Source: http://investors.dynavax.com/secfiling.cfm?filingID=1193125-10-173616
Timestamp: 2017-05-24 17:35:35
Document Index: 782294877

Matched Legal Cases: ['§232', '§ 1350', '§ 906', '§ 1350', '§ 1350', '§ 906']

PDF WORD XLS DYNAVAX TECHNOLOGIES CORP (Form: 10-Q, Received: 08/02/2010 16:09:48) Table of Contents
Interactive Data File required to be submitted and posted 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 and post such
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.:
As of July 27, 2010, the registrant had outstanding 86,576,666 shares of common stock.
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
anticipate, believe, estimate, project, predict, potential and similar expressions intended to identify forward-looking statements. Our forward-looking statements specifically
include discussions regarding our business and financing strategies, research and development, preclinical and clinical product development efforts, intellectual property rights and ability to commercialize our product candidates, as well as the
timing of the clinical development and potential regulatory approval of our products, uncertainty regarding our future operating results and prospects for profitability. Our actual results may vary materially from those in such forward-looking
statements as a result of various factors that are identified in Item 1A  Risk Factors and elsewhere in this document. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We assume no
Preferred stock: $0.001 par value; 5,000 shares authorized and no shares issued and outstanding at June 30, 2010 and
  Common stock: $0.001 par value; 150,000 shares authorized at June 30, 2010 and December 31, 2009; 86,577 and 54,279
 Cumulative translation adjustment
(296,825
) (259,637
) 2,867
) 7,210
) 3,127
) 7,219
 Fair value of the common stock, warrant, and contingent liability to Holdings
 Accretion and amortization of marketable securities
) 4,888
) (30,175
 2,337
) 10,980
 Disposal of fully depreciated property and equipment
(Dynavax or the Company), a clinical-stage biopharmaceutical company, discovers and develops novel products to prevent and treat infectious diseases. The Companys lead product candidate is
, an investigational adult hepatitis B vaccine
designed to enhance protection more rapidly with fewer doses than current licensed vaccines. We originally incorporated in California on August 29, 1996 under the name Double Helix Corporation, and we changed our name to Dynavax Technologies
Corporation in September 1996. We reincorporated in Delaware on March 26, 2001.
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 only of normal recurring adjustments, which we consider necessary to fairly state our financial position and the results of our operations and cash flows. Interim-period results are not necessarily indicative of results
of operations or cash flows for a full-year period or any other interim-period. The condensed consolidated balance sheet at December 31, 2009 has been derived from audited financial statements at that date, but does not include all disclosures
accompanying them should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission (SEC).
Biotech GmbH (Rhein or Dynavax Europe) and Symphony Dynamo, Inc. (SDI), which we consolidate pursuant to the Financial Accounting Standards Board (FASB) Accounting Standards Codification related to
consolidation. All significant intercompany accounts and transactions have been eliminated. We operate in one business segment, which is the discovery and development of biopharmaceutical products. We have evaluated all subsequent events through the
date the financial statements were filed with the SEC.
We have incurred significant operating losses and negative cash flows from operations since our inception. In April 2010, we raised
approximately $41.1 million, after deducting fees and expenses, in an offering underwritten by Wedbush Securities Inc. As of June 30, 2010, we had cash and cash equivalents and marketable securities of $57.4 million, restricted cash of $0.6
million and working capital of $31.0 million. We currently estimate that we have sufficient cash resources to meet our anticipated cash needs through the next 12 months based on cash and cash equivalents on hand at June 30, 2010 and anticipated
In order to continue development of our product candidates, particularly HEPLISAV, we will need to raise additional
funds through future public or private financings, and/or strategic alliance and licensing arrangements. Sufficient funding may not be available, or if available, may be on terms that significantly dilute or otherwise adversely affect the rights of
existing shareholders. If adequate funds are not available in the future, we would need to delay, reduce the scope of, or put on hold the HEPLISAV program, and potentially our other development programs while we seek strategic alternatives. In any
event, we may be required to reduce costs and expenses within our control, including potentially significant personnel-related costs and other expenditures that are part of our current operations.
amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results may differ from these estimates.
We believe that there have been no significant changes in our critical accounting policies during the six months ended
June 30, 2010 as compared with those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.
In March 2010, the FASB reached a consensus on Accounting Standards Update (ASU) No. 2010-17, Milestone Method of
Revenue Recognition (ASU 2010-17). ASU 2010-17 provides guidance on applying the milestone method to milestone payments for achieving specified performance measures when those payments are related to uncertain future events. Under
the Consensus, entities can make an accounting policy election to recognize arrangement consideration received for achieving specified performance measures during the period in which the milestones are achieved, provided certain criteria are met.
The scope of this Issue is limited to transactions involving research or development. ASU 2010-17 is effective for interim and annual periods beginning on or after June 15, 2010 with early adoption permitted. The impact of ASU 2010-17 is not
expected to be material to the consolidated financial statements of the Company.
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (ASU
2010-06), which is included in the ASC Topic 820 (Fair Value Measurements and Disclosures). ASU 2010-06 requires new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. ASU 2010-06 also
requires disclosure of activities including purchases, sales, issuances, and settlements within the Level 3 fair value measurements and clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation
techniques. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the consolidated financial statements of the Company.
No. 2009-13). ASU No. 2009-13, which amends existing revenue recognition accounting pronouncements and provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be
separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon managements estimate of the
selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Previous accounting principles required that the fair value of the undelivered item be the price of the item either sold in a
separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. If the
fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010, which for Dynavax means no later than January 1, 2011. Early adoption is permitted; however, adoption of this guidance as of a date other than January 1,
2011, will require us to apply this guidance retrospectively effective as of January 1, 2010 and will require disclosure of the effect of this guidance as applied to all previously reported interim periods in the fiscal year of adoption. While
we do not expect the adoption of this standard to have a material impact on our financial position and results of operations, this standard may impact us in the event we complete future transactions or modify existing collaborative relationships.
On April 18, 2006, we, Symphony Capital Partners, L.P. and certain of its affiliates (together, Symphony) and Symphony
Dynamo Holdings LLC (Holdings) entered into a transaction involving a series of related agreements providing for the advancement of specific Dynavax immunostimulatory sequences-based programs for cancer, hepatitis B and hepatitis C
therapy (collectively, the Programs). Pursuant to these agreements, Symphony and certain of its affiliates formed Symphony Dynamo, Inc. (SDI) and invested $50 million to fund the Programs, and we licensed to Holdings our
intellectual property rights related to the Programs, which were assigned to SDI. As a result of these agreements, Symphony owned 100% of the equity of Holdings, which owned 100% of the equity of SDI.
In connection with the transaction described above, Holdings granted to us an exclusive purchase option that gave us the right, but not
the obligation, to acquire the outstanding equity securities of SDI, which would result in our reacquisition of the intellectual property rights that we licensed to Holdings (the Original Purchase Option). In exchange for the Original
Purchase Option, we granted Holdings five-year warrants to purchase up to 2,000,000 shares of our common stock at an exercise price of $7.32 per share pursuant to a warrant purchase agreement (the Original Warrants), and granted certain
registration rights to Holdings pursuant to a registration rights agreement. We also received an exclusive option to purchase either the hepatitis B or hepatitis C program (the Program Option) during the first year of the
arrangement. In April 2007, we exercised the Program Option for the hepatitis B program.
Prior to the acquisition of all of the outstanding equity of SDI on December 30,
2009, as described below, we consolidated the financial position and results of operations of SDI. Net losses incurred by SDI and charged to the noncontrolling interest were zero and $2.0 million for the six months ended June 30, 2010 and 2009,
respectively. We ceased to charge net losses incurred by SDI against the noncontrolling interest upon our acquisition of SDI on December 30, 2009.
In November 2009, we entered into an agreement with Holdings to modify the provisions of and to exercise the Original Purchase
Option. We completed the acquisition of all of the outstanding equity of SDI on December 30, 2009. In exchange for all of the outstanding equity of SDI, we issued to Symphony and certain of its co-investors: (i) 13,000,000 shares of common
stock (Shares); (ii) 5-year warrants to purchase 2,000,000 shares of common stock with an exercise price of $1.94 per share (Warrants); and (iii) a note in the principal amount of $15 million, due December 31,
2012, payable in cash, our common stock or a combination thereof at our discretion, which obligation was previously payable solely in cash on April 18, 2011. In addition, we agreed to contingent cash payments from us 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 the cancer and hepatitis C therapies
originally licensed to SDI. The Original Warrants held by Symphony were cancelled.
