Dynavax Technologies Corporation
DYNAVAX TECHNOLOGIES CORP (Form: 10-Q, Received: 11/07/2016 16:45:25)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2016

or

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

For the transition period from                     to                     .

Commission file number: 001-34207

 

Dynavax Technologies Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

33-0728374

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer
Identification No.)

2929 Seventh Street, Suite 100

Berkeley, CA 94710-2753

(510) 848-5100

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

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every 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 files). Yes   No 

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

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

As of November 1, 2016, the registrant had outstanding 38,527,660 shares of common stock.

 

 

 

 

 


INDEX

DYNAVAX TECHNOLOGIES CORPORATION

 

 

Page No.

PART I FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements (unaudited)

4

 

Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015

4

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015

5

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2016 and 2015

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

22

Item 4.

Controls and Procedures

23

 

PART II OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

 

SIGNATURES

40

 

 

 

2


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to a number of risks and uncertainties. All statements that are not historical facts are forward-looking statements, including statements about our ability to successfully develop and timely achieve regulatory approval for HEPLISAV-B™, our business, collaboration and regulatory strategy, our intellectual property position, our product development efforts, our ability to commercialize our product candidates, including HEPLISAV-B, our ability to manufacture commercial supply and meet regulatory requirements, the timing of the introduction of our products, uncertainty regarding our capital needs and future operating results and profitability, anticipated sources of funds as well as our plans, objectives, strategies, expectations and intentions. These statements appear throughout this Quarterly Report on Form 10-Q and can be identified by the use of forward-looking language such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” or “intend,” or the negative of these terms or other variations or comparable terminology.

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

This Quarterly Report on Form 10-Q includes trademarks and registered trademarks of Dynavax Technologies Corporation. Products or service names of other companies mentioned in this Quarterly Report on Form 10-Q may be trademarks or registered trademarks of their respective owners.

 

 

 

 

3


P ART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

Dynavax Technologies Corporation

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

 

 

September 30,

 

 

December 31,

 

 

2016

 

 

2015

 

 

(unaudited)

 

 

(Note 1)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

23,021

 

 

$

44,812

 

Marketable securities available-for-sale

 

86,530

 

 

 

151,313

 

Accounts and other receivables

 

2,290

 

 

 

1,394

 

Prepaid expenses and other current assets

 

5,673

 

 

 

2,427

 

Total current assets

 

117,514

 

 

 

199,946

 

Property and equipment, net

 

18,739

 

 

 

13,804

 

Goodwill

 

2,100

 

 

 

2,043

 

Restricted cash

 

615

 

 

 

609

 

Other assets

 

330

 

 

 

231

 

Total assets

$

139,298

 

 

$

216,633

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

3,795

 

 

$

3,433

 

Accrued research and development

 

4,702

 

 

 

7,361

 

Accrued liabilities

 

21,988

 

 

 

15,337

 

Deferred revenues

 

-

 

 

 

2,654

 

Total current liabilities

 

30,485

 

 

 

28,785

 

Other long-term liabilities

 

541

 

 

 

769

 

Total liabilities

 

31,026

 

 

 

29,554

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock: $0.001 par value; 5,000 shares authorized at September 30, 2016 and December 31, 2015; no shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

 

-

 

 

 

-

 

Common stock: $0.001 par value; 69,500 shares authorized at September 30, 2016 and December 31, 2015; 38,526 and 38,446 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

 

39

 

 

 

38

 

Additional paid-in capital

 

901,075

 

 

 

889,698

 

Accumulated other comprehensive loss

 

(2,412

)

 

 

(2,930

)

Accumulated deficit

 

(790,430

)

 

 

(699,727

)

Total stockholders’ equity

 

108,272

 

 

 

187,079

 

Total liabilities and stockholders’ equity

$

139,298

 

 

$

216,633

 

See accompanying notes.

 

4


Dynavax Technologies Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

$

-

 

 

$

829

 

 

$

2,578

 

 

$

2,230

 

Grant revenue

 

162

 

 

 

359

 

 

 

289

 

 

 

608

 

Service and license revenue

 

-

 

 

 

-

 

 

 

884

 

 

 

527

 

Total revenues

 

162

 

 

 

1,188

 

 

 

3,751

 

 

 

3,365

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

23,234

 

 

 

24,105

 

 

 

66,051

 

 

 

66,011

 

General and administrative

 

11,766

 

 

 

5,524

 

 

 

29,086

 

 

 

15,481

 

Total operating expenses

 

35,000

 

 

 

29,629

 

 

 

95,137

 

 

 

81,492

 

Loss from operations

 

(34,838

)

 

 

(28,441

)

 

 

(91,386

)

 

 

(78,127

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

170

 

 

 

33

 

 

 

615

 

 

 

78

 

Interest expense

 

