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DVAX > SEC Filings for DVAX > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for DYNAVAX TECHNOLOGIES CORP

Form 10-Q for DYNAVAX TECHNOLOGIES CORP


8-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve a number of risks and uncertainties. Our actual results could differ materially from those indicated by forward-looking statements as a result of various factors, including but not limited to, the period for which we estimate our cash resources are sufficient, the availability of additional funds, as well as those set forth under "Risk Factors" and those that may be identified from time to time in our reports and registration statements filed with the Securities and Exchange Commission.

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 for the year ended December 31, 2012.

Overview

Dynavax Technologies Corporation ("we," "our," "us," Dynavax" or the "Company"), a clinical-stage biopharmaceutical company that discovers and develops novel products to prevent and treat infectious and inflammatory diseases and cancer. Our lead product candidate is HEPLISAV™, a hepatitis B vaccine product candidate in Phase 3 development.

In addition to HEPLISAV, our pipeline comprises clinical-stage product candidates including an autoimmune program partnered with GlaxoSmithKline, an asthma program partnered with AstraZeneca AB and a cancer immunotherapy program as well as a preclinical development program utilizing nanoparticle adjuvant technology. We compete with pharmaceutical companies, biotechnology companies, academic institutions and research organizations in developing therapies to prevent or treat infectious and inflammatory diseases and cancer.

Recent Developments

Following discussions with the U.S. Food and Drug Administration ("FDA"), we recently finalized the design of a new clinical study of HEPLISAV. The study is intended to provide a sufficiently-sized safety database for the FDA to complete its review of Dynavax's Biologics License Application ("BLA"). It will be a Phase 3, observer-blinded, randomized, active-controlled, multicenter trial of the safety and immunogenicity of HEPLISAV compared with Engerix-B® in adults 18 to 70 years of age. The study will include 5,500 HEPLISAV subjects and 2,500 Engerix-B subjects, stratified by age and diabetes diagnosis. HEPLISAV subjects will receive two doses at 0 and 1 month, while Engerix-B subjects will receive three doses at 0, 1 and 6 months.

The primary objectives of the study will be: (1) to evaluate the overall safety of HEPLISAV with respect to clinically significant adverse events and (2) to demonstrate the noninferiority of the peak seroprotection rate ("SPR") induced by HEPLISAV versus Engerix-B in subjects with type 2 diabetes mellitus. All HEPLISAV subjects will be evaluated for safety for one year following the second dose and all potential autoimmune events will be adjudicated by a Safety Evaluation and Adjudication Committee. Immunogenicity assessments will be conducted in a subset of subjects, including those with type 2 diabetes. We intend to initiate this study in the first quarter of 2014 and conclude subject visits by the end of 2015 and estimate the external costs of the study to be in the range of $50-55 million.

In Europe, our Marketing Authorization Application for HEPLISAV is currently under review by the European Medicines Agency's ("EMA"). In late 2012, we received the 120-Day List of Questions which relate to Suitability of different patient populations, Safety database, Good Manufacturing Practices ("GMP") and Good Clinical Practices ("GCP") matters. In the early summer EMA added to the list of questions, resetting the clock for our response. EMA has also inspected several study sites, Dynavax and our clinical contract research organization. The focus of the GCP inspection was HBV-17, a 500 patient study in CKD patients that is part of the EMA application but not the US application. We are currently preparing our response to the 120-Day Questions and expect to submit the response before the end of 2013. EMA will consider our responses and in the first quarter of 2014 is expected to issue the 180-Day List of Outstanding Issues ("LOI"). We anticipate that the discussion regarding the patient group who would most likely benefit, and some of the GMP/GCP matters will need to be resolved following issuance of the 180-Day LOI.


Critical Accounting Policies and the Use of Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the related disclosures, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, research and development activities, stock-based compensation, asset impairment, contingencies and the valuation of certain liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that there have been no significant changes in our critical accounting policies during the nine months ended September 30, 2013, as compared with those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Results of Operations

Revenues

Revenues consist of amounts earned from collaborations, 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. Service and license fees include revenues related to research and development and contract manufacturing services, license fees and royalty payments.