The Shares and Warrants were subject to
certain anti-dilution protection in the event that we issue other equity securities within six months from December 30, 2009. Due to this adjustment provision, the Warrants did not meet the criteria set forth in ASC 815 to be considered indexed to
the Companys own stock and therefore were recorded as a liability at fair value, which was estimated at the issuance date using the Black-Scholes Model. As a result of an equity offering completed in April 2010 prior to the expiration of the
anti-dilution provision, Symphony received an additional 1,076,420 shares of common stock (April 2010 Shares) and warrants to purchase 7,038,210 shares of common stock (April 2010 Warrants) having the same terms as the
warrants sold in the offering, which are an exercise price of $1.50 per share and a five year term. The Warrants issued on December 30, 2009 were cancelled upon the issuance of the April 2010 Warrants.
The incremental fair value of the April 2010 Shares and April 2010 Warrants provided to Symphony, as measured upon issuance and
remeasured at June 30, 2010, resulted in non-operating expense of $11.1 million for the second quarter 2010. This also resulted in an increase of $9.5 million to the warrant liability and an increase of $1.6 million to additional paid in
capital as of June 30, 2010. Following the expiration of Symphonys anti-dilution protection on June 30, 2010, the value of the April 2010 Warrants will be classified in stockholders equity in the consolidated balance sheet.
ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value
transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The 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:
liabilities measured at fair value on a recurring basis as of June 30, 2010 (in thousands):
 35,043
  10,140
  3,161
As of June 30, 2010, we had $28.3 million in marketable securities, and there were no sales of marketable securities during the six
We consider all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Management determines the appropriate classification of marketable securities at the time of purchase. We invest in short-term money market funds and U.S. government agency securities. We believe these types of
investments are subject to minimal credit and market risk. We do not invest in auction rate securities or securities collateralized by home mortgages, mortgage bank debt, or home equity loans.
We have classified our entire investment portfolio as available-for-sale. We view our available-for-sale portfolio as available for use
in current operations, and accordingly, have classified all investments as short-term. As of June 30, 2010 the stated maturity of our investments is within one year of the current balance sheet date. In accordance with ASC 320-10-50,
Accounting for Certain Investments in Debt and Equity Securities, available-for-sale securities are carried at fair value based on quoted market prices, with unrealized gains and losses included in accumulated other comprehensive income
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:
The following is a summary of available-for-sale securities included in cash and cash equivalents and marketable securities
) 35,043
There were no realized gains or losses from the sale
of marketable securities for the three and six months ended June 30, 2010. As of June 30, 2010, all of our investments have a stated maturity date that is within one year of the current balance sheet date. All of our investments are
classified as short-term and available-for-sale, as we may not hold our investments until maturity. As of June 30, 2010, our marketable securities had the following maturities (in thousands):
When determining if there are any other-than-temporary impairments on our
investments, we evaluate: (i) whether the investment has been in a continuous realized loss position for over 12 months, (ii) the duration to maturity of our investments, (iii) our intention to hold the investments to maturity and if
it is not likely that we will be required to sell the investment before recovery of the amortized cost bases, (iv) the credit rating of each investment, and (v) the type of investments made. Through June 30, 2010, we have not
recognized any other-than-temporary losses on our investments.
The Warrants issued to Symphony contain provisions for anti-dilution protection through June 30, 2010 and therefore have been
recorded as a liability at fair value, which was estimated at the warrant issuance date using the Black-Scholes Model. This fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement.
Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Companys assumptions in measuring fair value. Changes in the fair value of the warrant liability including the
issuance of the April 2010 Warrants, are recognized in Other income (expense) in the statement of operations in the period of the change.
The following table represents a reconciliation of the change in the fair value measurement of the warrant liability for the six months
ended June 30, 2010 (in thousands):
Adjustment to fair value measurement  Other expense
We entered into a $15 million non-interest bearing
note payable to Holdings in connection with the acquisition of SDI (see Note 2). We estimated the fair value of the note using a net present value model with a discount rate of 17%. Imputed interest will be recorded as interest expense
over the term of the loan. The principal amount of $15 million is due on December 31, 2012 and is payable in cash, our common stock or a combination thereof at our discretion. If we elect to pay the note solely in shares of our common stock,
the number of shares issued will be determined based on the average closing price of our common stock for the 30 trading days immediately preceding but not including the second trading day prior to the date of such payment multiplied by 1.15. This
fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect
the Companys assumptions in measuring fair value.
The following table represents a reconciliation of the change in the
carrying value of the note payable to Holdings for the six months ended June 30, 2010 (in thousands):
We are also obligated to make future contingent cash
payments to Symphony related to certain payments we may receive from future partnering agreements involving our hepatitis C and cancer therapy programs (see Note 2). We estimated the fair value of this contingent liability using a discounted cash
flow model. The discounted cash flow model was derived from managements assumptions regarding the timing, amounts, and probability of potential upfront and milestone payments for the development and/or commercialization of the hepatitis C
program based on transactions for similar stage programs by other companies. These cash flows were discounted at an 18% rate.
Changes in the fair value of the contingent consideration liability are recognized in
Other income (expense) in the statement of operations in the period of the change. Certain events including, but not limited to, the timing and terms of any strategic partnership agreement of the hepatitis C therapy program could have a material
impact on the fair value of the contingent consideration liability, and as a result, the Companys results of operations and financial position. Based on our assumptions regarding the Companys beta and risk free interest rate used in the
discounted cash flow model, the change in fair value of the contingent consideration liability resulted in other expense of $0.1 million for the six months ended June 30, 2010.
The following table represents a reconciliation of the change in the fair value measurement of the contingent liability for the six
months ended June 30, 2010 (in thousands):
Intangible assets consist primarily of the manufacturing process and customer relationships. The manufacturing process derives from the
methods for making proteins in Hansenula yeast, which is a key component in the production of hepatitis B vaccine. The customer relationships derive from Rheins ability to sell existing, in-process and future products to its existing
customers. Purchased intangible assets other than goodwill are amortized on a straight-line basis over their respective useful lives. The following tables present details of the purchased intangible assets at June 30, 2010 (in thousands, except
The estimated future amortization expense of purchased
intangible assets is as follows (in thousands):
On April 16, 2010, we completed an underwritten public offering resulting in net proceeds of $41.1 million, after deducting the
underwriting discount and estimated offering expenses of approximately $3.0 million, from the sale of 30,293,000 units at a per unit price of $1.4525. Each unit consisted of one share of common stock and one warrant to purchase 0.5 of a share of
common stock. Each warrant has an exercise price of $1.50 per share, and is exercisable for a period of five years from the date of issuance.
On August 17, 2009 we entered into an equity distribution agreement (the Agreement) with Wedbush Morgan Securities, Inc.
(Wedbush) pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $15 million from time to time through Wedbush as our sales agent or to Wedbush as a principal. During the six months
ended June 30, 2010, we sold 800,860 shares of common stock under the Agreement with Wedbush as our sales agent for net proceeds of $0.9 million. As of June 30, 2010, we could offer and sell from time to time through Wedbush up to an
additional $11.1 million of our common stock under the Agreement, subject to certain conditions.
We lease our facilities in Berkeley, California (the Berkeley Lease), and Düsseldorf, Germany (the
Düsseldorf Lease), under operating leases that expire in September 2014 and March 2023, respectively. The Berkeley Lease can be terminated at no cost to us in February 2012 but otherwise extends automatically until September 2014.
The Berkeley Lease provides for periods of escalating rent. The total cash payments over the life of the lease were 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. In addition, our Berkeley Lease provided a tenant
improvement allowance of $0.4 million, which is considered a lease incentive and accordingly, has been included in accrued liabilities and other long-term liabilities in the consolidated balance
sheets as of June 30, 2010 and December 31, 2009. The Berkeley Lease incentive is amortized as an offset to rent expense over the estimated initial lease term, through September 2014. Total net rent expense related to our operating leases
for the six months ended June 30, 2010 and 2009, was $1.2 million in each year, respectively. Deferred rent was $0.8 million as of June 30, 2010.