-

 

 

 

(62

)

 

 

-

 

 

 

(572

)

Other (expense) income, net

 

(26

)

 

 

17

 

 

 

68

 

 

 

360

 

Loss on extinguishment of debt

 

-

 

 

 

(1,671

)

 

 

-

 

 

 

(1,671

)

Net loss

$

(34,694

)

 

$

(30,124

)

 

$

(90,703

)

 

$

(79,932

)

Basic and diluted net loss per share

$

(0.90

)

 

$

(0.82

)

 

$

(2.36

)

 

$

(2.43

)

Weighted average shares used to compute basic and diluted net loss per share

 

38,512

 

 

 

36,532

 

 

 

38,493

 

 

 

32,880

 

 

 

Dynavax Technologies Corporation

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

$

(34,694

)

 

$

(30,124

)

 

$

(90,703

)

 

$

(79,932

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

   available-for-sale

 

(61

)

 

 

5

 

 

 

7

 

 

 

4

 

Cumulative foreign currency translation adjustments

 

208

 

 

 

162

 

 

 

511

 

 

 

(895

)

Total other comprehensive income (loss)

 

147

 

 

 

167

 

 

 

518

 

 

 

(891

)

Total comprehensive loss

$

(34,547

)

 

$

(29,957

)

 

$

(90,185

)

 

$

(80,823

)

 

 

 

 

 

 

 

See accompanying notes.

5


Dynavax Technologies Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(90,703

)

 

$

(79,932

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

1,574

 

 

 

958

 

Accretion of discounts and amortization of premiums on marketable securities

 

155

 

 

 

476

 

Accretion of debt discount related to debt financing

 

-

 

 

 

(115

)

Cash-settled portion of stock-based compensation expense

 

602

 

 

 

387

 

Stock compensation expense

 

10,030

 

 

 

6,502

 

Loss on extinguishment of debt

 

-

 

 

 

1,671

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts and other receivables

 

(896

)

 

 

(436

)

Prepaid expenses and other current assets

 

804

 

 

 

1,569

 

Restricted cash and other assets

 

(99

)

 

 

(211

)

Accounts payable

 

704

 

 

 

273

 

Accrued liabilities and other long term liabilities

 

(286

)

 

 

364

 

Deferred revenues

 

(2,654

)

 

 

(2,219

)

Net cash used in operating activities

 

(80,769

)

 

 

(70,713

)

Investing activities

 

 

 

 

 

 

 

Purchases of marketable securities

 

(122,027

)

 

 

(127,918

)

Proceeds from maturities of marketable securities

 

186,670

 

 

 

82,920

 

Purchases of property and equipment, net

 

(6,516

)

 

 

(4,246

)

Net cash provided by (used in) investing activities

 

58,127

 

 

 

(49,244

)

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

-

 

 

 

183,899

 

Payment of debt

 

-

 

 

 

(10,990

)

Proceeds from exercise of stock options and restricted stock awards

 

131

 

 

 

237

 

Proceeds from exercise of warrants

 

-

 

 

 

222

 

Proceeds from Employee Stock Purchase Plan

 

616

 

 

 

291

 

Net cash provided by financing activities

 

747

 

 

 

173,659

 

Effect of exchange rate changes on cash and cash equivalents

 

104

 

 

 

(182

)

Net (decrease) increase in cash and cash equivalents

 

(21,791

)

 

 

53,520

 

Cash and cash equivalents at beginning of period

 

44,812

 

 

 

49,511

 

Cash and cash equivalents at end of period

$

23,021

 

 

$

103,031

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid during the period for interest

$

-

 

 

$

720

 

Accrual for litigation settlement and insurance recovery

$

4,050

 

 

$

-

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Disposal of fully depreciated property and equipment

$

1,160

 

 

$

171

 

Net change in unrealized gain on marketable securities

$

7

 

 

$

4

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

6


Dynavax Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Summary of Significant Accounting Policies

Dynavax Technologies Corporation (“we,” “our,” “us,” “Dynavax” or the “Company”), is a clinical-stage biopharmaceutical company that uses toll-like receptor (“TLR”) biology to discover and develop novel vaccines and therapeutics.  Our development programs are focused on vaccines and cancer immunotherapy. We were incorporated in California in August 1996 under the name Double Helix Corporation, and we changed our name to Dynavax Technologies Corporation in September 1996. We reincorporated in Delaware in 2000.

Basis of Presentation

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. In our opinion, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which we consider necessary to present fairly our financial position and the results of our operations and cash flows. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted. Interim-period results are not necessarily indicative of results of operations or cash flows to be expected for a full-year period or any other interim-period. The condensed consolidated balance sheet at December 31, 2015, has been derived from audited financial statements at that date, but excludes disclosures required by GAAP for complete financial statements.