The following is a summary of our revenues (in thousands, except for percentages):

                       Three Months Ended                    Increase (Decrease)                   Nine Months Ended                     Increase (Decrease)
                         September 30,                       from 2012  to 2013                      September 30,                        from 2012 to 2013
Revenues:           2013               2012                 $                   %               2013               2012                 $                   %
Collaboration
revenue          $     1,110        $     1,050        $         60                  6 %     $     3,349        $     3,602        $      (253 )                 (7 )%
Grant revenue          1,700              1,219                 481                 39 %           3,855              3,188        $       667                   21 %
Service and
license
revenue                  117                605                (488 )              (81 )%          1,200              1,118        $        82                    7 %
Total
revenues         $     2,927        $     2,874        $         53                  2 %     $     8,404        $     7,908        $       496                    6 %

Total revenues for the three months ended September 30, 2013 increased by $0.1 million, or 2%, as compared to the same quarter of 2012. Grant revenue increased by $0.5 million as compared to the same period in 2012 primarily due to our NIAID contract for adjuvant development. Service and license revenue for the third quarter of 2013 decreased by $0.5 million as compared to the same period in 2012 due to timing of royalties collected on licensed technology by Rhein Biotech GmbH ("Rhein" or "Dynavax Europe").

Total revenues for the nine months ended September 30, 2013 increased by $0.5 million, or 6%, as compared to the same period of 2012. Collaboration revenue for the first nine months of 2013 decreased as compared to the same period in 2012 due to the completion of certain research activities under our collaboration agreement with AstraZeneca. Grant revenue for the first nine months of 2013 increased as compared to the same period in 2012 due to activities under our NIAID contract for adjuvant development.

Research and Development Expense

Research and development expense consists primarily 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 and manufacturing of our product candidates. For the nine months ended September 30, 2013 and 2012, approximately 74% and 73%, respectively, of our total research and development expense, excluding non-cash stock-based compensation, is related to our lead product candidate, HEPLISAV. The remainder of our research and development expense results primarily from early-stage programs under collaborative research and development agreements.


The following is a summary of our research and development expense (in thousands, except for percentages):

                        Three Months Ended                    Increase (Decrease)                   Nine Months Ended                     Increase (Decrease)
                          September 30,                        from 2012 to 2013                      September 30,                        from 2012 to 2013
Research and
development
expense              2013               2012                 $                   %               2013               2012                 $                    %
Compensation
and related
personnel
costs             $     4,831        $     5,159        $       (328 )               (6 )%    $    15,780        $    15,075        $        705                   5 %
Outside
services                4,469              5,542              (1,073 )              (19 )%         15,193             15,049                 144                   1 %
Facility costs          1,469              1,325                 144                 11 %           4,415              3,942                 473                  12 %
Non-cash
stock-based
compensation            1,001                824                 177                 21 %           3,351              2,565                 786                  31 %
Total research
and
development
expense           $    11,770        $    12,850        $     (1,080 )               (8 )%    $    38,739        $    36,631        $      2,108                   6 %

Research and development expense for the three months ended September 30, 2013 decreased by $1.1 million, or 8%, as compared to the same period in 2012. Outside services decreased by $1.1 million primarily due to lower clinical trial expense. Facility costs increased by $0.1 million due to repairs and maintenance of our manufacturing facility and depreciation on recently purchased manufacturing equipment. Non-cash stock-based compensation costs increased by $0.2 million due to accelerated vesting of stock options related to management continuity and severance agreements with certain employees.

Research and development expense for the nine months ended September 30, 2013 increased by $2.1 million, or 6%, as compared to the same period in 2012. During the nine months ended September 30, 2013, we recorded $0.4 million of severance expense and $0.7 million of non-cash stock-based compensation expense for accelerated vesting of stock options related to management continuity and severance agreements with certain employees. Facility costs increased by $0.5 million due to repairs and maintenance of our manufacturing facility and depreciation on recently purchased manufacturing equipment.

General and Administrative Expense

General and administrative expense consists primarily of compensation and related personnel costs; outside services such as accounting, consulting, business development, investor relations and insurance services; legal costs that include corporate and patent-related expenses; allocated facility costs and non-cash stock-based compensation.