We have entered into a sublease agreement under the Berkeley Lease for a certain portion of the leased space with the remaining scheduled
payments of approximately $10,000 to us until August 2010. We have also entered into two sublease agreements under the Düsseldorf Lease for certain portion of the leased space with total remaining scheduled payments of $0.3 million to us
through July 2013. The sublease rental income is offset against rent expense.
non-cancelable portion of our operating leases at June 30, 2010, excluding payments from the sublease agreement, are as follows (in thousands):
During the fourth quarter of 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 June 30, 2010 and is collateralized by a certificate of deposit which has been included
in restricted cash in the consolidated balance sheets as of June 30, 2010 and December 31, 2009. Under the terms of the Berkeley Lease, if the total amount of our cash, cash equivalents and marketable securities falls below $20.0 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 $20.0 million for the remainder of
the lease term, or until our actual cash and cash equivalents remains above $20.0 million for a period of 12 consecutive months.
We established a letter of credit with Deutsche Bank as security for our Düsseldorf Lease in the amount of $0.2 million. The letter
of credit remained outstanding as of June 30, 2010 and is collateralized by a certificate of deposit which has been included in restricted cash in the consolidated balance sheet as of June 30, 2010.
We rely on research institutions, contract research organizations, clinical investigators and clinical material manufacturers. As of
June 30, 2010, under the terms of our agreements, we are obligated to make future payments as services are provided of approximately $23.3 million through 2013. These agreements are terminable by us upon written notice. We are generally only
liable for actual effort expended by the organizations at any point in time during the contract through the notice period.
and related patent rights and materials, we pay annual license or maintenance fees and will be required to pay milestones and royalties on net sales of products originating from the licensed technologies. Under the terms of our license agreements,
we could be expected to pay approximately $0.3 million through 2011 related to such fees and milestone payments to the Regents.
In December 2008, we entered into a worldwide strategic alliance with GlaxoSmithKline (GSK) to discover, develop, and
commercialize toll-like receptor (TLR) inhibitors for diseases such as lupus, psoriasis, and rheumatoid arthritis. We received an initial payment of $10 million and in exchange, agreed to conduct research and early clinical development
in up to four programs and granted to GSK options to license the programs. We are eligible to receive potential future development and commercialization milestones. GSK can exercise its exclusive option to license each program upon achievement of
proof-of-concept or earlier upon certain circumstances. After exercising its option, GSK would carry out further development and commercialization of these products. We are eligible to receive tiered, up to double-digit royalties on sales and have
retained an option to co-develop and co-promote one product. Revenue from the initial payment is deferred and is being recognized over the expected period of performance which is estimated to be seven years. For the six months ended June 30,
2010 and 2009, we recognized revenue of $0.7 million in each year, respectively, related to the initial payment.
Absent early
termination, the agreement will expire when all of GSKs payment obligations expire. Either party may terminate the agreement early upon written notice if the other party commits an uncured material breach of the agreement. Either party may
terminate the agreement in the event of insolvency of the other party. GSK also has the option to terminate the agreement without cause, upon prior written notice within a specified window of time dependent upon stage of clinical development of the
In September 2006, we entered into a three-year research collaboration and license agreement with AstraZeneca for the discovery and
development of TLR9 agonist-based therapies for the treatment of asthma and chronic obstructive pulmonary disease. The research term and research funding under the agreement was extended through July 2010. We received an upfront payment of $10
million, a milestone payment of $4.5 million for the nomination of a candidate drug and are eligible to receive potential future development milestones. We are also eligible to receive royalties based on product sales and have retained an option to
co-promote in the United States products arising from the collaboration. AstraZeneca has the right to sublicense its rights with our prior consent.
Revenue from the upfront payment has been deferred until certain contractual obligations are fulfilled or amended. Revenue from the
milestone payment received is deferred and is being recognized ratably over the estimated performance period of the collaboration agreement. For the six months ended June 30, 2010 and 2009, we recognized revenue of $0.8 million and $1.0
million, respectively, related to the milestone for the nomination of a candidate drug. Revenue resulting from the performance of research services amounted to $3.3 million and $1.8 million for the six months ended June 30, 2010, and 2009,
adjuvants. The contract was awarded by the NIHs National Institute of Allergy and Infectious Diseases (NIAID) to develop novel vaccine adjuvant candidates that signal through receptors of the innate immune system. The contract
supports adjuvant development for anthrax as well as other disease models. NIAID is funding 100% of the total $17 million cost of Dynavaxs program under Contract No. HHSN272200800038C. For the six months ended June 30, 2010, and
2009, we recognized revenue of approximately $1.1 million and $0.8 million, respectively.
In July 2008, we were awarded a
two-year $1.8 million grant from the NIH to develop a therapy for systemic lupus erythematosus, an autoimmune disease. Revenue associated with this grant is recognized as the related expenses are incurred. For the six months ended June 30,
2010, and 2009, we recognized revenue of approximately $0.2 million and $0.5 million respectively.
In 2003, we were awarded
government grants to fund research and development totaling $8.3 million, certain of which were extended through the second quarter of 2009. In August 2007, we were awarded a two-year $3.3 million grant to continue development of a novel universal
influenza vaccine for controlling seasonal and emerging pandemic flu strains. Revenue associated with these grants was recognized as the related expenses were incurred. For the six months ended June 30, 2009, we recognized revenue of
approximately $0.7 million; there were no revenues recognized from these grants in 2010.
In October 2007, we entered into a global license and development collaboration agreement and a related manufacturing
agreement with Merck to jointly develop HEPLISAV, a novel investigational hepatitis B vaccine. Under the terms of the agreement, Merck received worldwide exclusive rights to HEPLISAV, and agreed to fund future vaccine development and be responsible
for commercialization. We received a non-refundable upfront payment of $31.5 million. Revenue from the initial payment was deferred and recognized ratably over the estimated performance period of the collaboration agreement. On December 18,
2008, Merck
provided notice of its termination of the collaboration, upon which all development, manufacturing and commercialization rights to HEPLISAV reverted to Dynavax. As a result of Mercks
termination, we accelerated the applicable performance period over which we ratably recognized revenue from the upfront fee through the effective date of termination, which was in June 2009. For the six months ended June 30, 2010 and 2009, we
recognized revenue of zero and $28.5 million, respectively, related to the upfront fee. Collaboration revenue resulting from the performance of research and development services is recognized as related research and development costs are incurred.
Cost reimbursement revenue under this collaboration agreement totaled zero and $0.3 million for the six months ended June 30, 2010 and 2009, respectively. In March 2010, Merck agreed to make a $4.0 million payment to us in satisfaction of its
obligations for the wind down period following Mercks written notice of termination, which was recorded as collaboration revenue upon receipt.
Basic net loss per share is calculated by dividing the net income (loss) attributable to Dynavax by the weighted-average number of common
shares outstanding during the period. Diluted net loss per share is computed by dividing the income (loss) attributable to Dynavax by the weighted-average number of common shares outstanding during the period and dilutive potential common shares
using the treasury-stock method. For purposes of this calculation, common stock subject to repurchase by us, preferred stock, options and warrants are considered to be dilutive potential common shares and are only included in the calculation of
diluted net loss per share when their effect is dilutive. Outstanding warrants and stock options to purchase 32.6 million and 11.6 million shares of common stock as of June 30, 2010 and 2009, respectively, were excluded from the
calculation of diluted income (loss) per share for both the three and six months ended June 30, 2010 and 2009 because the effect would have been anti-dilutive.
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income or loss. Other comprehensive income or loss
includes certain changes in stockholders equity not included in net income (loss). Comprehensive income (loss) is as follows (in thousands):
) Decrease (increase) in cumulative translation adjustment
As of June 30, 2010, we have three share-based compensation plans: the 2004 Stock Incentive Plan, which includes the 2004
Non-Employee Director Option Program; the 2004 Employee Stock Purchase Plan, and 2010 Employment Inducement Stock Awards Plan. The 2004 Stock Incentive Plan authorizes the issuance of various forms of stock-based awards including stock options,
restricted stock, restricted stock units, and other equity awards to employees, consultants and members of the board of directors. The 1997 Equity Incentive Plan, or 1997 Plan, expired in the first quarter of 2007. Upon expiration of the 1997 Plan,
273,188 shares previously available for grant expired. Any outstanding options under the 1997 Plan that are cancelled in future periods will automatically expire and will no longer be available for grant.