The unaudited condensed consolidated financial statements and these notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission (the “SEC”).

The unaudited condensed consolidated financial statements include the accounts of Dynavax and our wholly-owned subsidiaries, Dynavax GmbH and Dynavax International, B.V. Dynavax International, B.V. was dissolved in January 2015. All significant intercompany accounts and transactions among these entities have been eliminated from the condensed consolidated financial statements. We operate in one business segment: the discovery and development of biopharmaceutical products.

Liquidity and Financial Condition

We have incurred significant operating losses and negative cash flows from operations since our inception. As of September 30, 2016, we had cash, cash equivalents and marketable securities of $109.6 million. We have determined that we have adequate plans in place regarding the ability to meet anticipated cash needs within one year after the date of these financial statements.

We expect to continue to spend substantial funds in connection with seeking regulatory approval for, and manufacture and other costs relating to, preparation for the anticipated commercial launch of HEPLISAV-B TM in the United States, manufacturing and conducting clinical studies of our investigational cancer immunotherapeutic product candidate, SD-101, and other cancer immunotherapeutic 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 collaboration and licensing arrangements and/or future public or private debt and equity financings. Sufficient additional funding may not be available on acceptable terms, or at all. 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 our other development programs while we seek strategic alternatives , which could have an adverse impact on our ability to achieve our intended business objectives.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make informed estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates.

Summary of Significant Accounting Policies

There have been no material changes in our significant accounting policies during the nine months ended September 30, 2016, as compared with those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.  

7


Revenue Recognition

Our revenues consist of amounts earned from collaborations, grants and fees from services and licenses. We enter into license and manufacturing agreements and collaborative research and development arrangements with pharmaceutical and biotechnology partners that may involve multiple deliverables. Our arrangements may include one or more of the following elements: upfront license payments, cost reimbursement for the performance of research and development activities, milestone payments, other contingent payments, contract manufacturing service fees, royalties and license fees. Each deliverable in the arrangement is evaluated to determine whether it meets the criteria to be accounted for as a separate unit of accounting or whether it should be combined with other deliverables. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the arrangement and evaluates which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. We recognize revenue when there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Non-refundable upfront fees received for license and collaborative agreements entered into and other payments under collaboration agreements where we have continuing performance obligations related to the payments are deferred and recognized over our estimated performance period. Revenue is recognized on a ratable basis, unless we determine that another method is more appropriate, through the date at which our performance obligations are completed. Management makes its best estimate of the period over which we expect to fulfill our performance obligations, which may include clinical development activities. Given the uncertainties of research and development collaborations, significant judgment is required to determine the duration of the performance period. We recognize cost reimbursement revenue under collaborative agreements as the related research and development costs are incurred, as provided for under the terms of these agreements.

Contingent consideration received for the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is defined as an event having all of the following characteristics: (i) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, (ii) the event can only be achieved based in whole or in part on either the entity’s performance or a specific outcome resulting from the entity’s performance and (iii) if achieved, the event would result in additional payments being due to the entity.

Our license and collaboration agreements with our partners provide for payments to be paid to us upon the achievement of development milestones. Given the challenges inherent in developing biologic products, there is substantial uncertainty whether any such milestones will be achieved at the time we entered into these agreements. In addition, we evaluate whether the development milestones meet the criteria to be considered substantive. The conditions include: (i) the development work is contingent on either of the following: (a) the vendor’s performance to achieve the milestone or (b) the enhancement of the value of the deliverable item or items as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone; (ii) it relates solely to past performance and (iii) it is reasonable relative to all the deliverable and payment terms within the arrangement. As a result of our analysis, we consider our development milestones to be substantive and, accordingly, we expect to recognize as revenue future payments received from such milestones as we achieve each milestone.

Milestone payments that are contingent upon the achievement of substantive at-risk performance criteria are recognized in full upon achievement of those milestone events in accordance with the terms of the agreement and assuming all other revenue recognition criteria have been met. All revenue recognized to date under our collaborative agreements has been nonrefundable.

Our license and collaboration agreements with certain partners also provide for contingent payments to be paid to us based solely upon the performance of our partner. For such contingent payments we expect to recognize the payments as revenue upon receipt, provided that revenue recognition criteria have been satisfied.

Revenues from manufacturing services are recognized upon meeting the criteria for substantial performance and acceptance by the customer.

Revenue from royalty payments is contingent on future sales activities by our licensees. Royalty revenue is recognized when all revenue recognition criteria have been satisfied.

Revenue from government and private agency grants is recognized as the related research expenses are incurred and to the extent that funding is approved. Additionally, we recognize revenue based on the facilities and administrative cost rate reimbursable per the terms of the grant awards.