The following is a summary of our general and administrative expense (in thousands, except for percentages):

                        Three Months Ended                   Increase (Decrease)                   Nine Months Ended                    Increase (Decrease)
                          September 30,                       from 2012 to 2013                      September 30,                       from 2012 to 2013
General and
administrative
expense              2013               2012                 $                  %               2013               2012                 $                  %
Compensation
and related
personnel
costs             $     2,301        $     2,539        $       (238 )              (9 )%    $     9,080        $     6,842        $      2,238                33 %
Outside
services                  925              2,481              (1,556 )             (63 )%          3,302              6,137              (2,835 )             (46 )%
Legal costs               567                866                (299 )             (35 )%          1,895              1,750                 145                 8 %
Facility costs            170                156                  14                 9 %             470                413                  57                14 %
Non-cash
stock-based
compensation            1,844              1,079                 765                71 %           7,496              3,729               3,767               101 %
Total general
and
administrative
expense           $     5,807        $     7,121        $     (1,314 )             (18 )%    $    22,243        $    18,871        $      3,372                18 %

General and administrative expense for the three months ended September 30, 2013 decreased by $1.3 million, or 18%, as compared to the same period in 2012. Outside services decreased by $1.6 million compared to the same period in the prior year due to reduced marketing expenses. General corporate and patent related legal expenses decreased by $0.3 million compared to the same period in the prior year. During the three months ended September 30, 2013, we recorded $1.0 million of non-cash stock-based compensation expense for accelerated vesting of stock options related to management continuity and severance agreements with certain employees.


General and administrative expense for the nine months ended September 30, 2013 increased by $3.4 million, or 18%, as compared to the same period in 2012. During the nine months ended September 30, 2013, we recorded $2.9 million of severance expense and other one-time compensation costs as well as $4.6 million of non-cash stock-based compensation expense for accelerated vesting of stock options related to with the transition of our CEO and certain other employees and executive officers. Outside services decreased by $2.8 million compared to the same period in prior year due to reduced marketing expenses. General corporate and patent related legal expenses increased by $0.1 million compared to the same period in the prior year.

Interest Income, Interest Expense, and Other Expense

Interest income is reported net of amortization of premiums and discounts on marketable securities and realized gains and losses on investments. Interest expense in 2012 was related to the $15 million note payable issued to Symphony Dynamo Holdings LLC ("Holdings"), which was paid on December 31, 2012. Other expense includes gains and losses on foreign currency transactions as well as gains and losses on disposals of property and equipment. The following is a summary of our interest income and expense and other expense (in thousands, except for percentages):

                     Three Months Ended                 Increase (Decrease)                Nine Months Ended                Increase (Decrease)
                        September 30,                    from 2012 to 2013                   September 30,                   from 2012 to 2013
                    2013             2012              $                  %               2013            2012               $                %
Interest income  $       37        $      91       $      (54 )              (59 )%    $      163       $     208       $       (45 )            (22 )%
Interest expense $      (24 )      $    (589 )     $     (565 )              (96 )%    $      (83 )     $  (1,765 )     $    (1,682 )            (95 )%
Other expense    $     (120 )      $    (196 )     $      (76 )              (39 )%    $     (248 )     $    (255 )     $        (7 )             (3 )%

Interest income for the three and nine months ended September 30, 2013 decreased on a year over year basis due to lower average marketable securities balances.

Interest expense for the three and nine months ended September 30, 2013, decreased over the same periods in 2012 due to the interest recorded for the note payable to Holdings which was repaid on December 31, 2012.

Other expense for the three and nine months ended September 30, 2013 and 2012 primarily represents gains and losses on foreign currency transactions due to fluctuations in the value of the Euro compared to the U.S. dollar and withholding taxes paid in Europe.

Liquidity and Capital Resources

As of September 30, 2013, we had $76.5 million in cash, cash equivalents and marketable securities. Since our inception, we have relied primarily on the proceeds from public and private sales of our equity securities to fund our operations. Our funds are currently invested in short-term money market funds, U.S. government agency securities and U.S. treasury securities.

On October 30, 2013, we sold 79,570,000 shares of our common stock at a price of $1.075 per share and 43,430 shares of the Company's Series B Convertible Preferred Stock ("Series B") at a price of $1,075.00 in separate, concurrent underwritten public offerings. The sale of common stock and the Series B resulted in aggregate net proceeds to us of approximately $125 million after deducting estimated commissions and offering expenses.

On March 29, 2013, we entered into an At Market Issuance Sales Agreement (the "Agreement") with MLV & Co. LLC ("MLV") under which we may offer and sell our common stock having aggregate sales proceeds of up to $50,000,000 from time to time through MLV as our sales agent. Sales of our common stock through MLV, if any, will be made by means of ordinary brokers' transactions on The NASDAQ Capital Market or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise agreed upon by us and MLV. MLV will use commercially reasonable efforts to sell our common stock from time to time, based upon instructions from us (including any price, time or size limits or other customary parameters or conditions we may impose). We will pay MLV a commission of up to 3.0% of the gross sales proceeds of any common stock sold through MLV under the Agreement. No sales of our common stock have taken place under this Agreement as of September 30, 2013.