Under our stock-based compensation plans, option awards generally vest over a 4-year period contingent upon continuous service and expire
10 years from the date of grant (or earlier upon termination of continuous service). 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:
      Expected volatility
options outstanding, and non-executive level 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
The fair value of the options is amortized to expense on a straight-line basis over the vesting periods of
the options. Compensation expense recognized was based on awards ultimately expected to vest and reflects estimated forfeitures at an annual rate of 15%. As of June 30, 2010, the total unrecognized compensation cost related to non-vested
options granted amounted to $4.3 million, which is expected to be recognized over the options remaining weighted-average vesting period of 1.5 years.
5,276,055
  2010 Plan options authorized
(1,773,750
) 1,773,750
 (52,494
(273,992
(232,978
1,307,129
In October 2008, the Company granted restricted stock units (RSUs) for a total of 435,000 shares
with a grant date fair value of $1.31 per share. Such RSUs will vest 100% on the third anniversary of the vest commencement date. Prior to this grant in October 2008, the Company had no RSUs outstanding. There were 15,000 RSU shares forfeited during
the six months ended June 30, 2010. There were 270,000 unvested RSU shares as of June 30, 2010. There were no vested RSU shares delivered during the six months ended June 30, 2010.
The following table summarizes outstanding options that are net of expected forfeitures (vested and expected to vest) and options
exercisable under our stock option plans as of June 30, 2010:
As of June 30, 2010, 746,000 shares were reserved and approved for issuance under the
Employee Stock Purchase Plan (the Purchase Plan), subject to adjustment for a stock split, any future stock dividend or other similar change in our common stock or capital structure. To date, employees have acquired 403,898 shares of our
common stock under the Purchase Plan. At June 30, 2010, 342,102 shares of our common stock remained available for future purchases.
The following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation
of our financial condition and results of operations. This discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and related Notes included in Item 1 of this quarterly report and the
Consolidated Financial Statements and related Notes and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K.
Dynavax Technologies Corporation (Dynavax or the Company), a clinical-stage biopharmaceutical
company, discovers and develops novel products to prevent and treat infectious diseases. Our lead product candidate is
designed to enhance protection more rapidly with fewer doses than current licensed vaccines.
Our pipeline of product
candidates includes: HEPLISAV; our Universal Flu vaccine; clinical-stage programs for hepatitis C and hepatitis B therapies; and preclinical programs including those partnered with AstraZeneca and GlaxoSmithKline (GSK).
In May 2010, the Data Safety Monitoring Board (DSMB) established for our two ongoing Phase 3 trials for HEPLISAV completed the
second of its planned safety assessments and determined that the studies could continue without modification. The large-scale Phase 3 lot-to-lot consistency and safety study, which enrolled and immunized over 2,400 subjects, is expected to be
completed in May 2011, after a 12-month follow-up of these subjects.
In June 2010, we initiated a Phase 1 trial to assess the safety and immunogenicity of N8295, the novel component of our Universal Flu
vaccine. Approximately 40 subjects, divided into three dose groups, will receive two immunizations of N8295, one month apart. N8295 is a fusion protein comprised of NP and M2e, two highly conserved influenza antigens covalently linked to our
proprietary second-generation TLR9 agonist. Dynavax expects to report data by year-end 2010.
The Company believes that there have been no significant changes in its critical
accounting policies during the six months ended June 30, 2010 as compared with those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2009.
Revenues consist of amounts earned from collaborations, government and private agency grants, and services and license fees. Collaboration
revenue includes amounts recognized under our collaboration agreements. Grant revenue includes amounts earned under government and private agency grants. Services and license fees include research and development and contract manufacturing services,
)% 1,479
)% Services and license revenue
)% 294
Collaboration revenue for the six months ended June 30, 2009 included recognition of
$28.5 million of deferred revenue associated with the upfront payment from Merck, which was accelerated through June 2009 following Mercks termination of the collaboration for HEPLISAV. Collaboration revenue for the six months ended
June 30, 2010 included $4.0 million from Merck in satisfaction of its obligations under the agreement related to its termination. Grant revenue for the six months ended June 30, 2010 decreased from the same period in 2009 primarily due to
the expiration of our NIH flu grant in July 2009. Services and license revenue for the six months ended June 30, 2010 decreased as compared to 2009 as a result of a decline in royalty revenue and manufacturing services from Rhein Biotech GmbH
(Rhein or Dynavax Europe).
Research and development expense consists of compensation and related personnel costs which include benefits, recruitment, travel and
supply costs; outside services; allocated facility costs and non-cash stock-based compensation. Outside services relate to our preclinical experiments and clinical trials, regulatory filings, manufacturing our product candidates, and cost of sales
relating to service and license revenue.
The following is a summary of our research and development expense (in thousands,
)% Outside services
% 15,994
)% 3,200
% Research and development expense for the three and six months ended June 30, 2010 increased
as compared to the same periods in 2009. For the three and six months ended June 30, 2010, the increase in outside services over the same periods in 2009 is primarily due to clinical development costs associated with HEPLISAV resulting from the
rapid enrollment and immunization of over 2,400 subjects in the Phase 3 lot-to-lot consistency and safety study. The increase in outside services expense was partially offset by a decrease in compensation and related personnel costs over the same
periods primarily due to the decline in employee headcount.
consulting, business development, investor relations and insurance; legal costs that include corporate and patent expenses; allocated facility costs and non-cash stock-based compensation.
% 1,981
% 2,308
)% 862
% General and administrative expense for the three and six months ended June 30, 2010 increased
as compared to the same periods in 2009 primarily due to legal costs associated with patent activities. Compensation and related personnel costs declined for the six month period of 2010 but increased in the second quarter of 2010 as compared to the
same periods in 2009 as a result of staffing fluctuations and timing of related accrued incentive compensation.
are being amortized over five years from the date of acquisition. Amortization of intangible assets was $0.5 million for both the six months ended June 30, 2010 and 2009.
investments. Other income includes gains and losses on foreign currency translation of our activities primarily with Dynavax Europe and gains and losses on disposals of property and equipment, and the change in fair value of financial assets and
liabilities such as the warrants and contingent consideration liabilities assumed in connection with the acquisition of SDI on December 30, 2009. Interest expense relates to the note payable issued to Holdings in connection with our acquisition
of SDI. The following is a summary of our interest and other income, and interest expense (in thousands, except for percentages):
)% (11,176
) 11,056
income for the six months ended June 30, 2010 decreased by $0.1 million, or 74%, compared to the same period in 2009 due primarily to lower investment balances and the decline in returns on our investment portfolio resulting from current market
Interest expense for the six months ended June 30, 2010 increased by $0.8 million, or 2,974%, compared to
the same period in 2009 due primarily to interest accreted on the note payable to Holdings.
Other income (expense) for the
six months ended June 30, 2010 primarily includes the fair value of the April 2010 Shares and April 2010 Warrants provided to Symphony, as measured upon issuance and remeasured at June 30, 2010, which resulted in non-operating expense of $11.1
million. Following the expiration of Symphonys anti-dilution protection on June 30, 2010, the value of the April 2010 Warrants will be classified in stockholders equity in the consolidated balance sheet.
Pursuant to the agreements that we entered into with SDI in April 2006, we have attributed net income or loss to Dynavax and the
noncontrolling interest in SDI in our consolidated statements of operations. For the six months ended June 30, 2009, the loss attributed to the noncontrolling interest was $2.0 million. We ceased to charge net losses incurred by SDI
against the noncontrolling interest upon our acquisition of SDI on December 30, 2009.
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06),
which is included in the ASC Topic 820 (Fair Value Measurements and Disclosures). ASU 2010-06 requires new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. ASU 2010-06 also requires disclosure
of activities including purchases, sales, issuances, and settlements within the Level 3 fair value measurements and clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. ASU
2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the consolidated financial statements of the Company.
As of June 30, 2010, we had $57.4 million in cash, cash equivalents and marketable securities. Our funds are currently invested in
short term institutional money market funds and government agency securities.
Cash used in operating activities was $21.3
million during the six months ended June 30, 2010 compared to $15.4 million for the same period in 2009. The increase in cash usage compared to the prior year was due to changes in working capital, particularly increased spend for HEPLISAV
clinical development following the restart of the program in September 2009.
Cash used in investing activities was $28.4
million during the six months ended June 30, 2010, whereas cash provided by investing activities was $11.0 million for the same period in 2009. The change was primarily due to the purchase of marketable securities in 2010.
