corp., which is due in the first quarter of 2020, based on Level 3 inputs due to the use of unobservable inputs that cannot be corroborated by observable market data. We estimated the fair value of the liability using a discounted cash flow technique using the effective interest rate on our term loan. The liability had a fair value of $6.6 million as of June 30, 2019.

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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

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

29,343

 

 

$

-

 

 

$

-

 

 

$

29,343

 

U.S. treasuries

 

-

 

 

 

1,994

 

 

 

-

 

 

 

1,994

 

U.S. government agency securities

 

-

 

 

 

26,903

 

 

 

-

 

 

 

26,903

 

Corporate debt securities

 

-

 

 

 

79,870

 

 

 

-

 

 

 

79,870

 

Total

$

29,343

 

 

$

108,767

 

 

$

-

 

 

$

138,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

44,002

 

 

$

-

 

 

$

-

 

 

$

44,002

 

U.S. treasuries

 

-

 

 

 

14,724

 

 

 

-

 

 

 

14,724

 

U.S. government agency securities

 

-

 

 

 

42,372

 

 

 

-

 

 

 

42,372

 

Corporate debt securities

 

-