During the nine months ended September 30, 2013, we used $46.8 million of cash for our operations primarily due to our net loss of $53.7 million, of which $13.4 million consisted of non-cash charges such as stock-based compensation, depreciation and amortization, accretion and amortization on marketable securities and unoccupied facility expense. By comparison, during the nine months ended September 30, 2012, we used $36.2 million of cash for our operations primarily due to a net loss of $49.4 million, of which $9.8 million consisted of non-cash charges such as stock-based compensation, depreciation and amortization, accretion and amortization on marketable securities and non-cash interest on borrowings. Cash used in our operations for the first nine-months of 2013 increased by $10.6 million compared to cash used in our operations for the first nine-months of 2012, due primarily to a $4.3 million increase in our net loss, a $7.0 million change in accounts receivable due to collections in the first half of 2012 related to payments received from our collaborations with GSK and AstraZeneca and a $4.6 million increase in stock-based compensation expense.

During the nine months ended September 30, 2013, cash provided by investing activities was $51.2 million compared to $44.3 million of cash used in investing activities for the nine months ended September 30, 2012. Cash provided by investing activities during the first nine-months of 2013 included $52.5 million of net proceeds from maturities of marketable securities versus $42.5 million of net purchases of marketable securities during the first nine-months of 2012.

During the nine months ended September 30, 2013, cash provided by financing activities was $0.1 million, compared to $73.2 million for the same period in 2012. Cash provided by financing activities in the first nine-months of 2012 included the sale of 17,500,000 shares of common stock in a public offering for net proceeds of $69.6 million as well as proceeds from stock option and warrant exercises of $3.3 million.

We currently estimate that we have sufficient cash resources to meet our anticipated cash needs through at least the next 12 months based on cash and cash equivalents and marketable securities on hand as of September 30, 2013, and anticipated revenues and funding from existing agreements. We expect to continue to spend substantial funds in connection with the 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, including HEPLISAV, and depending upon the cost and timing of an additional clinical study for HEPLISAV, we may need to raise additional funds. This may occur through strategic alliance and licensing arrangements and/or future public or private financings. Sufficient funding may not be available, or if available, may be on terms that significantly dilute or otherwise adversely affect the rights of existing stockholders. If adequate funds are not available in the future, we may need to delay, reduce the scope of or put on hold the HEPLISAV program or other development programs while we seek strategic alternatives.

Contractual Obligations

The following summarizes our significant contractual obligations as of
September 30, 2013, and the effect those obligations are expected to have on our
liquidity and cash flow in future periods (in thousands):





Contractual                                                                                  2018 and
Obligations:      Total             2013            2014-2015           2016-2017           Thereafter
Future
minimum
payments
under our
operating
leases           $ 13,543         $    559         $     4,495         $     4,695         $      3,794

We lease our facilities in Berkeley, California ("Berkeley Lease") and Düsseldorf, Germany ("Düsseldorf Lease") under operating leases that expire in June 2018 and March 2023, respectively.

During September 2013, we decided not to occupy a portion of our facility in Berkeley, California. As a result, we recorded a one-time estimated unoccupied facility expense of $0.9 million for the three and nine months ended September 30, 2013, representing the present value of the rent payments and other costs associated with the lease, net of estimated sublease income, for the remaining life of the operating lease.

In addition to the non-cancelable commitments included above, we have entered into contractual arrangements that obligate us to make payments to the contractual counterparties upon the occurrence of future events. Also, in the normal course of operations, we have entered into license and other agreements and intend to continue to seek additional rights relating to compounds or technologies in connection with our discovery, manufacturing and development programs. Under the terms of the agreements, we may be required to pay future upfront fees, milestones, royalties on net sales of products originating from the licensed technologies or other payments contingent upon the occurrence of an event that cannot reasonably be estimated.


We rely on research institutions, contract research organizations, clinical investigators as well as clinical and commercial material manufacturers of our product candidates. As of September 30, 2013, under the terms of our agreements, we are obligated to make future payments as services are provided of approximately $6.3 million through 2015. These agreements are terminable by us upon written notice. Generally, we are liable only for actual effort expended by the organizations at any point in time during the contract through the notice period.

Under the terms of our exclusive license agreements with The Regents of the University of California, as amended, for certain technology 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 certain products, if any, originating from the licensed technologies.

Off-balance Sheet Arrangements

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.

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