Cash provided by financing activities was $42.1 million during the six months ended June 30, 2010 compared to approximately $41,000
for the same period in 2009. The increase was primarily attributed to the completion of an underwritten public offering in April 2010, which resulted in net proceeds of $41.1 million. During the six months ended June 30, 2010, we also sold
800,860 shares of common stock under our equity distribution agreement for net proceeds of $0.9 million. As of June 30, 2010, we could offer and sell from time to time up to an additional $11.1 million in common stock under this agreement,
We currently estimate that we have sufficient cash resources to meet our anticipated cash
needs through the next 12 months based on cash and cash equivalents on hand at June 30, 2010 and anticipated revenues. Our cash usage for the six months ended June 30, 2010 is indicative of our projected spend for the remainder of 2010. We
note that our independent registered public accounting firm has included in their audit opinion for the fiscal year ended December 31, 2009, a statement with respect to substantial doubt regarding our ability to continue as a going concern. Our
consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
We expect to continue to spend substantial funds in connection with development and manufacturing of our product candidates, particularly
HEPLISAV; various human clinical trials for our product candidates; and protection of our intellectual property. In order to continue development of our product candidates, particularly HEPLISAV, we will continue to raise additional funds through
future public or private financings, and/or strategic alliance and licensing arrangements notwithstanding our completion of an underwritten offering in April 2010. Sufficient funding may not be available, or if available, may be on terms that
significantly dilute or otherwise adversely affect the rights of existing shareholders. If adequate funds are not available in the future, we would need to delay, reduce the scope of, or put on hold the HEPLISAV program, and potentially our other
development programs while we seek strategic alternatives. In any event, we may be required to reduce costs and expenses within our control, including potentially significant personnel-related costs and other expenditures that are part of our
The following summarizes our significant contractual obligations as of June 30, 2010 and the effect those obligations are expected to
have on our liquidity and cash flow in future periods (in thousands):
We lease our facilities in Berkeley, California (the
Berkeley Lease) and Düsseldorf, Germany (the Düsseldorf Lease) under operating leases that expire in September 2014 and March 2023, respectively. The Berkeley Lease can be terminated at no cost to us in February
2012 but otherwise extends automatically until September 2014. We have entered into a sublease agreement under the Berkeley Lease for a certain portion of the leased space with the remaining scheduled payments of approximately $10,000 to us until
August 2010. We have also entered into two sublease agreements under the Düsseldorf Lease for certain portion of the leased space with total remaining scheduled payments of $0.3 million to us through July 2013. The sublease rental income is
offset against rent expense.
As part of the consideration transferred from Dynavax to Holdings for the acquisition of SDI,
the Company is obligated to make contingent cash payments 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 the cancer and hepatitis C therapies. Using a discounted cash flow model, we estimated the fair value of the contingent liability to be $3.2 million as of June 30, 2010.
amount of $0.4 million. The letter of credit remained outstanding as of June 30, 2010 and is collateralized by a certificate of deposit which has been included in restricted cash in the consolidated balance sheets as of June 30, 2010 and
December 31, 2009. Under the terms of the Berkeley Lease, if the total amount of our cash, cash equivalents and marketable securities falls below $20.0 million for a period of more than 30 consecutive days during the lease term, the amount of
Düsseldorf Lease in the amount of $0.2 million. The letter of credit remained outstanding as of June 30, 2010 and is collateralized by a certificate of deposit which has been included in restricted cash in the consolidated balance sheet as
We do not have any off-balance sheet arrangements as defined by rules enacted by the SEC and accordingly, no such arrangements are likely
to have a current or future effect on our financial position.
A variable interest entity (VIE) is (i) an
entity that has equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or (ii) an entity that has equity investors that cannot make significant decisions about the
entitys operations or that do not absorb their proportionate share of the expected losses or do not receive the expected residual returns of the entity. A VIE is required to be consolidated by the party that is deemed to be the primary
beneficiary, which is the party that has exposure to a majority of the potential variability in the VIEs outcomes. Significant management judgment is required in the determination of an entity being considered a VIE.
Prior to our acquisition of SDI on December 30, 2009, we considered SDI to be a VIE, and as such it was included in our financial
statements through December 30, 2009, the date we acquired all the outstanding equity in SDI. We considered SDI to be a VIE because we had a variable interest, the Purchase Option, to acquire its outstanding voting stock at prices that were
fixed upon entry into the arrangement with the specific price based upon the date the Purchase Option was exercised. The fixed nature of the Purchase Option price limits Symphonys returns, as the investor in SDI. Our financing arrangement with
SDI does not qualify as an off-balance sheet arrangement as defined by applicable SEC regulations.
The primary objective of our investment activities is to preserve principal while at the same time maximize the income we receive from our
investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this
risk, we maintain our portfolio of cash equivalents and investments in a variety of securities, including money market funds, government agency securities and corporate obligations, some of which are government-secured. We do not invest in auction
rate securities or securities collateralized by home mortgages, mortgage bank debt, or home equity loans. Because of the short-term maturities of our cash equivalents, we do not believe that an increase in market rates would have any significant
negative impact on the realized value of our investments.
We do not use derivative financial
instruments in our investment portfolio. Due to the short duration and conservative nature of our cash equivalents, we do not expect any material loss with respect to our investment portfolio.
. We have certain investments outside the United States for the operations of Dynavax Europe and have some
exposure to foreign exchange rate fluctuations. The cumulative translation adjustment reported in the consolidated balance sheet as of June 30, 2010 was negative $1.2 million primarily related to translation of Dynavax Europe activities from
Euro to U.S. dollars.
The Companys management, under the supervision and with the participation of the Companys Chief Executive Officer
(CEO) and Vice President (VP), Finance, our principal financial officer, performed an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, the CEO and VP, Finance concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
as of the end of period covered by this report are effective.
statements in this Quarterly Report on Form 10-Q are forward-looking statements concerning our future products, timing of development activities, regulatory strategies, expenses, revenues, liquidity and cash needs, as well as our plans and
strategies. These forward-looking statements are based on current expectations and we assume no obligation to update this information. Numerous factors could cause our actual results to differ significantly from the results described in these
forward-looking statements, including the following risk factors.
We have incurred substantial losses since
inception and do not have any commercial products that generate revenue.
We have experienced significant net losses in
each year since our inception. Our accumulated deficit was $296.8 million as of June 30, 2010. To date, our revenue has resulted from collaboration agreements, services and license fees from customers of Dynavax Europe, and government and
private agency grants. The grants are subject to annual review based on the achievement of milestones and other factors. We anticipate that we will incur substantial additional net losses for the foreseeable future as the result of our investment in
We do not have any products that generate revenue. There can be no assurance whether
HEPLISAV can be further developed, financed or commercialized in a timely manner without significant additional studies or patient data or significant expense; whether our future development efforts will be sufficient to support product approval; or
whether the market for HEPLISAV will be substantial enough for us to reach profitability.
Clinical trials for certain of our
other product candidates are ongoing. These and our other product candidates may never be commercialized, and we may never achieve profitability. Our ability to generate revenue depends upon:
demonstrating in clinical trials that our product candidates are safe and effective, in particular, in the current and planned trials for our product
planned operations, enter into a transaction that constitutes a change in control of the company, or raise additional capital on less than favorable terms. Additionally, if we continue to incur substantial additional net losses without additional
equity funding, we will continue to deplete our stockholders equity; and if such equity balance falls below the listing requirement threshold of $2.0 million for the NASDAQ Capital Market, we may be delisted. In November 2008, we transferred
our listing of Dynavax shares to The NASDAQ Capital Market from The NASDAQ Global Market.
Notwithstanding our completion of an
underwritten offering in April 2010, in order to continue development of our product candidates, particularly HEPLISAV, we still need to raise significant additional funds through future public or private financings and/or strategic alliance and
licensing arrangements. We expect to continue to spend substantial funds in connection with:
needs through the next 12 months based on cash and cash equivalents on hand at June 30, 2010 and anticipated revenues.
Sufficient funding may not be available, or if available, may be on terms that significantly dilute or otherwise adversely affect the
rights of existing shareholders. If adequate funds are not available in the future, we would need to delay, reduce the scope of, or put on hold the HEPLISAV program, and potentially our other development programs while we seek strategic
alternatives. In any event, we may be required to reduce costs and expenses within our control, including potentially significant personnel-related costs and other expenditures that are part of our current operations.
