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DVAX > SEC Filings for DVAX > Form 10-Q on 5-May-2014All Recent SEC Filings

Show all filings for DYNAVAX TECHNOLOGIES CORP

Form 10-Q for DYNAVAX TECHNOLOGIES CORP


5-May-2014

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, clinical development timing and progress and ability to enter into strategic and licensing arrangements, 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, 2013.

Overview

Dynavax Technologies Corporation ("we," "our," "us," "Dynavax" or the "Company"), a clinical-stage biopharmaceutical company, develops products to prevent and treat infectious and inflammatory diseases and cancer based on Toll-like Receptor ("TLR") biology and its ability to modulate the innate immune system. Our lead product candidate is HEPLISAV-BTM (also known as "HEPLISAV"), an investigational adult hepatitis B vaccine in Phase 3 clinical development. HEPLISAV-B combines our proprietary TLR 9 agonist adjuvant and hepatitis B surface antigen ("HBsAg") to elicit an immune response after two doses. In April of 2014 we initiated a Phase 3 study of HEPLISAV-B designed to provide a sufficiently-sized safety database for the U.S. Food and Drug Administration ("FDA") to complete its review of Dynavax's Biologics License Application ("BLA").

In addition to HEPLISAV-B, we are conducting clinical and preclinical programs that utilize our expertise in TLR biology. Our product candidates include both TLR agonists and TLR inhibitors. Our clinical stage programs include our autoimmune program partnered with GlaxoSmithKline ("GSK"), our asthma therapeutic program partnered with AstraZeneca AB ("AstraZeneca"), and our cancer immunotherapy program. We also are advancing preclinical development programs in adjuvant technology and TLR 7, 8, and 9 inhibition. 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.

Our revenues consist of amounts earned from collaborations, grants and fees from services and licenses. Product revenue will depend on our ability to receive regulatory approvals for, and successfully market, our drug candidates. We have yet to generate any revenues from product sales and have recorded an accumulated deficit of $516.1 million at March 31, 2014. These losses have resulted principally from costs incurred in connection with research and development activities, compensation and other related personnel costs and general corporate expenses. Research and development activities include costs of outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services. Salaries and other personnel-related costs include non-cash stock-based compensation associated with options and other equity awards granted to employees. General corporate expenses include outside services such as accounting, consulting, business development, investor relations, insurance services and legal costs. Our operating results may fluctuate substantially from period to period principally as a result of the timing of preclinical activities and other activities related to clinical trials for our drug candidates.

As of March 31, 2014, we had $177.7 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 and revenues from collaboration agreements to fund our operations. We expect to continue to spend substantial funds in connection with the development and manufacturing of our product candidates, particularly HEPLISAV-B, human clinical trials for our product candidates and additional applications and advancement of our technology. In order to continue these activities, we may need to raise additional funds. This may occur through strategic alliance and licensing arrangements and/or future public or private financings. If adequate funds are not available in the future, we may need to delay, reduce the scope of or put on hold the HEPLISAV-B program or other development programs while we seek strategic alternatives.


Recent Developments

On April 15, 2014, we announced the initiation of a new Phase 3 clinical trial of HEPLISAV-B (known as HBV-23). This safety and immunogenicity study was designed to address the Complete Response Letter regarding the HEPLISAV-B Biologics License Application that was issued to Dynavax by the U.S. Food and Drug Administration in February, 2013. This study is intended to significantly increase the number of vaccinated subjects and provide a sufficiently-sized safety database for the FDA to make a final determination regarding the safety and immunogenicity of the product. The study is a Phase 3, observer-blinded, randomized, active-controlled, multicenter trial at approximately 40 sites in the U.S. Approximately 8,250 adult subjects between the ages of 18 and 70 will be randomized in a 2:1 ratio to receive a 2-dose series of HEPLISAV-B or a 3-dose series of a control vaccine, Engerix-B. Enrollment will be stratified by site, age group and type 2 diabetes mellitus status.

The co-primary objectives of the study are: (1) to evaluate the overall safety of HEPLISAV-B with respect to clinically significant adverse events and (2) to demonstrate the noninferiority of the seroprotection rate ("SPR") induced by HEPLISAV-B compared with Engerix-B at week 28 in subjects with type 2 diabetes mellitus. All subjects will be evaluated for safety through study week 56. All potential autoimmune events will be reviewed by a Safety Evaluation and Adjudication Committee (SEAC) and overall safety will be monitored by a Data and Safety Monitoring Board (DSMB). We expect that all study subjects will be enrolled by the end of 2014 and all follow-up will be completed by the fourth quarter of 2015. We estimate the external costs of the study to be in the range of $50-55 million.

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 consolidated financial statements and the related disclosures, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). 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, assumptions and judgments described below that have the greatest potential impact on our consolidated financial statements, including those related to revenue recognition, research and development activities and stock-based compensation. 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. Accounting assumptions and estimates are inherently uncertain and actual results may differ materially from these estimates under different assumptions or conditions. We believe that there have been no significant changes in our critical accounting policies during the three months ended March 31, 2014, as compared with those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

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):

                                                                          Increase
                                                                      (Decrease) from
                                Three Months Ended March 31,            2013 to 2014
  Revenues:                       2014                2013              $           %
  Collaboration revenue       $       2,373       $         883     $   1,490        169 %
  Grant revenue                       1,125                 760           365         48 %
  Service and license revenue             -                 442          (442 )     (100 )%
  Total revenues              $       3,498       $       2,085     $   1,413         68 %

Total revenues for the three months ended March 31, 2014 increased by $1.4 million, or 68%, as compared to the same quarter of 2013. Collaboration revenue increased by $1.5 million due to work performed for the Phase 1 clinical trial and the recognition of revenue related to the $5.4 million payment received from AstraZeneca in March 2014 that is being deferred and recognized over the estimated performance period of 24 months. Grant revenue increased by $0.4 million primarily due to our National Institute of Allergy and Infectious Diseases contract for adjuvant development. There was no service or license revenue earned in the current quarter.


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 as well as our regulatory filings and manufacturing of our product candidates. For the three months ended March 31, 2014 and 2013, approximately 51% and 78%, respectively, of our total research and development expense, excluding non-cash stock-based compensation, is related to our lead product candidate, HEPLISAV-B. The remainder of our research and development expense results primarily from earlier-stage programs.

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

                                                                                         Increase
                                                                                      (Decrease) from
                                             Three Months Ended March 31               2013 to 2014
Research and Development:                     2014                 2013              $               %
Compensation and related personnel costs $        5,654       $        5,855     $     (201 )           (3 )%
Outside services                                  5,295                5,449           (154 )           (3 )%
Facility costs                                    1,590                1,537             53              3 %
Non-cash stock-based compensation                   692                1,323           (631 )          (48 )%
Total research and development           $       13,231       $       14,164     $     (933 )           (7 )%

Total research and development expense for the three months ended March 31, 2014, decreased by $0.9 million, or 7%, as compared to the same quarter in 2013. Outside services expense decreased by $0.2 million primarily due to lower clinical manufacturing costs. Compensation and related personnel costs and non-cash stock-based compensation for the quarter ended March 31, 2013, included $0.8 million for accelerated vesting of stock options related to management continuity and severance agreements with certain former employees.

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):

                                                                                       Increase
                                                                                   (Decrease) from
                                            Three Months Ended March 31              2013 to 2014
General and Administrative:                  2014                2013              $              %
Compensation and related personnel costs $       1,483       $       3,374     $   (1,891 )         (56 )%
Outside services                                 1,177               1,383           (206 )         (15 )%
Legal costs                                        756                 966           (210 )         (22 )%
Facility costs                                     163                 134             29            22 %
Non-cash stock-based compensation                  578               2,943         (2,365 )         (80 )%
Total general and administrative         $       4,157       $       8,800     $   (4,643 )         (53 )%

General and administrative expense for the three months ended March 31, 2014, decreased by $4.6 million, or 53%, as compared to the same period in 2013. Compensation and related personnel costs and non-cash stock-based compensation for the quarter ended March 31, 2013, included $2.5 million for accelerated vesting of stock options related to management continuity and severance agreements with certain former employees. The remaining $1.8 million decrease in compensation and related personnel costs and non-cash stock-based compensation is due to lower headcount. Outside services decreased by $0.2 million compared to the same period in the prior year due to reduced marketing expenses.


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. 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):

                                                                        Increase
                                                                    (Decrease) from
                            Three Months Ended March 31,              2013 to 2014
                           2014                    2013              $            %
      Interest income  $         65           $            72     $     (7 )       (10 )%
      Interest expense $          -           $           (32 )   $    (32 )      (100 )%
      Other income     $         62           $            14     $     48         343 %

Interest income, interest expense and other income remained flat for the three months ended March 31, 2014, as compared to the same period in 2013.

Liquidity and Capital Resources

As of March 31, 2014, we had $177.7 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 and revenues from collaboration agreements to fund our operations. Our funds are currently invested in short-term money market funds and U.S. government agency securities.

During the three months ended March 31, 2014, we used $11.2 million of cash for our operations primarily due to our net loss of $13.8 million, of which $1.9 million consisted of non-cash charges such as stock-based compensation, depreciation and amortization and accretion and amortization on marketable securities. By comparison, during the three months ended March 31, 2013, we used $18.9 million of cash for our operations primarily due to a net loss of $20.8 million, of which $4.9 million consisted of non-cash charges such as stock-based compensation, depreciation and amortization and accretion and amortization on marketable securities. Cash used in our operations for the first three months of 2014 decreased by $7.7 million compared to cash used in our operations for the first three months of 2013, due primarily to a $7.0 million decrease in our net loss and a $3.9 million change in deferred revenue due to $5.4 million received under our agreement with AstraZeneca in first quarter of 2014.

During the three months ended March 31, 2014, cash provided by investing activities was $14.7 million compared to $36.4 million of cash provided by investing activities for the three months ended March 31, 2013. Cash provided by investing activities during the first three months of 2014 included $15.1 million of net proceeds from maturities of marketable securities versus $36.9 million of net purchases of marketable securities during the first three months of 2013.

During the three months ended March 31, 2014, cash provided by financing activities was $0.1 million, compared to $15 thousand for the same period in 2013. During the three months ended March 31, 2014, we received proceeds of $0.1 million from employee purchases of our common stock under the 2004 Employee Stock Purchase Plan.

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 March 31, 2014 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-B, human clinical trials for our other product candidates and additional applications and advancement of our technology. We expect our spending will increase in future quarters due to expenses related to the Phase 3 clinical trial of HEPLISAV-B initiated in April 2014. We expect that all study subjects will be enrolled by the end of 2014 and all follow-up will be completed by the fourth quarter of 2015. We estimate the external costs of the study will be between $50-55 million. In order to continue these activities, 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-B program or other development programs while we seek strategic alternatives.


Contractual Obligations

The following summarizes our significant contractual obligations as of March 31, 2014, 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 ("Berkeley Lease") and Düsseldorf, Germany ("Düsseldorf Lease") under operating leases that expire in June 2018 and March 2023, respectively.

                                                                                               2019 and
Contractual Obligations:           Total         2014        2015-2016       2017-2018        Thereafter
Future minimum payments under our
operating leases                  $ 12,521     $  1,679     $     4,614     $     3,732     $        2,496
Total                             $ 12,521     $  1,679     $     4,614     $     3,732     $        2,496

During September 2013, we decided not to occupy a portion of our facility in Berkeley, California. As a result, we recorded an estimated unoccupied facility expense of $0.9 million during 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. We have recorded an additional unoccupied facility expense of $0.1 million as of March 31, 2014.

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 March 31, 2014, under the terms of our agreements, including certain agreements relating to the April 2014 initiation of the Phase 3 trial of HEPLISAV-B, we are obligated to make future payments as services are provided of approximately $38.4 million through 2016. 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, share a portion of fees from third party partnerships up to a specified amount and pay low single-digit 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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