8


Research and Development Expenses and Accruals

Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services and non-cash stock-based compensation. Research and development costs are expensed as incurred. Amounts due under contracts with third parties may be either fixed fee or fee for service, and may include upfront payments, monthly payments and payments upon the completion of milestones or receipt of deliverables. Non-refundable advance payments under agreements are capitalized and expensed as the related goods are delivered or services are performed.

We contract with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. Our accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations. We may terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the date of termination, although in certain instances we may be further responsible for termination fees and penalties. The Company estimates its research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to the Company at that time. There have been no material adjustments to the Company’s prior period accrued estimates for clinical trial activities through September 30, 2016.

Recent Accounting Pronouncements

Accounting Standards Update 2014-09

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance codified in ASC 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. This Accounting Standards Update (“ASU”) is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.    In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim periods within those periods) , with early application permitted . The FASB issued supplemental adoption guidance and clarification to ASU 2014-09 in March 2016, April 2016 and May 2016 within ASU 2016-08 "Revenue From Contracts With Customers: Principal vs. Agent Considerations," ASU 2016-10 "Revenue From Contracts with Customers: Identifying Performance Obligations and Licensing," and ASU 2016-12 "Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients," respectively. The Company is currently evaluating the impact of the provisions of ASC 606 on its financial statements.

Accounting Standards Update 2014-15

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40). The ASU requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and if those conditions exist, to make the required disclosures. The standard is effective for annual periods ending after December 15, 2016, and interim periods thereafter. The Company believes that the adoption of ASU 2014-15 will not have a material impact on its financial position, results of operations, cash flows, or disclosures.

Accounting Standards Update 2016-02

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU requires management to recognize lease assets and lease liabilities by lessees for all operating leases. The ASU is effective for annual periods beginning after December 15, 2018 and interim periods therein on a modified retrospective basis, with early application permitted. The Company is currently evaluating the impact this guidance will have on its financial statements.

9


Accounting Standards Update 2016-09

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early application permitted. The Company believes that the adoption of ASU 2016-09 will not have a material impact on its financial position, results of operations, cash flows, or disclosures.

Accounting Standards Update 2016-13

In June 2016, the FASB issued ASU No. 2016-13: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets held. The ASU is effective for annual periods beginning after December 15, 2019 and must be adopted using a modified retrospective approach, with certain exceptions. Early adoption is permitted beginning in the first quarter of 2019. The Company is currently evaluating the impact this guidance will have on its financial statements.

Accounting Standards Update 2016-15

In August 2016, the FASB issued ASU 2016-15: Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash flow, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

2. Fair Value Measurements

The Company measures fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

 

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities;

 

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities; therefore, requiring an entity to develop its own valuation techniques and assumptions.

The carrying amounts of cash equivalents, accounts and other receivables, accounts payable and accrued liabilities are considered reasonable estimates of their respective fair value because of their short-term nature.

Recurring Fair Value Measurements

The following table represents the fair value hierarchy for our financial assets (cash equivalents and marketable securities) measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 (in thousands):

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

19,637

 

 

$

-

 

 

$

-

 

 

$

19,637

 

U.S. Treasuries

 

-

 

 

 

6,527

 

 

 

-

 

 

 

6,527

 

U.S. Government agency securities

 

-

 

 

 

48,870

 

 

 

-

 

 

 

48,870

 

Corporate debt securities

 

-

 

 

 

32,133

 

 

 

-

 

 

 

32,133

 

Total

$

19,637

 

 

$

87,530

 

 

$

-

 

 

$

107,167

 

 

10


 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

21,193

 

 

$

-

 

 

$

-

 

 

$

21,193

 

U.S. Government agency securities

 

-

 

 

 

17,622

 

 

 

-

 

 

 

17,622

 

Corporate debt securities

 

-

 

 

 

152,749

 

 

 

 

 

 

 

152,749

 

Total

$

21,193

 

 

$

170,371

 

 

$

-

 

 

$

191,564

 

 

Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

U.S. Treasuries, U.S. Government agency securities and corporate debt securities are measured at fair value using Level 2 inputs. We review trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.

There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2016.

 

3. Cash, cash equivalents and marketable securities

The following is a summary of cash, cash equivalents and marketable securities available-for-sale as of September 30, 2016 and December 31, 2015 (in thousands):

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

$

2,384

 

 

$

-

 

 

$

-

 

 

$

2,384

 

Money market funds

 

19,637

 

 

 

-

 

 

 

-

 

 

 

19,637

 

Corporate debt securities

 

1,000

 

 

 

-

 

 

 

-

 

 

 

1,000

 

Total cash and cash equivalents

 

23,021

 

 

 

-

 

 

 

-

 

 

 

23,021

 

Marketable securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasuries

 

6,522

 

 

 

4

 

 

 

-

 

 

 

6,526

 

U.S. Government agency securities

 

48,845

 

 

 

25

 

 

 

-

 

 

 

48,870

 

Corporate debt securities

 

31,144

 

 

 

5

 

 

 

(15

)

 

 

31,134

 

Total marketable securities available-for-sale

 

86,511

 

 

 

34

 

 

 

(15

)

 

 

86,530

 

Total cash, cash equivalents and marketable securities

$

109,532

 

 

$

34

 

 

$

(15

)

 

$

109,551

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

$

4,561

 

 

$

-

 

 

$

-

 

 

$

4,561

 

Money market funds

 

21,193

 

 

 

-

 

 

 

-

 

 

 

21,193

 

Corporate debt securities

 

19,052

 

 

 

7

 

 

 

(1

)

 

 

19,058

 

Total cash and cash equivalents

 

44,806

 

 

 

7

 

 

 

(1

)

 

 

44,812

 

Marketable securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency securities

 

17,628

 

 

 

-

 

 

 

(6

)

 

 

17,622

 

Corporate debt securities

 

133,679

 

 

 

71

 

 

 

(59

)

 

 

133,691

 

Total marketable securities available-for-sale

 

151,307

 

 

 

71

 

 

 

(65

)

 

 

151,313

 

Total cash, cash equivalents and marketable securities

$

196,113

 

 

$

78

 

 

$

(66

)

 

$

196,125

 

 

The maturities of our marketable securities available-for-sale are as follows (in thousands):

 

 

 

September 30, 2016

 

 

 

Amortized Cost

 

 

Estimated Fair Value

 

Mature in one year or less

 

$

86,511

 

 

$

86,530

 

Mature after one year through two years

 

 

-

 

 

 

-

 

 

 

$

86,511

 

 

$

86,530

 

11


 

We have classified our entire investment portfolio as available-for-sale and available for use in current operations and accordingly have classified all investments as short-term. Available-for-sale securities are carried at fair value, with unrealized gains and losses included in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value, if any, judged to be other than temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific identification method. Management assesses whether declines in the fair value of investment securities are other than temporary. In determining whether a decline is other than temporary, management considers the following factors:

 

Whether the investment has been in a continuous realized loss position for over 12 months;

 

the duration to maturity of our investments;

 

our intention and ability to hold the investments to maturity and if it is not more likely than not that we will be required to sell the investment before recovery of the amortized cost bases;

 

the credit rating, financial condition and near-term prospects of the issuer; and

 

the type of investments made.

To date, there have been no declines in fair value that have been identified as other than temporary.

 

 

4. Commitments and Contingencies

We lease our facilities in Berkeley, California (“Berkeley Lease”) and Düsseldorf, Germany (“Düsseldorf Lease”) under operating leases that expire in June 2018 and March 2023, respectively. The Berkeley Lease provides for periods of escalating rent. The total cash payments over the life of the lease are divided by the total number of months in the lease period and the average rent is charged to expense each month during the lease period. We entered into sublease agreements under the Düsseldorf Lease for a certain portion of the leased space.

Total net rent expense related to our operating leases for three month periods ended September 30, 2016 and 2015, was $0.6 million and $0.5 million, respectively. Total net rent expense related to our operating leases for the nine month periods ended September 30, 2016 and 2015, was $1.6 million and $1.5 million, respectively. Deferred rent was $0.4 million and $0.5 million as of September 30, 2016 and December 31, 2015, respectively.

Future minimum payments under the non-cancelable portion of our operating leases at September 30, 2016, excluding payments from sublease agreements, are as follows (in thousands):

Years ending December 31,

 

 

 

 

2016 (remaining)

 

$

642

 

2017

 

 

2,589

 

2018

 

 

1,520

 

2019

 

 

667

 

2020

 

 

673

 

Thereafter

 

 

1,143

 

Total

 

$

7,234

 

 

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

We rely on and have entered into agreements with research institutions, contract research organizations, clinical investigators and sales and marketing organizations as well as clinical and commercial material manufacturers.   These agreements are terminable by us upon written notice. Generally, we are liable only for actual effort expended by the organizations at any point in time during the contract through the notice period.

12


From time to time, we may be involved in claims, suits, and proceedings arising from the ordinary course of our business, including actions with respect to intellectual property claims, commercial claims, and other matters. Such claims, suits, and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on us bec ause of legal costs, diversion of management resources, and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in substantial damages, fines, penalties or orders requiring a change in our business prac tices, which could in the future materially and adversely affect our financial position, financial statements, results of operations, or cash flows in a particular period.

On September 7, 2016, Dynavax entered into a Stipulation of Settlement to settle the case entitled In re Dynavax Technologies Securities Litigation . The settlement, which is subject to final court approval, provides for a payment of $4.1 million by Dynavax and will result in a dismissal and release of all claims against all defendants, including the Company. The settlement will be paid for by the Company’s insurers. On October 17, 2016, the court preliminarily approved the settlement and set a hearing date for final approval of February 3, 2017. Based on our assessment that the loss is both probable and reasonably estimable, the Company recorded an accrual of $4.1 million reflected in accrued liabilities on the attached condensed consolidated balance sheets. The Company does not expect any significant additional charges related to this matter. In addition, we record anticipated recoveries under existing insurance contracts when recovery is assured. As the settlement will be paid by our insurers, we have recorded a current asset in the amount of $4.1 million reflected in prepaid expenses and other current assets on the attached condensed consolidated balance sheets. Amounts recorded for contingencies can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see  Use of Estimates in Note 1.

 

5. Collaborative Research and Development Agreements

AstraZeneca

In September 2006, we entered into a research collaboration and license agreement with AstraZeneca AB (“AstraZeneca”) for the discovery and development of TLR9 agonist-based therapies for the treatment of asthma and chronic obstructive pulmonary disease.

In October 2011, we amended our agreement with AstraZeneca to provide that we would conduct initial clinical development of AZD1419 and AstraZeneca agreed to fund all program expenses to cover the cost of development activities through Phase 2a. Under the terms of the amended agreement, we received an initial payment of $3.0 million in 2011 to begin the clinical development program. We and AstraZeneca agreed to advance AZD1419 towards a Phase 1 clinical trial, which resulted in a development funding payment of $6.0 million received in the fourth quarter of 2012.

In January 2014, we amended our agreement with AstraZeneca for the clinical development of AZD1419 whereby responsibility for conducting clinical trials was transferred from Dynavax to AstraZeneca upon completion of the Phase 1 trial. In the first quarter of 2014, we received a $5.4 million payment that was due upon execution of this amended agreement.

In December 2014, we amended our agreement with AstraZeneca whereby AstraZeneca would fully fund and Dynavax will conduct a Phase 2a safety and efficacy trial of AZD1419 in patients with asthma. In the fourth quarter of 2014, we received an $8.0 million payment upon execution of this amendment, to be applied towards research and development expenses incurred in conducting the Phase 2a study.

In January 2016, we amended our agreement with AstraZeneca whereby AstraZeneca will conduct the Phase 2a safety and efficacy trial of AZD1419 in patients with asthma that originally was to be conducted by Dynavax. Under the terms of the January 2016 amendment, the $8.0 million payment received in December 2014, which was also deferred and was being recognized as research and development expenses were incurred, will be returned to AstraZeneca or applied to future milestone payments that may be earned by us under the agreement, net of amounts we recognized as development work that was performed. We therefore revised the estimated remaining period of performance of development from June 2018 to September 2016. The remaining balance as of December 31, 2015 related to deferred payments of $5.4 million, received in the first quarter of 2014, and $3.0 million, received in 2011, are nonrefundable and were being recognized starting in January 2016 over the estimated remaining period of performance of development work through September 2016. In December 2015, we reclassified $7.4 million of the $8.0 million payment from deferred revenue to a current liability. As of September 30, 2016, the current liability related to the payment was $7.4 million on the accompanying condensed consolidated balance sheets.

In June 2016, all of Dynavax’s remaining contractual obligations under our agreement with AstraZeneca were completed. As no further performance obligations remain, the Company revised the estimated period of performance of development work from September 2016 to June 2016, and recognized remaining deferred revenue as of June 30, 2016. The revision of performance period led to the recognition of an additional $0.8 million in collaboration revenue during the second quarter.

13


Under the terms of this agreement, as amended, we are eligible to receive up to $100 million in additional milestone payments, based on the achievement of certain development and regulatory objectives. Additionally, upon commercialization, we are eligible to receive tiered royalties ranging from the mid to high single-digits based on product sales of any products originating from the collaboration. We have the option to co-promote in the United States products arising from the collaboration, if any. AstraZeneca has the right to sublicense it s rights upon our prior consent.

The following table summarizes the revenues earned under our agreement with AstraZeneca, included as collaboration revenue in our condensed consolidated statements of operations (in thousands):

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Initial payment

$

-

 

 

$

60

 

 

$

521

 

 

$

186

 

Subsequent payment

 

-

 

 

 

223

 

 

 

1,953

 

 

 

697

 

Performance of research activities

 

-

 

 

 

546

 

 

 

104

 

 

 

1,347

 

Total

$

-

 

 

$

829

 

 

$

2,578

 

 

$

2,230

 

 

As of September 30, 2016 no deferred revenue from the initial payment, subsequent payment and development funding payments remained. Total deferred revenue from these payments as of December 31, 2015 was $2.7 million.

Absent early termination, the agreement will expire when all of AstraZeneca’s payment obligations expire. AstraZeneca has the right to terminate the agreement at any time upon prior written notice and either party may terminate the agreement early upon written notice if the other party commits an uncured material breach of the agreement.

National Institutes of Health (“NIH”) and Other Funding

We have been awarded various grants from the NIH and the NIH’s National Institute of Allergy and Infectious Disease (“NIAID”) in order to fund research. The awards are related to specific research objectives and we earn revenue as the related research expenses are incurred. We have earned revenue during the three and nine month periods ended September 30, 2016 and 2015 from the following awards:

 

August 2014, the NIH awarded us $0.2 million to fund research in developing a transgenic mouse model to study human TLR9 role in disease.

 

May 2012, the NIH awarded us $0.4 million to fund development of TLR8 inhibitors for treatment of rheumatoid arthritis. In February 2016, the NIH awarded us an additional $0.5 million to fund this study.

 

August 2010, the NIAID awarded us a grant to take a systems biology approach to study the differences between individuals who do or do not respond to vaccination against the hepatitis B virus. This study is one of several projects conducted under a grant to the Baylor Institute of Immunology Research in Dallas as part of the Human Immune Phenotyping Centers program. We have been awarded a total of $1.4 million under this grant.

The following table summarizes the revenues recognized under the various arrangements with the NIH (in thousands):

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

NIH contracts

$

162

 

 

$

359

 

 

$

289

 

 

$

608

 

Total grant revenue

$

162

 

 

$

359

 

 

$

289

 

 

$

608

 

 

6. Net Loss Per Share

 

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period and giving effect to all potentially dilutive common shares using the treasury-stock method. For purposes of this calculation, common stock subject to repurchase by us, outstanding options and stock awards are considered to be potentially dilutive common shares and are only included in the calculation of diluted net loss per share when their effect is dilutive. Stock options and stock awards totaling approximately 4,680,000 and 2,990,000 shares of common stock as of September 30, 2016 and 2015, respectively, were excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2016 and 2015, because the effect of their inclusion would have been anti-dilutive. For periods in which the Company has a net loss and no instruments are determined to be dilutive, such as the three and nine months ended September 30, 2016 and 2015, basic and diluted net loss per share are the same.

14


 

 

7. Common Stock

Common Stock Outstanding

As of September 30, 2016, there were 38,526,254 shares of our common stock outstanding.

On November 12, 2015, we entered into an At Market Issuance Sales Agreement (the “2015 ATM Agreement”) with Cowen under which we could offer and sell our common stock from time to time up to aggregate sales proceeds of $90 million through Cowen as our sales agent. As of September 30, 2016, we have sold no shares of common stock under the 2015 ATM Agreement.

 

 

8. Equity Plans and Stock-Based Compensation

Option activity under our stock-based compensation plans during the nine months ended September 30, 2016 was as follows (in thousands except per share amounts):

 

 

 

Shares Underlying  Outstanding Options

(in thousands)

 

 

Weighted-Average Exercise

Price Per Share

 

 

Weighted-Average Remaining Contractual Term

(years)

 

 

Aggregate Intrinsic Value

(in thousands)

 

Balance at December 31, 2015

 

 

2,891

 

 

$

23.34

 

 

 

 

 

 

 

 

 

Options granted

 

 

1,351

 

 

 

19.95

 

 

 

 

 

 

 

 

 

Options exercised

 

 

(16

)

 

 

13.81

 

 

 

 

 

 

 

 

 

Options cancelled:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options forfeited (unvested)

 

 

(36

)

 

 

19.22

 

 

 

 

 

 

 

 

 

Options cancelled (vested)

 

 

(54

)

 

 

42.90

 

 

 

 

 

 

 

 

 

Balance at September 30, 2016

 

 

4,136

 

 

 

22.06

 

 

 

6.76

 

 

$

182

 

Vested and expected to vest at September 30, 2016

 

 

4,098

 

 

 

22.10

 

 

 

6.74

 

 

$

182

 

Exercisable at September 30, 2016

 

 

1,755

 

 

 

25.70

 

 

 

5.30

 

 

$

182

 

 

Restricted stock unit activity under our stock-based compensation plans during the nine months ended September 30, 2016 was as follows (in thousands except per share amounts):

 

 

Number of Shares (In thousands)

 

 

Weighted-Average Grant-Date Fair Value

 

Non-vested as of December 31, 2015

 

195

 

 

$

17.52

 

Granted

 

387

 

 

$

21.35

 

Vested

 

(26

)

 

$

15.59

 

Forfeited or expired

 

(13

)

 

$

20.33

 

Non-vested as of September 30, 2016

 

543

 

 

$

20.28

 

 

The aggregate intrinsic value of the restricted stock units outstanding as of September 30, 2016, based on our stock price on that date, was $5.7 million.

As of September 30, 2016, approximately 200,000 shares underlying stock options and restricted stock units awards with performance-based vesting criteria were outstanding. Vesting criteria for these performance-based awards have not been met as of September 30, 2016.

 

Under our stock-based compensation plans, option awards generally vest over a three or four-year period contingent upon continuous service, and expire seven to ten years from the date of grant (or earlier upon termination of continuous service). The fair value-based measurement of each option is estimated on the date of grant using the Black-Scholes option valuation model.

15


The fair value-based measurements and weighted-average assumptions used in the calculations of these measurements are as follows:

 

Stock Options

 

 

Stock Options

 

 

Employee Stock Purchase Plan

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Weighted-average fair value

$

8.90

 

 

$

17.63

 

 

$

9.67

 

 

$

13.23

 

 

$

7.86

 

 

$

9.18

 

Risk-free interest rate

 

1.1

%

 

 

1.7

%

 

 

1.4

%

 

 

1.7

%

 

 

0.6

%

 

 

0.4

%

Expected life (in years)

 

4.5

 

 

 

5.8

 

 

 

4.9

 

 

 

5.9

 

 

 

1.2

 

 

 

1.2

 

Volatility

 

0.7

 

 

 

0.7

 

 

 

0.7

 

 

 

0.7

 

 

 

0.6

 

 

 

0.6

 

 

We recognized stock-based compensation expense of $3.7 million and $2.6 million for the three months ended September 30, 2016 and 2015, respectively. We recognized stock-based compensation expense of $10.0 million and $6.5 million for the nine months ended September 30, 2016 and 2015, respectively. The components of stock-based compensation expense were (in thousands):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Research and development

$

1,639

 

 

$

1,232

 

 

$

4,490

 

 

$

2,985

 

General and administrative

 

2,022

 

 

 

1,398

 

 

 

5,540

 

 

 

3,517

 

Total

$

3,661

 

 

$

2,630

 

 

$

10,030

 

 

$

6,502

 

As of September 30, 2016, the total unrecognized compensation cost related to non-vested equity awards including all awards with time-based vesting amounted to $24.4 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.4 years. Additionally, as of September 30, 2016, the total unrecognized compensation cost related to equity awards with performance-based vesting criteria not deemed probable of vesting amounted to $7.2 million.

Employee Stock Purchase Plan

The 2014 Employee Stock Purchase Plan, as amended, (the “Purchase Plan”) provides for the purchase of common stock by eligible employees and became effective on May 28, 2014.   The purchase price per share is the lesser of (i) 85% of the fair market value of the common stock on the commencement of the offer period (generally, the sixteenth day in February or August) or (ii) 85% of the fair market value of the common stock on the exercise date, which is the last day of a purchase period (generally, the fifteenth day in February or August). As of September 30, 2016, employees have acquired 45,547 shares of our common stock under the Purchase Plan and 182,474 shares of our common stock remained available for future purchases under the Purchase Plan.

 

9. Subsequent Events

On October 26, 2016, Dynavax entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with one or more funds of Deerfield Management Company, L.P. (collectively, the “Purchasers”) and one such fund, as collateral agent, pursuant to which the Company agreed to sell, and the Purchasers agreed to purchase, an aggregate of $100.0 million principal amount of the Company’s senior secured notes (the “Notes”) for an aggregate purchase price of $100.0 million. The closing of the sale and purchase of the Notes is expected to occur after the Company receives U.S. Food and Drug Administration (“FDA”) approval for the sale and marketing of HEPLISAV-B and certain other closing conditions are satisfied (the date of such closing, the “Purchase Date”). The Company expects to use the proceeds of the Notes for general corporate purposes, including the commercialization of HEPLISAV-B. The outstanding principal amount of the Notes will accrue interest at a rate equal to 10.375% per annum. The Notes will mature on the fifth anniversary of the Purchase Date, unless earlier prepaid or repurchased. The Company’s obligations under the Notes and the Note Purchase Agreement will be required to be guaranteed by certain of the Company’s future subsidiaries and will be secured by a perfected security interest in substantially all of the assets of the Company and any future subsidiary guarantors, subject to customary permitted liens and other agreed upon exceptions.

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ITEM 2.

M ANAGEMENT’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, clinical development timing and progress, the period for which we estimate our cash resources are sufficient, the availability of additional funds, 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 (“SEC”).

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 on Form 10-Q 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, 2015.

Overview

We are a clinical-stage biopharmaceutical company that uses TLR biology to discover and develop novel vaccines and therapeutics. Our development programs are focused on vaccine adjuvants and cancer immunotherapy. Our lead product candidates are HEPLISAV- B TM , an investigational adult hepatitis B vaccine, and SD-101, an investigational cancer immunotherapeutic currently in several phase 1/2 studies.