Our independent registered public accountants have indicated that our financial condition raises substantial doubt as to our
Our independent registered public accounting firm has included in their audit
opinion on our consolidated financial statements for the year ended December 31, 2009 a statement with respect to substantial doubt regarding our ability to continue as a going concern. Our consolidated financial statements have been prepared
assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. If we became unable to continue as a going concern, we may have to
liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our consolidated financial statements. The reaction of investors to the inclusion of a going
concern statement by our independent auditors may materially adversely affect our share price and our ability to raise new capital or to enter into strategic alliances.
The success of our product candidates depends on timely achievement of successful clinical results and regulatory approval. Failure
None of our product candidates have been
approved for sale. Any product candidate we develop is subject to extensive regulation by federal, state and local governmental authorities in the United States, including the U.S. Food and Drug Administration (FDA), and by foreign
regulatory agencies. Our success is primarily dependent on our ability to timely enroll patients in clinical trials, achieve successful clinical results and obtain regulatory approvals for our most advanced product candidates. Approval processes in
the United States. and in other countries are uncertain, take many years and require the expenditure of substantial resources.
We will need to demonstrate in clinical trials that a product candidate is safe and effective before we can obtain the necessary
approvals from the FDA and foreign regulatory agencies. If we identify any safety issues associated with our product candidates, we may be restricted from initiating further trials for those products. Moreover, we may not see sufficient signs of
efficacy in those studies. The FDA or foreign regulatory agencies may require us to conduct additional clinical trials prior to approval. Despite the time and money expended, regulatory approvals are uncertain. In addition, failure to timely and
successfully complete clinical trials and show that our products are safe and effective would have a material adverse effect on our business and results of operations. Even if approved, the labeling of the product may significantly limit the
commercial opportunity for such product.
Our clinical trials may be extended, suspended, delayed or terminated at any
time. Even short delays in the commencement and progress of our trials may lead to substantial delays in the regulatory approval process for our product candidates, which will impair our ability to generate revenues.
regulatory agencies, actions by institutional review boards, failure to comply with good clinical practice requirements, concerns regarding health risks to test subjects, failure to enroll patients in a timely manner, or delays due to inadequate
supply of the product candidate. Even a short delay in a trial for any product candidate could require us to delay commencement or continuation of a trial until the target population is available for testing, which could result in a delay of a year
Our registration and commercial timelines depend on successful completion of current and planned clinical trials,
successful results from such trials, and further discussions with the FDA and corresponding foreign regulatory agencies. Any extension, suspension, modification, termination or unanticipated delays of our clinical trials could:
If we receive regulatory approval for our product candidates, we will be subject to ongoing FDA and foreign regulatory obligations
and continued regulatory review.
Any regulatory approvals that we receive for our product candidates are likely to
contain requirements for post-marketing follow-up studies, which may be costly. Product approvals, once granted, may be modified based on data from subsequent studies or long-term use. As a result, limitations on labeling indications or marketing
claims, or withdrawal from the market may be required if problems occur after commercialization.
In addition, we or our
contract manufacturers will be required to adhere to federal regulations setting forth current good manufacturing practice. The regulations require that our product candidates be manufactured and our records maintained in a prescribed manner with
respect to manufacturing, testing and quality control activities. Furthermore, we or our contract manufacturers will be subject to periodic inspection by the FDA and corresponding foreign regulatory agencies under reciprocal agreements with the FDA.
Further, to the extent that we contract with third parties for the manufacture of our products, our ability to control third-party compliance with FDA requirements will be limited to contractual remedies and rights of inspection.
Our most advanced product candidate and most of our earlier stage programs rely on ISS-based technology. Serious adverse safety
data relating to either 1018 ISS or other ISS-based technology may require us to reduce the scope of or discontinue our operations.
Our most advanced product candidate in clinical trials is based on our 1018 ISS compound, and most of our research and development
programs use ISS-based technology. If any of our product candidates in clinical trials produce serious adverse safety data, we may be required to delay, discontinue or modify our clinical trials or our clinical trial strategy. For example, from
March 2008 until September 2009, the two investigational new drug (IND) applications for HEPLISAV were placed on clinical hold by the FDA following a serious adverse event that occurred in one of our clinical trials. In September 2009,
the FDA removed the clinical hold on the IND application for individuals with chronic kidney disease but the other IND application for HEPLISAV remains on clinical hold. In addition, most of our clinical product candidates contain ISS, and a common
safety risk across therapeutic areas may hinder our ability to enter into potential collaborations and if adverse safety data are found to apply to our ISS-based technology as a whole, we may be required to significantly reduce or discontinue our
We rely on our facility in Düsseldorf, Germany and third parties to supply materials necessary to
manufacture our clinical product candidates for our clinical trials. If we reduce our clinical product candidates, we may not require this manufacturing capacity. We have limited experience in manufacturing our product candidates in commercial
quantities. Failure to comply with applicable regulatory requirements or loss of these suppliers or key employees in Düsseldorf, or failure to timely replace them may delay our clinical trials and research and development efforts and may result
in additional costs, delays or significantly higher costs in manufacturing our product candidates.
facility in Düsseldorf and a number of third parties for the multiple steps involved in the manufacturing process of our product candidates, including, for example, ISS, a key component material that is necessary for our product candidates, the
production of certain antigens, the combination of the antigens and ISS, and the fill and finish. Termination or interruption of these relationships may occur due to circumstances that are outside of our control, resulting in higher cost or delays
in our product development efforts.
We and these third parties are required to comply with applicable current good
manufacturing practice regulations and other international regulatory requirements. If one of these parties fails to maintain compliance with these regulations, the production of our product candidates could be interrupted, resulting in delays and
additional costs. Additionally, these third parties and our manufacturing facility must undergo a pre-approval inspection before we can obtain marketing authorization for any of our product candidates.
We have limited experience in manufacturing sufficient quantities of ISS for our
clinical trials and rely on limited third parties to produce the ISS we need for our clinical trials.
on a limited number of suppliers to produce ISS for clinical trials and a single supplier to produce our 1018 ISS for HEPLISAV. To date, we have manufactured only small quantities of ISS and 1018 ISS ourselves for research purposes. If we were
unable to maintain or replace our existing source for 1018 ISS, we would have to establish an alternate qualified manufacturing capability which would result in significant additional operating costs and delays in developing and commercializing our
product candidates, particularly HEPLISAV. We or other third parties may not be able to produce 1018 ISS at a cost, quantity and quality that are available from our current third-party supplier.
We currently utilize our facility in Düsseldorf to manufacture the hepatitis B surface antigen for HEPLISAV. The commercial
manufacturing of vaccines and other biological products is a time-consuming and complex process, which must be performed in compliance with current good manufacturing practices regulations. We may not be able to comply with these and comparable
foreign regulations, and our manufacturing process may be subject to delays, disruptions or quality control problems. Noncompliance with these regulations or other problems with our manufacturing process may limit or delay the development or
commercialization of our product candidates and could result in significant expense.
If HEPLISAV cannot be successfully
developed or is not commercially viable, we will have to use the Düsseldorf facility for alternative manufacturing or research activities that may not fully utilize the facilitys capacity, resulting in continued operating costs that may
not be offset by corresponding revenues. We may also consider other alternatives for the Düsseldorf facility, including its sale or closure which would result in certain costs of disposal or discontinuation of operations. Discontinuation of
operations in Düsseldorf would be complex, expensive, time-consuming and difficult to execute without significant additional costs due to among other things, international legal and tax considerations related to those operations. As a result,
we may not realize cost savings associated with closure of the Düsseldorf operations in a reasonable time frame, if at all.
deadlines our planned clinical trials may be extended, delayed, modified or terminated. Any extension, delay, modification or termination of our clinical trials could delay or otherwise adversely affect our ability to commercialize our products and
could have a material adverse effect on our business and operations.
If any products we develop are not accepted by the
market or if regulatory agencies limit our labeling indications or marketing claims, we may be unable to generate significant revenues, if any.
acceptance among physicians, patients, health care payors and the medical community.
The degree of market acceptance of any
of our approved products will depend upon a number of factors, including:
The FDA or other regulatory agencies could limit the labeling indication for which our product candidates may be marketed or could
otherwise limit marketing efforts for our products. For example, in connection with the removal of the clinical hold on HEPLISAV in September 2009 and related discussions with the FDA, it is expected that, further development of HEPLISAV in the U.S.
initially will be limited to individuals who are less responsive to current licensed vaccines, including adults over 40 years of age and individuals with chronic kidney disease. If we are unable to successfully market any approved product
candidates, or marketing efforts are restricted by regulatory limits, our ability to generate revenues could be significantly impaired.
commercialize and fund development of our product candidates. We may not succeed in establishing and maintaining collaborative relationships, which may significantly limit our ability to develop and commercialize our products successfully, if at
distribution capabilities for our product candidates, in particular with respect to the commercialization of HEPLISAV. Failure to obtain a collaborative relationship for HEPLISAV, particularly in the European Union, may significantly impair the
potential for this product and our ability to successfully develop, manufacture and commercialize this as a product candidate. We also will need to enter into collaborative relationships to provide funding to support our research and development
programs. The process of establishing and maintaining collaborative relationships is difficult, time-consuming and involves significant uncertainty, including:
change of control or other reasons;
our contracts for collaborative arrangements are terminable for convenience on written notice and may otherwise expire or terminate and we may not have
efficacy of our drug candidates, obtain regulatory approvals and achieve market acceptance of products developed from our drug candidates;
If any collaborator fails to fulfill its responsibilities in a timely manner, or at all, our research, clinical development or
commercialization efforts related to that collaboration could be delayed or terminated, or it may be necessary for us to assume responsibility for expenses or activities that would otherwise have been the responsibility of our collaborator. If we
are unable to establish and maintain collaborative relationships on acceptable terms or to successfully transition terminated collaborative agreements, we may have to delay or discontinue further development of one or more of our product candidates,
undertake development and commercialization activities at our own expense or find alternative sources of capital.
financial terms of future collaborative or licensing or financing arrangements could result in significant dilution of our share value.
the issuance of warrants as additional consideration in establishing the purchase price of the equity securities issued. Any such issuance could result in significant dilution in the value of our issued and outstanding shares.
therapies to prevent or treat infectious diseases, asthma and inflammatory and autoimmune diseases. Competitors may develop more effective, more affordable or more convenient products or may achieve earlier patent protection or commercialization of
their products. These competitive products may render our product candidates obsolete or limit our ability to generate revenues from our product candidates. Many of the companies developing
competing technologies and products have significantly greater financial resources and expertise in research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and marketing than we do.
Existing and potential competitors may also compete with us for qualified scientific and management personnel, as well as for technology
that would be advantageous to our business. If we are unable to compete successfully, we may not be able to obtain financing, enter into collaborative arrangements, sell our product candidates or generate revenues.
The loss of key personnel, including our Chief Executive Officer and our President, could delay or prevent achieving our
Our research, product development and business efforts could be adversely affected by the loss of one or
more key members of our scientific or management staff, including our Chief Executive Officer, Dr. Dino Dina, and Dr. Tyler Martin, who was recently appointed President of the Company. We currently have no key person insurance on any of
Because we are a relatively small biopharmaceutical company with limited resources, we may not be able
to attract and retain qualified personnel.
Our success in developing marketable products and achieving a competitive
position will depend, in part, on our ability to attract and retain qualified scientific and management personnel, particularly in areas requiring specific technical, scientific or medical expertise. There is intense competition for the services of
these personnel. If we do not succeed in attracting new personnel and retaining and motivating existing personnel, our operations may suffer and we may be unable to implement our current initiatives.
We may introduce certain of our product candidates in various markets outside the U.S. Developing, seeking regulatory approval for and
marketing our product candidates outside the U.S. could impose substantial burdens on our resources and divert managements attention from domestic operations. International operations are subject to risk, including:
To date, we have not filed for marketing approval for any of our product candidates outside the U.S. We may not obtain foreign regulatory
approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory agencies in other foreign countries. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on
the regulatory approval process in other jurisdictions, including approval by the FDA. If we are unable to successfully manage our international operations, we may incur significant unanticipated costs and delays in regulatory approval or
commercialization of our product candidates, which would impair our ability to generate revenues.
We rely on licenses
to intellectual property from third parties. Impairment of these licenses or our inability to maintain them would severely harm our business.
Our current research and development efforts depend upon our license arrangements for intellectual property owned by third parties. Our
dependence on these licenses subjects us to numerous risks, such as disputes regarding the use of the licensed intellectual property and the creation and ownership of new discoveries under such license agreements. In addition, these license
require us to make timely payments in order to maintain our licenses and typically contain diligence or milestone-based termination provisions. Our failure to meet any obligations pursuant to
these agreements could allow our licensors to terminate our agreements or undertake other remedies such as converting exclusive to non-exclusive licenses if we are not able to cure or obtain waivers for such failures or amend the term of such
agreements on terms acceptable to us. In addition, our license agreements may be terminated or may expire by their terms, and we may not be able to maintain the exclusivity of these licenses. If we cannot maintain licenses that are advantageous or
proprietary rights, including a challenge as to the validity of our issued and pending claims. We are involved in various interference and other administrative proceedings related to our intellectual property which has caused us to incur certain
legal expenses. If we become involved in any litigation and/or other significant interference proceedings related to our intellectual property or the intellectual property of others, we will incur substantial additional expenses and it will divert
the efforts of our technical and management personnel.
Two of our potential competitors, Merck, and GSK, are exclusive
licensees of broad patents covering hepatitis B surface antigen, a component of HEPLISAV. In addition, the Institut Pasteur also owns or has exclusive licenses to patents covering hepatitis B surface antigen. While some of these patents have expired
or will soon expire outside the U.S., they remain in force in the U.S. To the extent we are able to commercialize HEPLISAV in the U.S. while these patents remain in force, Merck, GSK or the Institut Pasteur may bring claims against us.
If we or our collaborators are unsuccessful in defending or prosecuting our issued and pending claims or in defending potential claims
against our products, for example, as may arise in the commercialization of HEPLISAV or any similar product candidate in the U.S., we or our collaborator could be required to pay substantial damages or be unable to commercialize our product
candidates or use our proprietary technologies without a license from such third party. A license may require the payment of substantial fees or royalties, require a grant of a cross-license to our technology or may not be available on acceptable
terms, if at all. Any of these outcomes could require us to change our business strategy and could materially impact our business and operations.
One of our potential competitors, Pfizer Inc. (Pfizer), has issued patent claims, as well as patent claims pending with the
U.S. Patent and Trademark Office and foreign patent offices, that may be asserted against our ISS products. We may need to obtain a license to one or more of these patent claims held by Pfizer by paying fees or royalties or offering rights to our
own proprietary technologies in order to commercialize one or more of our formulations of ISS in other than with respect to HEPLISAV, for which we have a license. A license for other uses may not be available to us on acceptable terms, if at all,
which could preclude or limit our ability to commercialize our products.
If the combination of patents, trade secrets
and contractual provisions that we rely on to protect our intellectual property is inadequate, the value of our product candidates will decrease.
on existing patents held by third parties, which may only allow us to obtain relatively narrow patent protection. In the U.S., legal standards relating to the validity and scope of patent claims in the biopharmaceutical field can be highly
The biopharmaceutical patent environment outside the U.S. is even more uncertain. We may be
particularly affected by this uncertainty since several of our product candidates may initially address market opportunities outside the U.S., where we may only be able to obtain limited patent protection.
We face product liability exposure, which, if not covered by insurance,
could result in significant financial liability.
While we have not experienced any product liability claims to date,
the use of any of our product candidates in clinical trials and the sale of any approved products will subject us to potential product liability claims and may raise questions about a products safety and efficacy. As a result, we could
experience a delay in our ability to commercialize one or more of our product candidates or reduced sales of any approved product candidates. In addition, a product liability claim may exceed the limits of our insurance policies and exhaust our
internal resources. We have obtained limited clinical trial liability and umbrella insurance coverage for our clinical trials. This coverage may not be adequate or may not continue to be available in sufficient amounts, at an acceptable cost or at
all. We also may not be able to obtain commercially reasonable product liability insurance for any product approved for marketing in the future. A product liability claim, product recalls or other claims, as well as any claims for uninsured
liabilities or in excess of insured liabilities, would divert our managements attention from our business and could result in significant financial liability.
We face uncertainty related to coverage, pricing and reimbursement and the practices of third party payors, which may make it
markets, our ability to achieve profitability will depend in part on the negotiation of a favorable price or the availability of appropriate reimbursement from third party payors, in particular for HEPLISAV where existing products are approved for
our target indications. Existing laws affecting the pricing and coverage of pharmaceuticals and other medical products by government programs and other third party payors may change before any of our product candidates are approved for marketing. In
addition, third party payors are increasingly challenging the price and cost-effectiveness of medical products and services, and pricing and reimbursement decisions may not allow our products to compete effectively with existing or competitive
products. Because we intend to offer products, if approved, that involve new technologies and new approaches to treating disease, the willingness of third party payors to reimburse for our products is particularly uncertain. We will have to charge a
price for our products that is sufficiently high to enable us to recover our considerable investment in product development. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to achieve
profitability and could harm our future prospects and reduce our stock price.
The President of the United States recently signed into law the Health Care and Education
Reconciliation Act of 2010. We are unable to predict what impact reform legislation will have on our business or future prospects and the uncertainty as to the nature and scope of the implementation of any proposed reforms limits our ability to
forecast changes that may affect our business and to manage our business accordingly.
We use hazardous materials in our
business. Any claims or liabilities relating to improper handling, storage or disposal of these materials could be time consuming and costly to resolve.
and biological waste. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and certain waste products. We are currently in compliance with all government
permits that are required for the storage, use and disposal of these materials. However, we cannot eliminate the risk of accidental contamination or injury to persons or property from these materials. In the event of an accident related to hazardous
materials, we could be held liable for damages, cleanup costs or penalized with fines, and this liability could exceed the limits of our insurance policies and exhaust our internal resources. We may have to incur significant costs to comply with
future environmental laws and regulations.
Our stock price is subject to volatility, and your investment may suffer a
likely to continue in the future to be, very volatile. The market price of our common stock is subject to substantial volatility depending upon many factors, many of which are beyond our control, including:
One or more of these factors could cause a substantial decline in the price of our common stock. In addition, securities class action
litigation has often been brought against a company following a decline in the market price of its securities. This risk may be particularly relevant for us because we have experienced greater than average stock price volatility, as have other
biotechnology companies in recent years. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs, and divert managements attention and resources, which could harm our business,
The anti-takeover provisions of our certificate of incorporation, bylaws, Delaware law
and our share purchase rights plan may prevent or frustrate a change in control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or
Provisions of our certificate of incorporation and bylaws may delay or prevent a change
in control, discourage bids at a premium over the market price of our common stock and adversely affect the market price of our common stock and the voting or other rights of the holders of our common stock. These provisions include:
We may need to implement additional financial and accounting systems,
procedures or controls as our business and organization changes and to comply with reporting requirements.
required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404), and other requirements may increase our costs
and require additional management resources. We may need to continue to implement additional finance and accounting systems, procedures and controls in order to accommodate changes in our business and organization and to comply with new reporting
requirements. There can be no assurance that we will be able to maintain a favorable assessment as to the adequacy of our internal control over financial reporting. If we are unable to reach an unqualified assessment, or our independent registered
public accounting firm is unable to issue an unqualified attestation as to the effectiveness of our internal control over financial reporting as of the end of our fiscal year, investors could lose confidence in the reliability of our financial
reporting which could harm our business and could impact the price of our common stock.
stock or the perception that such sales may occur in the public market could cause our stock price to fall.
substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional
equity securities. As of June 30, 2010, we had 86,576,666 shares of common stock outstanding, all of which shares were eligible for sale in the public market, subject in some cases to the volume limitations and manner of sale requirements under
In addition, we have filed registration statements on Form S-8 under the Securities Act of 1933, as amended (the
Securities Act), to register the shares of our common stock reserved for issuance under our stock option plans, and intend to file additional registration statements on Form S-8 to register the shares automatically added each year to the
share reserves under these plans.
Symphony Capital Partners, L.P. and Symphony Strategic Partners, LLC collectively
control a substantial percentage of the voting power of our outstanding common stock as well as $15 million of our debt.
Symphony Capital Partners, L.P. and Symphony Strategic Partners, LLC (collectively, Symphony) currently collectively control
approximately 9,031,431 shares of our common stock and warrants to purchase approximately 4,515,717 shares of our common stock. Based on the number of shares of our common stock that are outstanding following our recent public offering which
closed on April 2010, Symphony owns approximately 11% of our total outstanding shares of our common stock. If Symphony exercises all of the warrants held by it and assuming no other issuances of
our common stock, based on the number of shares of common stock that will be outstanding following our recent public offering, Symphony would own approximately 15% of our total outstanding shares of common stock. In addition, Symphony Dynamo
Holdings LLC (Holdings), an affiliate of Symphony holds a promissory note in the principal amount of $15 million, which may be satisfied in cash, Dynavax common stock or a combination of cash and Dynavax common stock, at our election.
Finally, under the terms of the Standstill and Corporate Governance Letter Agreement we entered into with Holdings on December 30, 2009, for as long as Holdings and its affiliates, which include Symphony, beneficially own 10% or more of our
outstanding common stock, we agreed to use our commercially reasonable efforts to cause to be elected and remain as directors on our Board of Directors one individual designated by Holdings and a second individual who shall be an independent third
party designated by Holdings and reasonably acceptable to us. Holdings designated Mark Kessel, a partner of Symphony Capital LLC, as its designee and Mr. Kessel has been appointed to our Board of Directors. On July 22, 2010, the Board of
Directors nominated Daniel L. Kisner, M.D. to the Board of Directors as the independent third party designee. As a result, Symphony, Holdings and their affiliates will be able to exercise substantial influence over the direction of the Company.
Sales of our common stock from our recent public offering could trigger a limitation on our ability to use our net
operating losses and tax credits in the future.
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. Any additional
equity issuances could trigger a limitation on our ability to use our net operating losses and tax credits in the future under Sections 382 and 383 of the Internal Revenue Code as enacted by the Tax Reform Act of 1986.
Rights Agreement dated as of November 5, 2008, by and between the Company and Mellon Investor Services LLC
Settlement Agreement, dated as of March 12, 2010 between Dynavax Technologies Corporation and Merck Sharp & Dohme Corp. f/k/a Merck & Co., Inc.
Underwriting Agreement, dated April 12, 2010, between Dynavax Technologies Corporation and Wedbush Securities Inc.
Incorporated by reference from such document filed with the SEC as an exhibit to Dynavaxs Amendment No. 4 to Registration Statement on Form S-1/A, as filed
with the SEC on February 5, 2004 (Commission File No. 000-50577).
Incorporated by reference from such document filed with the SEC as an exhibit to Dynavaxs Current Report on Form 8-K, as filed with the SEC on November 6,
Incorporated by reference from such document filed with the SEC as an exhibit to Dynavaxs Current Report on Form 8-K, as filed with the SEC on January 4,
Incorporated by reference from such document filed with the SEC as an exhibit to Dynavaxs Annual Report on Form 10-K for the year ended December 31, 2008, as
filed with the SEC on March 6, 2009.
Incorporated by reference from such document filed with the SEC as an exhibit to Dynavaxs Annual Report on Form 10-K for the year ended December 31, 2009, as
filed with the SEC on March 16, 2010.
Incorporated by reference from such document filed with the SEC as an exhibit to Dynavaxs Current Report on Form 8-K, as filed with the SEC on April 13,
Incorporated by reference from such document filed with the SEC as an exhibit to Dynavaxs Current Report on Form 8-K, as filed with the SEC on March 16,
be signed on its behalf by the undersigned, thereunto due authorized, in the City of Berkeley, State of California.
M.D. Dino Dina, M.D.
EW Jennifer Lew
I, Dino Dina, M.D., certify
Vice President, Finance (Principal Accounting and Financial Officer)
I, Dino Dina, M.D., hereby certify, pursuant to 18 U.S.C § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, in my capacity
as an officer of Dynavax Technologies Corporation (the Company), that, to the best of my knowledge:
The Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the
U.S.C. § 1350, as adopted) has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (SEC) or its staff upon request. This certification accompanies the
Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the
Form 10-Q), irrespective of any general incorporation language contained in such filing.
I, Jennifer Lew, hereby certify, pursuant to 18 U.S.C § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, in my capacity as
an officer of Dynavax Technologies Corporation (the Company), that, to the best of my knowledge: