UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20202021
☐ | 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 CorporationCorporation
(Exact name of registrant as specified in its charter)
Delaware | 33-0728374 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
2100 Powell Street, Suite 900
Emeryville, CA94608
(510) (510) 848-5100
(Address, including Zip Code, and telephone number, including area code, of the registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading symbol(s): | Name of each exchange on which registered: |
Common Stock, $0.001 par value | DVAX | The Nasdaq Stock Market LLC |
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ ☐No No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration was required to submit such files). Yes☒ No ☐☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒ |
| Accelerated filer ☐ |
| Non-accelerated filer ☐ |
| Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based upon the closing sale price of the common stock on June 30, 20202021 as reported on the Nasdaq Capital Market, was approximately $884.4 million.$1.0 billion. Shares of common stock held by each officer and director and by each person known to the Company who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of February 22, 2021,24, 2022, the registrant had outstanding 113,256,101124,921,757 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the registrant’s 20212022 Annual Meeting of Stockholders are incorporated by reference into Part III, Items 10-14 of this Form 10-K. The Definitive Proxy Statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2020.2021.
Auditor Firm Id: | 42 | Auditor Name: | Ernst & Young LLP | Auditor Location: | San Francisco, California |
INDEX
DYNAVAX TECHNOLOGIES CORPORATION
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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| DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 104 | ||
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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| CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 the direct and indirect impact of the ongoing COVID-19 global pandemic on our business and operations, including sales of HEPLISAV-B®, our ability to successfully commercialize HEPLISAV-B, CpG 1018 adjuvant or any future product, our anticipated market opportunity and level of sales of HEPLISAV-B and CpG 1018 adjuvant, our ability to manufacture sufficient supply of HEPLISAV-B to meet future demand, our business, collaboration and regulatory strategy, our ability to successfully support the development and commercialization of other vaccines containing our novel adjuvant CpG 1018 adjuvant, including any current or potential vaccine for COVID-19 that stem from any collaborations, our ability to manufacture sufficient supply of CpG 1018 to meet potential future demand in connection with new vaccines, including any potential COVID-19 vaccine, our ability to develop and expand our clinical research pipeline, our ability to meet regulatory requirements, uncertainty regarding our capital needs and future operating results and profitability, anticipated sources of funds, liquidity and cash needs, as well as our plans, objectives, strategies, expectations and intentions.intentions for our business. These statements appear throughout our documentthis Annual Report on Form 10-K 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.words of similar import. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
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 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this document.Annual Report on Form 10-K. No assurance can be given that the risk factors described in this Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K includes trademarks and registered trademarks of Dynavax Technologies Corporation. Products or service names of other companies mentioned in this Annual Report on Form 10-K may be trademarks or registered trademarks of their respective owners. References herein to “we,” “our,” “us,” “Dynavax” or the “Company” refer to Dynavax Technologies Corporation and its subsidiaries.
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RISK FACTOR SUMMARY
Below is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found in the more detailed discussion that follows this summary, and the below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should consider carefully the risks and uncertainties described herein as part of your evaluation of an investment in our securities:
• HEPLISAV-B has been launched in the United States, and approved in the European Union, and there is significant competition in these marketplaces. Since this is our first marketed product, the timing of uptake and distribution efforts are unpredictable and there is a risk that we may not achieve and sustain commercial success for HEPLISAV-B. • Our business and operations have been and may continue to be adversely affected by the evolving and ongoing COVID-19 global pandemic. We have entered into collaborative relationships to develop vaccines utilizing our CpG 1018 adjuvant, including collaborations to develop vaccines for COVID-19. These collaborations may not be successful. If the combination of patents, trade secrets and other proprietary rights that we rely on to protect our intellectual property rights in CpG 1018 adjuvant or otherwise are inadequate, we may be unable to realize recurring commercial benefit from the development of any vaccines containing CpG 1018 adjuvant. • Our financial results may vary significantly from quarter to quarter or may fall below the expectations of investors or securities analysts, each of which may adversely affect our stock price. • We face uncertainty regarding coverage, pricing and reimbursement and the practices of third-party payors, which may make it difficult or impossible to sell certain of our products or product candidates on commercially reasonable terms. • We are subject to ongoing United States Food and Drug Administration (“FDA”) and European Medicines Agency (“EMA”) post-marketing obligations concerning HEPLISAV-B, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated regulatory issues with HEPLISAV-B. • If HEPLISAV-B or any products we develop are not accepted by the market or if regulatory agencies limit our labeling indications, require labeling content that diminishes market uptake of HEPLISAV-B or any other products we develop, or limit our marketing claims, we may be unable to generate significant revenues, if any. • Many of our competitors have greater financial resources and expertise than we do. If we are unable to successfully compete with existing or potential competitors as a result of these disadvantages, we may be unable to generate sufficient or any revenues and our business will be harmed. • Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt. Conversion of our Convertible Notes (defined below) may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stock. • Despite recent profitability, we have incurred annual net losses in each year since our inception and anticipate that we could continue to incur significant losses for the foreseeable future unless we can successfully commercialize HEPLISAV-B and/or continue to sell significant quantities of our CpG 1018 adjuvant, and if we are unable to sustain profitability, the market value of our common stock will likely decline. Until we are able to generate significant revenues or achieve profitability through product sales on a consistent basis, we may require substantial additional capital to finance our operations. • We may develop, seek regulatory approval for and market HEPLISAV-B or any other product candidates we may develop outside the U.S. or Europe, requiring a significant commitment of resources. Failure to successfully manage our international operations could result in significant unanticipated costs and delays in regulatory approval or commercialization of our products or product candidates. • Clinical trials for our commercial product and product candidates are expensive and time consuming, may take longer than we expect or may not be completed at all, and may have uncertain outcomes. • As a biopharmaceutical company, we engage clinical research organizations (“CROs”) to conduct clinical studies, and failure by us or our CROs to conduct a clinical study in accordance with good clinical practice standards and other applicable regulatory requirements could result in disqualification of the applicable clinical trial from consideration in support of approval of a potential product. 4 • Regulatory authorities may require more clinical trials for our product candidates than we currently expect or are conducting before granting regulatory approval, if regulatory approval is granted at all. Our clinical trials may be extended which may lead to substantial delays in the regulatory approval process for our product candidates and may impair our ability to generate revenue from such product candidates. • HEPLISAV-B and most of our earlier stage programs, including our CpG 1018 adjuvant, rely on oligonucleotide toll-like receptor (“TLR”) agonists. In the event of any serious adverse event data relating to TLR agonists, we may be required to reduce the scope of, or discontinue, our operations, or reevaluate the viability of strategic alternatives. • As we plan for broader commercialization of HEPLISAV-B and for expanded capacity to manufacture our CpG 1018 adjuvant, our financial commitments to increase supply capacity might outpace actual demand for our products. Also, if we are unable to maintain our production operations in Düsseldorf, Germany, and our existing suppliers for CpG 1018 adjuvant, we would have to establish alternate qualified manufacturing capabilities, which could result in significant additional operating costs and delays in developing and commercializing HEPLISAV-B and any approved or potential vaccine utilizing CpG 1018. There can be no assurance that we, our existing suppliers, or other third parties will be able to produce CpG 1018 at a cost, quantity and quality sufficient to support our existing or any future collaborations. • We rely on our facility in Düsseldorf, Germany and third parties to supply materials or perform processes necessary to manufacture HEPLISAV-B. We rely on a limited number of suppliers to produce the oligonucleotides we require for development and commercialization. Additionally, we and our collaborators have limited experience in manufacturing our products and product candidates in commercial quantities. With respect to HEPLISAV-B, we use a pre-filled syringe presentation of the vaccine and our ability to meet future demand will depend on our or our contract manufacturer's ability to provide sufficient supply in this presentation. • As we continue to grow as a commercial organization and enter into supply agreements with customers and collaborators, those supply agreements will have obligations to deliver product for which we are reliant upon third parties to manufacture on our behalf. • HEPLISAV-B is subject to regulatory obligations and continued regulatory review, and if we receive regulatory approval for our other product candidates, we will be subject to ongoing FDA and foreign regulatory obligations and continued regulatory review for such products. • A key part of our business strategy for products in development is to establish collaborative relationships to help fund or manage development and commercialization of our product candidates and research programs. We may not succeed in establishing and maintaining collaborative relationships, which may significantly limit our ability to continue to develop and commercialize those products and programs, if at all. These relationships may not succeed on expected timelines, or at all. • We rely on CROs and clinical sites and investigators for our clinical trials. If these third parties do not fulfill their contractual obligations or meet expected deadlines, our planned clinical trials may be delayed and we may fail to obtain the regulatory approvals necessary to commercialize our product candidates. • As we focus on commercialization of HEPLISAV-B, we may encounter difficulties in managing our commercial growth and expanding our operations successfully. • The loss of key personnel could delay or prevent achieving our objectives. In addition, our continued growth to support commercialization may result in difficulties in managing our growth and expanding our operations successfully. • If third parties successfully assert that we have infringed their patents and proprietary rights or challenge our patents and proprietary rights, we may become involved in intellectual property disputes and litigation that would be costly, time consuming and delay or prevent development or commercialization of our product candidates. • Future sales of our common stock or the perception that such sales may occur in the public market could cause our stock price to fall. 5 |
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5
PART I
ITEM 1. BUSINESS Our Company
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OVERVIEW
We are a commercial stage biopharmaceutical company focused ondedicated to developing and commercializing novel vaccines. innovative vaccines in areas of significant unmet need, leveraging our demonstrated expertise and capabilities in vaccines and our proven vaccine adjuvant technology. We are currently focused on our efforts to drive long-term shareholder value by maximizing utilization of our HEPLISAV-B® hepatitis B vaccine, advancing our CpG 1018® adjuvant supply strategy, most notably through COVID-19 collaborations, and expanding our portfolio of innovative vaccine candidates leveraging our proven adjuvant technology.
Our first marketed product, HEPLISAV-B®HEPLISAV-B (Hepatitis B Vaccine (Recombinant), Adjuvanted), is approved byin the United States Food and Drug Administration (“FDA”)European Union for prevention of infection caused by all known subtypes of hepatitis B virus ("HBV") in adults age 18 years and older. HEPLISAV-B is the only two-dose hepatitis B vaccine for adults approved in the U.S. and European Union. In Phase 3 trials, HEPLISAV-B demonstrated faster and higher rates of protection with two doses in one month compared to another currently approved hepatitis B vaccine, which requires three doses over six months, with a similar safety profile. We have worldwide commercial rights to HEPLISAV-B and we market it in the United States. We received Marketing Authorization approval of HEPLISAV-B in February 2021 from the European Commission following a positive recommendation in December 2020 from the European Medicines Agency (“EMA”) Committee for Medicinal Products (“CHMP”) for Human Use for prevention of infection caused by all known subtypes of hepatitis B virusHBV in adults age 18 years and older. WeIn May 2021, we entered into a commercialization agreement with Bavarian Nordic for the marketing and distribution of HEPLISAV-B in Germany and we expect to launch HEPLISAV-Bbegin distribution in the European Union (“EU”) in late 2021, initially focusing on one or a few key countries where it would be commercially feasible to market HEPLISAV-B on our own or through third-parties2022..
We also manufacture and sell CpG 1018 adjuvant, the vaccine adjuvant used in HEPLISAV-B. We developed CpG 1018 adjuvant to provide an increased vaccine immune response, aswhich has been demonstrated in HEPLISAV-B.real world commercial use and in a wide range of clinical trials. We are expanding the use of CpG 1018our adjuvant to support the development and potential large-scale manufacturing of additional vaccines through collaborations with multiple vaccine companies, and academic groups and in our own vaccine development programs. Current adjuvant supply collaborations are focused on adjuvanted vaccines forprimarily include a diverse, global portfolio of COVID-19 with several invaccine developers.
We expect to drive future innovation through our clinical development. In September 2020,pipeline and discovery efforts. Currently, we entered into a commercial supply agreement to provide our collaborator Valneva Scotland Limited (“Valneva”) with CpG 1018 to produce 60 to 100 million doses of their vaccine in 2021have three clinical development programs, and up to an additional 90 million doses through 2024. pre-clinical and clinical collaborations:
Adjuvant Technology Overview: Toll-like Receptor Immune Modulation Platform
Toll-like receptors (“TLRs”) are a family of transmembrane proteins that play a vital role in innate immunity and subsequent adaptive immunity. Signaling through these receptors is triggered by the binding of a variety of pathogen-associated molecules and is essential to generation of innate immunity. The innate immune response is, in effect, the first line of defense against viruses, bacteria and other potential pathogens. The innate response also initiates and regulates the generation of an adaptive immune response composed of highly specific antibodies and T cells. Compounds that stimulate enhanced immune responses are generally referred to as adjuvants.
Our work in this area has been focused primarily on stimulation of a subset of TLRs that have evolved to recognize bacterial and viral nucleic acids. This work resulted in the identification of proprietary unmethlyated synthetic
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oligonucleotides (short segments of deoxyribonucleic acid (“DNA”)), that mimic the activity of microbial DNA, and selectively activate one of these important receptors, TLR9. These TLR9 agonists are called CpG oligonucleotides – or “CpGs” for short – referring to the presence of specific nucleotide sequences containing the CG base pair.
Our vaccine research to date has focused on the use of TLR9 agonists as novel vaccine adjuvants. B-Class TLR9 agonists, such as our CpG 1018 adjuvant, stimulate release of cytokines necessary for T cell activation and establishing long-term immunity. TLR9 stimulation also helps generate memory Th1 cells that can stimulate the immune system to induce long-lasting effects. As a result, TLR9 adjuvanted vaccines induce a specific Th1 immune response and more durable levels of protective antibodies relative to non-adjuvanted vaccines. Our CpG 1018 adjuvant has an established tolerability profile demonstrated in a wide range of clinical trials and real-world, commercial use, and has consistently demonstrated its ability to enhance the immune response without excessive reactogenicity in HEPLISAV-B and multiple COVID-19 clinical trials.
Key 2021 Highlights and Performance Against Core Priorities
Maximize Growth of HEPLISAV-B [Hepatitis B Vaccine (Recombinant), Adjuvanted]
Expand CpG 1018 Adjuvant Supply Business for COVID-19 Vaccines
Drive Innovation Through Clinical Pipeline Expansion and Discovery
Corporate and Financial Highlights
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Impact of COVID-19 Pandemic to our Business
Significant uncertainties remain with respect to the extent and duration of the impact of COVID-19 Update
on our business and operations. The pandemic has resulted in changes to our business and operations which impacted our financial condition and results of operations for the year ended December 31, 2021, and 2020, and it may have a material adverse impact on our business and financial condition in the future. We are continuingcontinue to closely monitor the impact of the evolving effects of the COVID-19 pandemic on our business and are takingbusiness. In the process, we have made proactive efforts designed to help protect the health and safety of our workforce, as well as those of patients and healthcare professionals, and to continuewhile preserving the continuity of our business operations and advanceadvancing our goal of bringing important new vaccines to patients as rapidly as possible.
Our customers’ procurement activities coupled with restrictions at healthcare facilities during the pandemic, has negatively affected our sales of HEPLISAV-B. This is consistent with reduced utilization of adult vaccines generally, because focus in healthcare has been acutely placed on the treatment and prevention of COVID-19. The COVID-19 pandemic continued to disrupt the adult vaccine market in the fourth quarter with market utilization shifting back to a sharp decline from the third quarter recovery trend. The totalpossible. While adult hepatitis B market saw a reduction in utilization of approximately 35% in the fourth quarter compared to the same period last year. In the third quarter, utilization was down approximately 24% from the same period last year. Additionally, Centers for Disease Control and Prevention (“CDC”) guidance requiring 14-day spacing of vaccines before and after COVID-19 vaccine administration began to stall other adult vaccine utilization in the month of December and has continued to impact utilization into the first quarter which is a trend we believe will continue throughout the first half of 2021. Although utilization of vaccines generally has decreased during the pandemic, our sales effortsrates have continued to increase ourstay below pre-pandemic levels, we are starting to see a recovery in such utilization from all-time lows. Additionally, HEPLISAV-B continues to gain market share.
We have also seen increased interest in our advanced adjuvant, CpG 1018, from our collaborators who are focused on developing COVID-19 vaccines of their own, as well as other potential vaccine candidates targeted at other indications. As a result, we have been working with our supplier to secure additional manufacturing capacity to help support this increased interest in CpG 1018.
Currently, our HEPLISAV-B post-marketing observational studies are fully enrolled and continuing uninterrupted. Due to the design and conduct of the studies, we do not anticipate an impact to the integrity of the studies from “shelter in place” mandates. The HEPLISAV-B dialysis study is able to continue, because the dialysis treatment is classified under “essential travel” exemptions.
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The extent of the impact of the COVID-19 pandemic on our ability to generate sales and revenues, our regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. Because of the above and other factors, our results of operations may vary substantially from year to year and from quarter to quarter and, as a result, we believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as being indicative of our future performance. For additional information on the various current and future potential risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors, included herein.
Our Strategy
Our primary objectives are to make HEPLISAV-B the standard of careshare in the U.S. for immunization of adults against hepatitis B adult vaccine market. The impact of COVID-19 on our business and to establish CpG 1018 as a premier vaccine adjuvant.financial condition is more fully described below in Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.
Our strategy for HEPLISAV-BStrategy
Our vision is to focus our commercial efforts on:
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Our strategy for CpG 1018 is to demonstrate its potential to provide a robust immune response in a range of novel vaccines by collaborating with leading commercial and academic vaccine developers throughout the world. We believe that successful development of CpG 1018 adjuvanted vaccines will enable us to become a commercial supplierleading vaccines company dedicated to developing and commercializing innovative vaccines in areas of significant unmet need, leveraging our demonstrated expertise and capabilities in vaccines and our proven vaccine adjuvant technology. Our strategy is focused on three core priorities: drive growth in our HEPLISAV-B vaccine, execute on our CpG 1018 adjuvant supply business and drive innovation through clinical pipeline expansion and discovery. Key elements of our strategy include:
HEPLISAV-B (Hepatitis B Vaccine, (Recombinant), Adjuvanted)
HEPLISAV-B
The Company'sOur first commercial product, HEPLISAV-B (Hepatitis B Vaccine, (Recombinant), Adjuvanted), is approved by the FDAUnited States Food and Drug Administration (“FDA”) and the European Commission (approved in the EU in February 2021) for prevention of infection caused by all known subtypes of hepatitis B virusHBV in adults age 18 years and older.
HEPLISAV-B combines CpG 1018, our proprietary TLR9
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agonist adjuvant, and recombinant hepatitis B surface antigen (“rHBsAg” or “HBsAg”) that is manufactured by Dynavax GmbH, our wholly owned subsidiary, in Düsseldorf, Germany. HEPLISAV-B and each of the vaccines it directly competes against use rHBsAg to elicit an immune response to the virus.
About Hepatitis B
Hepatitis B is a viral diseasepotentially life-threatening liver infection caused by the HBV which may cause chronic infection and put people at high risk of thedeath from cirrhosis and liver that can become chronic and lead to cirrhosis of the liver, liver cancer and death. Hepatitis B virus is an extremely infectious and potentially deadly virus. It can be spread through the exchange of body fluids, such as semen or blood, and is 50 to 100 times more infectious than HIV.
Hepatitis B can be either acute or chronic. Acute hepatitis B virus infection is a short-term illness that occurs within the first six months after exposure to the hepatitis B virus. Acute infection can — but does not always — lead to chronic infection. Chronic hepatitis B virus infection is a long-term illness that occurs when the hepatitis B virus remains in a person’s body.
cancer. There is no cure for hepatitis B, but the disease can be prevented through effective vaccination. The World Health Organization (“WHO”) and the CDC have set a goal to eliminate all viral hepatitis infections, including hepatitis B, globally by 2030, and are calling for a continued commitment to increase services to eliminate hepatitis.
Worldwide, an estimated 257 The WHO estimates that worldwide, approximately 296 million people arewere living with chronic hepatitis B including at least 850,000in 2019. In addition, the CDC estimated that in 2016 approximately 862,000 people in the United States, where an estimated 21,000U.S. were living with HBV infection. There were a total of 3,322 new infections occur each year.
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In adults, sexual transmissioncases of acute hepatitis B may occur, particularlyreported to the CDC in unvaccinated men who have sex with men2018. However, after adjusting for under-ascertainment and heterosexual persons who have multiple sex partners or contact with sex workers. Transmission ofunder reporting, the virus may also occur throughCDC estimated that 21,600 acute hepatitis B cases occurred in the reuse of needles and syringes eitherU.S. in healthcare settings or among persons who inject drugs. Infection also can occur during medical, surgical and dental procedures, or through tattooing or the use of razors contaminated with infected blood.2018.
Recommendations for Adult Vaccination to Prevent Hepatitis B
Adult vaccinationThe CDC’s ACIP unanimously voted at its November 2021 meeting to preventrecommend that all adults 19 to 59 years of age should receive a hepatitis B vaccination. This universal recommendation greatly simplifies the identification of patients who need a hepatitis B vaccine compared to the previous risk-based recommendation, and significantly expands the number of adults in the United States who should be vaccinated against hepatitis B under CDC recommendation.
This recommendation is a significant milestone for hepatitis B prevention, making hepatitis B the fifth vaccine routinely recommended byfor adult immunization along with influenza, Tdap, shingles and pneumococcal. Based on this opportunity, we have begun to launch innovative marketing campaigns targeting consumers and healthcare providers to increase the CDC Advisory Committee on Immunization Practices (“ACIP”) for many at-risk populations, including certain healthcare and public safety workers, peopleawareness of HEPLISAV-B as the only two-dose hepatitis B vaccine option, with diabetes and travelers. The ACIP recommendation includes adults with the following risks:broad protection across most patient types.
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Protection Against Hepatitis B by HEPLISAV-B
The approval of HEPLISAV-B by the FDA was based on data from three Phase 3 non-inferiority trials ofinvolving nearly 10,000 adult participants who received HEPLISAV-B. These pivotal studies compared HEPLISAV-B administered in two doses over one month to Engerix-B® administered in three doses over a six-month schedule. Results from HBV-23, the largest Phase 3 trial, which included 6,665 participants, showed that HEPLISAV-B demonstrated a statistically significantly higher rate of protection of 95% compared with 81% for Engerix-B. Across the three clinical trials, the most common local reaction was injection site pain (23% to 39%). The most common systemic reactions were fatigue (11% to 17%) and headache (8% to 17%).
We are also conducting an open-label, single arm study evaluating a 4-dose regimen of HEPLISAV-B in adults with end-stage renal disease who are initiating or undergoing hemodialysis. In January 2021, we reported final immunogenicity results that included a seroprotection rate of 89.3% with high levels of anti-HBs antibodies. Interim safety data showed HEPLISAV-B is well tolerated and no safety concerns were observed. Interim data may not be indicative of any data post-completion of this trial and we cannot guarantee that HEPLISAV-B will be safe or effective, or otherwise successful in this clinical trial. Due to the general health condition of the patient population participating in this particular study, adults with end-stage renal disease undergoing hemodialysis, we do expect to see a higher potential incidence of adverse events reporting than what we saw with previous trials for HEPLISAV-B. We expect that the last patient visit for this trial will be in September 2021, and we expect full safety data by the end of 2021. The safety and effectiveness of HEPLISAV-B in adults on hemodialysis have not yet been established. This study alone, regardless of results, may not be sufficient to support a label change to include dialysis.
Commercialization of HEPLISAV-B
Dynavax has worldwide commercial rights to HEPLISAV-B. ThereIn addition to HEPLISAV-B, there are threefour other vaccines approved for the prevention of hepatitis B in the U.S.: Engerix-B and Twinrix® from GlaxoSmithKline plc (“GSK”) and(GSK), Recombivax-HB® from Merck & Co. (“Merck”). and PreHevbrio™ from VBI Vaccines Inc. HEPLISAV-B is currently approved in the U.S. and the EU for the prevention of hepatitis B.B in adults. We are also exploringconsidering additional territories where it would be commercially feasible to market HEPLISAV-B on our own or through third parties.HEPLISAV-B.
Based on 2019 data, we estimate that the current total U.S. market opportunity for HEPLISAV-B net sales is approximately $400 million annually, excluding what we believe are temporary COVID-related reductions in utilization of adult vaccines generally. We also believe that the market opportunity could increase to over $600 million annually when allowing for expanding adult immunization and coverage rates, increased second dose compliance, price increases over time and expansion of use in persons with diabetes. The largest segments of the market are concentrated in independent hospitals and clinics, integrated delivery networks, dialysis centers, public health clinics and prisons, the Departments of Defense and Veterans Affairs and retail pharmacies. Our promotional activity is focused on the largest accounts in each segment. WeOur field sales force of approximately 100 people are currently targeting customers that we believe represent, in the aggregate, approximately 60% of hepatitis B vaccine salesdoses administered in the U.S., with our field sales force of approximately 65 people across 3 regions.an overall objective to increase market share.
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We are currently studyingcontinue to explore ways to enhance the clinical profile of HEPLISAV-B. We completed an open-label, single arm study of a four-dose4-dose regimen of HEPLISAV-B for patientsin adults with end-stage renal disease who are initiating or undergoing hemodialysis. Final immunogenicity results included a seroprotection rate of 89.3% with high levels of anti-HBs antibodies. Safety data showed HEPLISAV-B was well tolerated and no safety concerns were observed. The safety and effectiveness of HEPLISAV-B in adults on hemodialysis.hemodialysis have not yet been established. This study alone, regardless of results, may not be sufficient to support a label change to include dialysis patients. If we receive approval of this dosing schedule, we expect to add dialysis centers to our personal promotion efforts, which could increase our coverage of the U.S. market to approximately 70%75%.
In late 2012, the ACIP expanded its recommendation for adults who should be vaccinated against hepatitis B to include people with diabetes mellitus (type 1 and type 2). According to the CDC, in 2018, there are 20 million adults diagnosed with diabetes and another 1.5 million new cases diagnosed each year. This population represents a significant increase in the number of adults recommended for vaccination against hepatitis B in the U.S.9
The ACIP also is considering adoption of policy initiatives aimed at a universal adult recommendation and preferential use for HEPLISAV-B. Additional sources of potential growth in the market opportunity for HEPLISAV-B include improved second dose compliance and increases in adult immunization and coverage rates.
VACCINES AND VACCINE ADJUVANTS
Vaccines stimulate a person’s immune system to protect against a specific disease. Vaccines generally consist of a virus, bacteria or other pathogen, or a component, called an antigen, that can induce an immune response against that pathogen. Many antigens, including those used in recombinant subunit vaccines, are often poorly immunogenic and require additional components to help stimulate protective immunity based on antibodies and effector T cell functions. These additional components, called adjuvants, provide the help needed to enhance the immunogenicity of vaccine antigens. Adjuvants can increase the magnitude of an adaptive response to a vaccine and can guide the type of adaptive response to produce the most appropriate form of immunity for each specific pathogen.
HEPLISAV-B and each of the vaccines it directly competes against use recombinant hepatitis B surface antigen (“rHBsAg” or “HBsAg”) to elicit an immune response to the virus. The other FDA approved HBV vaccines use aluminum as an adjuvant and we usePROPRIETARY CpG 1018 our proprietary Toll-Like Receptor 9 (“TLR9’) agonist adjuvant. In Phase 3 trials, HEPLISAV-B demonstrated faster and higher rates of protection and increased antibody titers and increased seroconversion rates in a general adult population and in adult populations with reduced responsiveness with two doses in one month compared to three doses over six months required for a competitor product containing alum, and it had a similar safety profile.Vaccine ADJUVANT
CpG 1018
TheWe believe the favorable immunogenicity and safety results achieved with HEPLISAV-B utilizing our CpG 1018 adjuvanted HEPLISAV-Badjuvant support our efforts to develop CpG 1018it as a broadly useful vaccine adjuvant platform. CpG 1018 adjuvant has an established profile for the potential development of safe and effective vaccines. CpG 1018It has a well-defined mechanism of action, targeting select immune system cells, with well-characterized effects on the immune response that mimic the immune response to naturally occurring TLR9 agonists in pathogens, resultingpathogens. This results in potent adjuvant activity for antibody responses. In HEPLISAV-B, our CpG 1018 adjuvant drives faster and consistently higher rates of seroprotection includingthan Engerix-B, even in the elderly and populations known to be less responsive to other vaccines. CpG 1018 adjuvant differentially elicits a preferred T Helper 1 (“Th1”) cell polarized response driving both production of antibodies and T-cell activation.drives protective antibody production. CpG 1018 adjuvant has a large safety database indicatingthat indicates a favorable reactogenicity profile with lower reactogenicity compared to other adjuvants.
We have established several clinical and preclinical collaborations with vaccine developers to evaluate CpG 1018 adjuvanted vaccine product candidates against COVID-19, flu, and other infectious diseases.diseases, and particularly COVID-19 across a variety of vaccine platforms. Data from studies in non-human primates demonstrate our CpG 1018 adjuvant can elicit a robust immune response to COVID-19 and protect animals from infection in challenge studies. Initial resultsResults from Phase 12 and 3 human clinical studies demonstrated a CpG 1018 adjuvanted vaccinevaccines induced a high level of efficacy and strong immune responses, including neutralizing antibodies and Th1-biased cell-mediated immunity, and demonstrated a favorable safety and tolerability profile.
ValnevaCpG 1018 Adjuvant Supply Partnerships for COVID-19 Vaccine Development
To support the fight against COVID-19, we have entered into certain supply relationships with a diverse portfolio of vaccine developers to supply CpG 1018 adjuvant for their use in development and/or commercialization of COVID-19 vaccines. To-date, two of our supply partners’ vaccine candidates utilizing CpG 1018 adjuvant, have been approved for emergency use. Additionally, Phase 3 clinical data from other partnered programs consistently demonstrated the value of our adjuvant across multiple vaccine platforms with additional regulatory authorization for partners' COVID-19 vaccines anticipated in 2022. We continue to expand manufacturing capacity to meet our collaborators’ needs for our adjuvant in 2022 and beyond.
Clover Biopharmaceuticals
In June 2021, we entered into an agreement with Zhejiang Clover Biopharmaceuticals, Inc. and Clover Hong Kong Inc. (collectively, “Clover”), for the commercial supply of CpG 1018 adjuvant, for use with Clover’s COVID-19 vaccine candidate, SCB-2019 (“Clover Supply Agreement”). Under the Clover Supply Agreement, Clover has committed to purchase specified quantities of CpG 1018 adjuvant, at pre-negotiated prices pursuant to an agreement with the Coalition for Epidemic Preparedness Innovations (“CEPI”), for use in Clover’s commercialization of vaccines containing SCB-2019 and CpG 1018 adjuvant. The Clover Supply Agreement also provides specified terms for Clover to order and take delivery of additional quantities of CpG 1018 adjuvant beyond the quantities reserved by CEPI. In September 2021, Clover reported that SCB-2019 achieved the primary and secondary efficacy endpoints, with a favorable safety profile, in a global Phase 2/3 clinical trial.
Biological E. Limited
In April 2020,July 2021, we entered into an agreement with Biological E. Limited (“Bio E”), for the commercial supply of CpG 1018 adjuvant, for use with Bio E’s subunit COVID-19 vaccine candidate, CORBEVAX™ (the “Bio E Supply Agreement”). Under the Bio E Supply Agreement, Bio E has committed to purchase specified quantities of CpG 1018 adjuvant, at pre-negotiated prices pursuant to the CEPI Agreement, for use in Bio E’s commercialization of its CORBEVAX vaccine with specified delivery dates in 2021 and the first quarter of 2022. The Bio E Supply Agreement also provides specified terms for Bio E to order and take delivery of additional quantities of CpG 1018 adjuvant beyond the quantities reserved by CEPI. In December 2021, CORBEVAX received approval for emergency use from the Drugs Controller General of India.
Medigen Vaccine Biologics
In February 2021, we entered into a collaboration agreementSupply Agreement with ValnevaMedigen Vaccine Biologics (Medigen) to providemanufacture and supply specified quantities of CpG 1018 adjuvant for use in the development and commercialization of Valneva’sMedigen’s COVID-19 vaccine, candidate,adjuvanted with our CpG 1018 adjuvant, MVC-COV1901, for delivery in the first and second quarters of 2021. In August 2021, we entered into a second supply agreement to manufacture and supply additional specified
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quantities of CpG 1018 adjuvant for delivery in Septemberthe third and fourth quarter of 2021. In August 2021, Medigen launched MVC-COV1901 after receiving Taiwan Emergency Use Authorization and approval for inclusion in Taiwan's COVID-19 vaccine immunization program.
Valneva Scotland Limited
In the third quarter of 2020, we entered into a commercial supply agreement with Valneva Scotland Limited (”Valneva”) to manufacture and supply CpG 1018 adjuvant for useits SARS-COV-2 vaccine candidate, VLA2001, in connection with Valneva’s supply agreement with the United Kingdom Government and subject to the terms of such agreement (“Valneva Supply Agreement”). In September 2021, the United Kingdom Government terminated its supply agreement with Valneva. In October 2021, Valneva reported that VLA2001 met both co-primary endpoints in the commercialization of Valneva's COVID-19COV-COMPARE trial, and that VLA2001 was well-tolerated, demonstrating a statistically significant better tolerability profile compared to active comparator vaccine, candidate.AstraZeneca's AZD1222 (ChAdOx1-S).
In October 2021, we entered into a letter agreement (the “Valneva Amendment”), amending the Valneva Supply Agreement. Under the supply agreementValneva Amendment, we will provideand Valneva agreed to the cancellation of the two then-outstanding purchase orders for CpG 1018 adjuvant under the Valneva Supply Agreement that had not been fulfilled as of the date of the Valneva Amendment, and Valneva concurrently committed to purchase a reduced amount of CpG 1018 adjuvant under a new purchase order. We were entitled to retain the advance payments made by Valneva under such cancelled purchase orders to the extent such advance payments did not count towards the advance payments due under the Valneva Amendment.
Our Vaccine Research and Development Pipeline
We are building an innovative pipeline of investigational vaccine product candidates, leveraging our proven adjuvant technology. A summary of our pipeline programs follows:
Tdap Vaccine Phase 1 Study
Pertussis (whooping cough) is a serious illness in people of all ages and can be life-threatening, especially in infants. Whooping cough is caused by the highly contagious respiratory bacterium, Bordetella pertussis. People with pertussis usually spread the disease to others by coughing, sneezing or spending time in the same breathing environment. According to the CDC, there are an estimated 24.1 million cases of pertussis and about 160,700 deaths per year globally. The resurgence of B. pertussis in multiple countries has been attributed to the Tdap vaccine’s limited duration of protection and inability to block nasal colonizing infections, thereby failing to alter transmission. Our Tdap booster vaccine candidate adjuvanted with CpG 1018 is anticipated to produce 60 to 100 million dosesimprove the durability and protection against pertussis colonization in the upper airways by redirecting T cell responses and enhancing protective antibody responses in a booster vaccine. Initial proof-of-concept preclinical animal model data demonstrated that inclusion of vaccineCpG 1018 adjuvant in 2021prime/boost vaccinations reduces bacterial burden in the upper and up to an additional 90 million doses through 2024 to support Valneva's contract with the U.K. government. Phase 1/2 clinical trials of the Valneva vaccine candidate were initiated in December 2020.
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Serum Institute of Indialower airways compared Tdap vaccination alone.
In June 2017, we entered into an agreement with Serum Institute of India Pvt. Ltd. (“SIIPL”) to collaborate on development and commercialization of certain potential vaccines. Our initial program is the development of an improvedvaccines including Tdap booster vaccine candidate adjuvantedadjuvated with CpG 1018. A PhaseCpG1018. Topline data is expected in 2022 from our ongoing Tdap-1018 phase 1 clinical trial began inJanuary 2021.evaluating the safety, tolerability, and immunogenicity in adults and adolescents. Under the collaboration, Dynavax haswe have exclusive worldwide rights to commercialize the vaccine, andexcept that SIIPL has exclusive rights to distribute in India and to fulfill WHO/UNICEFUnited Nations Children's Fund (“UNICEF”) tender contracts. Each party is responsible for clinical development cost in their respective territories.
Toll-like Receptor Immune Modulation PlatformHerpes Zoster Virus (Shingles) Vaccine Phase 1 Study
Toll-like receptorsShingles is an extremely painful consequence of the reactivation of a latent varicella-zoster virus (“TLRs”VZV”) areinfection, with attacks leading to potential complications including chronic pain. The current shingles vaccine market is approximately $2 billion and expected to grow over time. Our CpG 1018 adjuvant has demonstrated its ability to enhance the immune response without excessive reactogenicity in both HEPLISAV-B and multiple COVID-19 clinical trials. Importantly, CpG 1018 has shown the ability to generate high levels of CD4+-cells which have been demonstrated to be key cell types in controlling latent VZV infection to avoid reactivation leading to shingles, with potentially lower reactogenicity compared to the current standard of care.
In January 2022, we announced the initiation of a familyphase 1 clinical trial of transmembrane proteins that play a vital role in innate immunityour shingles vaccine candidate, adjuvanted with CpG 1018. The global phase 1 study is designed to evaluate safety, tolerability and subsequent adaptive immunity. Signaling through these receptorsimmunogenicity of the vaccine
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candidate which is triggeredcomprised of glycoprotein E (gE) plus CpG 1018 adjuvant. Topline data from this trial is expected by the bindingend of 2022.
U.S. Department of Defense (Plague Vaccine) Phase 2 Study
In September 2021, we entered into an agreement with the U.S. Department of Defense ("DoD") for the development of a variety of pathogen-associated moleculesrecombinant plague vaccine adjuvanted with CpG 1018 for approximately $22.0 million over two and is essential to generation of innate immunity. The innate immune response is, in effect,a half years. Under the first line of defense against viruses, bacteria and other potential pathogens. The innate response also initiates and regulates the generation of an adaptive immune response composed of highly specific antibodies and T cells. Our work has been focused primarily on stimulation ofagreement, we will conduct a subset of TLRs that have evolved to recognize bacterial and viral nucleic acids. This work resulted in the identification of proprietary synthetic oligonucleotides (short segments of DNA), that mimic the activity of microbial DNA and selectively activate one of these important receptors, TLR9. These are called CpG oligonucleotides – “CpGs” for short – referring to the presence of specific nucleotide sequences containing the CG base pair.
Our vaccine research to date has focused on the use of TLR9 agonists as novel vaccine adjuvants. B-Class TLR9 agonists, such asPhase 2 clinical trial combining our CpG 1018 adjuvant with the DoD's rF1V vaccine adjuvant, stimulate releaseto show that two doses of cytokines necessary for T cell activation and establishing long-term immunity. TLR9 stimulation also helps generate memory Th1 cells that can stimulateCpG 1018 adjuvanted vaccine is non-inferior compared to three doses of the immune system to induce long-lasting effects. As a result, TLR9 adjuvanted vaccines induce a specific Th1 immune response and durable levels of protective antibodies.aluminum-adjuvanted vaccine. We anticipate the Phase 2 trial will commence in 2022.
INTELLECTUAL PROPERTY
Our commercial success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Generally, we seek patent protection in the U.S and foreign countries on a selective basis to further protect the inventions that we or our partners consider important to the development of our business. We also rely on trade secrets and contracts to protect our proprietary information.
As of December 31, 2020,2021, our intellectual property portfolio included over 25 issued U.S. patents, over 80 issued or60 granted foreign patents and over 25 additional owned or co-owned pending U.S. and foreign patent applications claiming compositions containing TLR agonists or antagonists, methods of use, and/or methods of manufacture thereof. Some of these patents and patent applications relate to our discontinued immuno-oncology programs. Reductions in counts, relative to prior years, are reflective of the assets we sold during 2020 following such discontinuation and other decisions we took consistent withexpiration of or decision to discontinue maintenance of older foreign patents that were not relevant to our focus on ouractive vaccine business.programs. We have three issued U.S. patents relating to certain uses of HEPLISAV-B that expire in 2032.
Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued in the U.S. are effective for 20 years from the earliest effective filing date.
In addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result of the FDA regulatory review period. The duration of patents varies in accordance with provisions of applicable local law, but typically is 20 years from the filing date. Our patent estate, based on patents existing now and expected by us to issue based on pending applications, will expire on dates ranging from 20212022 to 2041.2042.
The actual protection afforded by a patent varies on a product-by-product basis, from country-to-country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patents.
Because patent applications in the U.S. and many foreign jurisdictions typically are not published until 18 months after filing and publications of discoveries in the scientific literature often lag behind actual discoveries, we cannot be certain that we were the first to file for protection of the inventions set forth in these patent applications or in our issued patents. Further, there could be proceedings such as inter partes review (IPR), post grant review (PGR), reexamination, reissue or reissueopposition which could result in claims in our patents being narrowed or even invalidated.
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Our commercial success depends significantly on our ability to operate without infringing patents and proprietary rights of third parties. A number of pharmaceutical companies and biotechnology companies, as well as universities and research institutions, may have filed patent applications or may have been granted patents that cover inventions similar to the inventions owned by or licensed to us. We cannot determine with certainty whether patents or patent applications of other parties may materially affect our ability to make, use or sell any products. If another party controls patents or patent applications covering our products, we may not be able to obtain the rights we need to those patents or patent applications in order to commercialize our products.
Litigation may be necessary to enforce patents issued or licensed to us or to determine the scope or validity of another party’s proprietary rights. The existence of third-party patent applications and patents could significantly reduce the coverage of the patents owned by or licensed to us and limit our ability to obtain meaningful patent protection. Litigation or any other proceedings could result in substantial costs to and diversion of effort by us, and an adverse outcome in a court or patent office could subject us to significant liabilities, require disputed rights to be licensed from other parties, or require us to cease using some of our technology. We may not prevail in these actions or proceedings, if any.
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In addition, other parties may duplicate, design around or independently develop similar or alternative technologies to ours or our licensors.
We may rely, in some circumstances, on trade secrets and confidentiality agreements to protect our technology. Although trade secrets are difficult to protect, wherever possible, we use confidential disclosure agreements to protect the proprietary nature of our technology. Our policy is to require each of our collaborators, commercial partners, employees, consultants and advisors to enter into an agreement before beginning their employment, consulting or advisory relationship with us that in general provides that the individuals must keep confidential and not disclose to other parties any of our confidential information developed or learned by the individuals during the course of their relationship with us except in limited circumstances. These agreements also generally provide that we own all inventions conceived by the individuals in the course of rendering their employment or services to us. However, there can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and/or proprietary information will not otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may also arise as to the rights in related or resulting know-how and inventions.
COMPETITION
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Our products and development programs compete with several commercially available vaccine and adjuvant products. Many companies and institutions are making substantial investments in developing additional vaccines and adjuvants that could compete directly or indirectly with our marketed products and products under development by us and our collaborators. For example, while we recently announced a new shingles vaccine candidate, around the same time, Pfizer and Biontech also announced competing shingles programs. The approved products from these programs will all need to compete with a single approved vaccine currently available in the U.S.
We also believe our CpG 1018 adjuvant, which we use in our own products and product candidates and provide to our collaborators, is as or more effective than other available adjuvants and, being a yeast-derived product, is far more sustainable that other available products that are derived from, for example, shark squalene or tree bark. Regardless, there can be no guarantee that we can compete with other companies for sales of adjuvant, or any approved vaccine.
Competition for HEPLISAV-B
HEPLISAV-B, a two-dose in one month adult hepatitis B vaccine, competes directly with conventional three-dose over six months marketed vaccines Engerix-B from GSK, as well as Recombivax-HB marketed by Merck. There are also modified schedules of conventional hepatitis B vaccines for limited age ranges that are approved in the EU and the U.S. In addition, HEPLISAV-B competes against Twinrix, a bivalent vaccine marketed by GSK for protection against hepatitis B and hepatitis A. A three dose HBV vaccine manufactured by VBI Vaccines Inc. (“VBI”) is approved in Israel and recently completed Phase 3 trials in the United States, Europe and Canada.U.S. While we believe that HEPLISAV-B competes very well with other approved vaccines available on the market, we are still a relatively new entrant and we face significant competition in our longer term goal to capture 60-70%a majority of the U.S. market share. While we may explore additional territories outside of the U.S. and the EU to market HEPLISAV-B, in doing so we will likely face competition from these or other products and competitors.
Competition for our adjuvant supply supporting COVID-19 and our development pipeline including pertussis, shingles and other potential pipeline indications
We are also in competition with companies developing vaccines, and vaccine adjuvants, generally, including, among others, GSK, Pfizer, Inc., Sanofi S.A., Merck, Seqirus,Novartis International AG, Agenus, Inc., Emergent BioSolutions, Inc., Novavax, Inc., Medicago Inc., Valneva, AstraZeneca plc, Moderna, Inc., Johnson & Johnson and VBI.
Many of the entities developing or marketing these competing products have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative agreements with large, established companies with access to capital. These entities may also compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring technologies complementary to or necessary for our programs.
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REGULATORY CONSIDERATIONS
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose extensive requirements upon the clinical development, pre-market approval, manufacture, labeling, marketing, promotion, pricing, import, export, storage and distribution of biopharmaceuticals. These agencies and other regulatory agencies regulate research and development activities and the testing, approval, manufacture, quality control, safety, effectiveness, labeling, storage, recordkeeping, advertising and promotion of drugs and biologics. Failure to comply with applicable FDA or foreign regulatory agency requirements may result in warning letters, fines, civil or criminal penalties, additional reporting obligations and/or agency oversight, suspension or delays in clinical development, recall or seizure of products, partial or total suspension of production or withdrawal of a product from the market.
In the United States, the FDA regulates drug products under the Federal Food, Drug, and Cosmetic Act and its implementing regulations and biologics additionally under the Public Health Service Act. The process required by the FDA before biopharmaceuticals may be marketed in the United States generally involves the following:
| • submission to the FDA of an IND, which must become effective before human clinical trials may begin and must be updated annually; • completion of extensive pre-clinical laboratory tests and pre-clinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice (“GLP”) regulations; • performance of adequate and well controlled human clinical trials to establish the safety and efficacy of the product for each proposed indication; • submission to the FDA of a new drug application or a biologics license application, NDA or BLA, depending on the nature of the product after completion of all pivotal clinical trials to demonstrate the safety, purity and potency of the product for the indication for use; • a determination by the FDA to accept the application for review; • satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities to assess compliance with the FDA’s current good manufacturing practices (“cGMP”) regulations for pharmaceuticals; and • FDA review and approval of an NDA or BLA prior to any commercial marketing or sale of the product in the United States.
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The development and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates, or those of our collaborators, will be granted on a timely basis, if at all.
The results of pre-clinical tests (which include laboratory evaluation as well as GLP studies to evaluate toxicity in animals) for a particular product candidate, together with related manufacturing information and analytical data, are submitted as part of an IND to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the thirty-day time period, raises concerns or questions about the conduct of the proposed clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. IND submissions may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development. Further, an independent institutional review board, or IRB, for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center and it must monitor the study until completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive good clinical practice (“GCP”) regulations and regulations for informed consent and privacy of individually identifiable information.
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Clinical Trials. For purposes of an NDA or BLA submission and approval, clinical trials are typically conducted in the following sequential phases, which may overlap:
| • Phase 1. Studies are initially conducted in a limited population to test the product candidate for safety, dose tolerance, absorption, distribution, metabolism, and excretion, typically in healthy humans, but in some cases in patients. • Phase 2. Studies are generally conducted in a limited patient population to identify possible adverse effects and safety risks, explore the initial efficacy of the product for specific targeted indications and to determine dose range or pharmacodynamics. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. • Phase 3. These are commonly referred to as pivotal studies. When Phase 2 evaluations demonstrate that a dose range of the product is effective and has an acceptable safety profile, Phase 3 clinical trials are undertaken in large patient populations to further evaluate dosage, provide substantial evidence of clinical efficacy and further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical trial centers. • Phase 4. The FDA may approve an NDA or BLA for a product candidate, but require that the sponsor conduct additional clinical trials to further assess the product after approval under a post-marketing commitment or post- marketing requirement. In addition, a sponsor may decide to conduct additional clinical trials after the FDA has approved a product. Post-approval trials are typically referred to as Phase 4 clinical trials.
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The results of biologic development, pre-clinical studies and clinical trials are submitted to the FDA as part of an NDA or BLA. Applications also must contain extensive manufacturing and control information. Applications must be accompanied by a significant user fee. Once the submission has been accepted for filing, the FDA’s goal is to review applications within ten months of submission or, if the application relates to an unmet medical need in a serious or life-threatening indication, eight months from submission. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA will typically conduct a pre-approval inspection of the manufacturer to ensure that the product can be reliably produced in compliance with cGMPs and will typically inspect certain clinical trial sites for compliance with GCP. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. The FDA may deny approval of an application by issuing a Complete Response Letter if the applicable regulatory criteria are not satisfied. A Complete Response Letter may require additional clinical data and/or trial(s), and/or other significant, expensive and time- consuming requirements related to clinical trials, pre-clinical studies or manufacturing. Approval may occur with boxed warnings on product labeling or Risk Evaluation and Mitigation Strategies, or REMS, which limit the labeling, distribution or promotion of a product. Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing, including Phase 4 clinical trials, and surveillance programs to monitor the safety effects of approved products which have been commercialized and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs or other information.
Other Regulatory Requirements.Requirements. Products manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA, including recordkeeping, annual product quality review, payment of program user fees and reporting requirements. Adverse event experience with the product must be reported to the FDA in a timely fashion and pharmacovigilance programs to proactively look for these adverse events are mandated by the FDA. Manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as suspension of manufacturing, seizure of product, injunctive action, additional reporting requirements and/or oversight by the agency, import alert or possible civil or criminal penalties. The FDA may also require us to recall a product from distribution or withdraw approval for that product.
The FDA closely regulates the post-approval marketing and promotion of pharmaceuticals, including standards and regulations for direct-to-consumer advertising, dissemination of off-label information, industry-sponsored scientific and educational activities and promotional activities involving the Internet, including certain social media activities. Further, if there are any modifications to the product, including changes in indications, labeling, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new or supplemental application, which may require us to develop additional data or conduct additional pre-clinical studies and clinical trials. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential administrative, civil and
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criminal penalties, as well as damages, fines, withdrawal of regulatory approval, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs, additional reporting requirements and/or oversight by the agency, and imprisonment, any of which could adversely affect our ability to sell our products or operate our business and also adversely affect our financial results.
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Physicians may, in their independent medical judgment, prescribe legally available pharmaceuticals for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications regarding off-label use. Additionally, a significant number of pharmaceutical companies have been the target of inquiries and investigations by various U.S. federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for off-label uses and other sales practices. These investigations have alleged violations of various U.S. federal and state laws and regulations, including claims asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, false claims laws, the Prescription Drug Marketing Act, or PDMA, anti-kickback laws, and other alleged violations in connection with the promotion of products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. If our promotional activities, including any promotional activities that a contracted sales force may perform on our behalf, fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to issue warning letters or untitled letters, suspend or withdraw an approved product from the market, require corrective advertising or a recall or institute fines or civil fines, additional reporting requirements and/or oversight or could result in disgorgement of money, operating restrictions, injunctions or criminal prosecution, any of which could harm our business.
Outside the United States, the ability of our partners and us to market a product is contingent upon obtaining marketing authorization from the appropriate regulatory authorities. The requirements governing marketing authorization, pricing and reimbursement vary widely from country to country and region to region.
Healthcare Fraud and Abuse Laws. As a pharmaceutical company, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights may be applicable to our business. We may be subject to various federal and state laws targeting fraud and abuse in the healthcare industry. For example, in the United States, there are federal and state anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services or reward past purchases or recommendations. These laws are applicable to manufacturers of products regulated by the FDA, such as us, and pharmacies, hospitals, physicians and other potential purchasers of such products.
The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” is defined as any remuneration, direct or indirect, overt or covert, in cash or in kind, and has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market value. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute may have been violated, and enforcement will depend on the relevant facts and circumstances. The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 or collectively(collectively, the ACA,"ACA"), among other things, amended the intent requirement of the federal Anti-Kickback Statute to state that a person or entity need not have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act (discussed below) or the civil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or to have offered improper inducements to federal health care program beneficiaries to select a particular provider or supplier. The federal Anti-Kickback Statute is broad, and despite a series of narrow statutory exceptions and regulatory safe harbors, prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs, and do not contain identical safe harbors. In addition, where such activities involve foreign government officials, they may also potentially be subject to the Foreign Corrupt Practices Act. Because of the breadth of these laws and the narrowness of the statutory exceptions and
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regulatory safe harbors available, it is possible that some of our business activities, including our activities with physician customers, pharmacies, and patients, as well as our activities pursuant to partnerships with other companies and pursuant to contracts with contract research organizations, could be subject to challenge under one or more of such laws.
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The federal criminal and civil false claims laws, including the False Claims Act, which prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. In addition, the ACA specified that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. The False Claims Act has been the basis for numerous enforcement actions and settlements by pharmaceutical and other healthcare companies in connection with various alleged financial relationships with customers. In addition, a number of pharmaceutical manufacturers have reached substantial financial settlements in connection with allegedly causing false claims to be submitted because of the companies’ marketing of products for unapproved, and thus non-reimbursable, uses. Certain marketing practices, including off-label promotion, may also violate false claims laws, as might violations of the federal physician self-referral laws, such as the Stark laws, which prohibit a physician from making a referral to certain designated health services with which the physician or the physician’s family member has a financial interest and prohibit submission of a claim for reimbursement pursuant to the prohibited referral. The “qui tam” provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In addition, various states have enacted similar fraud and abuse statutes or regulations, including, without limitation, false claims laws analogous to the False Claims Act that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
Separately, there are a number of other fraud and abuse laws that pharmaceutical manufacturers must be mindful of, particularly after a product candidate has been approved for marketing in the United States. For example, a federal criminal law enacted as part of, the Health Insurance Portability and Accountability Act of 1996 or HIPAA,("HIPAA") prohibits, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. There are also federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.
Healthcare Privacy and Security Laws. We may be subject to, or our marketing activities may be limited by, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 or HITECH,("HITECH") and their respective implementing regulations, which established uniform standards for certain “covered entities” (certain healthcare providers, health plans and healthcare clearinghouses) governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information. Among other things, HIPAA’s privacy and security standards are directly applicable to “business associates” — independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity.entity, as well as their covered subcontractors. In addition to possible civil and criminalpenalties for violations, HITECH created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. State laws also govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Further, we are required to comply with international personal data protection laws and regulations, particularly as the result of our operations in Düsseldorf, Germany.
Privacy and Security Laws. We are subject to diverse laws and regulations relating to data privacy and security, including, in the United States, HIPAA and, in the EU and the European Economic Area or EEA,("EEA") the GDPR (Regulation 2016/679). New privacy rules are being enacted in the United States and globally, and existing ones are being expanded, updated and strengthened.
Effective May 25, 2018, the EU implemented the General Data Protection Regulation (“GDPR”) a broad data protection framework that expands the scope of current EU data protection law to non-EU entities that process, or control the processing of, the personal information of EU subjects, including clinical trial data. The GDPR implements more stringent operational requirements than its predecessor legislation.
Further, the Court of Justice of the EU ruled in July 2020 that the Privacy Shield, used by thousands of companies to transfer data between the EU and United States, was invalid and could no longer be used. In September 2020, Switzerland
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concluded that the Swiss-U.S. Privacy Shield Framework does not provide an adequate level of protection for data transfers from Switzerland to the United States. Alternative transfer mechanisms may be used, including the standard contractual clauses (“SCCs”), while the authorities interpret the decisions and scope of the invalidated Privacy Shield, but the SCCs have also been called into question in the same ruling that invalidated Privacy Shield.
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Additionally, Brexit took effect in January 2020, which will lead to further legislative and regulatory changes. While the Data Protection Act of 2018, that “implements” and complements the GDPR achieved Royal Assent on May 23, 2018 and is now effective in the United Kingdom, it is still unclear whether transfer of data from the EEA to the United Kingdom will remain lawful in the long term under GDPR. With the expiry of the transition period on December 31, 2020, companies will have to comply with the GDPR and the GDPR as incorporated into United Kingdom national law, which has the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. The relationship between the United Kingdom and the EU in relation to certain aspects of data protection law remains unclear, for example around how data can lawfully be transferred between each jurisdiction, which exposes us to further compliance risk. We may incur liabilities, expenses, costs, and other operational losses under GDPR and applicable EU Member States and the United Kingdom privacy laws in connection with any measures we take to comply with them.
Also, in June 2018, the State of California enacted the California Consumer Privacy Act of 2018 (“CCPA”), which became effective in January 2020. The CCPA establishes a privacy framework for covered businesses, including an expansive definition of personal information and data privacy rights for California residents. The CCPA includes a framework with potentially severe statutory damages and private rights of action. The CCPA requires covered companies to provide new disclosures to California consumers (as that word is broadly defined in the CCPA), provide such consumers new ways to opt-out of certain sales of personal information, and allow for a new cause of action for data breaches.
Further, California voters approved a new privacy law, the California Privacy Rights Act or CPRA,("CPRA") in the November 3, 2020 election. Effective starting on January 1, 2023, the CPRA will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA.
“Sunshine” and Marketing Disclosure Laws. There are an increasing number of federal and state “sunshine” laws that require pharmaceutical manufacturers to make reports to states on pricing and marketing information. Several states and local jurisdictions have enacted legislation requiring pharmaceutical companies to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales and marketing activities, register pharmaceutical sales representatives, and prohibiting certain other sales and marketing practices. In addition, a similar federal requirement, known as the Physician Payments Sunshine Act, requires manufacturers, including pharmaceutical manufacturers, to track and report annually to the federal government certain payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and, other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals and information regarding ownership or investment interests held by such physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding its payments and other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year. The federal government discloses the reported information on a publicly available website. Certain states, such as Massachusetts, also make the reported information publicly available. In addition, there are state and local laws that require pharmaceutical representatives to be licensed and comply with codes of conduct, transparency reporting, and other obligations. These laws may adversely affect our sales, marketing, and other activities with respect to our products in the United States by imposing administrative and compliance burdens on us. If we fail to track and report as required by these laws or otherwise comply with these laws, we could be subject to the penalty provisions of the pertinent state and federal authorities.
Government Price Reporting. For those marketed products which are covered in the United States by the Medicaid programs, we have various obligations, including government price reporting and rebate requirements, which generally require products be offered at substantial rebates/discounts to Medicaid and certain purchasers (including “covered entities” purchasing under the 340B Drug Discount Program). We are also required to discount such products to authorized users of the Federal Supply Schedule of the General Services Administration, under which additional laws and requirements apply. These programs require submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations, and the guidance governing such calculations is not always clear. Compliance with such requirements can require significant investment in personnel, systems and resources, but failure to properly calculate our prices, or offer required discounts or rebates could subject us to substantial penalties.One component of the rebate and discount calculations under the Medicaid and 340B programs, respectively, is the “additional rebate,” a complex calculation which is based, in part, on the rate at which a branded drug price increases over time more than the rate of inflation (based on the CPI-U). This comparison is based on the baseline pricing data for the first full quarter of sales associated with a branded drug’s NDA, and baseline data cannot generally be reset, even on transfer of the NDA to another manufacturer. This “additional rebate” calculation can, in
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some cases where price increase has been relatively high versus the first quarter of sales of the NDA, result in Medicaid rebates up to 100 percent of a drug’s “average manufacturer price” and 340B prices of one penny.
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Penalties. Because of the breadth of these laws and the narrowness of available statutory exception and regulatory safe harbors, it is possible that some of our business activities in the United States could be subject to challenge under one or more of such laws. Moreover, state governmental agencies may propose or enact laws and regulations that extend or contradict federal requirements. If we or our operations are found to be in violation of any of the state or federal laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in U.S. federal or state healthcare programs, additional reporting requirements and/or oversight, if subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion from participation in federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security, sunshine, government price reporting, and fraud laws may prove costly.
Coverage and Reimbursement. Sales of any marketed product, in particular for HEPLISAV-B, depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. These third-party payors are increasingly reducing coverage and reimbursement for medical products, drugs and services. In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third-party reimbursement for any marketed product or a decision by a third-party payor not to cover a market product could reduce physician usage and patient demand for the product and also have a material adverse effect on sales.
Impact of Healthcare Reform and Recent Public Scrutiny of Specialty Drug Pricing on Coverage, Reimbursement, and Pricing. In the United States and other potentially significant markets for our products, federal and state authorities as well as third-party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovativeproducts and therapies, which has resulted in lower average net selling prices. Further, there is increased scrutiny of prescription drug pricing practices by federal and state lawmakers and enforcement authorities. In addition, there is an emphasis on managed healthcare in the United States, which will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general.
The U.S. and some foreign jurisdictions are considering or have enacted a number of additional legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs (including a number of proposals pertaining to prescription drugs, specifically), improving quality and/or expanding access. For example, in Massachusetts, the MassHealth program has requested permission from the federal government to use commercial tools, such as a closed formulary, to negotiate more favorable rebate agreements from drug manufactures. There also has been particular and increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices, particularly with respect to drugs that have been subject to relatively large price increases over relatively short time periods. Such interest has resulted in several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals. The FDA also concurrently released a final rule effective November 30,and guidance in September 2020, implementing a portion of the importation executive order providing guidancepathways for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHSU.S. Department of Health and Human Services (“HHS”) finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law.
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The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed pending review by the Biden administration until March 22, 2021.January 1, 2023. On November 20, 2020, CMS issued an interim final rule implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. OnAs a result of litigation challenging the Most Favored Nation model, on December 28, 2020,27, 2021, CMS published a final rule that rescinded the United States District Court in Northern California issued a nationwide preliminary injunction against implementation of theMost Favored Nation model interim final rule. However, it is unclear whetherIn July 2021, the Biden administration will workreleased an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to reverseBiden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these measuresprinciples. No legislation or pursue similar policyadministrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of other reform initiatives. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. For example, in California, effective January 1, 2019, drug companies must notify insurers and government regulators of certain price increases and provide an explanation of the reasons for such increases.
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In the United States, the pharmaceutical industry has already been significantly affected by major legislative initiatives, including, for example, the ACA. The ACA, among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also contains substantial provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, and impose additional health policy reforms, any or all of which may affect our business.
There remain judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump signed several Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. TheFor example, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. In addition,On June 17, 2021 the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” taxU.S. Supreme Court dismissed a challenge on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discountprocedural grounds that is owed by pharmaceutical manufacturers who participate in Medicare Part D and close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” On December 14, 2018, a Texas U.S. District Court Judge ruled thatargued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions ofCongress. Thus, the ACA are invalid as well. The U.S. Supreme Court is currently reviewing this case, but it is unknown when a decision will be reached. Althoughremain in effect in its current form. Further, prior to the U.S. Supreme Court has not yet ruled on the constitutionality of the ACA,ruling, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through MayAugust 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how the Supreme Court ruling, other such litigation, and the healthcare reform measures of the Biden administration will impactpossible that the ACA and our business.will be subject to judicial or Congressional challenges in the future.
Other legislative changes have also been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011 resulted in aggregate reductions in Medicare payments to providers of up to two percent per fiscal year, starting in 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 20302031 unless additional Congressional action is taken. However, COVID-19 relief support legislation suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2021.2022. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 3% in the final fiscal year of this sequester. In addition, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Such laws, and others that may affect our business that have been recently enacted or may in the future be enacted, may result in additional reductions in Medicare and other healthcare funding. Further, Congress is considering additional health reform measures.
MANUFACTURING
We rely on our facility in Düsseldorf, Germany and third parties to perform the multiple processes involved in manufacturing HEPLISAV-B and our product candidates, including the manufacturing of TLR agonists, antigens, and the formulation, fill and finish of the resultant products. As is common in our industry in light of FDA inspection and licensing
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requirements for manufacturing sites, we have relied on a limited number of suppliers to produce products for clinical trials and conduct fill/finish operations, andoperations. We also rely on a single supplier to produce our CpG 1018 adjuvant for HEPLISAV-B and for our collaborators.collaborators, and have established an additional qualified supplier to produce CpG 1018 adjuvant for our collaboration partners. Switching suppliers, or bringing on additional suppliers, could be complicated and time consuming, but we generally seek to maintain inventory to help bridge any unexpected gap in supply. In order to help us successfully manufacture and commercialize HEPLISAV-B, we have secured long-term supply agreements with the key third-party suppliers and vendors for commercial supply of our component products and finished goods. To date, we have manufactured only small quantities of TLR agonists ourselves for development purposes. We currently manufacture the HBsAg for HEPLISAV-B at our Dynavax GmbH facility.
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COMMITMENT TO COMPLIANCE AND ENVIRONMENT
We are committed to conducting our business in compliance with all applicable legal and ethical standards. In addition, we are committed to helping to protect the environment.
Our Ethics and Compliance program includes our Code of Business Conduct and Ethics (“Code”), which sets forth our expectations of all Dynavax employees globally that they conduct their business activities in a legal and ethical manner. The Code can be found on our website under the header “Investor Relations”“Investors” and within that under the header “Corporate Governance and Compliance.Documents.” We have a Chief Ethics and Compliance Officer, a Compliance Steering Committee and policies, procedures and training addressing specific aspects of our business, including advertising and promotion; engagements with healthcare providers; and regarding our business activities outside the United States to ensure they comply with the U.S. Foreign Corrupt Practices Act and all other applicable anti-corruption laws. We certify on an annual basis to having a comprehensive compliance program that meets the standards set forth under California law. This certification, which sets forth all of the elements of our healthcare compliance program, can be found on our web-site.
We also care about the environment. To that end, our headquarters is in a building certified as “Gold” level on the LEED Scorecard as set forth by the United States Green Building Committee. Additionally, we offer incentives to our employees to utilize public transit in order to reduce traffic congestion and pollution and there is a free shuttle from our building to public transportation. We also have a policyAccess to allow our employees to telecommute one or more days a week when our offices arehas been limited to essential workers since the beginning of the pandemic. We do not closed asplan to have our headquarter-based employees return to our headquarters full-time once the pandemic subsides. This transition to a COVID-19 precautions, in which case our workforce is permitted be almost fully remote, depending on the nature of their role, whichlargely virtual environment further helps reduce congestion and pollution. Additionally, we have plans in 2022 to significantly reduce the size of our headquarters office space which will further reduce our carbon footprint. In addition, we have an active recycling program. We continue to consider other ways in which we can conduct our business in an environmentally friendly manner.
We have made, and will continue to make, expenditures for environmental compliance and protection. We do not expect that expenditures for compliance with environmental laws will have a material effect on our results of operations in the future.
Human Capital Resources
As of December 31, 2020,2021, we had 245311 employees, comprised of 142201 employees in the U.S., including 82 employees at96 members of our corporate headquarters in Emeryville, California and 60 field-based employeesfield sales team located throughout the U.S., as well as 103110 employees in our office and manufacturing facility in Düsseldorf, Germany. Many of our employees hold advanced degrees, including mastersMasters degrees and Pharm.D., Ph.D., M.D. or M.D.J.D. degrees. We consider the intellectual capital of our employees to be an essential driver of our business and key to our future prospects. None of our employees is subject to a collective bargaining agreement or represented by a trade or labor union. We consider our relations with our employees to be very good.
Retention
Historically, our annual turnover has typically been lower than the turnover in our industry. Our totalregrettable turnover rate for 20202021 was 12.5%12.0% in the U.S. and less than 7%7.7% in Düsseldorf. As a vaccine-focused company, we face stiff competition to hire and retain our employees which is exacerbated by the current and intense global focus to develop and distribute a COVID-19 vaccine, as market participants in the COVID-19 space grow their businesses and seek to do so by hiring professionals with vaccine experience in particular. The average tenure among our employees, is 5.6 years in Düsseldorf and 3.12.6 years in the U.S.
Development
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Attracting and retaining top talent is key to the achievement of our strategic goals. The development and engagement of our employees is also a top priority of the human resources team, and in 2020, eighty of our global2021, an additional 28 leaders and key contributors completed a seven-module leadership development program.
In 2020,2021 we offered a diversity and inclusion program called Awareness & Understanding in Action to our U.S.-based employees. This program consisted of five modules facilitated by an external Diversity, Equity and Inclusion ("DEI") consultant. Later in the year we implemented the following three global DEI Commitments:
In 2021 we also partnered with certain non-profit organizations committed to addressing the programimpact of poverty and inequality in our communities and we added two additional paid days for our employees to Düsseldorfvolunteer in April 2021. their communities each year.
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Response to the COVID-19 pandemic
In response to the COVID-19 pandemic, we moved to a virtual working model in the U.S. and through work-from-home and creative scheduling efforts, we reducedcontinued to reduce the number of employees required to be onsite each day in our Düsseldorf manufacturing facility by approximately 50%. Our last employee surveyAlso, in October 2020 revealed that 97.3% of U.S. based employees felt that their level of engagement was the same or higher than it was in February 2020, priorresponse to the pandemic.pandemic we implemented a wellness mobile phone application for employees with free exercise, nutrition and other health related resources. We held several internal competitions among employees and rewarded employees for making healthy lifestyle choices. In the U.S. we implemented an additional mental health benefit providing greater access to resources and care for our employees and their family members.
Compensation
We also monitor our compensation programs closely and provide what we consider to be a very competitive mix of compensation and insurance benefits for all our employees. Each of our employees participates in our equity programs.
CORPORATE INFORMATION & AVAILABLE INFORMATION
Our principal executive offices are located at 2100 Powell Street, Suite 900, Emeryville, California, 94608. Our telephone number is (510) 848-5100. We make available, free of charge on our website located at www.dynavax.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after filing such reports with the Securities and Exchange Commission (“SEC”). Alternatively, you may access these reports at the SEC’s website at www.sec.gov. The contents of our websites are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
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Various statementsITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, in addition to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, before making an investment decision. The risks described below are forward-looking statements concerning our future efforts to obtain regulatory approval, achieve restructuring goals, commercialize approved products, expenses, revenues, liquidity and cash needs, as well as our plans and strategies. These forward-looking statements are based on current expectations and we assume no obligation to update this information. Numerous factors could cause our actual results to differ significantly fromnot the resultsonly ones facing us. If any of the events described in these forward-looking statements, including the following risk factors.factors occurs, our business, operating results and financial condition could be seriously harmed. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Annual Report on Form 10-K.
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Risks Related to our Business and Capital Requirements
HEPLISAV-B has been launched in the United States, and approved in the European Union, and there is significant competition in the marketplace.these marketplaces. Since this is our first marketed product, the timing of uptake and distribution efforts are unpredictable and there is a risk that we may not achieve and sustain commercial success for HEPLISAV-B.
We have established sales, marketing and distribution capabilities and commercialized HEPLISAV-B in the U.S. Successful commercialization of HEPLISAV-B in the U.S. or elsewhere will require significant resources and time and, while Dynavaxour personnel are experienced with respect to marketing of healthcare products, because HEPLISAV-B is the company’sour first marketed product, the potential uptake of the product in distribution and the timing for growth in sales, if any, is unpredictable and we may not be successful in commercializing HEPLISAV-B.HEPLISAV-B in the long term. Additionally, while we have received European approval for HEPLISAV-B and we entered a commercialization agreement for the marketing and distribution of HEPLISAV-B in Germany in May 2021, we have never launched a product in the European Union before and there can be no certainty that we will succeed in our European launch efforts. In particular, successful commercialization of HEPLISAV-B will require that we continue to negotiate and enter into contracts with wholesalers, distributors, group purchasing organizations, and other parties, and that we maintain those contractual relationships. There is a risk that we may notfail to complete or maintain some or all of these important contracts on favorable terms or at all, or that in a potentially evolving reimbursement environment, our efforts canmay fail to overcome established competition at favorable pricing.pricing or at all.
We converted our contracted U.S. field sales team into full-time Dynavax employees in the second quarter of 2019. We haveBefore then we had not previously employed an in-house field sales team, and thus have limited experience in overseeing and managing an employed salesforce. In 2021 we significantly expanded our field sales force. It will take time for this expanded team to generate significant sales momentum, if it does so at all. In addition, retention of capable sales personnel may be more difficult withas we focus on a single product offering and we must retain our salesforce in order for HEPLISAV-B to establish a commercial presence.
Moreover, we expect that significant resources will need to be invested in order to successfully market, sell and distribute HEPLISAV-B for use with diabetes patients, one of our targeted patient populations. Although the Centers for Disease Control and Prevention (“CDC”) and the CDC’s Advisory Committee on Immunization Practices (“ACIP”) recommend that all adults aged 19-59, including patients with diabetes, receive hepatitis B vaccinations, we are unable to predict how many of those patients may actually receive HEPLISAV-B.
In addition to the risks with employing and maintaining our own commercial capabilities and with contracting, other factors that may inhibit our efforts to successfully commercialize HEPLISAV-B include:
| • whether we are able to recruit and retain adequate numbers of effective sales and marketing personnel; • whether we are able to access key health care providers to discuss HEPLISAV-B; • whether we can compete successfully as a relatively new entrant in established distribution channels for vaccine products; and • whether we will maintain sufficient financial resources to cover the costs and expenses associated with creating and sustaining a capable sales and marketing organization and related commercial infrastructure.
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If we are not successful, we may be required to collaborate or partner HEPLISAV-B with a third-party pharmaceutical or biotechnology company with existing products. To the extent we collaborate or partner, the financial value will be shared with another party and we will need to establish and maintain a successful collaboration arrangement, and we may not be able to enter into these arrangements on acceptable terms or in a timely manner in order to establish HEPLISAV-B in the market. To the extent that we enter into co-promotion or other arrangements, any revenues we receive will depend upon the efforts of third parties, which may not be successful and are only partially in our control. In that event, our product revenues may be lower than if we marketed and sold our products directly with the highest priority, and we may be required to reduce or eliminate much of our commercial infrastructure and personnel as a result of such collaboration or partnership.
We are continuing to closely monitor the impact of the COVID-19 global pandemic on our business and are taking proactive efforts to protect the health and safety of our workforce, patients and healthcare professionals, and to continue our business operations and advance our goal of bringing important new vaccines to patients as rapidly as possible. We have implemented measures to protect the health and safety of our workforce, including a mandatory work-from-home policy for employees who can perform their jobs offsite. In the conduct of our business activities, we are also taking actions to protect the safety of patients and healthcare professionals. Our field-based personnel have mostlypreviously paused in-person customer interactions in healthcare settings and are generally usingused electronic communication, such as emails, phone calls and video
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conferences. We may be required to do again so in the future. Many health carehealthcare and contracting professionals at hospitals and other medical institutions with whom our field-based personnel interact are working a greater proportion of their working schedule from home and are facing additional demands on their time during the COVID-19 pandemic. We expect that theThe different quality of electronic interactions as compared with in-person interactions, as well as the reduced quantity of interactions during the COVID-19 pandemic, may reduce the effectiveness of our sales personnel, our customers’ procurement activities, as well as those of our collaborators, which could negatively affect our product sales.
In addition, due to the ongoing COVID-19 global pandemic, most medical centers initially restricted access to their facilities and focused on providing care to only the most severely affected patients beginning in mid-MarchMarch 2020. As states began phasing out these restrictions, in late May/early June, medical centers began operating under limited capacity and strict social distancing rules. ThisThe overall impact has generally resulted in significantly reduced utilization of all adult vaccines (other than COVID-19 vaccines) since the end of the first quarter of 2020, including a reduction in the utilization of HEPLISAV-B. This reduced utilization has significantly impacted sales and is likely to continue to impact us until restrictions affecting us are lifted and the U.S. returns to more normal conditions. There can be no assurance of the timing or likelihood for adult vaccine utilization rates to return to pre-pandemic levels.
Governments influence the price of medicinal products in the European Union through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Even though we have been granted a marketing authorization in the European Union for HEPLISAV-B, we have yet to obtain reimbursements and pricing approval in any European Union member state. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other European Union member states allow companies to fix their own prices for medicines, but monitor and control company profits. Any delay in being able to market our products in the European Union or elsewhere will adversely affect our business and financial condition.
If we, or our partners, if any, are not successful in setting our marketing, pricing and reimbursement strategies, recruiting and maintaining effective sales and marketing personnel or in building and maintaining the infrastructure to support commercial operations in the U.S. and elsewhere, we will have difficulty successfully commercializing HEPLISAV-B, which would adversely affect our business and financial condition.
Our business and operations have been, and may continue to be, adversely affected by the evolving and ongoing COVID-19 global pandemic.
Our business has been, and may continue to be, adversely affected by the effects of the recentCOVID-19 virus and evolving COVID-19 virus,its variants, which was declared by the World Health Organization (“WHO”) as a global pandemic. The COVID-19 pandemic has resulted in travel and other restrictions in order to reduce the spread of the disease. In response to these public health directives and orders, we have implemented work-from-home policies for all employees, except those that need to be at work in order to perform critical responsibilities.
The COVID-19 pandemic, and government measures taken in response, have had a significant impact, both direct and indirect, on businesses and commerce, as significant reductions in business-related activities have occurred, supply chains have been disrupted, and manufacturing and clinical development activities have been curtailed or suspended. In accordance with guidance issued by the Centers for Disease Control and Prevention, WHO and local authorities, beginning in March 2020, most of our global workforce transitioned to working remotely.remotely and has continued to do so since. The principal purchasers of HEPLISAV-B, including independent hospitals and clinics, integrated delivery networks, public health clinics and prisons, the Departments of Defense and Veterans Affairs and retail pharmacies, have all drastically curtailed their day-to-day activities and ceased allowing or significantly reduced allowing access to their facilities for non-COVID-19 related business. Thus, our field sales and medical science employees have increased their use of telephone and web-based means to seek to carry out their roles where necessary, which may not be as effective as being in-person.
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The overall impact has generally resulted in significantly reduced utilization of all adult vaccines, (other than recently approved COVID-19 vaccines), including HEPLISAV-B, since the end of the first quarter of 2020, including HEPLISAV-B.2020. This shift has significantly and adversely impacted our sales of HEPLISAV-B and our business and operating results since March 2020 and continues to pose a headwind for our HEPLISAV-B business. This reduced HEPLISAV-B utilization is likely to continue to impact us until restrictions affecting us are lifted, and the U.S. returns to more normal conditions.
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We also cannot predict to what extent the COVID-19 pandemic may continue to disrupt demand for HEPLISAV-B, but the overall magnitude of the disruption to our business will depend, in part, on the length and ongoing severity of the restrictions, and other limitations on our ability to conduct our business in the ordinary course. Utilization rates for adult vaccines (other than COVID-19 vaccines) are well below pre-pandemic levels. Prolonged disruptions would likely materially and negatively impact our business, operating results and financial condition.
Quarantines,If the effect of any quarantines, shelter-in-place, executive and similar government orders related to COVID-19 have had no material impact on the supply of HEPLISAV-B and we have no current expectation that they will. However, if such restrictions continue for a substantial period of time,increase, they could impact personnel at our manufacturing facility in Germany and third-party manufacturing facilities in the United States.States or abroad. This could adversely affect our ability to maintain and distribute a consistent supply of HEPLISAV-B or CpG 1018 adjuvant sufficient to meet demand.
The spread of COVID-19, which has caused a broad impact globally, has resulted in changes to our business and operations which has impacted our business and operations and may materially affect us economically.economically in the future. While the potential economic impact, and the duration of such impact, brought by the COVID-19 pandemic may be difficult to assess or predict, a widespread pandemic could also potentially result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
The COVID-19 pandemic continues to rapidly evolve, and new variants of the virus have been discovered.continue to emerge. While some vaccines have been recently approved, it is not clear whether, which, or to what extent these vaccines will protect against current or future variants of the virus. The extent to which the COVID-19 pandemic impacts our business, our future sales of HEPLISAV-B, sales of CpG 1018 adjuvant and our total revenue will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration and severity of the outbreak including current and future variants, travel restrictions, quarantines, social distancing requirements and business closures in the United States and elsewhere, business disruptions and the effectiveness of actions taken in the United StatesU.S. and elsewhere to contain and treat the disease. Accordingly, we do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole. However, these impacts could continue to adversely impact our business, financial condition, results of operations and growth prospects.
In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties described elsewhere in this ‘‘Risk Factors’’“Risk Factors” section.
As we continue to focus on the commercialization of our HEPLISAV-B vaccine and our CpG 1018 adjuvant, we may encounter difficulties in managing our commercial growth and expanding our operations successfully.
As our commercial operations expand, we expect that we will also need to manage additional relationships with various third parties, including sole source suppliers, distributors, wholesalers and hospital customers. Future growth including managing an in-house field sales team, will impose significant added responsibilities on our organization, in particular on management. Our future financial performance and our ability to successfully commercialize our HEPLISAV-B vaccine and CpG 1018 adjuvant, and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we may not be able to manage our growth efforts effectively, and hire, train, retain and integrate additional management, administrative and sales and marketing personnel, or secure sufficient or timely supply from third party service and product providers, and our failure to accomplish any of these activities could prevent us from successfully growing or our company.company or maintaining the same level of commercial growth.
As we plan for broader commercialization of our HEPLISAV-B vaccine and for expanded capacity to manufacture our CpG 1018 adjuvant, our financial commitments to increase supply capacity might outpace actual demand for our products.
As we plan to scale up production capabilities for HEPLISAV-B as well as production capabilities for our advanced adjuvant, CpG 1018 adjuvant, to support market share gains or potential vaccine collaborations andin response to COVID-19 and other initiatives, we have been, and in the future will be, required to make significant financial commitments to reserve manufacturing capacity at our contract manufacturing organizations (“CMOs”). Under ordinary circumstances we would make these commitments close in time and with some level of certainty that we have customers making similar commitments to us. Because of long lead times on manufacturing, uncertainty about who will ultimately buy CpG 1018adjuvant from us and in what quantities, if any, as well as the need to book manufacturing capacity in advance, the financial commitments we make to our CMOs to support
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manufacturing may not be recovered in its entirety, or at all, if our collaborators or customers do not ultimately purchase from us. Capacity reservation fees are generally not recoverable if we do not use the capacity we have reserved as a result of lower than expected demand, or otherwise. As a result, we could end up making financial commitments that we never recover if demand for CpG 1018the adjuvant or any other product does not materialize in the volumes we are expecting or at all.
22As we continue to grow as a commercial organization and enter into supply agreements with customers, those supply agreements will have obligations to deliver product that we are reliant upon third parties to manufacture on our behalf.
As our commercial business begins to expand in connection with commercial sales of HEPLISAV-B and CpG 1018 adjuvant, the contracts we enter into with our customers will generally carry delivery obligations that require us to deliver product in certain quantities and meet certain quality thresholds, among other things, all within specified timeframes. If, for any reason, whether due to reliance on third-party manufacturers or otherwise, we are unable to deliver timely, compliant products to our customers in quantities that meet our contractual obligations, we could be subject to lost revenue, contractual penalties, suits for damages, harm to our reputation or other problems that could materially and adversely affect our business.
Our financial results may vary significantly from quarter to quarter or may fall below the expectations of investors or securities analysts, each of which may adversely affect our stock price.
A substantial portion of our revenue for the foreseeable future may depend on sales of CpG 1018 adjuvant, which are difficult to predict. For example, as of December 31, 2021, we received advanced payments from certain of our customers to purchase specified quantities of CpG 1018 adjuvant which were recorded as deferred revenue until we deliver the adjuvant and meet all criteria to recognize revenue. In accordance with our stated revenue policy, we expect to record revenue for these contracts upon meeting all of the criteria for revenue recognition under Accounting Standards Codification 606, which includes, among other criteria, the transfer of control for CpG 1018 adjuvant to our customer. The occurrence and timing of such transfer of control can be difficult to predict, and the recognition of revenue can vary widely depending on timing of product deliveries and satisfaction of other obligations. We expect that our visibility into future revenue relating to sales of CpG 1018 adjuvant, including volumes, prices and timing, will continue to be limited and could result in significant, unexpected fluctuations in our quarterly and annual operating results.
Numerous factors, many of which are outside our control, may cause or contribute to significant fluctuations in our quarterly and annual operating results. For example, during the year ended December 31, 2021, sales of CpG 1018 accounted for 85% of our overall revenue, and one CpG 1018 customer accounted for 42% of our revenue. If orders from our top customers or the number of CpG 1018 collaborations are reduced or discontinued, our revenue in future periods may materially decrease. Fluctuations in our operating results may make financial planning and forecasting difficult. In addition, these fluctuations may result in unanticipated decreases in our available cash, which could negatively affect our business and prospects. Similarly, our revenue or operating expenses in one period may be disproportionately higher or lower relative to the others. Accordingly, comparing our operating results on a period-to-period basis may not be meaningful, and investors should not rely on any particular past results as an indication of our future performance. If such fluctuations occur or if our operating results deviate from our expectations or the expectations of investors or securities analysts, our stock price may be adversely affected.
We rely on our facility in Düsseldorf, Germany and third parties to supply materials or perform processes necessary to manufacture HEPLISAV-Bour products and our product candidates. We rely on a limited number of suppliers to produce the oligonucleotides we require for development and commercialization. Additionally, we have limited experience in manufacturing our products or product candidates in commercial quantities. With respect to HEPLISAV-B, we have switched touse a pre-filled syringe presentation of the vaccine and our ability to meet future demand will depend on our ability to manufacture or have manufactured sufficient supply in this presentation.
We rely on our facility in Düsseldorf and third parties to perform the multiple processes involved in manufacturing HEPLISAV-B surface antigens, the combination of the oligonucleotide and the antigens, and formulation, fill and finish. The FDA approved our pre-filled presentation of HEPLISAV-B in 2018 and we expect such presentation will be the sole presentation for HEPLISAV-B going forward. We have limited experience in manufacturing and supplying this presentation and rely on a contract manufacturer to do so. Our contract manufacturer is the only approved provider that we have, and there can be no assurance that we or they can successfully manufacture sufficient quantities of pre-filled syringes in compliance with GMPgood manufacturing practice ("GMP") in order to meet market demand.
WeHistorically, we have also relied on a limited number of suppliers to produce oligonucleotides for clinical trials and a single supplier to produce (i) our CpG 1018 adjuvant for HEPLISAV-B and for our collaborators and (ii) our pre-filled
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syringe presentation. Recently, we qualified a second supplier to manufacture CpG 1018 adjuvant, but have a limited operating relationship with them. To date, we have manufactured only small quantities of oligonucleotides ourselves for development purposes. If we were unable to maintain our existing suppliersuppliers for CpG 1018 adjuvant, we would have to establish an alternate qualified manufacturing capability ourselves, which would result in significant additional operating costs and delays in manufacturing HEPLISAV-B, or CpG 1018 adjuvant, and developing and commercializing our and our collaborators’ product candidates. We or other third parties may not be able to produce product at a cost, quantity and quality that are available from our current third-party suppliers, or at all.
In countries outside of the U.S., we may not be able to comply with ongoing and comparable foreign regulations, and our manufacturing process may be subject to delays, disruptions or quality control/quality assurance problems. Noncompliance with these regulations or other problems with our manufacturing process may limit or disrupt the commercialization of HEPLISAV-Bour products or our otherand our collaborators’ product candidates and could result in significant expense.
We have entered into collaborative relationships to develop vaccines utilizing our CpG 1018 adjuvant, including collaborations to develop a vaccinevaccines for COVID-19. These collaborations may not be successful. If the combination of patents, trade secrets and other proprietary rights that we rely on to protect our intellectual property rights in CpG 1018 adjuvant or otherwise are inadequate;inadequate, we may be unable to realize anyrecurring commercial benefit from the development of a vaccineany vaccines containing CpG 1018.1018 adjuvant.
As part of our business, we are working to develop our novel adjuvant, CpG 1018 adjuvant as a premier vaccine adjuvant through research collaborations and partnerships. Current collaborations are focused on adjuvanted vaccines for COVID-19, pertussisplague, Tdap, seasonal influenza, universal influenza and universal influenza.shingles. There are risks and uncertainties inherent in vaccine research and development, including the timing of completing vaccine development, the results of clinical trials, whether thea vaccine will be approved for use, the extent of competition, government actions and whether a vaccine can be successfully manufactured and commercialized. As a result, these collaborative efforts may not be as successful as we expect, or at all.
In addition, our collaborators have primary responsibility for the development, conduct of clinical trials, and for seeking and obtaining regulatory approval of potential vaccines, including any potential vaccine for COVID-19 containing CpG 1018.our adjuvant. We have limited or no control over our collaborators’ decisions, including the amount and timing of resources that any of these collaborators will dedicate to such activities. Our collaborators may not purchase as much adjuvant as we anticipate, and they may delay placing orders or delay taking certain deliveries under certain circumstances which can affect our revenue recognition. If a collaborative partnercollaborator fails to conduct collaborative activities successfully, the development and commercialization of a vaccine could be delayed, and may not occur at all. For example, as of December 31, 2021, only two of our collaborators have received emergency use authorization from an applicable regulatory authority for any vaccine for COVID-19 containing our adjuvant. We also relyhave historically relied on a single supplier to produce our CpG 1018.1018 adjuvant, and only recently have qualified an alternate supplier to produce the adjuvant with whom we have a limited operating relationship. If we were unable to maintain our existing suppliersuppliers for CpG 1018,the adjuvant, we would have to establish and maintain an alternate qualified manufacturing capability, which would result in significant additional operating costs and delays in developing and commercializing any potential adjuvanted vaccines by our third-party collaborators. We or other third parties may not be able to produce CpG 1018sufficient adjuvant at a cost, quantity and quality similar to that available from our current third-party supplier,suppliers, or at all, and even if we addare successful in adding an additional supplier, there is no guarantee such supplier will be able to manufacture compliant supplemental quantities sufficient to support commercial demand, to the extent it materializes, and in the timeframes required.
CpG 1018Our adjuvant has no composition of matter patent protection. We have filed patent applications claiming compositions and methods of use of CpG 1018 adjuvant for COVID-19 and other vaccines. Such patents may or may not be allowed. In addition, we rely on trade secret protection and confidentiality and other agreements to protect our interests in proprietary know-how related to CpG 1018.1018 adjuvant. If we are unable to adequately obtain or enforce our proprietary rights relating to CpG 1018 adjuvant, we may be unable to realize anyrecurring commercial benefit from the development of a vaccine containing CpG 1018 adjuvant, and we may not have the ability to prevent others from developing or commercializing a vaccine containing CpG 1018.the adjuvant. Disputes or litigation may also arise with our collaborators (with us and/or with one or more third parties), including thosedisputes over ownership rights to intellectual property, know-how or technologies developed with our collaborators.
23Furthermore, restrictive government actions related to potential waivers of intellectual property rights in the case of national emergencies or in other circumstances, such as imposition of compulsory licenses related to COVID-19 vaccines, as well as other regulatory initiatives, may result in a general weakening of our or our collaborators’ intellectual property protection or otherwise diminish or eliminate our or our collaborators’ ability to realize any commercial benefit from the
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development of a COVID-19 vaccine containing CpG 1018. This may, in turn, adversely impact the demand for CpG 1018, which would have a material adverse effect on our business, results of operations, and financial condition.
We face uncertainty regarding coverage, pricing and reimbursement and the practices of third-party payors, which may make it difficult or impossible to sell certain of our productproducts or product candidates on commercially reasonable terms.
In both domestic and foreign markets, our ability to achieve profitability will depend in part on the negotiation of a favorable price, as well as the availability of coverage and adequate reimbursement, from third-party payors, in particular for HEPLISAV-B, where existing products are already marketed. In the U.S., pricing for hepatitis B vaccines is currently stable and reimbursement is favorable as we believe private and public payors recognize the value of prophylaxis in this setting given the high costs of potential morbidity and mortality, and we have achieved coverage with most third-party payors. However, there is a risk that some payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include HEPLISAV-B. Thus, there can be no assurance that HEPLISAV-B will achieve and sustain stable pricing and favorable reimbursement. Even if favorable coverage and reimbursement status is attained for one or more products for which we or our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future. Our ability to successfully obtain and retain market share and achieve and sustain profitability will be significantly dependent on the market’s acceptance of a price for HEPLSIAV-B sufficient to achieve profitability, and future acceptance of such pricing.
Third-party payors are increasingly challenging the price and cost-effectiveness of medical products and services, and pricing, as well as coverage and reimbursement decisions, may not allow our future products to compete effectively with existing competitive products. Because we intend to offer products, if approved, that involve new technologies and new approaches to treating disease, the willingness of third-party payors to reimburse for our products is uncertain. We will have to charge a price for our products that is sufficient to enable us to recover our considerable investment in product development and our operating costs. Further, coverage policies and third‑party reimbursement rates may change at any time. Therefore, even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future. Adequate third-party payor reimbursement may not be available to enable us to maintain price levels sufficient to achieve profitability, and such unavailability could harm our future prospects and reduce our stock price.
We have applied for, and in some cases have received, grants to help fund the scale-up of CpG 1018 production, and such grants, if and when received, may involve pricing or other restrictions.
In order to help fund potential scale-up of production of CpG 1018 adjuvant that may be required in the event that our CpG 1018 adjuvant is included in any approved and commercially-available novel vaccine, whether a COVID-19 vaccine or otherwise, we have applied for, and in some cases have received grants from various charitable and philanthropic organizations, including from Bill and Melinda Gates Foundation.organizations. We may seek such grants in the future. These grants and others, if and when received, may come with certain pricing requirements, global access requirements or reporting or other covenants to ensure that any funded product is made available by us worldwide and on a nondiscriminatory basis. Such covenants may limit the price we can charge for any funded product and may involve a license to use technology we own that is included in the funded products if we do not comply. Such price limitations or licenses, if invoked, could serve to limit the prices we charge, or in some cases, our control over the manufacturing and distribution of grant-funded products. Failure to agree with such requirements, may result in the companyus not receiving some or all of the grant.
We implemented a strategic restructuring to prioritize our vaccine business and explore strategic alternatives for our immuno-oncology portfolio, and we cannot assure you that we will be able to successfully execute on a strategic alternative for our immuno-oncology portfolio.
In the second quarter of 2019, we implemented a strategic restructuring that would focus our efforts on HEPLISAV-B, which included a reduction in our workforce and operations to focus resources on HEPLISAV-B commercialization and sales execution as well as assess additional opportunities to leverage our CpG 1018 adjuvant. We recently announced the sale of assets related to our SD-101 program. Additionally, we are seeking strategic alternatives for of the remaining assets in our immuno-oncology portfolio, including our development stage product DV281. In connection with the restructuring, we made the determination to wind down ongoing immuno-oncology trials. Our ability to successfully execute on a strategic alternative for the assets that remain in our immuno-oncology portfolio is dependent on a number of factors and we may not be able to execute upon a transaction or other strategic alternative for our immuno-oncology assets upon favorable terms within an advantageous timeframe and recognize significant value for these assets, if at all. Additionally, the negotiation and consummation of a transaction or other strategic alternative involving our immuno-oncology assets may be costly and time-consuming. Our strategic restructuring may not result in anticipated savings or other economic benefits, could result in total costs and expenses that are greater than expected, could make it more difficult to attract and retain qualified personnel and may disrupt our operations, each of which could have a material adverse effect on our business.
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We are subject to ongoing FDA and EMA post-marketing obligations concerning HEPLISAV-B, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problemsregulatory issues with HEPLISAV-B.
Our HEPLISAV-B regulatory approval in the United States is subject to certain post-marketing obligations and commitments to the FDA. For example, we mustwere required to conduct an observational comparative study of HEPLISAV-B to Energix-BEngerix-B to assess occurrence of acute myocardial infarction, or AMI. This study was initiated in August 2018, and concluded in November 2020.2020 and the final study report has been submitted to the FDA. We mustare also conductcommitted to conducting an observational surveillance study to evaluate the incidence of new onset immune-mediated diseases, herpes zoster and anaphylaxis; and we are required to establish a pregnancy registry to provide information on outcomes following pregnancy exposure to HEPLISAV-B. These studies will require significant effort and resources, and failure to timely conduct these studies and/or complete these studies to the satisfaction of the FDA could result in withdrawal of our BLA approval, which would have a material adverse effect on our business, results of operations, financial condition and prospects. The results of post-marketing studies may also result in additional warnings or precautions for the HEPLISAV-B label or expose additional safety concerns
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that may result in product liability and withdrawal of the product from the market, any of which would have a material adverse effect on our business, results of operations, financial condition and prospects.
In December 2019, we filed with the FDA a cumulative report on both interim analyses of the ongoing observational comparative AMI study. The interim analyses were based on currently-available data,Similar post-marketing obligations and the final results, related findings and conclusions of the study will not be known until its completion and the receipt and review of the complete study data. Interim results may not be reproducedcommitments exist in the future,European Union. For example, we are required to submit periodic safety update reports to the EMA and thus should be considered carefully and not relied upon as indicativeto keep an up to date risk management plan that takes into account new information that may lead to a significant change in the risk/benefit profile of future study results. Material adverse differencesHEPISLAV-B. Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance can result in final data, compared to interim data, could significantly adversely affect our business and business prospects, including our future HEPLISAV-B business. Certain assumptions, estimations, calculations and conclusions may have been made in connection with the interim analyses of the study data, and others, including regulatory agencies, may not accept or agree with these assumptions, estimations, calculations or conclusions, or may interpret or weigh the importance of data differently, which could impact the actual or perceived value of the study, HEPLISAV-B or the Company in general.significant financial penalties.
In addition, the manufacturing processes, labelling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for HEPLISAV-B are subject to extensive and ongoing regulatory requirements.requirements in the United States and the European Union. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices (“cGMP”), good clinical practices (“GCP”), ICH guidelines, and good laboratory practices (“GLP”). If we are not able to meet and maintain regulatory compliance, we may lose marketing approval and be required to withdraw our product. Withdrawal of our product would have a material adverse effect on our business.
If HEPLISAV-B or any products we develop are not accepted by the market or if regulatory agencies limit our labeling indications, require labeling content that diminishes market uptake of HEPLISAV-B or any other products we develop, or limitslimit our marketing claims, we may be unable to generate significant revenues, if any.
Even if we obtain regulatory approval for our product candidates, such as the U.S. and European approvals of HEPLISAV-B and are able to commercialize them as we have with HEPLISAV-B, our products may not gain market acceptance among physicians, patients, healthcare payors and the medical community.
The degree of market acceptance of HEPLISAV-B and any of our future approved products will depend upon a number of factors, including:
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The FDA or other regulatory agencies could limit the labeling indication for which our product candidates may be marketed or could otherwise limit marketing efforts for our products. If we are unable to achieve approval or successfully market any of our product candidates, or marketing efforts are restricted by regulatory limits, our ability to generate revenues could be significantly impaired.
Many of our competitors have greater financial resources and expertise than we do. If we are unable to successfully compete with existing or potential competitors as a result of these disadvantages, we may be unable to generate sufficient, or any, revenues and our business will be harmed.
We compete with pharmaceutical companies, biotechnology companies, academic institutions and research organizations, in developing and marketing vaccines and adjuvants. For example, HEPLISAV-B competes in the U.S. with established hepatitis B vaccines marketed by Merck and GlaxoSmithKline plc (“GSK”) and, if approvedcommercialized outside the U.S., with vaccines from those companies as well as several additional established pharmaceutical companies.companies who market abroad. There are also modified schedules of conventional hepatitis B vaccines for limited age ranges that are approved in the European Union and United States. In addition, HEPLISAV-B competes against Twinrix, a bivalent vaccine marketed by GSK for protection against hepatitis B and hepatitis A. A three dosethree-dose HBV vaccine manufactured by VBI Vaccines Inc. (“VBI”) is approved in Israel and recently completed Phase 3 trials in the United States, Europe and Canada.U.S.
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We are also in competition with companies developing vaccines and vaccine adjuvants, generally including, among others, GSK, Pfizer, Inc., Sanofi S.A., Merck, Seqirus,Novartis International AG, Agenus, Inc., Emergent BioSolutions, Inc., Novavax, Inc., Medicago Inc., Valneva, AstraZeneca plc, Moderna, Inc., Johnson & Johnson and VBI. We will likely compete with several of these companies in the hepatitis space, Tdap space, shingles space and spaces occupied by any other product candidates we ultimately choose to advance through our pipeline in the future.
Products in our clinical pipeline, if approved, will also face competition from competitors who have competing clinical programs or already approved products. Existing and potential competitors or other market participants may also compete with us for qualified commercial, scientific and management personnel, as well as for technology that would otherwise be advantageous to our business. Our success in developing marketable products and achieving a competitive position will depend, in part, on our ability to attract and retain qualified personnel in the near-term, particularly with respect to HEPLISAV-B commercialization. If we do not succeed in attracting new personnel and retaining and motivating existing personnel, our operations may suffer and we may be unable to obtain financing as needed, enter into collaborative arrangements, sell our product candidates or generate revenues.
WeDespite recent profitability, we have incurred annual net losses in each year since our inception and anticipate that we willcould continue to incur significant losses for the foreseeable future unless we can successfully commercialize HEPLISAV-B andand/or continue to sell significant quantities of our CpG 1018 adjuvant, and if we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.
We have generated limited revenue from the sale of products and, prior to January 1, 2021, have incurred losses in each year since we commenced operations in 1996. Our net lossesincome for the year ended December 31, 2020 and 2019 were2021 was $76.7 million compared to net loss of $75.2 million and $152.6 million, respectively.for the year ended December 31, 2020. As of December 31, 2020,2021, we had an accumulated deficit of $1.3$1.2 billion.
With our investment in the launch and commercialization of HEPLISAV-B in the U.S., we expect to continue incurringhave in the past, and could in the future, incur operating losses for the foreseeable future.losses. Our expenses have increased substantially as we established and maintain our HEPLISAV-B commercial infrastructure, including investments in internal infrastructure to support our field sales force and investments in manufacturing and supply chain commitments to maintain commercial supply of HEPLISAV-B. While new sales of CpG 1018 may generateadjuvant have generated significant revenue during the pandemic, there is no guarantee that such revenues will be sustainable in the long term. The timing for uptake of our products in the U.S. hasand abroad may further increasedaffect costs or losses related to commercialization. Due to the numerous risks and uncertainties associated with developing and commercializing vaccine and pharmaceutical products or other products we may choose to offer in the future, we are unable to predict the extent of any future losses or when, if ever, we will become profitable on an annual basis, or, that if we are able to reach consistent profitability that it will be sustainable for any period of time.
Until we are able to generate significant revenues or achieve profitability through product sales on a consistent basis, we willmay require substantial additional capital to finance our operations.
As of December 31, 2020,2021, we had $165.0$546.0 million in cash, cash equivalents and marketable securities. WePrior to January 1, 2021, we incurred net losses in each year since our inception. For the year ended December 31, 2021, we had net income of $76.7 million. As of December 31, 2021, we had an accumulated deficit of $1.2 billion. We cannot be certain that sales of our products, and the revenue from our other activities are sustainable and past results are not a reliable indicator of future performance. Further, we expect to continue to incur operating losses for the foreseeable futuresubstantial expenses as we continue to invest in the commercialization and development of HEPLISAV-B and development and commercialization of our CpG 1018 adjuvant.adjuvant, clinical trials for our pipeline candidates, and other development. If we cannot generate a sufficient amount of revenue from product sales, we will need to finance our operations through strategic alliance and licensing arrangements and/or future public or private debt orand equity financings. Raising additional funds through the issuance of equity or debt securities could result in dilution to our existing stockholders, increased fixed payment obligations, or both. In addition, these securities may have rights senior to those of our common stock and could include covenants that would restrict our operations.
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Our ability to raise additional capital in the equity and debt markets, should we choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of development and business risks and uncertainties, our creditworthiness and the uncertainty that we would be able to raise such additional capital at a price or on terms that are favorable to us. In addition, our ability to raise additional funds may be adversely impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.pandemic or otherwise. Adequate financing may not be available to us on acceptable terms, or at all. If adequate funds are not available when needed,
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we may need to significantly reduce our operations while we seek strategic alternatives, which could have an adverse impact on our ability to achieve our intended business objectives.
Regulatory authorities may require more clinical trials for our product candidates than we currently expect or are conducting before granting regulatory approval, if regulatory approval is granted at all. Our clinical trials may be extended which may lead to substantial delays in the regulatory approval process for our product candidates and may impair our ability to generate revenues.
Our registration and commercial timelines depend on further discussions with regulatory agencies and requirements and any requests that they may make for additional data or completion of additional clinical trials. Any such requirements or requests could:
| • adversely affect our ability to timely and successfully commercialize or market these product candidates; • result in significant additional costs; • potentially diminish any competitive advantages for those products; • potentially limit the markets for those products; • adversely affect our ability to enter into collaborations or receive milestone payments or royalties from potential collaborators; • cause us to abandon the development of the affected product candidate; or • limit our ability to obtain additional financing on acceptable terms, if at all.
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We may continue to develop, seek regulatory approval for and market HEPLISAV-B or any other product candidates we may develop outside of the U.S., and Europe, requiring a significant commitment of resources. Failure to successfully manage our international operations could result in significant unanticipated costs and delays in regulatory approval or commercialization of our products or product candidates.
We may seek to introduce HEPLISAV-B, or any other product candidates we may develop, to various additional markets outside of the U.S. and Europe. Developing, seeking regulatory approval for and marketing our product candidates outside of the U.S. could impose substantial costs, as well as burdens on our personnel resources, in addition to potential diversion of management’s attention from domestic operations. International operations are subject to risk, including:
| • the difficulty of managing geographically distant operations, including recruiting and retaining qualified employees, locating adequate facilities and establishing useful business support relationships in the local community; • compliance with varying international regulatory requirements, laws and treaties; • securing international distribution, marketing and sales capabilities upon favorable terms; • adequate protection of our intellectual property rights; • obtaining regulatory and pricing approvals at a level sufficient to justify commercialization; • legal uncertainties and potential timing delays associated with tariffs, export licenses and other trade barriers; • foreign tax compliance and diverse tax consequences; • the fluctuation of conversion rates between foreign currencies and the U.S. dollar; and • regional and geopolitical risks.
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In the event that we determine to pursue commercialization of HEPLISAV-B outside the United States and Europe,the European Union, our opportunity will depend upon our receiving regulatory approval, which can be costly and time consuming, and there is a risk that one or more regulatory bodies may require that we conduct additional clinical trials and/or take other measures which will take time and require that we incur significant additional expense. In addition, there is the risk that we may not receive approval in one or more jurisdictions.jurisdictions, even if we undertake these efforts.
The results of clinical trials conducted to support regulatory approval in one or more jurisdictions, and any failure or delay in obtaining regulatory approval in one or more jurisdictions, may have a negative effect on the regulatory approval
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process in other jurisdictions, including our regulatory approval in the United States. If we are unable to successfully manage our international operations, we may incur significant unanticipated costs and delays in regulatory approval or commercialization of our product candidates, which would impair our ability to generate revenues.
Clinical trials for our commercial product and product candidates are expensive and time consuming, may take longer than we expect or may not be completed at all, and their outcomes are uncertain.have uncertain outcomes.
Clinical trials, including post-marketing studies, to generate sufficient data to meet FDA (and other regulatory agency) requirements are expensive and time consuming, may take more time to complete than expected or may not be completed, and may not have favorable outcomes if they are completed. In addition, results from smaller, earlier stage clinical studies may not be representative of larger, controlled clinical trials that would be required in order to obtain regulatory approval of a product candidate.
Each of our clinical trials requires the investment of substantial planning, expense and time and the timing of the commencement, continuation and completion of these clinical trials may be subject to significant delays relating to various causes, including scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling participants who meet trial eligibility criteria, failure of participants to complete the clinical trial, delay or failure to obtain Institutional Review Board (“IRB”) or regulatory approval to conduct a clinical trial at a prospective site, unexpected adverse events and shortages of available drug supply. Participant enrollment is a function of many factors, including the size of the relevant population, the proximity of participants to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments.
As a biopharmaceutical company, we engage clinical research organizations (“CROs”) to conduct clinical studies, and failure by us or our CROs to conduct a clinical study in accordance with GCP standards and other applicable regulatory requirements could result in disqualification of the applicable clinical trial from consideration in support of approval of a potential product.
We are responsible for conducting our clinical trials consistent with GCP standards and for oversight of our vendors to ensure that they comply with such standards. We depend on medical institutions and CROs to conduct our clinical trials in compliance with GCP. To the extent that we or they fail to comply with GCP standards, fail to enroll participants for our clinical trials, or are delayed for a significant time in the execution of our trials, including achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm our business.
Clinical trials must be conducted in accordance with FDA or other applicable foreign government guidelines and are subject to oversight by the FDA, other foreign governmental agencies and IRBs at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our product candidates produced under GMP and other requirements in foreign countries, and may require large numbers of participants.
In addition, we obtain guidance from regulatory authorities on certain aspects of our clinical development activities and seek to comply with written guidelines provided by the authorities. These discussions and written guidelines are not binding obligations on the part of the regulatory authorities and the regulatory authorities may require additional patient data or studies to be conducted. Regulatory authorities may revise or retract previous guidance during the course of a clinical trial or after completion of the trial. The authorities may also disqualify a clinical trial from consideration in support of approval of a potential product if they deem the guidelines have not been met. The FDA or foreign regulatory agencies may determine our clinical trials or other data regarding safety, efficacy or consistency of manufacture or compliance with GMP regulations are insufficient for regulatory approval.
The FDA or other foreign governmentalregulatory agencies or we ourselves could delay, suspend or halt our clinical trials of a product candidate for numerous reasons, including with respect to our product candidates and those of our partners in combination agent studies:
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| • the time required to determine whether a product candidate is effective may be longer than expected; • fatalities or other adverse events arising during a clinical trial that may not be related to clinical trial treatments; • a product candidate or combination study may appear to be no more effective than current therapies; • the quality or stability of a product candidate may fail to conform to acceptable standards; • the inability to produce or obtain sufficient quantities of a product candidate to complete the trials; • our inability to reach agreement on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • our inability to obtain IRB approval to conduct a clinical trial at a prospective site; • the inability to obtain regulatory approval to conduct a clinical trial; • lack of adequate funding to continue a clinical trial, including the occurrence of unforeseen costs due to enrollment delays, requirements to conduct additional trials and studies and increased expenses associated with the services of our CROs and other third parties; • the inability to recruit and enroll individuals to participate in clinical trials for reasons including competition from other clinical trial programs for the same or similar indications; or • the inability to retain participants who have initiated a clinical trial but may withdraw due to side effects from the therapy, lack of efficacy or personal issues, or who are otherwise unavailable for further follow-up.
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In addition, we may experience significant setbacks in advanced clinical trials, even after promising results in earlier trials, such as unexpected adverse events that occur when our product candidates are combined with other therapies and drugs or given to larger patient populations, which often occur in later-stage clinical trials, or less favorable clinical outcomes. Moreover, clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals.
Third-party organizations such as patient advocacy groups and parents of trial participants may demand additional clinical trials or continued access to our drug even if our interpretation of clinical results received thus far leads us to determine that additional clinical trials or continued access are unwarranted. Any disagreement with patient advocacy groups or parents of trial participants may require management’s time and attention and may result in legal proceedings being instituted against us, which could be expensive, time-consuming and distracting, and may result in delay of the program. Negative or inconclusive results or adverse medical events, including participant fatalities that may be attributable to our product candidates, during a clinical trial may necessitate that it be redesigned, repeated or terminated. Further, some of our clinical trials may be overseen by a Data Safety Monitoring Board (“DSMB”), and the DSMB may determine to delay or suspend one or more of these trials due to safety or futility findings based on events occurring during a clinical trial. Any such delay, suspension, termination or request to repeat or redesign a trial could increase our costs and prevent or significantly delay our ability to commercialize our product candidates. Even if we complete all such activities without issue, final results may not actually support approval of a particular product candidate.
HEPLISAV-B and most of our earlier stage programs rely on oligonucleotide TLR agonists. SeriousIn the event of serious adverse event data relating to TLR agonists we may require usbe required to reduce the scope of, or discontinue, our operations, or reevaluate the viability of strategic alternatives.
Most of our programs, including HEPLISAV-B, incorporate TLR9 agonist CpG oligonucleotides. If any of our product candidates in clinical trials or similar products from competitors produce serious adverse event data, we may be required to delay, discontinue or modify our clinical trials or our clinical trial strategy, or significantly reevaluate strategic alternatives. If a safety risk based on mechanism of action or the molecular structure were identified, it may hinder our ability to develop our product candidates or enter into potential collaboration or commercial arrangements. Rare diseases and a numerical imbalance in cardiac adverse events have been observed in patients in our clinical trials. If adverse event data are found to apply to our TLR agonist and/or inhibitor technology as a whole, we may be required to significantly reduce or discontinue our operations.
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As we continue to grow as a commercial organization and enter into supply agreements with customers, those supply agreements will have obligations to deliver product that we are reliant upon third parties to manufacture on our behalf.
As our commercial business begins to expand in connection with commercial sales of HEPLISAV-B and CpG 1018, the contracts we enter into with our customers will generally carry delivery obligations that require us to deliver product in certain quantities and meeting certain quality thresholds, among other things, all within specified timeframes. If, for any reason, whether due to reliance on third-party manufacturers or otherwise, we are unable to deliver timely, compliant products to our customers in quantities that meet our contractual obligation, we could be subject to lost revenue, contractual penalties, suits for damages, harm to our reputation or other problems that could materially and adversely affect our business.
HEPLISAV-B is subject to regulatory obligations and continued regulatory review, and if we receive regulatory approval for our other product candidates, we will be subject to ongoing FDA and foreign regulatory obligations and continued regulatory review for such products.
With respect to HEPLISAV-B and our other product candidates in development, we and our third-party manufacturers and suppliers are required to comply with applicable GMP regulations and other international regulatory requirements. The regulations require that our products and product candidates be manufactured and records maintained in a prescribed manner with respect to manufacturing, testing and quality control/quality assurance activities. Manufacturers and suppliers of key components and materials must be named in a BLA submitted to the FDA for any product candidate for which we are
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seeking FDA approval. Additionally, third-party manufacturers and suppliers and any manufacturing facility must undergo a pre-approval inspection before we can obtain marketing authorization for any of our product candidates. Even after a manufacturer has been qualified by the FDA, the manufacturer must continue to expend time, money and effort in the area of production and quality control to ensure full compliance with GMP. Manufacturers are subject to regular, periodic inspections by the FDA following initial approval. Further, to the extent that we contract with third parties for the manufacture of our products or product candidates, our ability to control third-party compliance with FDA requirements will be limited to contractual remedies and rights of inspection.
If, as a result of the FDA’s inspections, it determines that the equipment, facilities, laboratories or processes do not comply with applicable FDA regulations and conditions of product approval, the FDA may not approve the product or may suspend the manufacturing operations. If the manufacturing operations of any of the suppliers for our products or product candidates are suspended, we may be unable to generate sufficient quantities of commercial or clinical supplies of product to meet market demand, which would harm our business. In addition, if delivery of material from our suppliers were interrupted for any reason, we might be unable to ship our approved product for commercial supply or to supply our products in development for clinical trials. Significant and costly delays can occur if the qualification of a new supplier is required.
Failure to comply with regulatory requirements could prevent or delay marketing approval or require the expenditure of money or other resources to correct. Failure to comply with applicable requirements may also result in warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution, any of which could be harmful to our ability to generate revenues and to our stock price.
Any regulatory approvals that we receive for our product candidates are likely to contain requirements for post-marketing follow-up studies, which may be costly. Product approvals, once granted, may be modified based on data from subsequent studies or commercial use. As a result, limitations on labeling indications or marketing claims, or withdrawal from the market may be required if problems occur after approval and commercialization.
A key part of our business strategy for products in development is to establish collaborative relationships to help fund or manage development and commercialization of our product candidates and research programs. We may not succeed in establishing and maintaining collaborative relationships, which may significantly limit our ability to continue to develop and commercialize those products and programs, if at all.
We have and may in the future need to establish collaborative relationships to obtain domestic and/or international sales, marketing, research, development and distribution capabilities for our product candidates and our discovery research programs. Failure to obtain a collaborative relationship for those product candidates and programs or HEPLISAV-B in markets outside the U.S. requiring extensive sales efforts, may significantly impair the potential for those products and programs and we may be required to raise additional capital to continue them. The process of establishing and maintaining collaborative relationships is difficult and time-consuming, and even if we establish such relationships, they may involve significant uncertainty, including:
| • our partners may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results, manufacturing issues, a change in business strategy, a change of control or other reasons; • our shortage of capital resources may impact the willingness of companies to collaborate with us; • our contracts for collaborative arrangements are terminable at will on written notice and may otherwise expire or terminate and we may not have alternative funding available; • our partners may choose to pursue alternative technologies, including those of our competitors; • we may have disputes with a partner that could lead to litigation or arbitration; • we have limited control over the decisions of our partners and they may change the priority of our programs in a manner that would result in termination of the agreement or add significant delay in the partnered program; • our ability to generate future payments and royalties from our partners depends upon the abilities of our partners to establish the safety and efficacy of product candidates, obtain regulatory approvals and successfully manufacture and commercialize the products developed from product candidates; • we or our partners may fail to properly initiate, maintain or defend our intellectual property rights, where applicable, or a party may use our proprietary information in such a way as to invite litigation that could jeopardize or potentially invalidate our proprietary information or expose us to potential liability; 34 • our partners may not devote sufficient capital or resources towards our product candidates; and • our partners may not comply with applicable government regulatory requirements.
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Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. Even if we are successful in entering into one or more collaboration agreements, collaborations may involve greater uncertainty for us, as we may have less control over certain aspects of our collaborative programs than we do over our proprietary development and commercialization programs, and the financial terms upon which collaborators may be willing to enter into such an arrangement cannot be certain.
If any collaborator fails to fulfill its responsibilities in a timely manner, or at all, our research, clinical development, manufacturing or commercialization efforts pursuant to that collaboration could be delayed or terminated, or it may be necessary for us to assume responsibility for expenses or activities that would otherwise have been the responsibility of our collaborator. Despite our efforts, we may be unable to secure collaborative arrangements. If we are unable to establish and maintain collaborative relationships on acceptable terms or to successfully transition terminated collaborative agreements, we may have to delay or discontinue further development of one or more of our product candidates, undertake development and commercialization activities at our own expense or find alternative sources of capital.
The term loan agreement we entered into in February 2018 imposes significant operating and financial restrictions on us that may prevent us from pursuing certain business opportunities and restrict our ability to operate our business.
In February 2018, we entered into a term loan agreement under which we have borrowed $180.9 million, which includes paid-in-kind interest. The agreement contains covenants that restrict our ability to take various actions, including, among other things, incur additional indebtedness, pay dividends or distributions or make certain investments, create or incur certain liens, transfer, sell, lease or dispose of assets, enter into transactions with affiliates, consummate a merger or sell or otherwise dispose of assets. The agreement also requires us to comply with a daily minimum liquidity covenant and an annual revenue requirement based on the sales of HEPLISAV-B, which are (i) $30 million for the period July 1, 2019 through June 30, 2020, (ii) $50 million for the period July 1, 2020 through June 30, 2021, (iii) $75 million for the period July 1, 2021 through June 30, 2022 and (iv) $100 million for the period July 1, 2022 through June 30, 2023. In November 2020, we entered into an amendment to the term loan agreement that, among other things, (i) changes the annual revenue requirement to include all revenue, including CpG 1018 net sales, rather than net sales of HEPLISAV-B only, and (ii) deletes the $50 million revenue requirement for the period from July 1, 2020 through June 30, 2021 in its entirety. The agreement specifies a number of events of default, some of which are subject to applicable grace or cure periods, including, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults, and non-payment of material judgments.
Our ability to comply with these covenants will likely be affected by many factors, including events beyond our control, and we may not satisfy those requirements. Our failure to comply with our obligations could result in an event of default and the acceleration of our repayment obligation at a time when we may not have the cash to comply with that obligation, which could result in a seizure of most of our assets. The restrictions contained in the agreement could also limit our ability to meet capital needs or otherwise restrict our activities and adversely affect our ability to finance our operations, enter into acquisitions or to engage in other business activities that would be in our interest.
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We rely on CROs and Clinical Sitesclinical sites and Investigatorsinvestigators for our clinical trials. If these third parties do not fulfill their contractual obligations or meet expected deadlines, our planned clinical trials may be delayed and we may fail to obtain the regulatory approvals necessary to commercialize our product candidates.
We rely on CROs, clinical sites and investigators for our clinical trials. If these third parties do not perform their obligations or meet expected deadlines our planned clinical trials may be extended, delayed, modified or terminated. While we maintain oversight over our clinical trials and conduct regular reviews of the data, we are dependent on the processes and quality control efforts of our third-party contractors to ensure that clinical trials are conducted properly and that detailed, quality records are maintained to support the results of the clinical trials that they are conducting on our behalf. Any extension, delay, modification or termination of our clinical trials or failure to ensure adequate documentation and the quality of the results in the clinical trials could delay or otherwise adversely affect our ability to commercialize our product candidates and could have a material adverse effect on our business and operations.
If we fail to comply with the extensive requirements applicable to biopharmaceutical manufacturers and marketers under the healthcare fraud and abuse, anticorruption, privacy, transparency and other laws of the jurisdictions in which we conduct our business, we may be subject to significant liability.
Our activities, and the activities of our agents, including some contracted third parties, are subject to extensive government regulation and oversight both in the U.S. and in foreign jurisdictions. Our interactions with physicians and others in a position to prescribe or purchase our products are subject to a legal regime designed to prevent healthcare fraud and abuse and off-label promotion. We also are subject to laws pertaining to transparency of transfers of value to healthcare providers; privacy and data protection; compliance with industry voluntary compliance guidelines; and prohibiting the payment of bribes. Relevant U.S. laws include:
| • the federal Anti-Kickback Statute, which prohibits persons from, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal health care programs, such as the Medicare and Medicaid programs; • federal false claims laws, including the False Claims Act, and Civil Monetary Penalties Law, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, claims for payment to the government or its agents that are false or fraudulent; • the Federal Food, Drug and Cosmetic Act and governing regulations which, among other things, prohibit off-label promotion of prescription drugs; • the federal Physician Payments Sunshine Act created under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education and Reconciliation Act of 2010 (collectively, “ACA”) which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services (“CMS”), information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other health care professionals (such as physician assistants and nurse practitioners), and teaching hospitals, and ownership and investment interests held by such physicians and their immediate family members; 35 • the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created, among other things, new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters; • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, which imposes certain requirements on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, and their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity as well as their covered subcontractors relating to the privacy, security, and transmission of individually identifiable health information; • the Foreign Corrupt Practices Act, which prohibits the payment of bribes to foreign government officials and requires that a company’s books and records accurately reflect the company’s transactions; and • foreign and state law equivalents of each of the federal laws described above, such as anti-kickback and false claims laws which may apply to items or services reimbursed by state health insurance programs or any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government; state laws that require drug manufacturers to report information on the pricing of certain drugs; state and local laws that require the registration of pharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health information, many of which differ from each other in significant ways and often are not preempted by HIPAA.
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The Office of Inspector General for the Department of Health and Human Services, the Department of Justice, states’ Attorneys General and other governmental authorities actively enforce the laws and regulations discussed above. These entities also coordinate extensively with the FDA, using legal theories that connect violations of the Federal Food, Drug and Cosmetic Act (such as off-label promotion) to the eventual submission of false claims to government healthcare programs. Prosecution of such promotion cases under the False Claims Act provides the potential for private parties (qui tam relators, or “whistleblowers”) to initiate cases on behalf of the government and provides for significantly higher penalties upon conviction.
In the U.S., pharmaceutical and biotechnology companies have been the target of numerous government prosecutions and investigations alleging violations of law, including claims asserting impermissible off-label promotion of pharmaceutical products, payments intended to influence the referral of federal or state health care business, submission of false claims for government reimbursement, or submission of incorrect pricing information.
Violations of any of the laws described above or any other applicable governmental regulations and other similar foreign laws may subject us, our employees or our agents to significant criminal, civil and administrative penalties, including fines, civil monetary penalties, exclusion from participation in government health care programs (including Medicare and Medicaid), disgorgement, imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the restriction or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results. Additionally, whether or not we have complied with the law, an investigation into alleged unlawful conduct may cause us to incur significant expense, cause reputational damage, divert management time and attention, and otherwise adversely affect our business. While we have developed and instituted a corporate compliance program, we cannot guarantee that we, our employees, our consultants, contractors, or other agents are or will be in compliance with all applicable U.S. or foreign laws.
It remains unclear how various state, federal, and international privacy and cybersecurity law will affect our business. For example, we don’t know how the CCPA will be interpreted, but as currently written, it will likely impact our business activities and exemplifies the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data. As we expand our operations, the CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States. Other states are beginning to pass similar laws.
Internationally, the GDPRGeneral Data Protection Regulation (“GDPR”) requires us to make more detailed disclosures to data subjects, requires disclosure of the legal basis on which we can process personal data, makes it harder for us to obtain valid consent for processing, will require the appointment of data protection officers when sensitive personal data, such as health data, is processed on a large scale, provides more robust rights for data subjects, introduces mandatory data breach notification through the EU, imposes additional obligations on us when contracting with service providers and requires us to
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adopt appropriate privacy governance including policies, procedures, training and data audit. If we do not comply with our obligations under the GDPR, we could be exposed to fines of up to the greater of €20 million or up to 4% of our total global annual revenue in the event of a significant breach. In addition, we may be the subject of litigation and/or adverse publicity, which could adversely affect our business, results of operations and financial condition. Also, mechanisms for legally transferring information under the GDPR remain unclear. At present, there are few if any viable alternatives to the standard contractual clauses, or SCCs, so future developments may necessitate further expenditures on local infrastructure, changes to internal business processes, or may otherwise affect or restrict sales and operations.
In addition, our data security and information technology systems, as well as those of our partners and contractors, are potentially vulnerable to data security breaches, whether by employees or others, that may expose sensitive data or personal information to unauthorized persons.
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Enacted or future legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may have an adverse effect on our operations and business.
We expect there will continue to be federal and state laws and/or regulations, proposed and implemented, that could impact our operations and business. For example, the ACA, among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also contains substantial provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, and impose additional health policy reforms, any or all of which may affect our business. There remainhave been executive, legal and political challenges to certain aspects of ACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017,For example, President Trump signed several executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by ACA. Concurrently, Congress considered legislation that would repeal or repeal and replace all or part of ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017 or (“Tax Act, includesAct”) included a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January l, 2021, also eliminated the health insurer tax. The Bipartisan Budget Act of 2018 or the BBA,(“BBA”) among other things, amendsamended the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. On December 14, 2018,June 17, 2021, the U.S. Supreme Court dismissed a Texas U.S. District Court Judge ruledchallenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions ofCongress. Thus, the ACA are invalid as well. The U.S. Supreme Court is currently reviewing this case, but it is unknown when a decision will be reached. Althoughremain in effect in its current form. Further, prior to the U.S. Supreme Court has yet ruled on the constitutionality of the ACA,ruling, on January 28, 2021, President Biden issued an executive order to initiatethat initiated a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace.marketplace, which began on February 15, 2021 and will remain open through August 15, 2021. The executive order also instructsinstructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how the Supreme Court ruling, other such litigation,challenges and the healthcare reform measures will impact the ACA and our business.
Other legislative changes have also been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011 resulted in aggregate reductions in Medicare payments to providers of up to two percent per fiscal year, starting in 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 20302031 unless additional Congressional action is taken. However, COVID-19 relief support legislation suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2021.2022. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 3% in the final fiscal year of this sequester. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. In addition, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Such laws, and others that may affect our business that have been recently enacted or may in the future be enacted, may result in additional reductions in Medicare and other healthcare funding.
Also, there has been heightened governmental scrutiny recently in the U.S. over pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For
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example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals. The FDA alsoconcurrently released a final rule effective November 30,and guidance in September 2020, implementing a portion of the importation executive order providing guidancepathways for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHSthe U.S. Department of Health and Human Services (“HHS”) finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed pending review by the Biden administration until March 22, 2021.January 1, 2023. On November 20, 2020, CMS issued an interim final rule implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments
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for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. OnAs a result of litigation challenging the Most Favored Nation model, on December 28, 2020,27, 2021, CMS published a final rule that rescinded the United States District Court in Northern California issued a nationwide preliminary injunction against implementation of theMost Favored Nation Model interim final rule. However, it is unclear whetherIn July 2021, the Biden administration will workreleased an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to reverseBiden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these measures or pursue similar policyprinciples. In addition, Congress is considering drug pricing as part of other reform initiatives. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, and restrictions on certain product access. In some cases, such legislation and regulations have been designed to encourage importation from other countries and bulk purchasing.
We cannot predict the initiatives that may be adopted in the future or the effect any such initiatives may have on our business. However, in the future, there will likely continue to be additional proposals relating to the reform of the U.S. healthcare system, some of which could further limit coverage and reimbursement of products, including our product candidates. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.
In connection with our work with the U.S. Department of Defense, we have become a defense contractor, and are therefore subject to new administrative burdens and control requirements in connection with the maintenance of that relationship.
In September of 2021, we entered into an agreement with the U.S. Department of Defense ("DoD") relating to the conduct of a clinical trial in connection with the development of an improved plague vaccine. In connection with this agreement we became subject to new administrative and control requirements, including certain reporting obligations as well as a requirement to develop, implement and maintain an ITAR compliance program, among other things. Further, if our efforts result in an improved plague vaccine and we enter into a supply agreement for finished plague vaccines with the DoD, we expect that such a supply contract would impose additional administrative, control, compliance and other obligations. We have limited experience developing and administering such programs. Development and maintenance of such programs can be burdensome and costly and there can be no guarantee that we will be able to maintain compliance with all of the terms of such an agreement. Failure to comply with these requirements could have a significant reputational or financial impact on our business and on our stock price.
We face product liability exposure, which, if not covered by insurance, could result in significant financial liability.
While we have not experienced any product liability claims to date, the use of any of our product candidates in clinical trials and the sale of any approved products, including HEPLISAV-B, will subject us to potential product liability claims and may raise questions about a product’s safety and efficacy. As a result, we could experience a delay in our ability to commercialize one or more of our product candidates or reduced sales of any approved product candidates. In addition, a product liability claim may exceed the limits of our insurance policies and exhaust our internal resources. We have obtained limited clinical trial liability and umbrella insurance coverage for our clinical trials. This coverage may not be adequate or may not continue to be available in sufficient amounts, at an acceptable cost, or at all. While we have obtained product liability insurance coverage for HEPLISAV-B, there is a risk that this coverage may not be adequate or may not continue to be available in sufficient amounts, at an acceptable cost or at all. We also may not be able to obtain commercially reasonable product liability insurance for any product approved for marketing in the future. A product liability claim, product recalls or
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other claims, as well as any claims for uninsured liabilities or in excess of insured liabilities, would divert our management’s attention from our business and could result in significant financial liability.
Risks Related to our Intellectual Property
We rely on licenses to intellectual property from third parties. Impairment of these licenses or our inability to maintain them would severely harm our business.
Our current research and development efforts depend in part upon our license arrangements for intellectual property owned by third parties. Our dependence on these licenses subjects us to numerous risks, such as disputes regarding the use of the licensed intellectual property and the creation and ownership of new discoveries under such license agreements. In addition, these license arrangements require us to make timely payments to maintain our licenses and typically contain diligence or milestone-based termination provisions. Our failure to meet any obligations pursuant to these agreements could allow our licensors to terminate our agreements or undertake other remedies such as converting exclusive to non-exclusive licenses if we are unable to cure or obtain waivers for such failures or amend such agreements on terms acceptable to us. In addition, our license agreements may be terminated or may expire by their terms, and we may not be able to maintain the exclusivity of these licenses. If we cannot obtain and maintain licenses that are advantageous or necessary to the development or the commercialization of our product candidates, we may be required to expend significant time and resources to develop or license similar technology or to find other alternatives to maintaining the competitive position of our products. If such alternatives are not available to us in a timely manner or on acceptable terms, we may be unable to continue development or commercialize our product candidates. In the absence of a current license, we may be required to redesign our technology so it does not infringe a third-party’s patents, which may not be possible or could require substantial funds and time.
If third parties successfully assert that we have infringed their patents and proprietary rights or challenge our patents and proprietary rights, we may become involved in intellectual property disputes and litigation that would be costly, time consuming and delay or prevent development or commercialization of our product candidates.
We may be exposed to future litigation or other dispute by third parties based on claims that our products, product candidates or proprietary technologies infringe their intellectual property rights, or we may be required to enter into litigation to enforce patents issued or licensed to us or to determine the ownership, scope or validity of our or another party’s proprietary rights, including a challenge as to the validity of our issued and pending claims. From time to time we arehave been, and in the future may become, involved in various administrative proceedings related to our intellectual property which causes us to incur certain legal expenses. If we become involved in any litigation and/or other significant proceedings related to our intellectual property or the intellectual property of others, we will incur substantial additional expenses and it will divert the efforts of our technical and management personnel.
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If we or our collaborators are unsuccessful in defending or prosecuting our issued and pending claims or in defending potential claims against our products, for example, as may arise in connection with the commercialization of HEPLISAV-B or any similar or other product candidate, we or our collaborator could be required to pay substantial damages or be unable to commercialize our product candidates or use our proprietary technologies without a license from such third-party.third party. A license may require the payment of substantial fees or royalties, require a grant of a cross-license to our technology or may not be available on acceptable terms, if at all. Any of these outcomes could require us to change our business strategy and could materially impact our business and operations.
If the combination of patents, trade secrets and contractual provisions that we rely on to protect our intellectual property is inadequate, the value of our products or product candidates will decrease, and we may be unable to realize any commercial benefit from the development of a vaccine containing our CpG 1018.1018 adjuvant.
Our success depends on our ability to:
| • obtain and protect commercially valuable patents or the rights to patents both domestically and abroad; • operate without infringing upon the proprietary rights of others; and • prevent others from successfully challenging or infringing our proprietary rights.
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We will be able to protect our proprietary rights from unauthorized use only to the extent that these rights are covered by valid and enforceable patents for a commercially sufficient term or are otherwise effectively maintained as trade secrets. We try to protect our proprietary rights by filing and prosecuting U.S. and foreign patent applications. However, in certain cases such protection may be limited, depending in part on existing patents held by third parties, or other disclosures which impact patentability, which may only allow us to obtain relatively narrow patent protection. In the U.S., legal standards relating to the validity and scope of patent claims in the biopharmaceutical field can be highly uncertain, are still evolving and involve complex legal and factual questions for which important legal principles remain unresolved.
For example, our HEPLISAV-B and CpG 1018 hasadjuvant have no composition of matter patent protection in the United States or elsewhere. We must therefore rely primarily on the protection afforded by method of use patents relating to HEPLISAV-B and the use of CpG 1018 in vaccines, and trade secret protection and confidentiality and other agreements to protect our interests in proprietary know-how related to HEPLISAV-B and CpG 1018. We have three issued U.S. patents relating to certain uses of HEPLISAV-B that expire in 2032. We have filed patent applications claiming compositions and methods of use of CpG 1018 for COVID-19 and other vaccines, but we cannot provide any assurances that we will receive an issued patent for any of these patent applications or that, if issued, any of these patents will provide adequate protection for any intended use of CpG 1018 in vaccines. In addition, we may be subject to co-ownership of the underlying intellectual property with our collaborators and not the sole owner. If we are unable to adequately obtain patent protection or enforce our other proprietary rights relating to CpG 1018, we may be unable to realize any recurring commercial benefit from the development of a vaccine containing CpG 1018, and we may not have the ability to prevent others from developing or commercializing a vaccine containing CpG 1018.
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The biopharmaceutical patent environment outside the U.S. is also uncertain. We may be particularly affected by this uncertainty since several of our product candidates or our collaborators’ vaccine candidates may initially address market opportunities outside the U.S., where we may only be able to obtain limited patent protection, if any.any at all. For example, while many countries such as the United StatesU.S. permit method of use patents relating to the use of drug products, in some countries the law relating to patentability of such use claims is evolving, or may prohibit certain activities, and may be unfavorably interpreted to prevent us from successfully prosecuting some or all of our pending patent applications relating to the use of CpG 1018. There are some countries that currently do not allow such method of use patents, or that significantly limit the types of uses that are patentable.
The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following:
| • we may not receive an issued patent for any of our patent applications or for any patent applications that we have exclusively licensed now or in the future; • the pending patent applications we have filed or to which we have exclusive rights may take longer than we expect to result in issued patents; • the claims of any patents that are issued may not provide meaningful protection or may not be valid or enforceable; • we might not be able to develop additional proprietary technologies that are patentable; • the patents licensed or issued to us or our collaborators may not provide a competitive advantage; • patents issued to other parties may limit our intellectual property protection or harm our ability to do business; • other parties may independently develop similar or alternative technologies or duplicate our technologies and commercialize discoveries that we attempt to patent; • other parties may design around technologies we have licensed, patented or developed; and • pending patent applications or issued patents may be challenged by third parties in proceedings, such as inter partes review, pre- and post-grant oppositions, and post grant review.
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We also rely on trade secret protection and confidentiality agreements to protect our interests in proprietary know-how that is not patentable and for processes for which patents are difficult to enforce. We cannot be certain that we will be able to protect our trade secrets or other proprietary know-how adequately. Any disclosure of confidential data in the public domain or to third parties could allow our competitors to learn our trade secrets. If we are unable to adequately obtain or enforce proprietary rights, we may be unable to commercialize our products, enter into collaborations, generate revenues or maintain any advantage we may have with respect to existing or potential competitors.
We have in the past, and may in the future, rely on licenses to intellectual property from third parties. Impairment of these licenses or our inability to obtain or maintain them could severely harm our business.
Our current or future research and development efforts may depend in part upon our license arrangements for certain intellectual property owned by third parties. Our dependence on these licenses could subject us to numerous risks, such as disputes regarding the use of the licensed intellectual property and the creation and ownership of new discoveries under such license agreements. In addition, these license arrangements could require us to make timely payments to maintain our licenses and typically contain diligence or milestone-based termination provisions. Our failure to meet any obligations pursuant to such agreements could allow licensors to terminate our agreements or undertake other remedies such as converting exclusive to non-exclusive licenses if we are unable to cure or obtain waivers for such failures or amend such agreements on terms acceptable to us or at all. In addition, license agreements may be terminated or may expire by their terms, and we may not be able to maintain the exclusivity of these licenses. If we cannot obtain and maintain licenses that are advantageous or necessary to the development or the commercialization of our product candidates, we may be required to expend significant time and resources to develop or license similar technology or to find other alternatives to maintaining the competitive position of our products. If such alternatives are not available to us in a timely manner or on acceptable terms, we may be unable to develop or commercialize certain of our product candidates. In the absence of a current license, we may be required to redesign our technology so it does not infringe a third-party’s patents, which may not be possible or could require substantial funds and time.
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Risks Related to an Investment in our Common Stock
Our stock price is subject to volatility, and your investment may suffer a decline in value.
The market prices for securities of biopharmaceutical companies have in the past been, and are likely to continue in the future, to be, very volatile. The market price of our common stock is subject to substantial volatility depending upon many factors, many of which are beyond our control, including:
| • impact of the COVID-19 pandemic on our HEPLISAV-B vaccine, CpG 1018 adjuvant, or other product revenue; • progress or results of any of our clinical trials or regulatory or manufacturing efforts, in particular any announcements regarding the progress or results of our planned trials and BLA filing and communications, from the FDA or other regulatory agencies; • our ability to receive timely regulatory approval for our product candidates; • our ability to establish and maintain collaborations for the development and commercialization of our product candidates; • our ability to raise additional capital to fund our operations; • technological innovations, new commercial products or drug discovery efforts and preclinical and clinical activities by us or our competitors; • changes in our intellectual property portfolio or developments or disputes concerning the proprietary rights of our products or product candidates; • our ability to obtain component materials and successfully enter into manufacturing relationships for our products or product candidates or establish manufacturing capacity on our own; • our ability to establish and maintain licensing agreements for intellectual property necessary for the development of our product candidates; • changes in government regulations, general economic conditions or industry announcements; • changes in the structure of healthcare payment systems; • issuance of new or changed securities analysts’ reports or recommendations; • actual or anticipated fluctuations in our quarterly financial and operating results; • the volume of trading in our common stock; • investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance; and • industry conditions and general financial, economic and political instability, as well as developments with respect to the COVID-19 global pandemic, including but not limited to regulatory initiatives, such as the imposition of compulsory licenses related to COVID-19 vaccines, that may result in a general weakening of intellectual property protections.
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The stock markets in general, and the markets for biotechnology and pharmaceutical stocks in particular, have historically experienced significant volatility that has often been unrelated or disproportionate to the operating performance of particular companies, including recently in connection with the ongoing COVID-19 pandemic, which has resulted in decreased market prices, notwithstanding the lack of a fundamental change in the underlying business models or prospects of those companies. These broad market fluctuations have adversely affected and may in the future adversely affect the market price of our common stock. In this regard, worsening economic conditions, interest rate increases and/or other tapering policies from the government, and other adverse effects or developments relating to the ongoing COVID-19 pandemic or general economic environment may negatively affect the market price of our common stock, regardless of our actual operating performance.
One or more of these factors could cause a substantial decline in the price of our common stock. In addition, securities class action and shareholder derivative litigation has often been brought against a company following a decline in the market price of its securities. We have in the past been, and we may in the future be, the target of such litigation. Securities and shareholder derivative litigation could result in substantial costs, and divert management’s attention and resources, which could harm our business, operating results and financial condition.
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Future sales of our common stock or the perception that such sales may occur in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.
Under our universal shelf registration statement, we may sell any combination of common stock, preferred stock, debt securities and warrants in one or more offerings, including pursuant to our sales agreement with Cowen & Company, LLC, under which we can offer and sell our common stock from time to time up to aggregate sales proceeds of $150 million.
As of December 31, 2021, we had $120.5 million remaining under our sales agreement with Cowen & Company, LLC. The sale or issuance of our securities, including those issuable upon exercise of the outstanding warrants or conversion of the preferred stock, as well as the existence of outstanding options and shares of common stock reserved for issuance under our option and equity incentive plans also may adversely affect the terms upon which we are able to obtain additional capital through the sale of equity securities.
Risks Related to Our Outstanding Convertible Notes
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the $225.5 million in 2.50% convertible senior notes due 2026 (“Convertible Notes”), depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash or to repurchase the notes for cash upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Convertible Notes.
Holders of the Convertible Notes will have the right, subject to certain conditions and limited exceptions, to require us to repurchase all or a portion of their Convertible Notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Notes being converted. Moreover, we will be required to repay the Convertible Notes in cash at their maturity unless earlier converted, redeemed or repurchased. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Notes surrendered therefor or pay cash with respect to Convertible Notes being converted. In addition, our ability to repurchase the Convertible Notes or to pay cash upon conversions of the Convertible Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Convertible Notes at a time when the repurchase is required by the indenture governing the Convertible Notes or to pay any cash payable on future conversions of the Convertible Notes as required by the indenture governing the Convertible Notes would constitute a default under the indenture governing the Convertible Notes. A default under the indenture governing the Convertible Notes or the occurrence of a fundamental change itself could also lead to a default under agreements governing our future indebtedness. Moreover, the occurrence of a fundamental change under the indenture governing the Convertible Notes could constitute an event of default under any agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Notes or make cash payments upon conversions thereof.
The conditional conversion feature of the Convertible Notes may adversely affect our financial condition and operating results.
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As of October 1, 2021, the conditions allowing holders to convert all or any portion of their Convertible Notes were met, and holders of Convertible Notes are entitled to convert their Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
Conversion of the Convertible Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stock.
The conversion of some or all of the Convertible Notes to shares of common stock may dilute the ownership interests of our stockholders. As of October 1, 2021, the conditions allowing holders to convert all or any portion of their Convertible Notes were met. Upon conversion of the Convertible Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to settle our conversion obligation in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could be used to satisfy short positions, or anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock.
Certain provisions in the indenture governing the Convertible Notes may delay or prevent an otherwise beneficial takeover attempt of us.
Certain provisions in the indenture governing the Convertible Notes may make it more difficult or expensive for a third party to acquire us. For example, the indenture governing the Convertible Notes will require us, subject to certain exceptions, to repurchase the Convertible Notes for cash upon the occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a holder that converts its Convertible Notes in connection with a make-whole fundamental change. A takeover of us may trigger the requirement that we repurchase the Convertible Notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to investors.
The Capped Calls may affect the value of the Convertible Notes and our common stock.
In connection with the issuance of the Convertible Notes, we have entered into capped call transactions with the option counterparties totaling $27.2 million (the "Capped Calls"). The Capped Calls cover, subject to customary adjustments, the number of shares of common stock that initially underlie the Capped Calls. The Capped Calls are expected to offset the potential dilution to our common stock as a result of any conversion of the Convertible Notes, subject to a cap based on the cap price.
In connection with establishing their initial hedges of the Capped Calls, we have been advised that the option counterparties and/or their respective affiliates entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Convertible Notes and/or purchased shares of our common stock concurrently with or shortly after the pricing of the Convertible Notes. In addition, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes (and are likely to do so on each exercise date of the Capped Calls, which are expected to occur during the 30 trading day period beginning on the 31st scheduled trading day prior to the maturity date of the Convertible Notes, or following any termination of any portion of the Capped Calls in connection with any repurchase, redemption or early conversion of the Convertible Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Convertible Notes.
General Risk Factors
The loss of key personnel could delay or prevent achieving our objectives. In addition, our continued growth to support commercialization may result in difficulties in managing our growth and expanding our operations successfully.
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We depend on our senior executive officers, as well as other key scientific personnel. Our commercial and business efforts could be adversely affected by the loss of one or more key members of our commercial or management staff, including our senior executive officers. We currently have no key person insurance on any of our employees.
As our operations expand, we expect that we will need to manage additional relationships with various vendors, partners, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to successfully commercialize HEPLISAV-B and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to effectively manage our commercialization efforts, research efforts and clinical trials and hire, train and integrate additional regulatory, manufacturing, administrative, and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company and achieving profitability.
Our business operations are vulnerable to interruptions by natural disasters, health epidemics (such as the ongoing COVID-19 pandemic) and other catastrophic events beyond our control, the occurrence of which could materially harm our manufacturing, distribution, sales, business operations and financial results.
Our business operations are subject to interruption by natural disasters and other catastrophic events beyond our control, including, but not limited to, earthquakes, hurricanes, fires, droughts, tornadoes, electrical blackouts, public health crises and pandemics, war, terrorism, and geo-political unrest and uncertainties. We have not undertaken a systematic analysis of the potential consequences to our business that might result from any such natural disaster or other catastrophic event and have limited recovery plans in place. If any of these events occur, our manufacturing and supply chain, distribution, sales and
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marketing efforts and other business operations could be subject to business shutdowns or disruptions and financial results could be adversely affected. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions resulting from these events, but if we or any of the third parties with whom we engage, including the suppliers, contract manufacturers, distributors and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely affected in a number of ways, some of which are not predicable.
Our business could be adversely affected by health epidemics in regions where we have manufacturing facilities, sales activities or other business operations. For example, outbreaks of epidemic or pandemic diseases, such as the ongoing COVID-19 pandemic, or the fear of such events, have and could again in the future cause restrictions on supply chains, restrict access to workplaces and affect employee health and availability.
Although we maintain inventories of HEPLISAV-B and its components, our ability and those of our contractors and distributors to produce and distribute HEPLISAV-B could be adversely affected. A pandemic or similar health challenge could severely impact the U.S. healthcare system, which may have an adverse effect on usage and sales of HEPLISAV-B. In addition, any such event could result in widespread global health crisis that could adversely affect global economies and financial markets resulting in an economic downturn that could affect the demand for HEPLISAV-B and future revenue and operating results and our ability to raise additional capital when needed on acceptable terms, if at all. For example, the COVID-19 pandemic has generally resulted in significantly reduced utilization of all adult vaccines (other than the COVID-19 vaccines) since the end of the first quarter of 2020, including a reduction in the utilization of HEPLISAV-B.
Additionally, our corporate headquarters in Emeryville, California, is located in a seismically active region that also is subject to possible electrical shutdowns and wildfires. Because we do not carry earthquake insurance for earthquake-related losses and significant recovery time could be required to resume operations, our financial condition and operating results could be materially adversely affected in the event of a major earthquake or catastrophic event. We carry only limited business interruption insurance that would compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us in excess of insured amounts could adversely affect our business and operations.
Significant disruptions of information technology systems or breaches of data security could adversely affect our business.
Our business is increasingly dependent on critical, complex and interdependent information technology systems, including internet-based systems, to support business processes as well as internal and external communications. In addition, the COVID-19 pandemic has intensified our dependence on information technology systems as many of our critical business activities are currently being conducted remotely. The size and complexity of our computer systems make them potentially vulnerable to breakdown, malicious intrusion and computer viruses that may result in the impairment of key business processes.
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In addition, our systems are potentially vulnerable to data security breaches—whether by employees or others—that may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personally identifiable information (including sensitive personal information) of our employees, collaborators, clinical trial patients, and others. A data security breach or privacy violation that leads to disclosure or modification of or prevents access to patient information, including personally identifiable information or protected health information, could harm our reputation, compel us to comply with federal, state and/or international data breach notification laws, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal data, including, but not limited to, HIPAA, similar state data protection regulations, and the GDPR, resulting in significant penalties; increased costs; loss of revenue; expenses of computer or forensic investigations; material fines and penalties; compensatory, special, punitive or statutory damages; litigation; consent orders regarding our privacy and security practices; requirements that we provide notices, credit monitoring services and/or credit restoration services or other relevant services to impacted individuals; adverse actions against our licenses to do business; or injunctive relief. News reports have also highlighted COVID research-specific hacking and phishing attempts. Because we and our collaborators are working on vaccines, including potential COVID vaccines, we may be at higher-than-average risk for such attempts.
Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial condition and results of operations. Furthermore, the laws are not consistent, and compliance in the event of a widespread data breach is costly.
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U.S. and international authorities have been warning businesses of increased cybersecurity threats from actors seeking to exploit the COVID-19 pandemic. We have recentlyIn 2020, we experienced a cybersecurity incident known as a phishing e-mail scam, and although we do not consider its impact on us to be material, if we are unable to prevent this or other such data security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, including sensitive patient data. Moreover, failure to maintain effective internal accounting controls related to data security breaches and cybersecurity in general could impact our ability to produce timely and accurate financial statements and could subject us to regulatory scrutiny. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have implemented security measures that are intended to protect our data security and information technology systems, such measures may not prevent such events.
Such disruptions and breaches of security could have a material adverse effect on our business, financial condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES
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None.
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As of December 31, 2020,2021, we lease our facilities in Emeryville, California and Düsseldorf, Germany.
In July 2019, we entered into an agreement to sublease 23,976 square feet of office space located at 2100 Powell Street, Emeryville, California for our new global headquarters. This sublease agreement will continue until June 30, 2022.
In September 2018, we entered into an agreement to lease 75,662 square feet of laboratory and office space located at 5959 Horton Street, Emeryville, California (“Horton Street Lease”). Following our strategic organizational restructuring in May 2019, in July 2019, we entered into an agreement to sublease the entire 75,662 square feet to a third party (“Horton Street Sublease”). Both the Horton Street Lease and Horton Street Sublease will continue until March 31, 2031.
We also lease approximately 5,600 square meters of manufacturing and office space in Düsseldorf, Germany underGermany. In September 2021, we entered into a new Düsseldorf lease agreements expiring in March 2023.for the same space we previously leased, with the same landlord. The new lease will continue until December 31, 2031.
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We believe that our facilities are adequate to meet our requirements for the near term.term.
ITEM 3. LEGAL PROCEEDINGS
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From time to time in the ordinary course of business, we receive claims or allegations regarding various matters, including employment, vendor and other similar situations in the conduct of our operations. We are not currently aware of any material legal proceedings involving the Company.
ITEM 4. MINE SAFETY DISCLOSURE
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Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Market Information and Holders
Our common stock is traded on the Nasdaq Capital Market under the ticker symbol “DVAX”.
As of February 22, 2021,21, 2022, there were approximately 5040 holders of record of our common stock, one of which was Cede & Co., a nominee for Depository Trust Company (“DTC”). All of the shares of our common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are therefore considered to be held of record by Cede & Co. as one stockholderstockholder..
Dividends
We have never paid any cash dividends on our common stock. We currently expect to retain future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Additionally,
Stock Performance Graph
The chart below compares total stockholder return on an investment of $100 in February 2018, we entered into a $175.0 million term loan agreementcash on December 31, 2016, for: our common stock, the Nasdaq Stock Market (U.S. companies), and the Nasdaq Biotechnology Index. All values assume reinvestment of the full amount of all dividends.
Note: Dynavax management cautions that the stock price performance shown in the graph below should not be considered indicative of potential future stock price performance.
This Section is not “soliciting material,” is not deemed “filed” with CRG Servicing LLC, which restricts our abilitythe SEC and is not to paybe incorporated by reference in any dividend.filing of Dynavax Technologies Corporation under the Securities Act, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
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Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
ITEM 6. [RESERVED] 48 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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The Company has elected to comply with Item 301 of Regulation S-K, as amended February 10, 2021 and is omitting this disclosure in reliance thereon.
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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. The discussion should be read in conjunction with the Consolidated Financial Statements and the related notes thereto set forth in “Item 8—Financial Statements and Supplementary Data.”
Overview
We are a commercial stage biopharmaceutical company focused on developing and commercializing novelinnovative vaccines. Our first marketed product, HEPLISAV-B® (Hepatitis B Vaccine (Recombinant), Adjuvanted) is approved byin the United States Food and Drug Administration (“FDA”)European Union for prevention of infection caused by all known subtypes of hepatitis B virus in adults age 18 years and older. We also manufacture and sell CpG 1018, the adjuvant used in HEPLISAV-B. We are working to develop CpG 1018 as a premier vaccine adjuvant through research collaborations and partnerships. Current collaborations are focused on adjuvanted vaccines for COVID-19, pertussisplague, Tdap, seasonal influenza, universal influenza and universal influenza.shingles.
In Phase 3 trials, HEPLISAV-B demonstrated faster and higher rates of protection with two doses in one month compared to another currently approved hepatitis B vaccine which requires three doses over six months, with a similar safety profile. HEPLISAV-B is the only two-dose hepatitis B vaccine for adults approved in the U.S. and the European Union.
We have worldwide commercial rights to HEPLISAV-B and we market it in the United States. There are three other vaccines approved for the prevention of hepatitis B in the U.S.: Engerix-B and Twinrix® from GlaxoSmithKline plc and Recombivax-HB® from Merck & Co. In addition, weWe received Marketing Authorization approval of HEPLISAV-B in February 2021 from the European Commission following a positive recommendation in December 2020 from the European Medicines Agency (“EMA”) Committee for Medicinal Products (“CHMP”) for Human Use for prevention of infection caused by all known subtypes of hepatitis B virus in adults age 18 years and older. We expect to launchIn May 2021, we entered into a commercialization agreement with Bavarian Nordic for the marketing and distribution of HEPLISAV-B in the European Union in late 2021, initially focusing on one or a few key countries where it would be commercially feasible to market HEPLISAV-B on our own or through third-parties.Germany.
All of our HEPLISAV-B sales are to certain wholesalers and specialty distributors in the U.S. whose principal customers include independent hospitals and clinics, integrated delivery networks, public health clinics and prisons, the Departments of Defense and Veterans Affairs and retail pharmacies. For the year ended December 31, 2020,2021, HEPLISAV-B product revenue, net was $36.0$61.9 million.
In January 2021, we entered into an agreement (the "CEPI Agreement") with Coalition for Epidemic Preparedness Innovations (“CEPI”) for the manufacture and reservation of a specified quantity of CpG 1018 adjuvant. In May 2021, we entered into the first amendment (the “Amendment”) to the CEPI Agreement. The agreement enables CEPI to direct the supply of CpG 1018 adjuvant to CEPI partner(s). In exchange for reserving CpG 1018 adjuvant, CEPI has agreed to provide advance payments in the form of an interest-free, unsecured, forgivable loan of up to $176.4 million.
In July 2021, we entered into an agreement (the “Bio E Supply Agreement”) with Biological E. Limited (“Bio E”), for the commercial supply of CpG 1018 adjuvant, for use with Bio E’s subunit COVID-19 vaccine candidate, CORBEVAX™. Under the Bio E Supply Agreement, Bio E has committed to purchase specified quantities of CpG 1018 adjuvant, at pre-negotiated prices pursuant to the CEPI Agreement, for use in Bio E’s commercialization of its CORBEVAX vaccine with specified delivery dates in 2021 and the first quarter of 2022. The Bio E Supply Agreement also provides terms for Bio E to order additional quantities of CpG 1018 adjuvant beyond the quantities reserved by CEPI. In December 2021, CORBEVAX received approval for emergency use from the Drugs Controller General of India.
In June 2021, we entered into an agreement (the “Clover Supply Agreement”) with Zhejiang Clover Biopharmaceuticals, Inc. and Clover Hong Kong Inc. (collectively, “Clover”), for the commercial supply of CpG 1018 adjuvant, for use with its protein-based COVID-19 vaccine candidate, adjuvanted with our CpG 1018 adjuvant, SCB-2019. In September 2021, Clover reported that SCB-2019 achieved the primary and secondary efficacy endpoints, and with favorable safety profile, in a global Phase 2/3 clinical trial.
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In February 2021, we entered into a Supply Agreement (“Medigen Supply Agreement”) with Medigen Vaccine Biologics (“Medigen”) to manufacture and supply specified quantities of CpG 1018 adjuvant for use in the development and commercialization of Medigen’s COVID-19 vaccine, adjuvanted with our CpG 1018 adjuvant, MVC-COV1901, for delivery in the first and second quarters of 2021. In August 2021, we entered into a second supply agreement (“Medigen Supply Agreement No. 2”) to manufacture and supply additional specified quantities of CpG 1018 adjuvant for delivery in the third and fourth quarter of 2021. In August 2021, Medigen launched MVC-COV1901 after Medigen received Taiwan Emergency Use Authorization and approval for inclusion in Taiwan's COVID-19 vaccine immunization program.
In the third quarter of 2020, we commenced selling our novel adjuvant, CpG 1018, to certain of our collaboration partners for their use in development and/or commercialization of COVID-19 vaccines. For the year ended December 31, 2020, CpG 1018 product revenue, net was $3.3 million. In the third quarter of 2020, we also announced a commercial supply agreement (the “Valneva Supply Agreement”) with Valneva Scotland Limited (“Valneva”) to cover the supply of CpG 1018 adjuvant for up to 190 million doses of theirits SARS-COV-2 vaccine candidate, VLA2001, in support of its supply agreement with the United Kingdom Government and subject to the terms of such agreement. In September 2021, Valneva received a termination notice from the agreementUnited Kingdom Government in relation to such supply agreement. However, Valneva continues the clinical development of VLA2001 and contingencies contained therein.the pivotal Phase 3 trial for VLA2001, COV-COMPARE, remains ongoing at Public Health England. In October 2021, Valneva reported that VLA2001 met both co-primary endpoints in the COV-COMPARE trial, and that VLA2001 was well-tolerated, demonstrating a statistically significant better tolerability profile compared to active comparator vaccine, AstraZeneca's AZD1222 (ChAdOx1-S).
In May 2020, we completed an underwritten public offering of 16,100,000 shares of our common stock at a public offering price of $5.00 per share. The net proceeds from this offering were approximately $75.4 million, after deducting the underwriting discount and other offering expenses.
In August 2020,October 2021, we entered into a new At Market Sales Agreement with Cowen (“2020 ATM Agreement”letter agreement (the “Valneva Amendment”), which replacedamending the 2017 At Market Sales Agreement (“2017 ATM Agreement”).Valneva Supply Agreement. Under the 2020 ATMValneva Amendment, we and Valneva agreed to the cancellation of the two then outstanding purchase orders for CpG 1018 adjuvant under the Valneva Supply Agreement we can offer and sell upthat had not been fulfilled as of the date of the Valneva Amendment, while concurrently committing to $150 millionpurchase a reduced amount of our common stock from timeCpG 1018 adjuvant under a new purchase order. We are entitled to time. retain the advance payments made by Valneva under such cancelled purchase orders to the extent such advance payments do not count towards the advance payment dues under the Valneva Amendment.
For the year ended December 31, 2020,2021, CpG 1018 product revenue, net, was $375.2 million.
In September 2021, we receivedentered into an agreement with the U.S. Department of Defense ("DoD") for the development of an improved recombinant plague vaccine adjuvanted with CpG 1018, whereby the DoD will provide funding of up to approximately $22.0 million over two and a half years. Under the agreement, we agreed to conduct a Phase 2 clinical trial combining our CpG 1018 adjuvant with the DoD's rF1V vaccine. We anticipate the Phase 2 trial will commence in 2022.
In May 2021, we issued $200.0 million aggregate principal amount of 2.50% convertible senior notes due 2026 (the “Convertible Notes”) in a private placement. The purchasers partially exercised their option to purchase additional Convertible Notes and we issued an additional $25.5 million of the Convertible Notes in May 2021. Total proceeds from the issuance of the Convertible Notes, net cashof debt issuance and offering costs of $5.7 million, were $219.8 million. We used $190.2 million of the net proceeds to repay, in full, our outstanding debt and other obligations under the Loan Agreement and $27.2 million of $33.1the net proceeds to pay the costs of the capped call transactions described below.
In connection with the issuance of the Convertible Notes, we entered into capped call transactions with one of the initial purchasers and other financial institutions, totaling $27.2 million from sales(the “Capped Calls”). The Capped Calls have an initial strike price and an initial cap price of 8,114,643 shares of$10.47 per share and $15.80 per share, respectively, subject to certain adjustments. The Capped Calls are expected to offset the potential dilution to our common stock as a result of any conversion of the Convertible Notes, subject to a cap based on the cap price.
In May 2021, we repaid the term loans and paid-in-kind interest (collectively “Term Loans Principal”) under the 2017 ATMLoan Agreement with CRG Servicing LLC (“Loan Agreement”), in full, using the net proceeds from the Convertible Notes issuance described above. In connection with the early repayment of the Term Loans Principal, during the three months ended June 30, 2021, we recorded $5.2 million loss on debt extinguishment related to the amount we paid to terminate the Term Loans Principal in excess of its carrying value at the time of the repayment. Our final payment of $190.2 million to CRG Servicing LLC satisfied all of our obligations under the Loan Agreement. With the full repayment of the Term Loans Principal, all security interests, covenants, liens and 2020 ATM Agreement.encumbrances under the Loan Agreement were permanently released.
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In July 2020,
COVID-19 Update
The ongoing COVID-19 global pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as the U.S. economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 virus or current or newly discovered variants, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. We continue to assess the potential evolving impact of the COVID-19 pandemic on our business and operations.
To date, we sold assets relatedand our distribution partners have been able to our immuno-oncology compound, SD-101,continue to Surefire Medical Inc. d/b/a TriSalus Life Sciences (“TriSalus”). Pursuantsupply HEPLISAV-B throughout the United States, and currently do not anticipate any interruptions in supply. Due to the Asset Purchase Agreement, we received $5 million upon closingongoing COVID-19 global pandemic, most medical centers began restricting access to their facilities and focused on providing care to only the most severely affected patients, beginning in March 2020. As states began phasing out restrictions in the middle of 2020, medical centers have been operating under limited capacity or with strict social distancing rules. There has been a significant reduction in the utilization of adult vaccines (other than COVID-19 vaccines) since the end of the transaction and $4 million in December 2020 as reimbursement for certain clinical trial expenses. In addition, we could receive up to an additional $250 million upon the achievement of certain development, regulatory, and commercial milestones and low double-digit royalties based on potential future net sales of product containing SD-101 compound. In the thirdfirst quarter of 2020, including a reduction in the utilization of HEPLISAV-B which has impacted sales of HEPLISAV-B. While adult hepatitis B vaccine utilization rates have continued to stay below pre-pandemic levels, we recognizedare starting to see a recovery in such utilization from all-time lows. Additionally, HEPLISAV-B continues to gain on sale of SD-101 assets of $6.9 million, net of transaction costs.market share in the U.S. hepatitis B adult vaccine market.
COVID-19 Update
We are continuing to closely monitor the impact of the evolving effects of the COVID-19 pandemic on our business and are taking proactive efforts designed to help protect the health and safety of our workforce, patients and healthcare professionals, and to continue our business operations and advance our goal of bringing important new vaccines to patients as rapidly as possible.
Our We have implemented measures to help protect the health and safety of our workforce, including a mandatory work-from-home policy for employees who can perform their jobs offsite and continue to actively evaluate a return to the office at an appropriate time. In the conduct of our business activities, we are also taking actions to help protect the safety of patients and healthcare professionals. In the early stages of the pandemic, our field-based personnel reduced in-person customer interactions in healthcare settings and primarily used electronic communication, such as emails, phone calls and video conferences. Many health care and contracting professionals at hospitals and other medical institutions with whom our field-based personnel interact began conducting a greater proportion of their work from their homes and are facing additional demands on their time during the COVID-19 pandemic. While the different quality of electronic interactions as compared with in-person interactions, as well as the reduced quantity of interactions during the COVID-19 pandemic, impacted the effectiveness of our sales personnel, we have gradually moved back to in-person interactions in many cases. With the rise of new variants, and related precautions, however, our customers’ procurement activities coupled with restrictions at healthcare facilities duringand those of our collaborators continue to be impacted which could negatively affect our overall product sales. It is possible that we may have to limit in-person engagement again in the pandemic, has negatively affected our sales of HEPLISAV-B. This is consistent with reduced utilization of adult vaccines generally, because focus in healthcarefuture.
Our HEPLISAV-B post-marketing follow-up has been acutely placed oncompleted. In April 2021, we announced the treatment and preventionresults of COVID-19.the post-marketing study assessing the rates of occurrence of acute myocardial infarction ("AMI") in persons receiving HEPLISAV-B compared with Engerix-B. The COVID-19 pandemic continuedresults provided evidence there is no increased risk of AMI associated with vaccination with HEPLISAV-B compared to disrupt the adult vaccine market in the fourth quarter with market utilization shifting back to a sharp declineEngerix-B. We expect data from the third quarter recovery trend. The total adult hepatitis B market saw a reductionautoimmune portion of our observational study to be available in utilization of approximately 35% in the fourth quarter compared to the same period last year. In the third quarter, utilization was down approximately 24% from the same period last year. Additionally, Centers for Disease Control and Prevention (“CDC”) guidance requiring 14-day spacing of vaccines before and after COVID-19 vaccine administration began to stall other adult vaccine utilization in the month of December and has continued to impact utilization into the first quarter which is a trend we believe will continue throughout the first half of 2021. Although utilization of vaccines generally has decreased during the pandemic, our sales efforts have continued to increase our market share.
We have also seen increased interest in our advanced adjuvant, CpG 1018, from our collaborators who are focused on developing COVID-19 vaccines of their own, as well as other potential vaccine candidates targeted at other indications. As a result, we have been working with our supplier to secure additional manufacturing capacity to help support this increased interest in CpG 1018.
Currently, our HEPLISAV-B post-marketing observational studies are fully enrolled and continuing uninterrupted. Due to the design and conduct of the studies, we do not anticipate an impact to the integrity of the studies from “shelter in place” mandates. The2022. Our HEPLISAV-B dialysis study is able to continue, because the dialysis treatment is classified under “essential travel” exemptions.has also been completed. Final immunogenicity results included a seroprotection rate of 89.3% with high levels of anti-HBs antibodies. Safety data showed HEPLISAV-B was well tolerated and no safety concerns were observed.
The extent of the impact of the COVID-19 pandemic on our ability to generate sales and revenues, our regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. Because of the above and other factors, our results of operations may vary substantially from year to year and from quarter to quarter and, as a result, we believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as being indicative of our future performance. For additional information on the various current and future potential risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors, included herein.
We have been actively pursuing opportunities to collaborate with other organizations on the development of a COVID-19 vaccine, by leveraging CpG 1018 adjuvant, our toll-like receptor 9 (“TLR9”) agonist, which is also used in our HEPLISAV-B product. Since the first half of 2021, we announced multiple collaborations focused on COVID-19 and we continue to work to identify other programs where CpG 1018 adjuvant can be utilized to enhance the immune response to a coronavirus vaccine or other vaccines. To date, two of our collaborators have received emergency use authorizations for their
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COVID-19 vaccines, and we anticipate that more will be announced during 2022. We and our contract manufacturers are developing plans to help scale-up activities to support pandemic-level of production of our CpG 1018 adjuvant, as necessary to support these and any future collaborations. There can be no assurance we will be successful in our efforts to help develop or supply adjuvanted COVID-19 vaccines or other vaccines.
Critical Accounting Policies and the Use of Estimates
The accompanying discussion and analysis of our financial condition and results of operations are based uponWe prepare our consolidated financial statements and the related disclosures, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires usIn doing so, we are required to make estimates assumptions and judgmentsassumptions. Our critical accounting estimates are those estimates that affect the reported amountsinvolve a significant level of assets and liabilities and disclosure of contingent assets and liabilitiesuncertainty at the balance sheet datestime the estimate was made, 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 thatchanges in them have the greatest potential impacthad or are reasonably likely to have a material effect on our consolidated financial statements, including those related to revenue recognition, research and development activities, stock-based compensation, inventories and leases.condition or results of operations. Actual results could differ materially from our estimates. We base our estimates on historicalpast experience and on various other assumptions that we believe to beare 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 fromwe evaluate these estimates under different assumptions or conditions.on an ongoing basis.
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While our significant accounting policies are more fully described inSee Note 2 to the Consolidated Financial Statements in this Annual Report on Form 10-K for a summary of our significant accounting policies.
Revenue Recognition
Product Revenue, Net – HEPLISAV-B
We recognize revenue when we believetransfer control of promised goods to the customer at the net sales price, which includes estimates such as product returns, chargebacks, discounts, rebates and other fees. While each item is more fully described in Note 2 to the Consolidated Financial Statements, the following accounting policiesitems reflect the more critical and significant judgments and estimates used in the preparation of our consolidated financial statements. Our estimates of such items are inherently uncertain and if we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of accounts receivable reserves or revenue reserves accrual that we report in a particular period.
Product Returns: Consistent with industry practice, we offer our customers a limited right of return based on the product’s expiration date for product that has been purchased from us. We estimate the amount of our product sales that may be returned by our customers and record this estimate as a reduction of revenue in the period the related product revenue is recognized. We consider several factors in the estimation of potential product returns including expiration dates of the product shipped, the limited product return rights, available information about our customers’ inventory and other relevant factors.
Chargebacks: Our customers subsequently resell our product to healthcare providers, pharmacies and others. In addition to distribution agreements with our customers, we enter into arrangements with qualified healthcare providers that provide for chargebacks and discounts with respect to the purchase of our product. Chargebacks represent the estimated obligations resulting from contractual commitments to sell product to qualified healthcare providers at prices lower than the list prices charged to customers who directly purchase the product from us. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Chargeback amounts are determined at the time of resale to the qualified healthcare providers by customers, and we issue credits for such amounts generally within a few weeks of the customer’s notification to us of the resale. Reserves for chargebacks consists of credits that we expect to issue for units that remain in the distribution channel inventories at each reporting period end that we expect will be sold to the qualified healthcare providers, and chargebacks for units that our customers have sold to the qualified healthcare providers, but for which credits have not been issued.
Rebates: Under certain contracts, customers may obtain rebates for purchasing minimum volumes of our product. We estimate these rebates based upon the expected purchases and the contractual rebate rate and record this estimate as a reduction in revenue in the period the related revenue is recognized.
Inventories, net
Inventory is stated at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. We primarily use actual costs to determine our cost basis for inventories. Our assessment of market value requires the use of estimates regarding the net realizable value of our inventory balances, including an assessment of excess or obsolete inventory. We determine excess or obsolete inventory based on multiple factors, including an estimate of the future demand for our products, product expiration dates and current sales levels. Our assumptions of future demand for our products are inherently uncertain and if we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of inventory reserves that we report in a particular period.
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Stock-Based Compensation
The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes model requires us to make estimates and assumptions. Our estimate of volatility is based on the historical volatility of our stock price over the term of the awards. We derive the expected term assumption based on our historical settlement experience. Stock-based compensation cost is recognized only for awards ultimately expected to vest. Our estimate of the forfeiture rate is based primarily on our historical experience. In the future, as additional empirical evidence regarding these input estimates becomes available, we may change or refine our approach of deriving these input estimates. These changes could impact our fair value of stock options granted in the future.
Income Taxes
Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis and includes a review of all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.
Based on all available evidence, both positive and negative, and the weight of that evidence to the extent such evidence can be objectively verified, we believe that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, we have determined a need for a full valuation allowance. Given our current earnings, we believe that, within the next twelve months, sufficient positive evidence may become available to allow us to reach a conclusion that a portion of the valuation allowance recorded against the deferred tax assets held may be reversed. A reversal would result in an income tax benefit for the quarterly and annual fiscal period in which we determine to release the valuation allowance. However, the exact timing and amount of a valuation allowance release are subject to change on the basis of the level of profitability that we actually achieve.
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for information regarding recent accounting pronouncements that are of significance, or potential significance to us..
Results of Operations
This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Revenues
Revenues consist of amounts earned from product sales and other revenues. Product revenue, net, includes sales of HEPLISAV-B and CpG 1018 adjuvant.
Revenue from HEPLISAV-B product sales is recorded at the net sales price, which includes estimates of product returns, chargebacks, discounts, rebates and other fees. We sell our CpG 1018 adjuvant to our collaboration partners for use in their development and/or potential commercialization of COVID-19 vaccines. Overall, product revenue, net, reflects our best estimates of the amount of consideration to which we are entitled based on the terms of the contract.
Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.
53
The following is a summary of our revenues (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
| Increase |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| (Decrease) from |
| ||||||||
|
| Year Ended December 31, |
|
| 2020 to 2021 |
| ||||||||||||||
Revenues: |
| 2021 |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| |||||
HEPLISAV-B |
| $ | 61,870 |
|
| $ | 36,030 |
|
| $ | 34,644 |
|
| $ | 25,840 |
|
|
| 72 | % |
CpG 1018 |
|
| 375,229 |
|
|
| 3,277 |
|
|
| - |
|
|
| 371,952 |
|
|
| 11,350 | % |
Total product revenue, net |
|
| 437,099 |
|
|
| 39,307 |
|
|
| 34,644 |
|
|
| 397,792 |
|
|
| 1,012 | % |
Other revenue |
|
| 2,343 |
|
|
| 7,244 |
|
|
| 575 |
|
|
| (4,901 | ) |
|
| (68 | )% |
Total revenues |
| $ | 439,442 |
|
| $ | 46,551 |
|
| $ | 35,219 |
|
| $ | 392,891 |
|
|
| 844 | % |
2021 versus 2020
HEPLISAV-B product revenue for the year ended December 31, 2021 increased compared to the same period in 2020. Approximately $21.4 million of the increase was due to higher volume driven by an increase in HEPLISAV-B demand and market share gains in the U.S. Approximately $4.5 million of the increase was due to higher net sales price.
In September 2020, we began selling our CpG 1018 adjuvant to our collaboration partners for their use in development and/or commercialization of COVID-19 vaccines. In 2021, we executed supply agreements with several major collaboration partners. The increase in CpG 1018 adjuvant product revenue for the year ended December 31, 2021, compared to the same period in 2020, was due to an increase sales volume as we continued to manufacture and ship CpG 1018 adjuvant pursuant to our supply and collaboration agreements.
The decrease in other revenue for the year ended December 31, 2021, compared to the same period of 2020, was due to the termination of an agreement with CEPI resulting in the recognition of $6.3 million in previously received reservation payments. We entered into a new agreement with CEPI in January 2021 (see Note 9 to the Consolidated Financial Statements). The decrease was partially offset by an increase in other revenue due to the recognition of $1.2 million, in the third quarter of 2021, in connection with the termination of a certain grant agreement. Other revenue also includes grant revenue from our agreement with the U.S. Department of Defense and collaboration revenue related to services performed under a collaboration agreement with Serum Institute of India Pvt. Ltd.
Cost of Sales – Product
Cost of sales - product consists primarily of raw materials, certain fill, finish and overhead costs and any inventory adjustment charges for pre-filled syringes (“PFS”) of HEPLISAV-B and inventory costs to produce CpG 1018 adjuvant for our collaboration partners. Our HEPLISAV-B PFS finished goods inventory previously included components for which a portion of the manufacturing costs were expensed to research and development prior to the approval of the PFS presentation by the United States Food and Drug Administration (“FDA”) in March 2018. Substantially all the inventory that was previously expensed to research and development has been sold to customers.
The following is a summary of our cost of sales - product (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
| Increase |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| (Decrease) from |
| ||||||||
|
| Year Ended December 31, |
|
| 2020 to 2021 |
| ||||||||||||||
Cost of Sales - Product |
| 2021 |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| |||||
HEPLISAV-B |
| $ | 26,999 |
|
| $ | 10,057 |
|
| $ | 10,172 |
|
| $ | 16,942 |
|
|
| 168 | % |
CpG 1018 |
|
| 146,573 |
|
|
| 1,353 |
|
|
| - |
|
| $ | 145,220 |
|
|
| 10,733 | % |
Total cost of sales - product |
| $ | 173,572 |
|
| $ | 11,410 |
|
| $ | 10,172 |
|
| $ | 162,162 |
|
|
| 1,421 | % |
54
2021 versus 2020
For the year ended December 31, 2021, HEPLISAV-B cost of sales-product increased compared to the same period in 2020. Approximately $5.0 million of the increase was due to higher sales volume and approximately $3.7 million of the increase was due to higher unit costs. In addition, included in HEPLISAV-B cost of sales - product for the year ended December 31, 2021 was a $4.8 million of excess capacity charge in connection with an expansion project at our manufacturing facility in Düsseldorf. Additionally, due to the COVID-19 pandemic and its prolonged impact on vaccine utilization and corresponding revisions to our sales forecast, we recorded an approximately $2.6 million write-off to cost of sales – product associated with HEPLISAV-B slow moving short-dated inventory that had been manufactured prior to the beginning of the COVID-19 pandemic. We expect to incur additional excess capacity charge in 2022 as the manufacturing facility expansion project in Düsseldorf continues.
In September 2020, we began selling our CpG 1018 adjuvant to our collaboration partners for their use in development and/or commercialization of COVID-19 vaccines. In 2021, we executed supply agreements with several major collaboration partners. The increase in CpG 1018 adjuvant cost of sales-product for the year ended December 31, 2021, compared to the same period in 2020, was due to an increase sales volume as we continued to manufacture and ship CpG 1018 adjuvant pursuant to our supply and collaboration agreements.
Research and Development
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 consist of costs associated with clinical development, process development, preclinical discovery and development, regulatory filings and research, including fees and expenses incurred by contract research organizations, clinical study sites, and other service providers.
The following is a summary of our research and development expense (in thousands, except for percentages):
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|
|
|
|
|
|
|
|
|
| Increase |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| (Decrease) from |
| ||||||||
|
| Year Ended December 31, |
|
| 2020 to 2021 |
| ||||||||||||||
Research and Development: |
| 2021 |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| |||||
Compensation and related |
| $ | 12,136 |
|
| $ | 10,328 |
|
| $ | 21,933 |
|
| $ | 1,808 |
|
|
| 18 | % |
Outside services |
|
| 15,767 |
|
|
| 16,064 |
|
|
| 25,437 |
|
| $ | (297 | ) |
|
| (2 | )% |
Facility costs |
|
| 507 |
|
|
| 1,215 |
|
|
| 6,903 |
|
| $ | (708 | ) |
|
| (58 | )% |
Non-cash stock-based |
|
| 3,818 |
|
|
| 1,000 |
|
|
| 8,058 |
|
| $ | 2,818 |
|
|
| 282 | % |
Total research and development |
| $ | 32,228 |
|
| $ | 28,607 |
|
| $ | 62,331 |
|
| $ | 3,621 |
|
|
| 13 | % |
2021 versus 2020
Compensation and related personnel costs and non-cash stock-based compensation for the year ended December 31, 2021 increased, compared to the same period in 2020, primarily due to higher headcount to support vaccine clinical and development activities. In addition, non-cash stock-based compensation for year ended December 31, 2020 included reversal of expenses related to cancellation of certain equity grants.
For the year ended December 31, 2021, outside services decreased, compared to the same period in 2020, due to (i) approximately $2.3 million decrease due to winding down of our immuno-oncology study (ii) offset by approximately $1.8 million increase in vaccine clinical and development activities.
Facility costs, which primarily comprise of occupancy and related expenses, decreased, as compared to the same period in 2020, due to lower overhead allocation to research and development functions.
We expect research and development expenses to increase in 2022 as we continue to advance our product candidates with CpG 1018 adjuvant through pre-clinical and clinical collaborations and additional discovery efforts.
55
Selling, General and Administrative
Selling, general and administrative expense consists primarily of compensation and related costs for our commercial support personnel, medical education professionals and personnel in executive and other administrative functions, including legal, finance and information technology; costs for outside services such as sales and marketing, post-marketing studies of HEPLISAV-B, accounting, commercial development, consulting, business development, investor relations and insurance; 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 selling, general and administrative expenses (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
| Increase |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| (Decrease) from |
| ||||||||
|
| Year Ended December 31, |
|
| 2020 to 2021 |
| ||||||||||||||
Selling, General and |
| 2021 |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| |||||
Compensation and related |
| $ | 43,135 |
|
| $ | 31,191 |
|
| $ | 28,525 |
|
| $ | 11,944 |
|
|
| 38 | % |
Outside services |
|
| 27,981 |
|
|
| 24,759 |
|
|
| 26,269 |
|
|
| 3,222 |
|
|
| 13 | % |
Legal costs |
|
| 1,906 |
|
|
| 2,296 |
|
|
| 2,293 |
|
|
| (390 | ) |
|
| (17 | )% |
Facility costs |
|
| 12,240 |
|
|
| 11,425 |
|
|
| 7,675 |
|
|
| 815 |
|
|
| 7 | % |
Non-cash stock-based |
|
| 14,894 |
|
|
| 9,585 |
|
|
| 10,224 |
|
|
| 5,309 |
|
|
| 55 | % |
Total selling, general and |
| $ | 100,156 |
|
| $ | 79,256 |
|
| $ | 74,986 |
|
| $ | 20,900 |
|
|
| 26 | % |
2021 versus 2020
For the year ended December 31, 2021, compensation and related personnel costs increased, as compared to the same period in 2020, due to higher headcount in connection with the expansion of our field sales force in July 2021, increase in business travel as COVID-19 travel restrictions were easing and increase in recruiting expenses.
For the year ended December 31, 2021, outside services increased, as compared to the same period in 2020 primarily due to an overall increase in sales and marketing efforts, offset by $2 million decrease in the amount we paid to Symphony Dynamo, Inc. and Symphony Dynamo Holdings LLC in connection with the sale of our immuno-oncology compound, SD-101 in July 2020.
Facility costs, which primarily comprise of occupancy and related expenses, increased, as compared to the same period in 2020, due to higher overhead allocation to selling, general and administrative functions.
The increase in non-cash stock-based compensation for the year ended December 31, 2021, compared to the same period in 2020, was primarily due to higher headcount in connection with the expansion of our field sales force in July 2021. In addition, non-cash stock-based compensation for the year ended December 31, 2020 included reversal of expenses related to cancellation of certain equity grants.
Gain on Sale of Assets
In July 2020, we sold assets related to our immuno-oncology compound, SD-101, which included intellectual property, clinical and non-clinical data, regulatory filings, clinical supply inventory and certain contracts to Surefire Medical Inc. d/b/a TriSalus Life Sciences (“TriSalus”). Pursuant to the Asset Purchase Agreement, we received $5 million upon closing of the transaction and $4 million in December 2020 as reimbursement for certain clinical trial expenses. In addition, we could receive up to an additional $250 million upon the achievement of certain development, regulatory, and commercial milestones and low double-digit royalties based on potential future net sales of product containing SD-101 compound. In the third quarter of 2020, we recognized a gain on sale of SD-101 assets of $6.9 million, net of transaction costs.
In September 2021, we received payment of $1 million from TriSalus for their meeting a pre-commercialization milestone which was recognized as a gain on sale of SD-101 assets our consolidated statements of operations.
56
Restructuring
On May 23, 2019, we implemented a strategic organizational restructuring, principally to align our operations around our vaccine business and significantly curtail further investment in our immuno-oncology business. In connection with the restructuring, we reduced our workforce by approximately 80 positions, or by approximately 36%, of U.S.-based personnel. We have completed our restructuring activities and recognized restructuring costs of $13.4 million in 2019.
Other Income (Expense)
Interest income is reported net of amortization of premiums and discounts on marketable securities and includes realized gains on investments. Interest expense includes the stated interest and accretion of discount and end of term fee related to our terminated long-term debt agreement and Convertible Notes. Sublease income is recognized in connection with our sublease of office and laboratory space. Loss on debt extinguishment reflects the amount we paid to terminate our long-term debt in excess of its carrying value at the time of the extinguishment. Change in fair value of warrant liability reflects the changes in fair value of warrants issued in connection with equity financing in August 2019. Other includes gains and losses on foreign currency transactions and disposal of property and equipment.
The following is a summary of our other income (expense) (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
| Increase |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| (Decrease) from |
| ||||||||
|
| Year Ended December 31, |
|
| 2020 to 2021 |
| ||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| |||||
Interest income |
| $ | 140 |
|
| $ | 1,260 |
|
| $ | 3,370 |
|
| $ | (1,120 | ) |
|
| (89 | )% |
Interest expense |
| $ | (11,176 | ) |
| $ | (19,062 | ) |
| $ | (16,977 | ) |
| $ | (7,886 | ) |
|
| (41 | )% |
Sublease income |
| $ | 7,735 |
|
| $ | 7,706 |
|
| $ | 2,619 |
|
| $ | 29 |
|
|
| 0 | % |
Loss on debt extinguishment |
| $ | (5,232 | ) |
| $ | - |
|
| $ | - |
|
| $ | 5,232 |
|
| NM |
| |
Change in fair value of |
| $ | (49,354 | ) |
| $ | 4,124 |
|
| $ | (7,500 | ) |
| $ | (53,478 | ) |
|
| (1,297 | )% |
Other |
| $ | 922 |
|
| $ | (897 | ) |
| $ | 731 |
|
| $ | 1,819 |
|
|
| 203 | % |
NM = Not meaningful
2021 versus 2020
Interest income for the year ended December 31, 2021 decreased, as compared to the same period in 2020, primarily due to lower yields on our marketable securities portfolio. Interest expense for the year ended December 31, 2021 decreased, as compared to the same period in 2020, due to the repayment of our long-term debt in May 2021, replaced by the issuance of Convertible Notes in May 2021 at a lower effective interest rate. In connection with the repayment of our long-term debt, we recorded a one-time loss on debt extinguishment of $5.2 million in the second quarter of 2021. The change in the fair value of warrant liability is primarily due to the increase in our stock price during the year ended December 31, 2021. The change in other is primarily due to foreign currency transactions and related fluctuations in the value of the Euro compared to the U.S. dollar.
Income Taxes
Our income tax expense and effective income tax rate were as follows (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
| Increase | |||||||
|
|
|
|
|
|
|
|
|
|
| (Decrease) from | |||||||
|
| Year Ended December 31, |
|
| 2020 to 2021 | |||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % | ||||
Income tax expense |
| $ | 808 |
|
| $ | - |
|
| $ | - |
|
| $ | 808 |
|
| NM |
Effective income tax rate |
|
| 1.0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 1.0 | % |
| NM |
57
2021 versus 2020
We recorded income tax expense of $0.8 million for the year ended December, 31, 2021 resulting from taxable income compared to zero income tax expense in the years ending December 31, 2020 and 2019 where we recorded taxable losses. Our effective tax rate for the year ended December 31, 2021 was 1.03% which is primarily comprised of net operating losses and research and development credits as well as changes in our valuation allowance.
Liquidity and Capital Resources
As of December 31, 2021, we had $546.0 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, borrowings, government grants and revenues from product sales and collaboration agreements to fund our operations. Our funds are currently invested in money market funds, U.S. treasuries, U.S. government agency securities and corporate debt securities. We currently anticipate that our cash, cash equivalents and short-term marketable securities as of December 31, 2021, and anticipated revenues from HEPLISAV-B and CpG 1018 will be sufficient to fund our operations for at least the next 12 months from the date of this filing.
Advanced payments received from CEPI to reserve a specified quantity of CpG 1018 are initially accounted for as long-term deferred revenue. When we deliver CpG 1018 adjuvant to CEPI partner(s) or when we receive payment from CEPI partner(s), we reclassify the advanced payments from long-term deferred revenue to accrued liabilities. As of December 31, 2021, advance payments totaling $5.4 million were included in other long-term liabilities in our consolidated balance sheets. As of December 31, 2021, advance payments totaling $128.8 million was recorded as CEPI accrual in our consolidated balance sheets.
As of December 31, 2021, the aggregate principal amount of our Convertible Notes was $225.5 million, excluding debt discount of $5.0 million. The Convertible Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The Convertible Notes mature on May 15, 2026, unless converted, redeemed or repurchased in accordance with their terms prior to such date.
For the year ended December 31, 2021, we received net cash proceeds of $28.2 million resulting from sales of 2,878,567 shares of our common stock pursuant to a 2020 At Market Sales Agreement with Cowen and Company, LLC (“2020 ATM Agreement”). All of these shares were sold during the three months ended March 31, 2021. As of December 31, 2021, we had $120.5 million remaining under the 2020 ATM Agreement.
Prior to January 1, 2021, we incurred net losses in each year since our inception. For the year ended December 31, 2021, we recorded net income of $76.7 million. We cannot be certain that sales of our products, and the revenue from our other activities are sustainable. Further, we expect to continue to incur substantial expenses as we continue to invest in commercialization of HEPLISAV-B, development of our CpG 1018 adjuvant and clinical trials and other development. If we cannot generate a sufficient amount of revenue from product sales, we will need to finance our operations through strategic alliance and licensing arrangements and/or future public or private debt and equity financings. Raising additional funds through the issuance of equity or debt securities could result in dilution to our existing stockholders, increased fixed payment obligations, or both. In addition, these securities may have rights senior to those of our common stock and could include covenants that would restrict our operations.
Our ability to raise additional capital in the equity and debt markets, should we choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of development and business risks and uncertainties, our creditworthiness and the uncertainty that we would be able to raise such additional capital at a price or on terms that are favorable to us. In addition, our ability to raise additional funds may be adversely impacted by deteriorating global economic conditions and the recent or future disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or otherwise. Adequate financing may not be available to us on acceptable terms, or at all. If adequate funds are not available when needed, we may need to significantly reduce our operations while we seek strategic alternatives, which could have an adverse impact on our ability to achieve our intended business objectives.
2021 versus 2020
During the year ended December 31, 2021, we generated $335.5 million of cash from our operations primarily due to our net income of $76.7 million, of which $82.4 million consisted of non-cash items which included change in fair value of warrant liability, stock-based compensation, depreciation and amortization, amortization of right-of-use assets, inventory write-off, non-cash interest expense and accretion and amortization on marketable securities. By comparison, during the year ended December 31, 2020, we used $92.3 million of cash for our operations primarily due to our net loss of $75.2 million, of which $21.6 million consisted of non-cash items which included stock-based compensation, depreciation and amortization, change in fair value of warrant liability, amortization of right-of-use assets, non-cash interest expense, amortization of
58
intangible assets and accretion and amortization on marketable securities. Cash provided by our operations during 2021 increased by $427.8 million. For the year ended December 31, 2021, we received advance payments from collaboration partners totaling $371.9 million to manufacture and supply CpG 1018 adjuvant for delivery in future dates. We classified such payments as deferred revenue until we satisfy our performance obligation to transfer control of CpG 1018 adjuvant to collaboration partners. We invested approximately $130.2 million in prepaid manufacturing. We expect prepaid manufacturing to be converted into CpG 1018 adjuvant inventory within the next twelve months. Net cash provided by operating activities is also impacted by changes in our operating assets and liabilities due to timing of cash receipts and expenditures.
During the year ended December 31, 2021, net cash provided by investing activities was $14.2 million compared to $26.5 million of cash used in investing activities for the year ended December 31, 2020. Cash provided by investing activities during the year ended December 31, 2021 included $22.7 million of net proceeds from maturities of marketable securities during 2021 compared to $22.3 million of net purchases of marketable securities during 2020. During the year ended December 31, 2020, we paid $7.0 million of sublicense payment to Merck. In addition, during the year ended December 31, 2021 and 2020, we received $1 million and $6.9 million, respectively, from sale of SD-101 assets, net of transaction costs. Cash used in net purchases of property plant and equipment increased by $5.4 million during the year ended December 31, 2021 compared to the same period in 2020. The increase was, primarily, due to the ongoing manufacturing facility expansion project in Düsseldorf during the year ended December 31, 2021.
During the year ended December 31, 2021 and 2020, net cash provided by financing activities was $55.8 million and $109.5 million, respectively. Cash provided by financing activities for the year ended December 31, 2021 included net proceeds of $219.8 million from the issuance of our Convertible Notes, $28.2 million from our 2020 ATM Agreement, $17.8 million from warrants exercised, $7.4 million from options exercised and employee stock purchase plan, offset by $190.2 million repayment of our long-term debt and $27.2 million purchases of capped call options. Cash provided by financing activities for the year ended December 31, 2020 included net proceeds of $75.4 million from our underwritten public offering in May 2020, $32.3 million from our, now terminated, 2017 ATM Agreement and $0.8 million from our 2020 ATM Agreement.
Contractual Obligations
We lease our facilities in Emeryville, California and Düsseldorf, Germany.
In July 2019, we entered into an agreement to sublease 23,976 square feet of office space located at 2100 Powell Street, Emeryville, California for our new global headquarters. This sublease agreement will continue until June 30, 2022. As of December 31, 2021, we are obligated to make lease payments totaling $0.6 million within the next 12 months, plus any operating expenses and taxes.
In September 2018, we entered into an agreement to lease 75,662 square feet of laboratory and office space located at 5959 Horton Street, Emeryville, California at the rate of $4.75 per square foot, paid on a monthly basis (“Horton Street Lease”). As of December 31, 2021, we are obligated to make lease payments totaling $4.7 million within the next 12 months and $44.3 million beyond the next 12 months, plus any operating expenses and taxes over the Horton Street Lease term. In July 2019, we entered into an agreement to sublease the entire 75,662 square feet to a third party at the rate of $5.50 per square foot, paid on a monthly basis (“Horton Street Sublease”). Both the Horton Street Lease and the Horton Street Sublease will continue until March 31, 2031.
In September 2021, we entered into a commercial lease agreement in Düsseldorf, Germany (the "New Düsseldorf Lease"). The New Düsseldorf Lease is for the same space that we currently lease in Düsseldorf, Germany and with the same landlord. Our existing lease will continue until December 31, 2021, at which point the New Düsseldorf Lease will be in effect. As of December 31, 2021, we are obligated to make lease payments totaling $0.5 million within the next 12 months and $7.3 million beyond the next 12 months, plus any operating expenses and taxes over the lease term.
In May 2021, we issued $200.0 million aggregate principal amount of 2.50% convertible senior notes due 2026 in a private placement. The purchasers also partially exercised their option to purchase additional Convertible Notes in May 2021 and we issued an additional $25.5 million of the Convertible Notes. As of December 31, 2021, the aggregate principal amount of our Convertible Notes was $225.5 million, excluding debt discount of $5.0 million. The Convertible Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The Convertible Notes mature on May 15, 2026, unless converted, redeemed or repurchased in accordance with their terms prior to such date.
59
In May 2021, we repaid the principal on the term loans (the "Term Loans") under the term loan agreement (“Loan Agreement”) with CRG Servicing LLC in full. With the full repayment of the Term Loans, all security interests, covenants, liens and encumbrances under the Loan Agreement were permanently released.
In November 2013, we entered into a Commercial Manufacturing and Supply Agreement with Baxter Pharmaceutical Solutions LLC (“Baxter”) that was amended in September 2021 (as amended, the “Baxter Agreement”). Baxter provides formulation, fill and finish services and produces pre-filled syringes (“PFS”) of HEPLISAV-B for commercial use. Pursuant to the Baxter Agreement, we are obligated to purchase an annual minimum number of batches of PFS for each of the next five calendar years, and there are certain limits on the number of batches that Baxter is required to produce. As of December 31, 2021, our aggregate minimum commitment under the Baxter Agreement was $3.2 million within the next 12 months and $43.4 million beyond the next 12 months, which is included in the material non-cancelable purchase commitments below.
We have entered into material purchase commitments with commercial manufacturers for the supply of HEPLISAV-B and CpG 1018 adjuvant. As of December 31, 2021, our material non-cancelable purchase commitments, for the supply of HEPLISAV-B and CpG 1018 adjuvant totaled $52.1 million within the next 12 months.
In addition to the non-cancelable commitments noted 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 also rely on and have entered into agreements with research institutions, contract research organizations and clinical investigators as well as clinical 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.
In conjunction with our agreement with Holdings in November 2009, we agreed to make contingent cash payments to Holdings equal to 50% of the first $50 million from any upfront, pre-commercialization milestone or similar payments received by us from any agreement with any third party with respect to the development and/or commercialization of cancer and hepatitis C therapies originally licensed to Symphony Dynamo, Inc., including SD-101. In July 2020, we sold assets related to our SD-101 compound to TriSalus. We are obligated to pay Holdings 50% of the contingent pre-commercialization milestone payments that we may receive under the Asset Purchase Agreement. We paid $2.5 million to Holdings in August 2020 and $0.5 million in September 2021. No liability has been recorded under this agreement as of December 31, 2021.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
We are subject to interest rate risk. Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. The primary objective of our investment activities is to preserve principal and, secondarily, to maximize income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents and investments in short-term money market funds, U.S. government agency securities, U.S. treasuries and corporate debt securities. We do not invest in auction rate securities or securities collateralized by home mortgages, mortgage bank debt or home equity loans. We do not have derivative financial instruments in our investment portfolio. To assess our risk, we calculate that if interest rates were to rise or fall from current levels by 100 basis points or by 125 basis points, the pro forma change in fair value of investments would be $1.2 million or $1.5 million, respectively.
Due to the short duration and nature of our cash equivalents and marketable securities, as well as our intention to hold the investments to maturity, we do not expect any material loss with respect to our investment portfolio.
60
Foreign Currency Risk
We have certain investments outside the U.S. for the operations of Dynavax GmbH and Dynavax India LLP with exposure to foreign exchange rate fluctuations. The cumulative translation adjustment reported in the consolidated balance sheet as of December 31, 2021 was a $2.3 million loss primarily related to the translation of Dynavax GmbH assets, liabilities and operating results from Euros to U.S. dollars. As of December 31, 2021, the effect of our exposure to these exchange rate fluctuations has not been material, and we do not expect it to become material in the foreseeable future. We do not hedge our foreign currency exposures and have not used derivative financial instruments for speculation or trading purposes.
61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No. | ||
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) | 63 | |
Consolidated Financial Statements: | ||
65 | ||
66 | ||
67 | ||
68 | ||
69 | ||
70 |
62
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Dynavax Technologies Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Dynavax Technologies Corporation (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
63
Reserves for returns on product revenue | ||
Description of the Matter | During the year ended December 31, 2021, the Company’s net product revenues for HEPLISAV-B were $61.9 million. As explained in Note 2 of the consolidated financial statements, revenue from product sales includes estimates of variable consideration for which reserves are established, including reserves for product returns. Auditing the Company’s measurement of reserves for HEPLISAV-B product returns under its contracts with wholesalers and specialty distributors (collectively, “Customers”) was challenging because (1) the calculation involves management assumptions about inventory remaining in the distribution channel (i.e., units held by Customers) as of the balance sheet date that could be subject to return in future periods under the Company’s returns policy, and (2) the Company has limited returns history on which to base its assumptions. | |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls that identified risks related to the Company’s process used to determine reserves for returns on product revenue. For example, we tested controls over management’s review of the completeness and accuracy of the data used in the process, the assumptions about Customers reorder patterns and units in the channel as of the balance sheet date. To test the Company’s reserves for returns on product revenue, our audit procedures included, among other procedures, testing the accuracy and completeness of the underlying data used in the calculations and evaluating the assumptions used by management to estimate its reserves. To test management’s assumptions, we inspected agreements with significant Customers to validate the rights of return policy, obtained written representations from members of the commercial and sales functions regarding changes to the terms and conditions reported to the legal and accounting departments, examined credit memos issued during and after year end for unusual items or trends not consistent with the Company’s analysis of product returns, performed revenue cutoff testing at period end to assess whether there were unusual trends that should have been considered in the Company analysis of product returns, compared the shipment reports to Customers sell through information to assess the extent of inventory in the distribution channel and examined Customers reorder information. We also performed sensitivity analyses over the Company’s return rate to assess the effect of changes in assumptions. | |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2002.
San Francisco, California
February 28, 2022
64
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
|
| December 31, |
| |||||
| 2021 |
|
| 2020 |
| |||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 436,189 |
|
| $ | 32,073 |
|
Marketable securities available-for-sale |
|
| 109,761 |
|
|
| 132,963 |
|
Accounts receivables, net |
|
| 116,216 |
|
|
| 22,305 |
|
Other receivables |
|
| 15,600 |
|
|
| 356 |
|
Inventories, net |
|
| 61,335 |
|
|
| 63,689 |
|
Prepaid manufacturing |
|
| 159,655 |
|
|
| 29,423 |
|
Prepaid expenses and other current assets |
|
| 73,764 |
|
|
| 9,206 |
|
Total current assets |
|
| 972,520 |
|
|
| 290,015 |
|
Property and equipment, net |
|
| 35,020 |
|
|
| 30,567 |
|
Operating lease right-of-use assets |
|
| 25,964 |
|
|
| 26,583 |
|
Goodwill |
|
| 2,125 |
|
|
| 2,297 |
|
Restricted cash |
|
| 219 |
|
|
| 237 |
|
Other assets |
|
| 3,398 |
|
|
| 3,573 |
|
Total assets |
| $ | 1,039,246 |
|
| $ | 353,272 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 2,600 |
|
| $ | 3,312 |
|
Accrued research and development |
|
| 4,688 |
|
|
| 2,805 |
|
CEPI accrual (see Note 9) |
|
| 128,848 |
|
|
| 0 |
|
Accrued liabilities (see Note 7) |
|
| 49,796 |
|
|
| 19,099 |
|
Warrant liability |
|
| 18,016 |
|
|
| 10,736 |
|
Deferred revenue |
|
| 349,864 |
|
|
| 38,212 |
|
Other current liabilities |
|
| 2,590 |
|
|
| 3,247 |
|
Total current liabilities |
|
| 556,402 |
|
|
| 77,411 |
|
Long-term debt, net of debt discount of $1,094 at December 31, 2020 |
|
| 0 |
|
|
| 179,811 |
|
Convertible Notes, net of debt discount of $5,010 at December 31, 2021 (see Note 10) |
|
| 220,490 |
|
|
| 0 |
|
Long-term portion of lease liabilities |
|
| 34,316 |
|
|
| 34,789 |
|
Other long-term liabilities |
|
| 5,664 |
|
|
| 2,568 |
|
Total liabilities |
|
| 816,872 |
|
|
| 294,579 |
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Preferred stock: $0.001 par value |
|
| - |
|
|
| - |
|
Authorized: 5,000 shares; Issued and outstanding: |
|
|
|
|
|
| ||
Series B Convertible Preferred Stock — 0 shares and 4 shares at |
|
|
|
|
| - |
| |
Common stock: $0.001 par value; 278,000 shares authorized |
|
| 123 |
|
|
| 110 |
|
Additional paid-in capital |
|
| 1,441,868 |
|
|
| 1,352,374 |
|
Accumulated other comprehensive (loss) gain |
|
| (2,266 | ) |
|
| 273 |
|
Accumulated deficit |
|
| (1,217,351 | ) |
|
| (1,294,064 | ) |
Total stockholders’ equity |
|
| 222,374 |
|
|
| 58,693 |
|
Total liabilities and stockholders’ equity |
| $ | 1,039,246 |
|
| $ | 353,272 |
|
See accompanying notes.
65
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
| Year Ended December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Revenues: |
|
|
|
|
|
|
|
|
| |||
Product revenue, net |
| $ | 437,099 |
|
| $ | 39,307 |
|
| $ | 34,644 |
|
Other revenue |
|
| 2,343 |
|
|
| 7,244 |
|
|
| 575 |
|
Total revenues |
|
| 439,442 |
|
|
| 46,551 |
|
|
| 35,219 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Cost of sales - product |
|
| 173,572 |
|
|
| 11,410 |
|
|
| 10,172 |
|
Cost of sales - amortization of intangible assets |
|
| 0 |
|
|
| 2,500 |
|
|
| 9,217 |
|
Research and development |
|
| 32,228 |
|
|
| 28,607 |
|
|
| 62,331 |
|
Selling, general and administrative |
|
| 100,156 |
|
|
| 79,256 |
|
|
| 74,986 |
|
Gain on sale of assets (Note 8) |
|
| (1,000 | ) |
|
| (6,851 | ) |
|
| 0 |
|
Restructuring |
|
| 0 |
|
|
| 0 |
|
|
| 13,356 |
|
Total operating expenses |
|
| 304,956 |
|
|
| 114,922 |
|
|
| 170,062 |
|
Income (loss) from operations |
|
| 134,486 |
|
|
| (68,371 | ) |
|
| (134,843 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
| |||
Interest income |
|
| 140 |
|
|
| 1,260 |
|
|
| 3,370 |
|
Interest expense |
|
| (11,176 | ) |
|
| (19,062 | ) |
|
| (16,977 | ) |
Sublease income |
|
| 7,735 |
|
|
| 7,706 |
|
|
| 2,619 |
|
Loss on debt extinguishment (Note 11) |
|
| (5,232 | ) |
|
| 0 |
|
|
| 0 |
|
Change in fair value of warrant liability (Note 14) |
|
| (49,354 | ) |
|
| 4,124 |
|
|
| (7,500 | ) |
Other |
|
| 922 |
|
|
| (897 | ) |
|
| 731 |
|
Income (loss) before income taxes |
|
| 77,521 |
|
|
| (75,240 | ) |
|
| (152,600 | ) |
Provision for income taxes |
|
| (808 | ) |
|
| 0 |
|
|
| 0 |
|
Net income (loss) |
|
| 76,713 |
|
|
| (75,240 | ) |
|
| (152,600 | ) |
Undistributed earnings allocated to participating securities |
|
| (4,569 | ) |
|
| 0 |
|
|
| 0 |
|
Preferred stock deemed dividend |
|
| - |
|
|
| - |
|
|
| (3,267 | ) |
Net income (loss) allocable to common stockholders |
| $ | 72,144 |
|
| $ | (75,240 | ) |
| $ | (155,867 | ) |
Net income (loss) per share allocable to common stockholders |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 0.62 |
|
| $ | (0.75 | ) |
| $ | (2.16 | ) |
Diluted |
| $ | 0.57 |
|
| $ | (0.78 | ) |
| $ | (2.16 | ) |
Weighted-average shares used in computing net income (loss) per share allocable to common stockholders: |
|
|
|
|
|
|
|
|
| |||
Basic |
|
| 116,264 |
|
|
| 100,753 |
|
|
| 72,024 |
|
Diluted |
|
| 133,006 |
|
|
| 101,504 |
|
|
| 72,024 |
|
66
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
| Year Ended December 31, |
| |||||||||
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Net income (loss) | $ | 76,713 |
|
| $ | (75,240 | ) |
| $ | (152,600 | ) |
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
| |||
Reclassification of realized gain on available-for-sale securities |
| - |
|
|
| (21 | ) |
|
| - |
|
Change in unrealized gain on marketable securities available-for-sale |
| (30 | ) |
|
| (20 | ) |
|
| 140 |
|
Cumulative foreign currency translation adjustments |
| (2,509 | ) |
|
| 2,701 |
|
|
| (512 | ) |
Total other comprehensive (loss) income |
| (2,539 | ) |
|
| 2,660 |
|
|
| (372 | ) |
Total comprehensive income (loss) | $ | 74,174 |
|
| $ | (72,580 | ) |
| $ | (152,972 | ) |
See accompanying notes.
67
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Common Stock |
|
| Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Shares |
|
| Par Amount |
|
| Shares |
|
| Par Amount |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| ||||||||
Balances at December 31, 2018 |
|
| 62,862 |
|
| $ | 63 |
|
|
| - |
|
| $ | - |
|
| $ | 1,131,241 |
|
| $ | (2,015 | ) |
| $ | (1,066,224 | ) |
| $ | 63,065 |
|
Issuance of common stock |
|
| 975 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
Issuance of common stock under |
|
| 122 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 565 |
|
|
| - |
|
|
| - |
|
|
| 565 |
|
Issuance of common stock, net of |
|
| 19,912 |
|
|
| 20 |
|
|
| - |
|
|
| - |
|
|
| 60,093 |
|
|
| - |
|
|
| - |
|
|
| 60,113 |
|
Issuance of Series B Convertible |
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| - |
|
|
| 12,061 |
|
|
| - |
|
|
| - |
|
|
| 12,061 |
|
Stock compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 25,456 |
|
|
| - |
|
|
| - |
|
|
| 25,456 |
|
Total other comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (372 | ) |
|
| - |
|
|
| (372 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (152,600 | ) |
|
| (152,600 | ) |
Balances at December 31, 2019 |
|
| 83,871 |
|
| $ | 84 |
|
|
| 5 |
|
| $ | - |
|
| $ | 1,229,417 |
|
| $ | (2,387 | ) |
| $ | (1,218,824 | ) |
| $ | 8,290 |
|
Conversion of Preferred Stock |
|
| 700 |
|
|
| 1 |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
Issuance of common stock |
|
| 1,209 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 288 |
|
|
| - |
|
|
| - |
|
|
| 289 |
|
Issuance of common stock under |
|
| 195 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 672 |
|
|
| - |
|
|
| - |
|
|
| 672 |
|
Issuance of common stock, net of |
|
| 24,215 |
|
|
| 24 |
|
|
| - |
|
|
| - |
|
|
| 108,513 |
|
|
| - |
|
|
| - |
|
|
| 108,537 |
|
Stock compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,484 |
|
|
| - |
|
|
| - |
|
|
| 13,484 |
|
Total other comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,660 |
|
|
| - |
|
|
| 2,660 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (75,240 | ) |
|
| (75,240 | ) |
Balances at December 31, 2020 |
|
| 110,190 |
|
| $ | 110 |
|
|
| 4 |
|
| $ | - |
|
| $ | 1,352,374 |
|
| $ | 273 |
|
| $ | (1,294,064 | ) |
| $ | 58,693 |
|
Conversion of preferred stock |
|
| 4,140 |
|
|
| 4 |
|
|
| (4 | ) |
|
| - |
|
|
| (4 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Issuance of common stock |
|
| 1,560 |
|
|
| 2 |
|
|
| - |
|
|
| - |
|
|
| 6,575 |
|
|
| - |
|
|
| - |
|
|
| 6,577 |
|
Issuance of common stock under |
|
| 217 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 841 |
|
|
| - |
|
|
| - |
|
|
| 841 |
|
Issuance of common stock upon exercise of warrants |
|
| 3,959 |
|
|
| 4 |
|
|
| - |
|
|
| - |
|
|
| 59,884 |
|
|
| - |
|
|
| - |
|
|
| 59,888 |
|
Issuance of common stock, net of |
|
| 2,879 |
|
|
| 3 |
|
|
| - |
|
|
| - |
|
|
| 28,153 |
|
|
| - |
|
|
| - |
|
|
| 28,156 |
|
Issuance of capped call options (see Note 10) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (27,240 | ) |
|
| - |
|
|
| - |
|
|
| (27,240 | ) |
Stock compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 21,285 |
|
|
| - |
|
|
| - |
|
|
| 21,285 |
|
Total other comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,539 | ) |
|
| - |
|
|
| (2,539 | ) |
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 76,713 |
|
|
| 76,713 |
|
Balances at December 31, 2021 |
|
| 122,945 |
|
| $ | 123 |
|
|
| - |
|
| $ | - |
|
| $ | 1,441,868 |
|
| $ | (2,266 | ) |
| $ | (1,217,351 | ) |
| $ | 222,374 |
|
See accompanying notes.
68
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| Year Ended December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Operating activities |
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
| $ | 76,713 |
|
| $ | (75,240 | ) |
| $ | (152,600 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
| 4,296 |
|
|
| 4,273 |
|
|
| 8,938 |
|
Amortization of right-of-use assets |
|
| 2,715 |
|
|
| 2,562 |
|
|
| 3,375 |
|
Inventory write-off |
|
| 2,588 |
|
|
| - |
|
|
| - |
|
Loss (gain) on disposal of property and equipment and from lease termination |
|
| 47 |
|
|
| (98 | ) |
|
| 18 |
|
Amortization of premiums (accretion of discounts) on marketable |
|
| 470 |
|
|
| 535 |
|
|
| (1,462 | ) |
Realized gain on available-for-sale securities |
|
| - |
|
|
| (57 | ) |
|
| - |
|
Loss on debt extinguishment |
|
| 5,232 |
|
|
| 0 |
|
|
| 0 |
|
Change in fair value of warrant liability |
|
| 49,354 |
|
|
| (4,124 | ) |
|
| 7,500 |
|
Stock compensation expense |
|
| 21,285 |
|
|
| 13,484 |
|
|
| 25,456 |
|
Cost of sales - amortization of intangible assets |
|
| 0 |
|
|
| 2,500 |
|
|
| 9,217 |
|
Non-cash interest expense |
|
| 1,608 |
|
|
| 2,542 |
|
|
| 4,973 |
|
Tenant improvements provided by the landlord |
|
| - |
|
|
| 1,137 |
|
|
| 6,999 |
|
Gain on sale of assets |
|
| (1,000 | ) |
|
| (6,851 | ) |
|
| 0 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||
Accounts and other receivables, net |
|
| (109,155 | ) |
|
| (13,775 | ) |
|
| (5,182 | ) |
Inventories, net |
|
| (234 | ) |
|
| (22,357 | ) |
|
| (22,310 | ) |
Prepaid manufacturing |
|
| (130,232 | ) |
|
| (29,423 | ) |
|
| - |
|
Prepaid expenses and other current assets |
|
| (64,558 | ) |
|
| (1,826 | ) |
|
| (1,278 | ) |
Other assets |
|
| 175 |
|
|
| (229 | ) |
|
| 1,632 |
|
Accounts payable |
|
| (767 | ) |
|
| (3,448 | ) |
|
| 4,848 |
|
CEPI accrual (see Note 9) |
|
| 128,848 |
|
|
| - |
|
|
| - |
|
Lease liabilities |
|
| (3,234 | ) |
|
| (2,872 | ) |
|
| (2,000 | ) |
Deferred revenue |
|
| 311,652 |
|
|
| 38,212 |
|
|
| - |
|
Accrued and other liabilities |
|
| 39,725 |
|
|
| 2,804 |
|
|
| (9,376 | ) |
Net cash provided by (used in) operating activities |
|
| 335,528 |
|
|
| (92,251 | ) |
|
| (121,252 | ) |
Investing activities |
|
|
|
|
|
|
|
|
| |||
Acquisition of technology licenses |
|
| - |
|
|
| (7,000 | ) |
|
| (7,000 | ) |
Purchases of marketable securities |
|
| (164,928 | ) |
|
| (201,786 | ) |
|
| (215,191 | ) |
Proceeds from maturities and redemptions of marketable securities |
|
| 187,630 |
|
|
| 148,565 |
|
|
| 201,810 |
|
Proceeds from sales of marketable securities |
|
| - |
|
|
| 30,910 |
|
|
| - |
|
Purchases of property and equipment, net |
|
| (9,477 | ) |
|
| (4,072 | ) |
|
| (22,401 | ) |
Proceeds from sale of assets, net of transaction costs |
|
| 1,000 |
|
|
| 6,851 |
|
|
| - |
|
Net cash provided by (used in) investing activities |
|
| 14,225 |
|
|
| (26,532 | ) |
|
| (42,782 | ) |
Financing activities |
|
|
|
|
|
|
|
|
| |||
Proceeds from long-term debt, net |
|
| - |
|
|
| - |
|
|
| 74,250 |
|
Proceeds from issuances of common stock, net |
|
| 28,156 |
|
|
| 108,538 |
|
|
| 65,948 |
|
Proceeds from issuances of preferred stock, net |
|
| - |
|
|
| - |
|
|
| 13,586 |
|
Proceeds from issuance of Convertible Notes, net |
|
| 219,822 |
|
|
| - |
|
|
| - |
|
Purchases of capped call options |
|
| (27,240 | ) |
|
| - |
|
|
| - |
|
Repayment of long-term debt |
|
| (190,194 | ) |
|
| - |
|
|
| - |
|
Proceeds from warrants exercises |
|
| 17,814 |
|
|
| - |
|
|
| - |
|
Proceeds from exercise of stock options and restricted |
|
| 6,577 |
|
|
| 289 |
|
|
| 2 |
|
Proceeds from Employee Stock Purchase Plan |
|
| 841 |
|
|
| 672 |
|
|
| 565 |
|
Net cash provided by financing activities |
|
| 55,776 |
|
|
| 109,499 |
|
|
| 154,351 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (1,431 | ) |
|
| 1,494 |
|
|
| (184 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| 404,098 |
|
|
| (7,790 | ) |
|
| (9,867 | ) |
Cash, cash equivalents and restricted cash at beginning of year |
|
| 32,310 |
|
|
| 40,100 |
|
|
| 49,967 |
|
Cash, cash equivalents and restricted cash at end of year |
| $ | 436,408 |
|
| $ | 32,310 |
|
| $ | 40,100 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
| |||
Cash paid during the year for income taxes |
| $ | 1,312 |
|
| $ | - |
|
| $ | - |
|
Cash paid during the year for interest |
| $ | 9,815 |
|
| $ | 16,541 |
|
| $ | 12,147 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
| |||
Purchases of property and equipment, not yet paid |
| $ | 591 |
|
| $ | 361 |
|
| $ | 2,698 |
|
Proceeds allocated to warrant liability at issuance |
| $ | - |
|
| $ | - |
|
| $ | 7,360 |
|
Right-of-use assets obtained in exchange for operating lease liabilities |
| $ | 2,468 |
|
| $ | - |
|
| $ | 40,626 |
|
See accompanying notes.
69
DYNAVAX TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dynavax Technologies Corporation (“we,” “our,” “us,” “Dynavax” or the “Company”), is a commercial stage biopharmaceutical company focused on developing and commercializing innovative vaccines. Our first marketed product, HEPLISAV-B® (Hepatitis B Vaccine (Recombinant), Adjuvanted) is approved in the United States and European Union for prevention of infection caused by all known subtypes of hepatitis B virus in adults age 18 years and older. We also manufacture and sell CpG 1018®, the adjuvant used in HEPLISAV-B. We are working to develop CpG 1018 as a premier vaccine adjuvant through research collaborations and partnerships. Current collaborations are focused on adjuvanted vaccines for COVID-19, plague, Tdap, seasonal influenza, universal influenza and shingles. We reincorporated in Delaware in 2000.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include our accounts and those of our wholly-owned subsidiaries, Dynavax GmbH located in Düsseldorf, Germany and Dynavax India LLP in India. All significant intercompany accounts and transactions among the entities have been eliminated from the consolidated financial statements. We operate in 1 business segment: discovery, development and commercialization of innovative vaccines.
Liquidity and Financial Condition
As of December 31, 2021, we had cash, cash equivalents and marketable securities of $546.0 million. In May 2021, we issued $225.5 million in 2.50% convertible senior notes due 2026 (“Convertible Notes”). We used approximately $190.2 million of the net proceeds to retire our previous loan agreement with CRG Servicing LLC ("Loan Agreement") (see Note 11) and $27.2 million of the net proceeds to pay the costs of the capped call transactions (the “Capped Calls”) (see Note 10). As of December 31, 2021, the aggregate principal amount of our Convertible Notes was $225.5 million, excluding debt discount of $5.0 million (see Note 10). The Convertible Notes mature on May 15, 2026, unless converted, redeemed or repurchased in accordance with their terms prior to such date.
Prior to January 1, 2021, we incurred net losses in each year since our inception. For the year ended December 31, 2021, we recorded net income of $76.7 million. We cannot be certain that sales of our products, and the revenue from our other activities are sustainable. Further, we expect to continue to incur substantial expenses as we continue to invest in commercialization of HEPLISAV-B, development and procurement of our CpG 1018 adjuvant, and clinical trials and other development. If we cannot generate a sufficient amount of revenue from product sales, we will need to finance our operations through strategic alliance and licensing arrangements and/or future public or private debt and equity financings. Adequate financing may not be available to us on acceptable terms, or at all.
We currently anticipate that our cash, cash equivalents and short-term marketable securities as of December 31, 2021, and anticipated revenues from HEPLISAV-B and CpG 1018 will be sufficient to fund our operations for at least the next 12 months from the date of this filing.
Our ability to raise additional capital in the equity and debt markets, should we choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of development and business risks and uncertainties, our creditworthiness and the uncertainty that we would be able to raise such additional capital at a price or on terms that are favorable to us. In addition, our ability to raise additional funds may be adversely impacted by deteriorating global economic conditions and the recent or future disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or otherwise. Raising additional funds through the issuance of equity or debt securities could result in dilution to our existing stockholders, increased fixed payment obligations, or both. In addition, these securities may have rights senior to those of our common stock and could include covenants that would restrict our operations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management’s estimates are based on historical information available as of the date of the consolidated financial statements
70
and various other assumptions we believe are reasonable under the circumstances. Actual results could differ materially from these estimates.
Foreign Currency Translation
We consider the local currency to be the functional currency for our international subsidiaries, Dynavax GmbH and Dynavax India LLP. Accordingly, assets and liabilities denominated in this foreign currency are translated into U.S. dollars using the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the year. Currency translation adjustments arising from period to period are charged or credited to accumulated other comprehensive income (loss) in stockholders’ equity.
As of December 31, 2021 and 2020, the cumulative translation adjustments balance was $(2.3) million and $0.2 million, respectively, primarily related to the translation of Dynavax GmbH assets, liabilities and operating results from Euros to U.S. dollars. For the years ended December 31, 2021, 2020 and 2019, we reported an unrealized (loss) gain of $(2.5) million, $2.7 million and $(0.5) million, respectively. Realized gains and losses resulting from currency transactions are included in other income (expense) in the consolidated statements of operations. For the years ended December 31, 2021, 2020 and 2019, we reported a gain (loss) of $0.9 million, $(0.8) million and $0.2 million, respectively, resulting from currency transactions in our consolidated statements of operations.
Cash, Cash Equivalents and Marketable Securities
We consider all liquid investments purchased with an original maturity of three months or less and that can be liquidated without prior notice or penalty to be cash equivalents. Management determines the appropriate classification of marketable securities at the time of purchase. In accordance with our investment policy, we invest in short-term money market funds, U.S. treasuries, U.S. government agency securities and corporate debt securities. We believe these types of investments are subject to minimal credit and market risk.
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 based on inputs that are observable, either directly or indirectly, such as quoted market prices for similar securities; 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 securities, with unrealized gains and losses included in accumulated other comprehensive 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 or expense. The cost of securities sold is based on the specific identification method. Management assesses whether declines in the fair value of investment securities are other than temporary. In determining whether a decline is other than temporary, management considers the following factors:
To date, there have been no declines in fair value that have been identified as other than temporary.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that are subject to concentration of credit risk consist primarily of cash equivalents, marketable securities and accounts receivable.
Our policy is to invest cash in institutional money market funds and marketable securities of the U.S. government and corporate issuers with high credit quality to limit the amount of credit exposure. We currently maintain a portfolio of cash equivalents and marketable securities in a variety of securities, including short-term money market funds, U.S. treasuries, U.S. government agency securities and corporate debt securities. We have not experienced any losses on our cash equivalents and marketable securities.
71
Our accounts receivable balance consists, primarily, of amounts due from product sales. Accounts receivable are recorded net of reserves for chargebacks, distribution fees, trade discounts and doubtful accounts. We estimate our allowance for doubtful accounts based onan evaluation of the aging of our receivables. Accounts receivable balances are written off against the allowance when it is probable that the receivable will not be collected. To date, we have not recorded any allowance for doubtful accounts. As of December 31, 2021 and 2020, three customers collectively represented approximately 76% and 86% of our HEPLISAV-B trade receivable balance, respectively. As of December 31, 2021 and 2020, one customer represented approximately 94% and 100% of our CpG 1018 trade receivable balance, respectively.
Our product candidates will require approval from the United States Food and Drug Administration ("FDA") and foreign regulatory agencies before commercial sales can commence. There can be no assurance that our products will receive any of these required approvals. The denial or delay of such approvals may have a material adverse impact on our business and may impact our business in the future. In addition, after the approval of HEPLISAV-B by the FDA, there is still an ongoing risk of adverse events that did not appear during the drug approval process.
We are subject to risks common to companies in the biopharmaceutical industry, including, but not limited to, new technological innovations, clinical development risk, establishment of appropriate commercial partnerships, protection of proprietary technology, compliance with government and environmental regulations, uncertainty of market acceptance of product candidates, product liability, the volatility of our stock price and the need to obtain additional financing.
As of December 31, 2021 and 2020, 43% and 57%, respectively, of our long-lived assets were located in the United States and the remaining long-lived assets were located in Germany.
Inventories, net
HEPLISAV-B Inventories, net
Inventory is stated at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. We primarily use actual costs to determine our cost basis for inventories. Our assessment of market value requires the use of estimates regarding the net realizable value of our inventory balances, including an assessment of excess or obsolete inventory. We determine excess or obsolete inventory based on multiple factors, including an estimate of the future demand for our products, product expiration dates and current sales levels. Our assumptions of future demand for our products are inherently uncertain and if we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of inventory reserves that we report in a particular period. Additionally, for the year ended December 31, 2021, due to the COVID-19 pandemic and its prolonged impact on vaccine utilization and corresponding revisions to our sales forecast, we recorded an approximately $2.6 million write-off to cost of sales – product associated with HEPLISAV-B slow moving short-dated inventory that had been manufactured prior to the beginning of the COVID-19 pandemic. For the year ended December 31, 2020 and 2019, there were 0 inventory write-offs recognized.
We consider regulatory approval of product candidates to be uncertain and product manufactured prior to the required regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval are not capitalized as inventory but are expensed as research and development costs. We begin capitalization of these inventory related costs once regulatory approval is obtained.
HEPLISAV-B was approved by the United States Food and Drug Administration (“FDA”) on November 9, 2017, at which time we began to capitalize inventory costs associated with the vial presentation of HEPLISAV-B. In March 2018, we received regulatory approval of the pre-filled syringe (“PFS”) presentation of HEPLISAV-B. Prior to FDA approval of HEPLISAV-B, all costs related to the manufacturing of HEPLISAV-B that could potentially be available to support the commercial launch of our products, were charged to research and development expense in the period incurred as there was no alternative future use. Prior to regulatory approval of PFS, costs associated with resuming operating activities at the Düsseldorf manufacturing facility were also included in research and development expense. Subsequent to regulatory approval of PFS, costs associated with resuming manufacturing activities at the Düsseldorf facility were included in cost of sales – product, until commercial production resumed in mid-2018 at which time these costs were recorded as raw materials inventory.
CpG 1018 Inventories, net
Inventory is stated at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. We primarily use actual costs to determine our cost basis for inventories. Our assessment of market value requires the use of estimates regarding the net realizable value of our inventory balances, including an assessment of excess or obsolete
72
inventory. We determine excess or obsolete inventory based on multiple factors, including an estimate of the future demand for our products, product expiration dates and current sales levels. Our assumptions of future demand for our products are inherently uncertain and if we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of inventory reserves that we report in a particular period. For the year ended December 31, 2021 and 2020, there were 0 inventory reserves recognized.
Long-Lived Assets
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Additions, major renewals and improvements are capitalized and repair and maintenance costs are charged to expense as incurred. Leasehold improvements are amortized over the remaining life of the initial lease term or the estimated useful lives of the assets, whichever is shorter.
We evaluate the carrying value of long-lived assets, whenever events or changes in business circumstances or our planned use of long-lived assets indicate, based on undiscounted future operating cash flows, that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. When an indicator of impairment exists, undiscounted future operating cash flows of long-lived assets are compared to their respective carrying value. If the carrying value is greater than the undiscounted future operating cash flows of long-lived assets, the long-lived assets are written down to their respective fair values and an impairment loss is recorded. Fair value is determined primarily using the discounted cash flows expected to be generated from the use of assets. Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected cash flows. In the third quarter of 2019, we recorded accelerated depreciation of $3.0 million related to certain long-lived assets in connection with our restructuring. See Note 17. There was 0 accelerated depreciation recorded during the year ended December 31, 2021 and 2020.
Leases
We determine if an arrangement includes a lease at inception. Operating leases are included in operating lease right-of-use assets, other current liabilities and long-term portion of lease liabilities in our consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, we use our incremental borrowing rate which represents an estimated rate of interest that we would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date.
The operating lease right-of-use assets also include any lease payments made and exclude any lease incentives. Our leases may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that we will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. We have elected not to apply the recognition requirements of ASC 842 for short-term leases. We have also elected the practical expedient to not separate lease components from non-lease components.
As lessors, we determine if an arrangement includes a lease at inception. We elected the practical expedient to not separate lease components from non-lease components. Sublease income is recognized on a straight-line basis over the expected lease term and is included in other income (expense) in our consolidated statements of operations.
Goodwill
Our goodwill balance relates to our April 2006 acquisition of Dynavax GmbH. Goodwill represents the excess purchase price over the fair value of tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized but is subject to an annual impairment test. In performing its goodwill impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If after assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, we will proceed to perform a test for goodwill impairment. The first step involves comparing the estimated fair value of the related reporting unit against its carrying amount including goodwill. If the carrying amount exceeds the fair value, the amount by which the carrying amount exceeds the reporting unit’s fair value is recorded as a charge in the consolidated statements of operations. We determined that we have only one operating segment and there are no components of that operating segment that are deemed to be separate reporting units such that we have one reporting unit for purposes of our goodwill impairment testing. We evaluate goodwill for impairment on an
73
annual basis and on an interim basis if events or changes in circumstances between annual impairment tests indicate that the asset might be impaired. NaN impairment has been identified for the years presented.
Convertible Notes
We accounted for the Convertible Notes (see Note 10) as a long-term liability equal to the proceeds received from issuance, including the embedded conversion feature, net of the unamortized debt issuance and offering costs on the consolidated balance sheets. We evaluate all conversion, repurchase and redemption features contained in a debt instrument to determine if there are any embedded features that require bifurcation as a derivative. The conversion feature is not required to be accounted for separately as an embedded derivative. We amortize debt issuance and offering costs over the contractual term of the Convertible Notes, using the effective interest method, as interest expense on the consolidated statements of operations.
Capped Calls
We evaluate financial instruments under ASC 815. In May 2021, in connection with the issuance of the Convertible Notes, we entered into the Capped Calls (see Note 10). The Capped Calls cover the same number of shares of common stock that initially underlie the Convertible Notes (subject to anti-dilution and certain other adjustments). The Capped Calls meet the definition of derivative under ASC 815. In addition, the Capped Calls meet the conditions in ASC 815 to be classified in stockholders’ equity and are not subsequently remeasured as long as the conditions for the equity classification continue to be met.
Revenue Recognition
We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of Accounting Standards Codification (“ASC”) 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Product Revenue, Net – HEPLISAV-B
We sell HEPLISAV-B to a limited number of wholesalers and specialty distributors in the U.S. (collectively, our “Customers”).
Revenues from product sales are recognized when we have satisfied our performance obligation, which is the transfer of control of our product upon delivery to the Customer. The timing between the recognition of revenue for product sales and the receipt of payment is not significant. Because our standard credit terms are short-term and we expect to receive payment in less than one year,one-year, there is no significant financing component on the related receivables. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues. Since our performance obligation is part of a contract that has an original expected duration of one year or less, we elect not to disclose the information about our remaining performance obligations.
Overall, product revenue, net, reflects our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If our estimates differ significantly from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment.
Reserves for Variable Consideration
Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration such as product returns, chargebacks, discounts, rebates and other fees that are offered within contracts between us and our Customers, healthcare providers, pharmacies and others relating to our product sales. We estimate variable consideration
74
using either the most likely amount method or the expected value method, depending on the type of variable consideration and what method better predicts the amount of consideration we expect to receive. We take into consideration relevant factors such as industry data, current contractual terms, available information about Customers’ inventory, resale and chargeback data and forecasted customer buying and payment patterns, in estimating each variable consideration. The variable consideration is recorded at the time product sales is recognized, resulting in a reduction in product revenue and a reduction in accounts receivable (if the Customer offsets the amount against its accounts receivable) or as an accrued liability (if we pay the amount through our accounts payable process). Variable consideration requires significant estimates, judgment and information obtained from external sources. The amount of variable consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If our estimates differ significantly from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment. If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of revenue that we report in a particular period. We evaluate our estimates of variable considerations including, but not limited to, product returns, chargebacks and rebates, periodically or when there is an event or change in circumstances that may indicate that our estimates may change. During the fourth quarter of 2020, based on an analysis of historical product returns and customer ordering patterns, we decreased our returns reserve resulting in an increase in HEPLISAV-B product revenue, net of approximately $0.8 million. There were no material adjustments to these estimates for the years ended December 31, 2019 and 2018.
Product Returns: Consistent with industry practice, we offer our Customers a limited right of return based on the product’s expiration date for product that has been purchased from us. We estimate the amount of our product sales that may be returned by our Customers and record this estimate as a reduction of revenue in the period the related product revenue is recognized. We consider several factors in the estimation of potential product returns including expiration dates of the product shipped, the limited product return rights, available information about Customers’ inventory shelf life of the product and other relevant factors.
44There were no material adjustments to these estimates for the years ended December 31, 2021 and 2019. During the fourth quarter of 2020, based on an analysis of historical product returns and customer ordering patterns, we decreased our returns reserve resulting in an increase in HEPLISAV-B product revenue, net of approximately $0.8 million.
Chargebacks: Our Customers subsequently resell our product to healthcare providers, pharmacies and others. In addition to distribution agreements with Customers, we enter into arrangements with qualified healthcare providers that provide for chargebacks and discounts with respect to the purchase of our product. Chargebacks represent the estimated obligations resulting from contractual commitments to sell product to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from us. Customers charge us for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Chargeback amounts are determined at the time of resale to the qualified healthcare providers by Customers, and we issue credits for such amounts generally within a few weeks of the Customer’s notification to us of the resale. Reserves for chargebacks consists of credits that we expect to issue for units that remain in the distribution channel inventories at each reporting period end that we expect will be sold to the qualified healthcare providers, and chargebacks for units that our Customers have sold to the qualified healthcare providers, but for which credits have not been issued.
Trade Discounts and Allowances: We provide our Customers with discounts which include early payment incentives that are explicitly stated in our contracts, and are recorded as a reduction of revenue in the period the related product revenue is recognized.
Distribution Fees: Distribution fees include fees paid to certain Customers for sales order management, data and distribution services. Distribution fees are recorded as a reduction of revenue in the period the related product revenue is recognized.
Rebates: Under certain contracts, customers may obtain rebates for purchasing minimum volumes of our product. We estimate these rebates based upon the expected purchases and the contractual rebate rate and record this estimate as a reduction in revenue in the period the related revenue is recognized.
Product Revenue, Net – CpG 1018
We also sell our novel adjuvant, CpG 1018, to our collaboration partners for use in their development and/or commercialization of COVID-19 vaccine. We have determined that our collaboration partners meet the definition of customers under ASC 606. Therefore, we accounted for our CpG 1018 sales under ASC 606. Revenues from product sales are recognized when we have satisfied our performance obligation, which is the transfer of control of our product to the customer. Because the timing between the recognition of revenue for product sales and the receipt of payment is less than one year, there is no significant financing component on the related receivables. Since our performance obligation is part of a
75
contract that has an original expected duration of one year or less, we elect not to disclose the information about our remaining performance obligations.
Overall, product revenue, net, reflects our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If our estimates differ significantly from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment.
CollaborationOther Revenue
Other revenue includes grant, collaboration and Manufacturing Service Revenue
manufacturing service revenue. We have entered into grant agreements, collaborative arrangements and arrangements to provide manufacturing services to other companies. Such arrangements may include promises to customers which, if capable of being distinct, are accounted for as separate performance obligations. For agreements with multiple performance obligations, we allocate estimated revenue to each performance obligation at contract inception based on the estimated transaction price of each performance obligation. Revenue allocated to each performance obligation is then recognized when we satisfy the performance obligation by transferring control of the promised good or service to the customer. Collaboration and manufacturing service revenue are recorded in other revenue in the consolidated statements of operations.
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.
45
We contract with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. Our accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations. We may terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the date of termination, although in certain instances we may be further responsible for termination fees and penalties. We estimate research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to us at that time. There have been no material adjustments to the prior period accrued estimates for clinical trial activities during the years presented.
Stock-Based Compensation
Stock-based compensation expense for restricted stock units ("RSUs") and stock options is estimated at the grant date based on the award’s estimated fair valuevalue.
For awards that vest based on service conditions and is recognized onmarket conditions, the Company uses a straight-line basismethod to recognize compensation expense over the award’s requisite service period, assuming estimated forfeiture rates. For awards that contain performance conditions, the Company determines the appropriate amount to expense at each reporting date based on the anticipated achievement of performance targets, which requires judgement, including forecasting the achievement of future specified targets. At the date performance conditions are determined to be probable of achievement, the Company records a cumulative expense catch-up, with remaining expense amortized over the remaining service period. Throughout the performance period, the Company re-assesses the estimated performance and updates the number of performance-based awards that it believes will ultimately vest.
Fair value of restricted stock units is determined at the date of grant using the Company’s closing stock price.price, with the exception of performance-based RSUs with market conditions, which are measured using the Monte Carlo simulation method on the date of grant. Our determination of the fair value of stock options on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number of subjective variables. We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value-based measurement of our stock options. The Black-Scholes model requires the use of subjective assumptions which determine the fair value-based measurement of stock options. These assumptions include, but are not limited to, our expected stock price volatility over the
76
term of the awards, and projected employee stock option exercise behaviors. In the future, as additional empirical evidence regarding these input estimates becomes available, we may change or refine our approach of deriving these input estimates. These changes could impact our fair value of stock options granted in the future. Changes in the fair value of stock awards could materially impact our operating results.
Our current estimate of volatility is based on the historical volatility of our stock price. To the extent volatility in our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation cost recognized in future periods. We derive the expected term assumption primarily based on our historical settlement experience, while giving consideration to options that have not yet completed a full life cycle. Stock-based compensation cost is recognized only for awards ultimately expected to vest. Our estimate of the forfeiture rate is based primarily on our historical experience. To the extent we revise this estimate in the future, our share-based compensation cost could be materially impacted in the period of revision. There have been no material adjustments to these estimates during the years presented.
Inventories
Inventory is stated at the lower of cost or estimated net realizable value, on a first-in, first-out (“FIFO”), basis. We primarily use actual costs to determine our cost basis for inventories. Our assessment of market value requires the use of estimates regarding the net realizable value of our inventory balances, including an assessment of excess or obsolete inventory. We determine excess or obsolete inventory based on multiple factors, including an estimate of the future demand for our products, product expiration dates and current sales levels. Our assumptions of future demand for our products are inherently uncertain and if we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of inventory reserves that we report in a particular period. For the year ended December 31, 2020 and 2019, there were no inventory reserves recognized. During 2018, we recorded $1.0 million in inventory reserves, which is included in cost of sales – product.
We consider regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval are not capitalized as inventory but are expensed as research and development costs. We begin capitalization of these inventory related costs once regulatory approval is obtained.
HEPLISAV-B was approved by the FDA on November 9, 2017, at which time we began to capitalize inventory costs associated with the vial presentation of HEPLISAV-B. In March 2018, we received regulatory approval of the pre-filled syringe (“PFS”) presentation of HEPLISAV-B. Prior to FDA approval of HEPLISAV-B, all costs related to the manufacturing of HEPLISAV-B that could potentially be available to support the commercial launch, were charged to research and development expense in the period incurred as there was no alternative future use. Prior to regulatory approval of PFS, costs associated with resuming operating activities at the Düsseldorf manufacturing facility were also included in research and development expense. Subsequent to regulatory approval of PFS, costs associated with resuming manufacturing activities at the Düsseldorf facility were included in cost of sales – product, until commercial production resumed in mid-2018 at which time these costs were recorded as raw materials inventory.
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LeasesIncome Taxes
We determine if an arrangement includes a lease at inception. Operating leases are included in operating lease right-of-use assets, other current liabilities and long-term portion of lease liabilities in our consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, we use our incremental borrowing rate which represents an estimated rate of interest that we would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date.
The operating lease right-of-use assets also include any lease payments made and exclude any lease incentives. Our leases may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that we will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. We have elected not to apply the recognition requirements of ASC 842 for short-term leases. We have also elected the practical expedient to not separate lease components from non-lease components.
As lessors, we determine if an arrangement includes a lease at inception. We elected the practical expedient to not separate lease components from non-lease components. Rent revenue is recognized on a straight-line basis over the expected lease term and is included in other income (expense) in our consolidated statements of operations.
Recent Accounting Pronouncements
Accounting Standards Update 2016-13
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments. The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. For public business entities, excluding smaller reporting companies, this ASU is effective for fiscal years beginning after December 15, 2019. Furthermore, the one-time determination of whether an entity is eligible to be a smaller reporting company shall be based on an entity’s most recent determination as of November 15, 2019, in accordance with SEC regulations. Because we were a smaller reporting company based on the most recent determination as of November 15, 2019, this ASU and its subsequent updates, will be effective for fiscal years beginning after December 15, 2022. We are currently evaluating the impact this standard will have on our consolidated financial statements.
Accounting Standards Update 2019-12
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by removing certain exceptions and improving consistent application in certain areas of Topic 740. The ASU is effective for annual periods beginning after December 15, 2020 with early adoption permitted. We adopted this ASU on January 1, 2021 and the adoption of this standard did not have a material impact on our consolidated financial statements.
Accounting Standards Update 2020-06
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies the accounting for convertible instruments. This ASU also requires entities to use the if-converted method for all convertible instruments in calculating diluted earnings-per-share. The ASU is effective for annual periods beginning after December 15, 2021 with early adoption permitted. We are currently evaluating the impact this standard will have on our consolidated financial statements.
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Results of Operations
Revenues
Revenues consist of amounts earned from product sales and other revenues. Product revenue, net, includes sales of HEPLISAV-B and CpG 1018 adjuvant.
Revenue from HEPLISAV-B product sales is recorded at the net sales price, which includes estimates of product returns, chargebacks, discounts, rebates and other fees. We sell our novel adjuvant, CpG 1018, to our collaboration partners for use in their development and/or commercialization of COVID-19 vaccine. Overall, product revenue, net, reflects our best estimates of the amount of consideration to which we are entitled based on the terms of the contract.
Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.
The following is a summary of our revenues (in thousands, except for percentages):
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| 2019 to 2020 |
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Revenues: |
| 2020 |
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| 2019 |
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| 2018 |
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| $ |
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| % |
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| $ |
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| % |
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HEPLISAV-B |
| $ | 36,030 |
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| $ | 34,644 |
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| $ | 6,812 |
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| $ | 1,386 |
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| 4 | % |
| $ | 27,832 |
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| 409 | % |
CpG 1018 |
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| 3,277 |
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| - |
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| - |
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| 3,277 |
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| NM |
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| - |
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| NM |
| ||
Total product revenue, net |
| $ | 39,307 |
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| $ | 34,644 |
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| $ | 6,812 |
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| $ | 4,663 |
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| 13 | % |
| $ | 27,832 |
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| 409 | % |
Other revenue |
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| 7,244 |
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| 575 |
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| 1,386 |
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| 6,669 |
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| 1160 | % |
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| (811 | ) |
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| (59 | )% |
Total revenues |
| $ | 46,551 |
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| $ | 35,219 |
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| $ | 8,198 |
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| $ | 11,332 |
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| 32 | % |
| $ | 27,021 |
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| 330 | % |
NM = Not meaningful
2020 versus 2019
HEPLISAV-B revenue for the year ended December 31, 2020 increased primarily due to an increase in sales volume. Due to the ongoing COVID-19 global pandemic, most medical centers restricted access to their facilities and focused on providing care to only the most severely affected patients beginning in mid-March 2020, which significantly lowered our sales volume in the second quarter. Utilization of adult vaccines, including HEPLISAV-B, improved in the second half of the year as health care providers gradually expanded their services under strict social distancing rules and our distributors replenished their inventory. Sales fluctuations during the second half of 2020 also included initial stocking orders from a large retail chain and another customer and the effect of seasonal Department of Defense purchases. During the fourth quarter of 2020, based on an analysis of historical product returns and customer ordering patterns, we decreased our returns reserve resulting in an increase in HEPLISAV-B product revenue, net of approximately $0.8 million.
Overall, vaccine utilization is expected to decline significantly in the first quarter of 2021 from the fourth quarter of 2020 to approximately 50% of pre-pandemic levels, which will result in a decrease in HEPLISAV-B revenues in the first quarter of 2021 compared to the fourth quarter of 2020. Utilization of adult vaccines will continue to be impacted throughout the first half of 2021 but is expected to return to pre-pandemic levels in the second half of 2021.
In the third quarter of 2020, we began selling our novel adjuvant, CpG 1018, to our collaboration partners for their use in development and/or commercialization of COVID-19 vaccines.
In September 2020, we received $6.3 million from the Coalition for Epidemic Preparedness Innovations (“CEPI”) to scale up our CpG 1018 production and to make available certain quantities of CpG 1018 for purchases to CEPI and its partners. In October 2020, CEPI terminated the agreement and we recognized the $6.3 million in other revenue.
Other revenue also included collaboration revenue related to services performed under a collaboration agreement with Serum Institute of India Pvt. Ltd. and manufacturing service revenue.
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2019 versus 2018
For the year ended December 31, 2019, product revenue, net increased due to higher volume as additional healthcare providers completed operational activities required to switch to HEPLISAV-B and existing customers placed repeat orders.
Included in other revenue was collaboration revenue related to services performed in 2019 under a collaboration agreement with Serum Institute of India Pvt. Ltd. Other revenue also included manufacturing service revenue of $0.4 million.
Cost of Sales – Product
Cost of sales - product consists primarily of raw materials, certain fill, finish and overhead costs and any inventory adjustment charges for pre-filled syringes (“PFS”) of HEPLISAV-B and inventory costs to produce CpG 1018 for our collaboration partners. Our HEPLISAV-B PFS finished goods inventory previously included components for which a portion of the manufacturing costs were expensed to research and development prior to the approval of the PFS presentation by the FDA in March 2018. Substantially all the inventory that was previously expensed to research and development has been sold to customers. The following is a summary of our cost of sales - product (in thousands, except for percentages):
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Cost of sales - product |
| $ | 11,410 |
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| $ | 10,172 |
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| $ | 10,934 |
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| $ | 1,238 |
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| 12 | % |
| $ | (762 | ) |
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| (7 | )% |
2020 versus 2019
For the year ended December 31, 2020, cost of sales-product increased, as compared to the same period in 2019, primarily due to higher unit costs as we produce and then sell inventory that reflects the full cost of manufacturing. Cost of sales – product for the year ended December 31, 2020 also includes $1.4 million of costs to produce CpG 1018 for our collaboration partners. The increase was offset by lower overhead costs and a charge in the third quarter of 2019 related to a terminated batch.
We expect our cost of sales - product for HEPLISAV-B, as a percentage of product sales, net, to stabilize for the foreseeable future, excluding potential unknown one-time charges. We expect our cost of sales-product for CpG 1018 to increase substantially in 2021 due to increased production of CpG 1018 for Valneva and other collaborators.
2019 versus 2018
Cost of sales - product for the year ended December 31, 2019 primarily included certain fill, finish and overhead costs for pre-filled syringes (“PFS”) of HEPLISAV-B and costs related to a terminated batch. Our HEPLISAV-B PFS finished goods inventory includes components for which a portion of the manufacturing costs were previously expensed to research and development prior to the approval of the PFS presentation by the FDA in March 2018.
At December 31, 2019, inventories, net increased to $41.3 million from $19.0 million at December 31, 2018 to support increased projected sales.
Cost of Sales - Amortization of Intangible Assets
The following is a summary of our cost of sales – amortization of intangible assets (in thousands, except for percentages):
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Cost of sales - amortization of intangible assets |
| $ | 2,500 |
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| $ | 9,217 |
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| $ | 10,862 |
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| $ | (6,717 | ) |
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| (73 | )% |
| $ | (1,645 | ) |
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| (15 | )% |
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2020 versus 2019
Cost of sales - amortization of intangible assets consisted of amortization of the intangible asset recorded as a result of sublicense payments to Merck, Sharpe & Dohme Corp. (“Merck”), upon FDA approval of HEPLISAV-B in November 2017. The intangible asset was fully amortized as of April 2020 when the sublicense agreement expired.
2019 versus 2018
Cost of sales - amortization of intangible assets consisted of amortization of the intangible asset recorded as a result of a regulatory milestone and sublicense fees to Coley Pharmaceutical Group, Inc. (“Coley”), Merck and GlaxoSmithKline Biologicals SA (“GSK”), upon FDA approval of HEPLISAV-B in November 2017. The intangible assets related to Coley and GSK were fully amortized in 2018.
Research and Development
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 consist of costs associated with clinical development, process development, preclinical discovery and development, regulatory filings and research, including fees and expenses incurred by contract research organizations, clinical study sites, and other service providers.
The following is a summary of our research and development expense (in thousands, except for percentages):
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Research and Development: |
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Compensation and related personnel costs |
| $ | 10,328 |
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| $ | 21,933 |
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| $ | 30,466 |
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| $ | (11,605 | ) |
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| (53 | )% |
| $ | (8,533 | ) |
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| (28 | )% |
Outside services |
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| 16,064 |
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| 25,437 |
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| 28,213 |
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| $ | (9,373 | ) |
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| (37 | )% |
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| (2,776 | ) |
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| (10 | )% |
Facility costs |
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| 1,215 |
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| 6,903 |
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| 6,668 |
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| $ | (5,688 | ) |
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| (82 | )% |
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| 235 |
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| 4 | % |
Non-cash stock-based compensation |
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| 1,000 |
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| 8,058 |
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| 9,604 |
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| $ | (7,058 | ) |
|
| (88 | )% |
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| (1,546 | ) |
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| (16 | )% |
Total research and development |
| $ | 28,607 |
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| $ | 62,331 |
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| $ | 74,951 |
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| $ | (33,724 | ) |
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| (54 | )% |
| $ | (12,620 | ) |
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| (17 | )% |
2020 versus 2019
Compensation and related personnel costs and non-cash stock-based compensation decreased due to lower research and development headcount as a result of our restructuring in May 2019. In addition, non-cash stock-based compensation included reversal of expenses related to cancellation of certain equity grants in the first quarter of 2020.
The decrease in outside services was primarily the result of winding down of our immuno-oncology programs, partially offset by an increase in outside services due to CpG 1018 development costs at our third-party manufacturing facility to support increased CpG 1018 demand from our collaboration partners for use in their development and/or commercialization of their COVID-19 vaccine candidates.
Facility costs, which are primarily comprised of occupancy and related expenses, decreased due to lower overhead allocation to research and development functions. In addition, facility costs for year ended December 31, 2019 included accelerated depreciation in connection with the restructuring in May 2019.
2019 versus 2018
Compensation and related personnel costs and non-cash stock-based compensation decreased in the 2019 periods compared to the 2018 periods due to lower research and development headcount as a result of our restructuring in May 2019. Outside services in 2019 decreased as compared to the comparable period in 2018 due to an overall reduction in costs to support the development of SD-101 and earlier stage immuno-oncology programs after the restructuring.
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Selling, General and Administrative
Selling, general and administrative expense consists primarily of compensation and related costs for our commercial support personnel, medical education professionals and personnel in executive and other administrative functions, including legal, finance and information technology; costs for outside services such as sales and marketing, post-marketing studies of HEPLISAV-B, accounting, commercial development, consulting, business development, investor relations and insurance; 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 selling, general and administrative expenses (in thousands, except for percentages):
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Selling, General and Administrative: |
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| 2018 |
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Compensation and related personnel costs |
| $ | 31,191 |
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| $ | 28,525 |
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| $ | 15,993 |
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| $ | 2,666 |
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| 9 | % |
| $ | 12,532 |
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| 78 | % |
Outside services |
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| 24,759 |
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|
| 26,269 |
|
|
| 31,758 |
|
|
| (1,510 | ) |
|
| (6 | )% |
|
| (5,489 | ) |
|
| (17 | )% |
Legal costs |
|
| 2,296 |
|
|
| 2,293 |
|
|
| 2,792 |
|
|
| 3 |
|
|
| 0 | % |
|
| (499 | ) |
|
| (18 | )% |
Facility costs |
|
| 11,425 |
|
|
| 7,675 |
|
|
| 2,466 |
|
|
| 3,750 |
|
|
| 49 | % |
|
| 5,209 |
|
|
| 211 | % |
Non-cash stock-based compensation |
|
| 9,585 |
|
|
| 10,224 |
|
|
| 11,761 |
|
|
| (639 | ) |
|
| (6 | )% |
|
| (1,537 | ) |
|
| (13 | )% |
Total selling, general and administrative |
| $ | 79,256 |
|
| $ | 74,986 |
|
| $ | 64,770 |
|
| $ | 4,270 |
|
|
| 6 | % |
| $ | 10,216 |
|
|
| 16 | % |
2020 versus 2019
The increase in compensation and related personnel costs was due to higher headcount resulting from the conversion of the external sales force to our employees effective April 1, 2019, offset by the decrease in business travel due to COVID-19 travel restrictions.
Outside services decreased due to the conversion of the external sales force to our employees effective April 1, 2019 and decrease in costs related to HEPLISAV-B post-marketing studies due to earlier completion of certain milestones in 2019. The decrease was offset by the $2.5 million payment to Symphony Dynamo, Inc. and Symphony Dynamo Holdings LLC (“Holdings”) in connection with the sale of our immuno-oncology compound, SD-101 and an overall increase in costs for sales and marketing activities. The $2.5 million payment was required under our agreement with Holdings entered into in November 2009.
Facility costs, which are primarily comprised of occupancy and related expenses, increased primarily due to higher overhead allocation to selling, general and administrative functions.
Non-cash stock-based compensation decreased due to the retirement of our former CEO in August 2019 and included reversal of expenses related to cancellation of certain equity grants in the first quarter of 2020. The decrease was partially offset by the increase in headcount.
2019 versus 2018
The increase in compensation and related personnel costs and the related decrease in outside services was due to the conversion of the external sales force to our employees effective April 1, 2019. The corresponding decrease in outside services was partially offset by an increase in post-marketing study costs for completion of certain milestones in the HEPLISAV-B post marketing study, and costs for increased sales and marketing activities. Legal costs decreased primarily due to outside counsel costs incurred in the first quarter of 2018 in connection with the loan financing. Facility costs, which include an overhead allocation of occupancy and related expenses, increased primarily due to additional rent costs pursuant to our 5959 Horton Street lease. Non-cash stock-based compensation decreased compared to the prior period due to the timing of vesting of certain stock awards granted in 2017.
51
Gain on Sale of Assets
In July 2020, we sold assets related to our immuno-oncology compound, SD-101, which included intellectual property, clinical and non-clinical data, regulatory filings, clinical supply inventory and certain contracts to TriSalus. Pursuant to the Asset Purchase Agreement, we received $5 million upon closing of the transaction and $4 million in December 2020 as reimbursement for certain clinical trial expenses. In addition, we could receive up to an additional $250 million upon the achievement of certain development, regulatory, and commercial milestones and low double-digit royalties based on potential future net sales of product containing SD-101 compound.
In the third quarter of 2020, we recognized a gain on sale of SD-101 assets of $6.9 million, net of transaction costs.
Restructuring
On May 23, 2019, we implemented a strategic organizational restructuring, principally to align our operations around our vaccine business and significantly curtail further investment in our immuno-oncology business. In connection with the restructuring, we reduced our workforce by approximately 80 positions, or by approximately 36%, of U.S.-based personnel. We have completed our restructuring activities and recognized restructuring costs of $13.4 million in 2019.
Other Income (Expense)
Interest income is reported net of amortization of premiums and discounts on marketable securities and includes realized gains on investments. Interest expense includes the stated interest and accretion of discount and end of term fee related to our long-term debt agreement. Sublease income is recognized in connection with our sublease of office and laboratory space. Change in fair value of warrant liability reflects the changes in fair value of warrants issued in connection with equity financing in August 2019. Other includes gains and losses on foreign currency transactions and disposal of property and equipment.
The following is a summary of our other income (expense) (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increase |
|
| Increase |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Decrease) from |
|
| (Decrease) from |
| ||||||||||
|
| Year Ended December 31, |
|
| 2019 to 2020 |
|
| 2018 to 2019 |
| |||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| $ |
|
| % |
|
| $ |
|
| % |
| |||||||
Interest income |
| $ | 1,260 |
|
| $ | 3,370 |
|
| $ | 3,828 |
|
| $ | (2,110 | ) |
|
| (63 | )% |
| $ | (458 | ) |
|
| (12 | )% |
Interest expense |
| $ | (19,062 | ) |
| $ | (16,977 | ) |
| $ | (9,338 | ) |
| $ | 2,085 |
|
|
| 12 | % |
| $ | 7,639 |
|
|
| 82 | % |
Sublease income |
| $ | 7,706 |
|
| $ | 2,619 |
|
| $ | - |
|
| $ | 5,087 |
|
|
| 194 | % |
| $ | 2,619 |
|
| NM |
| |
Change in fair value of warrant liability |
| $ | 4,124 |
|
| $ | (7,500 | ) |
| $ | - |
|
| $ | 11,624 |
|
|
| 155 | % |
| $ | 7,500 |
|
| NM |
| |
Other |
| $ | (897 | ) |
| $ | 731 |
|
| $ | (70 | ) |
| $ | (1,628 | ) |
|
| (223 | )% |
| $ | 801 |
|
|
| 1,144 | % |
NM = Not meaningful
2020 versus 2019
Interest income decreased primarily due to lower yields on our marketable securities portfolio. Interest expense increased due to the borrowing of the remaining $75.0 million in March 2019 under the term loan agreement with CRG Servicing LLC (“Loan Agreement”). Sublease income increased in connection with our sublease of office and laboratory space located at 5959 Horton Street, Emeryville, California to a third party in July 2019. The change in the fair value of the warrant liability was primarily due to a decrease in our stock price. The change in other was primarily due to foreign currency transactions and related fluctuations in the value of the Euro compared to the U.S. dollar.
2019 versus 2018
Interest expense increased due to the borrowing of the remaining $75.0 million in March 2019 under the Loan Agreement. We recognized sublease income of $2.6 million in connection with our sublease of office and laboratory space located at 5959 Horton Street, Emeryville, California to a third party in July 2019. The change in the fair value of the warrant liability was primarily due to increase in our stock price. The change in other was primarily due to foreign currency transactions and related fluctuations in the value of the Euro compared to the U.S. dollar.
52
Liquidity and Capital Resources
As of December 31, 2020, we had $165.0 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, borrowings, government grants and revenues from product sales and collaboration agreements to fund our operations. Our funds are currently invested in money market funds, U.S. treasuries, U.S. government agency securities and corporate debt securities. We currently anticipate that our cash, cash equivalents and short-term marketable securities as of December 31, 2020, and anticipated revenues from HEPLISAV-B and CpG 1018 will be sufficient to fund our operations for at least the next 12 months from the date of this filing.
Pursuant to our supply agreement with Valneva, in the fourth quarter of 2020, we received payments from Valneva totaling $20.0 million and issued an invoice to Valneva for $17.1 million for advanced payment to purchase specified quantities of CpG 1018 adjuvant in the first half of 2021. We recorded the total amount of $37.1 million as deferred revenue in our consolidated balance sheets as of December 31, 2020.
In February 2018, we entered into a term loan agreement with CRG Servicing LLC. At December 31, 2020, the principal amount of the term loan was $180.9 million, excluding debt discount of $1.1 million. The loan and the related unpaid interest and fees are due in December 2023.
In May 2020, we completed an underwritten public offering of 16,100,000 shares of our common stock at a public offering price of $5.00 per share. The net proceeds from this offering were approximately $75.4 million, after deducting the underwriting discount and other offering expenses.
For the year ended December 31, 2020, we sold 8,005,467 shares of our common stock and received net cash proceeds of $32.3 million pursuant to a 2017 At Market Sales Agreement with Cowen and Company, LLC (“2017 ATM Agreement”) that terminated in August 2020.
On August 6, 2020, we entered into an at-the-market Sales Agreement (the “2020 ATM Agreement”) with Cowen and Company, LLC (“Cowen”), under which we may offer and sell from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150 million through Cowen as our sales agent. For the year ended December 31, 2020, we received net cash proceeds of $0.8 million resulting from sales of 109,176 shares of our common stock pursuant to the 2020 ATM Agreement. As of December 31, 2020, we had $149.1 million remaining under the 2020 ATM Agreement. Subsequent to December 31, 2020 and through February 22, 2021, we sold 2,299,952 shares of common stock for net proceeds of $22.7 million under the 2020 ATM Agreement.
We expect to incur operating losses for the foreseeable future as we continue to invest in commercialization of HEPLISAV-B and CpG 1018. If we cannot generate a sufficient amount of revenue from product sales, we will need to finance our operations through strategic alliance and licensing arrangements and/or future public or private debt and equity financings. Raising additional funds through the issuance of equity or debt securities could result in dilution to our existing stockholders, increased fixed payment obligations, or both. In addition, these securities may have rights senior to those of our common stock and could include covenants that would restrict our operations.
Our ability to raise additional capital in the equity and debt markets, should we choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of development and business risks and uncertainties, our creditworthiness and the uncertainty that we would be able to raise such additional capital at a price or on terms that are favorable to us. In addition, our ability to raise additional funds may be adversely impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. Adequate financing may not be available to us on acceptable terms, or at all. If adequate funds are not available when needed, we may need to significantly reduce our operations while we seek strategic alternatives, which could have an adverse impact on our ability to achieve our intended business objectives.
2020 versus 2019
During the year ended December 31, 2020, we used $92.3 million of cash for our operations primarily due to our net loss of $75.2 million, of which $21.6 million consisted of non-cash items which included stock-based compensation, depreciation and amortization, change in fair value of warrant liability, amortization of right-of-use assets, non-cash interest expense, amortization of intangible assets and accretion and amortization on marketable securities. By comparison, during the year ended December 31, 2019, we used $121.3 million of cash for our operations primarily due to our net loss of $152.6 million, of which $58.0 million consisted of non-cash charges such as stock-based compensation, amortization of intangible assets, depreciation and amortization, change in fair value of warrant liability, non-cash interest expense, amortization of right-of-use assets and accretion and amortization on marketable securities. Cash used in our operations during 2020 decreased by $29.0 million. For the year ended December 31, 2020, we received tenant improvement reimbursements from the landlord of 5959 Horton Street totaling $1.1 million, invested approximately $22.4 million in HEPLISAV-B inventory and approximately $30.4 million to scale up CpG 1018 production. Net cash used in operating activities is also impacted by changes in our operating assets and liabilities due to timing of cash receipts and expenditures.
53
During the year ended December 31, 2020 and 2019, net cash used in investing activities was $26.5 million and $42.8 million, respectively. Cash used in investing activities during 2020 included $22.3 million of net purchases of marketable securities compared to $13.4 million of net purchases of marketable securities during 2019. During each of 2020 and 2019, we paid $7.0 million of sublicense payment to Merck. Cash used in net purchases of property plant and equipment decreased by $18.3 million during 2020 compared 2019. The decrease was, primarily, due to the installation of facility improvements in 2019. In addition, in 2020, we received $6.9 million from the sale of SD-101 assets, net of transaction costs.
During the year ended December 31, 2020 and 2019, net cash provided by financing activities was $109.5 million and $154.4 million, respectively. Cash provided by financing activities for 2020 included net proceeds of $75.4 million from our underwritten public offering in May 2020, $32.3 million from our, now terminated, 2017 ATM Agreement and $0.8 million from our 2020 ATM Agreement. Cash provided by financing activities for the year ended December 31, 2019 included net proceeds of $74.3 million from the second tranche of the Loan Agreement, net proceeds of $52.0 million and $13.6 million from the issuance of common stock and Series B Convertible Preferred Stock, respectively, from our underwritten public offering in August 2019 and net proceeds of $13.9 million from the issuance of common stock under our 2017 ATM Agreement.
2019 versus 2018
During the year ended December 31, 2019, we used $121.3 million of cash for our operations primarily due to our net loss of $152.6 million, of which $58.0 million consisted of non-cash charges such as stock-based compensation, amortization of intangible assets, depreciation and amortization, change in fair value of warrant liability, non-cash interest expense, amortization of right-of-use assets and accretion and amortization on marketable securities. During the year ended December 31, 2018, we used $131.3 million of cash for our operations primarily due to our net loss of $158.9 million, of which $39.3 million consisted of non-cash charges such as stock-based compensation, amortization of intangible assets, depreciation and amortization, non-cash interest expense and accretion and amortization on marketable securities. Cash used in our operations during 2019 decreased by $10.0 million. For the year ended December 31, 2019, we received tenant improvement reimbursements from the landlord of 5959 Horton Street totaling $7.0 million. During the year ended December 31, 2019, we invested approximately $22.3 million in HEPLISAV-B inventory to support increased projected sales. Net cash used in operating activities is impacted by changes in our operating assets, and liabilities due to timing of cash receipts and expenditures.
During the year ended December 31, 2019, cash used in investing activities was $42.8 million compared to $55.5 million of cash provided by investing activities for the year ended December 31, 2018. Cash used in investing activities during the year ended December 31, 2019 included $13.4 million of net purchases of marketable securities compared to $70.7 million of net proceeds from maturities of marketable securities during 2018. During the year ended December 31, 2019, we paid $7.0 million of sublicense payment Merck compared to $11.0 million of milestone and sublicense payments to Coley, Merck and GSK during 2018. Net cash used in the purchases of property plant and equipment increased by $18.2 million from 2018 to 2019. The increase is, primarily, due to the installation of facility improvements.
During the year ended December 31, 2019 and 2018, net cash provided by financing activities was $154.4 million and $99.1 million, respectively. Cash provided by financing activities for the year ended December 31, 2019 included net proceeds of $74.3 million from the second tranche of the Loan Agreement, net proceeds of $52.0 million and $13.6 million from the issuance of common stock and Series B Convertible Preferred Stock, respectively, from our underwritten public offering in August 2019 and net proceeds of $13.9 million from the issuance of common stock under our 2017 ATM Agreement. During the year ended December 31, 2018, we received net cash proceeds of $99.0 million from the Loan Agreement.
Contractual Obligations
The following summarizes our significant contractual obligations at December 31, 2020 and the effect those obligations are expected to have on our liquidity and cash flows in future periods (in thousands):
Contractual Obligations: |
| Total |
|
| 2021 |
|
| 2022- 2023 |
|
| 2024-2025 |
|
| 2026 and Thereafter |
| |||||
Operating leases |
| $ | 60,616 |
|
| $ | 6,942 |
|
| $ | 11,671 |
|
| $ | 11,243 |
|
| $ | 30,760 |
|
Long-term debt obligation |
|
| 188,141 |
|
|
| - |
|
|
| 188,141 |
|
|
| - |
|
|
| - |
|
Purchase commitments |
|
| 21,948 |
|
|
| 21,948 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total contractual obligations |
| $ | 270,705 |
|
| $ | 28,890 |
|
| $ | 199,812 |
|
| $ | 11,243 |
|
| $ | 30,760 |
|
We lease our facilities in Emeryville, California and Düsseldorf, Germany.
54
In July 2019, we entered into an agreement to sublease 23,976 square feet of office space located at 2100 Powell Street, Emeryville, California for our new global headquarters. This sublease agreement will continue until June 30, 2022. As of December 31, 2020, we are obligated to make lease payments totaling $1.8 million, plus any operating expenses and taxes over the lease term.
In September 2018, we entered into an agreement to lease 75,662 square feet of laboratory and office space located at 5959 Horton Street, Emeryville, California at the rate of $4.75 per square foot, paid on a monthly basis (“Horton Street Lease”). As of December 31, 2020, we are obligated to make lease payments totaling $53.6 million, plus any operating expenses and taxes over the Horton Street Lease term. In July 2019, we entered into an agreement to sublease the entire 75,662 square feet to a third party at the rate of $5.50 per square foot, paid on a monthly basis (“Horton Street Sublease”). Both the Horton Street Lease and the Horton Street Sublease will continue until March 31, 2031.
We also lease our facility in Düsseldorf, Germany (“Düsseldorf Lease”) under an operating lease that expires in March 2023 with an option to renew for two five-year term. As of December 31, 2020, we are obligated to make lease payments totaling $4.2 million, plus any operating expenses and taxes over the lease term. During 2004, we also established a letter of credit with Deutsche Bank as security for our Düsseldorf Lease in the amount of €0.2 million (Euros). The letter of credit remained outstanding through December 31, 2020 and is collateralized by a certificate of deposit for €0.2 million which has been included in restricted cash in the consolidated balance sheets as of December 31, 2020 and 2019.
On February 20, 2018, we entered into a $175.0 million term loan agreement (“Loan Agreement”) with CRG Servicing LLC. We borrowed $100.0 million under the Loan Agreement at closing and the remaining $75.0 million in March 2019 (collectively, “Term Loans”). At our option, until September 30, 2023, a portion of the interest payments may be paid in kind, and thereby added to the principal. Through December 31, 2020, a portion of our interest was paid in kind, which increased the principal amount of the Term Loans to $180.9 million, net of debt discount of $1.1 million. Included in our total contractual obligations of $188.1 million is the principal amount of $175.0 million, paid-in-kind interest of $5.9 million and the backend facility fee of $7.2 million. The Term Loans have a maturity date of December 31, 2023, unless earlier prepaid.
We have entered into material purchase commitments with commercial manufacturers for the supply of HEPLISAV-B, CpG 1018 adjuvant and for clinical research. As of December 31, 2020, our material non-cancelable purchase and other commitments, for the supply of HEPLISAV-B, CpG 1018 and for clinical research totaled $21.7 million.
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 also rely on and have entered into agreements with research institutions, contract research organizations and clinical investigators as well as clinical 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. As of December 31, 2020, our non-cancelable obligation for services and materials provided by these organizations totaled $0.3 million.
In conjunction with our agreement with Symphony Dynamo, Inc. and Symphony Dynamo Holdings LLC (“Holdings”) in November 2009, we agreed to make contingent cash payments to Holdings equal to 50% of the first $50 million from any upfront, pre-commercialization milestone or similar payments received by us from any agreement with any third party with respect to the development and/or commercialization of cancer and hepatitis C therapies originally licensed to Symphony Dynamo, Inc., including SD-101. In July 2020, we sold assets related to our SD-101 compound to TriSalus. We are obligated to pay Holdings 50% of the contingent pre-commercialization milestone payments that we may receive under the Asset Purchase Agreement. We paid $2.5 million to Holdings in August 2020. No liability has been recorded under this agreement as of December 31, 2020.
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.
55
|
|
Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
We are subject to interest rate risk. Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. The primary objective of our investment activities is to preserve principal and, secondarily, to maximize income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents and investments in short-term money market funds, U.S. government agency securities, U.S. treasuries and corporate debt securities. We do not invest in auction rate securities or securities collateralized by home mortgages, mortgage bank debt or home equity loans. We do not have derivative financial instruments in our investment portfolio. To assess our risk, we calculate that if interest rates were to rise or fall from current levels by 100 basis points or by 125 basis points, the pro forma change in fair value of investments would be $1.2 million or $1.5 million, respectively.
Due to the short duration and nature of our cash equivalents and marketable securities, as well as our intention to hold the investments to maturity, we do not expect any material loss with respect to our investment portfolio.
Foreign Currency Risk
We have certain investments outside the U.S. for the operations of Dynavax GmbH and Dynavax India LLP with exposure to foreign exchange rate fluctuations. The cumulative translation adjustment reported in the consolidated balance sheet as of December 31, 2020 was $0.2 million primarily related to the translation of Dynavax GmbH assets, liabilities and operating results from Euros to U.S. dollars. As of December 31, 2020, the effect of our exposure to these exchange rate fluctuations has not been material, and we do not expect it to become material in the foreseeable future. We do not hedge our foreign currency exposures and have not used derivative financial instruments for speculation or trading purposes.
56
|
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
|
57
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Dynavax Technologies Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Dynavax Technologies Corporation (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 25, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| ||
|
|
58
|
| |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2002.
San Francisco, California
February 25, 2021
59
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
|
| December 31, |
| |||||
| 2020 |
|
| 2019 |
| |||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 32,073 |
|
| $ | 39,884 |
|
Marketable securities available-for-sale |
|
| 132,963 |
|
|
| 111,171 |
|
Accounts and other receivables, net |
|
| 22,661 |
|
|
| 8,886 |
|
Inventories, net |
|
| 63,689 |
|
|
| 41,332 |
|
Prepaid manufacturing |
|
| 29,423 |
|
|
| - |
|
Prepaid expenses and other current assets |
|
| 9,206 |
|
|
| 7,380 |
|
Total current assets |
|
| 290,015 |
|
|
| 208,653 |
|
Property and equipment, net |
|
| 30,567 |
|
|
| 32,022 |
|
Intangible assets, net |
|
| - |
|
|
| 2,500 |
|
Operating lease right-of-use assets |
|
| 26,583 |
|
|
| 30,252 |
|
Goodwill |
|
| 2,297 |
|
|
| 2,081 |
|
Restricted cash |
|
| 237 |
|
|
| 216 |
|
Other assets |
|
| 3,573 |
|
|
| 3,344 |
|
Total assets |
| $ | 353,272 |
|
| $ | 279,068 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 3,312 |
|
| $ | 9,278 |
|
Accrued research and development |
|
| 2,805 |
|
|
| 4,120 |
|
Accrued liabilities |
|
| 19,099 |
|
|
| 14,802 |
|
Warrant liability |
|
| 10,736 |
|
|
| 14,860 |
|
Deferred revenue |
|
| 38,212 |
|
|
| - |
|
Other current liabilities |
|
| 3,247 |
|
|
| 9,987 |
|
Total current liabilities |
|
| 77,411 |
|
|
| 53,047 |
|
Long-term debt, net of debt discount of $1,094 and $1,394 at December 31, 2020 and 2019, respectively |
|
| 179,811 |
|
|
| 178,601 |
|
Long-term portion of lease liabilities |
|
| 34,789 |
|
|
| 37,845 |
|
Other long-term liabilities |
|
| 2,568 |
|
|
| 1,285 |
|
Total liabilities |
|
| 294,579 |
|
|
| 270,778 |
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock: $0.001 par value |
|
| - |
|
|
| - |
|
Authorized: 5,000 shares; Issued and outstanding: |
|
|
|
|
|
|
|
|
Series B Convertible Preferred Stock — 4 shares and 5 shares at December 31, 2020 and 2019, respectively |
|
|
|
|
|
|
|
|
Common stock: $0.001 par value; 278,000 shares and 139,000 shares authorized at December 31, 2020 and 2019, respectively; 110,190 shares and 83,871 shares issued and outstanding at December 31, 2020 and 2019, respectively |
|
| 110 |
|
|
| 84 |
|
Additional paid-in capital |
|
| 1,352,374 |
|
|
| 1,229,417 |
|
Accumulated other comprehensive gain (loss) |
|
| 273 |
|
|
| (2,387 | ) |
Accumulated deficit |
|
| (1,294,064 | ) |
|
| (1,218,824 | ) |
Total stockholders’ equity |
|
| 58,693 |
|
|
| 8,290 |
|
Total liabilities and stockholders’ equity |
| $ | 353,272 |
|
| $ | 279,068 |
|
See accompanying notes.
60
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
| Year Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue, net |
| $ | 39,307 |
|
| $ | 34,644 |
|
| $ | 6,812 |
|
Other revenue |
|
| 7,244 |
|
|
| 575 |
|
|
| 1,386 |
|
Total revenues |
|
| 46,551 |
|
|
| 35,219 |
|
|
| 8,198 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales - product |
|
| 11,410 |
|
|
| 10,172 |
|
|
| 10,934 |
|
Cost of sales - amortization of intangible assets |
|
| 2,500 |
|
|
| 9,217 |
|
|
| 10,862 |
|
Research and development |
|
| 28,607 |
|
|
| 62,331 |
|
|
| 74,951 |
|
Selling, general and administrative |
|
| 79,256 |
|
|
| 74,986 |
|
|
| 64,770 |
|
Gain on sale of assets (Note 6) |
|
| (6,851 | ) |
|
| - |
|
|
| - |
|
Restructuring |
|
| - |
|
|
| 13,356 |
|
|
| - |
|
Total operating expenses |
|
| 114,922 |
|
|
| 170,062 |
|
|
| 161,517 |
|
Loss from operations |
|
| (68,371 | ) |
|
| (134,843 | ) |
|
| (153,319 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 1,260 |
|
|
| 3,370 |
|
|
| 3,828 |
|
Interest expense |
|
| (19,062 | ) |
|
| (16,977 | ) |
|
| (9,338 | ) |
Sublease income |
|
| 7,706 |
|
|
| 2,619 |
|
|
| - |
|
Change in fair value of warrant liability (Note 14) |
|
| 4,124 |
|
|
| (7,500 | ) |
|
| - |
|
Other |
|
| (897 | ) |
|
| 731 |
|
|
| (70 | ) |
Net loss |
|
| (75,240 | ) |
|
| (152,600 | ) |
|
| (158,899 | ) |
Preferred stock deemed dividend |
|
| - |
|
|
| (3,267 | ) |
|
| - |
|
Net loss allocable to common stockholders |
| $ | (75,240 | ) |
| $ | (155,867 | ) |
| $ | (158,899 | ) |
Basic net loss per share allocable to common stockholders |
| $ | (0.75 | ) |
| $ | (2.16 | ) |
| $ | (2.55 | ) |
Weighted average shares used to compute basic net loss per share allocable to common stockholders |
|
| 100,753 |
|
|
| 72,024 |
|
|
| 62,362 |
|
Diluted net loss per share allocable to common stockholders |
| $ | (0.78 | ) |
| $ | (2.16 | ) |
| $ | (2.55 | ) |
Weighted average shares used to compute diluted net loss per share allocable to common stockholders |
|
| 101,504 | �� |
|
| 72,024 |
|
|
| 62,362 |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
| Year Ended December 31, |
| |||||||||
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net loss | $ | (75,240 | ) |
| $ | (152,600 | ) |
| $ | (158,899 | ) |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
Reclassification of realized gain on available-for-sale securities recognized in interest income |
| (21 | ) |
|
| - |
|
|
| - |
|
Change in unrealized gain (loss) on marketable securities available-for-sale |
| (20 | ) |
|
| 140 |
|
|
| 12 |
|
Cumulative foreign currency translation adjustments |
| 2,701 |
|
|
| (512 | ) |
|
| (1,146 | ) |
Total other comprehensive income (loss) |
| 2,660 |
|
|
| (372 | ) |
|
| (1,134 | ) |
Total comprehensive loss | $ | (72,580 | ) |
| $ | (152,972 | ) |
| $ | (160,033 | ) |
See accompanying notes.
61
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Common Stock |
|
| Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Shares |
|
| Par Amount |
|
| Shares |
|
| Par Amount |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive (Loss) Income |
|
| Accumulated Deficit |
|
| Total Stockholders' Equity |
| ||||||||
Balances at December 31, 2017 |
|
| 61,533 |
|
| $ | 62 |
|
|
| - |
|
| $ | - |
|
| $ | 1,107,693 |
|
| $ | (881 | ) |
| $ | (907,325 | ) |
| $ | 199,549 |
|
Issuance (withholding) of common stock upon exercise of stock options and restricted stock awards, net |
|
| 1,204 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| (524 | ) |
|
| - |
|
|
| - |
|
|
| (523 | ) |
Issuance of common stock under Employee Stock Purchase Plan |
|
| 125 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 594 |
|
|
| - |
|
|
| - |
|
|
| 594 |
|
Stock compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23,478 |
|
|
| - |
|
|
| - |
|
|
| 23,478 |
|
Total other comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,134 | ) |
|
| - |
|
|
| (1,134 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (158,899 | ) |
|
| (158,899 | ) |
Balances at December 31, 2018 |
|
| 62,862 |
|
| $ | 63 |
|
|
| - |
|
| $ | - |
|
| $ | 1,131,241 |
|
| $ | (2,015 | ) |
| $ | (1,066,224 | ) |
| $ | 63,065 |
|
Issuance of common stock upon exercise of stock options and restricted stock awards, net |
|
| 975 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
Issuance of common stock under Employee Stock Purchase Plan |
|
| 122 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 565 |
|
|
| - |
|
|
| - |
|
|
| 565 |
|
Issuance of common stock, net of issuance costs, in conjunction with an underwritten public offering and an At Market Sales Agreement (see Note 14) |
|
| 19,912 |
|
|
| 20 |
|
|
| - |
|
|
| - |
|
|
| 60,093 |
|
|
| - |
|
|
| - |
|
|
| 60,113 |
|
Issuance of Series B Convertible Preferred Stock, net of issuance costs, in conjunction with an underwritten public offering (see Note 14) |
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| - |
|
|
| 12,061 |
|
|
| - |
|
|
| - |
|
|
| 12,061 |
|
Stock compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 25,456 |
|
|
| - |
|
|
| - |
|
|
| 25,456 |
|
Total other comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (372 | ) |
|
| - |
|
|
| (372 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (152,600 | ) |
|
| (152,600 | ) |
Balances at December 31, 2019 |
|
| 83,871 |
|
| $ | 84 |
|
|
| 5 |
|
| $ | - |
|
| $ | 1,229,417 |
|
| $ | (2,387 | ) |
| $ | (1,218,824 | ) |
| $ | 8,290 |
|
Conversion of Preferred Stock |
|
| 700 |
|
|
| 1 |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
Issuance of common stock upon exercise of stock options and restricted stock awards, net |
|
| 1,209 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 288 |
|
|
| - |
|
|
| - |
|
|
| 289 |
|
Issuance of common stock under Employee Stock Purchase Plan |
|
| 195 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 672 |
|
|
| - |
|
|
| - |
|
|
| 672 |
|
Issuance of common stock, net of issuance costs, in conjunction with an underwritten public offering and an At Market Sales Agreement (see Note 14) |
|
| 24,215 |
|
|
| 24 |
|
|
| - |
|
|
| - |
|
|
| 108,513 |
|
|
| - |
|
|
| - |
|
|
| 108,537 |
|
Stock compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,484 |
|
|
| - |
|
|
| - |
|
|
| 13,484 |
|
Total other comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,660 |
|
|
| - |
|
|
| 2,660 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (75,240 | ) |
|
| (75,240 | ) |
Balances at December 31, 2020 |
|
| 110,190 |
|
| $ | 110 |
|
|
| 4 |
|
| $ | - |
|
| $ | 1,352,374 |
|
| $ | 273 |
|
| $ | (1,294,064 | ) |
| $ | 58,693 |
|
See accompanying notes.
62
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| Year Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (75,240 | ) |
| $ | (152,600 | ) |
| $ | (158,899 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 4,273 |
|
|
| 8,938 |
|
|
| 3,621 |
|
Amortization of right-of-use assets |
|
| 2,562 |
|
|
| 3,375 |
|
|
| - |
|
(Gain) loss on disposal of property and equipment and from lease termination |
|
| (98 | ) |
|
| 18 |
|
|
| 98 |
|
Amortization of premiums (accretion of discounts) on marketable securities |
|
| 535 |
|
|
| (1,462 | ) |
|
| (1,559 | ) |
Realized gain on available-for-sale securities |
|
| (57 | ) |
|
| - |
|
|
| - |
|
Change in fair value of warrant liability |
|
| (4,124 | ) |
|
| 7,500 |
|
|
| - |
|
Stock compensation expense |
|
| 13,484 |
|
|
| 25,456 |
|
|
| 23,478 |
|
Cost of sales - amortization of intangible assets |
|
| 2,500 |
|
|
| 9,217 |
|
|
| 10,862 |
|
Non-cash interest expense |
|
| 2,542 |
|
|
| 4,973 |
|
|
| 2,755 |
|
Tenant improvements provided by the landlord |
|
| 1,137 |
|
|
| 6,999 |
|
|
| - |
|
Gain on sale of assets |
|
| (6,851 | ) |
|
| - |
|
|
| - |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and other receivables, net |
|
| (13,775 | ) |
|
| (5,182 | ) |
|
| (2,850 | ) |
Inventories, net |
|
| (22,357 | ) |
|
| (22,310 | ) |
|
| (18,710 | ) |
Prepaid manufacturing |
|
| (29,423 | ) |
|
| - |
|
|
| - |
|
Prepaid expenses and other current assets |
|
| (1,826 | ) |
|
| (1,278 | ) |
|
| (2,405 | ) |
Other assets |
|
| (229 | ) |
|
| 1,632 |
|
|
| (3,706 | ) |
Accounts payable |
|
| (3,448 | ) |
|
| 4,848 |
|
|
| 3,417 |
|
Lease liabilities |
|
| (2,872 | ) |
|
| (2,000 | ) |
|
| - |
|
Deferred revenue |
|
| 38,212 |
|
|
| - |
|
|
| - |
|
Accrued and other liabilities |
|
| 2,804 |
|
|
| (9,376 | ) |
|
| 12,597 |
|
Net cash used in operating activities |
|
| (92,251 | ) |
|
| (121,252 | ) |
|
| (131,301 | ) |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of technology licenses |
|
| (7,000 | ) |
|
| (7,000 | ) |
|
| (11,000 | ) |
Purchases of marketable securities |
|
| (201,786 | ) |
|
| (215,191 | ) |
|
| (213,804 | ) |
Proceeds from maturities and redemptions of marketable securities |
|
| 148,565 |
|
|
| 201,810 |
|
|
| 284,457 |
|
Proceeds from sales of marketable securities |
|
| 30,910 |
|
|
| - |
|
|
| - |
|
Purchases of property and equipment, net |
|
| (4,072 | ) |
|
| (22,401 | ) |
|
| (4,187 | ) |
Proceeds from sale of assets, net of transaction costs |
|
| 6,851 |
|
|
| - |
|
|
| - |
|
Net cash (used in) provided by investing activities |
|
| (26,532 | ) |
|
| (42,782 | ) |
|
| 55,466 |
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt, net |
|
| - |
|
|
| 74,250 |
|
|
| 99,000 |
|
Proceeds from issuances of common stock, net |
|
| 108,538 |
|
|
| 65,948 |
|
|
| - |
|
Proceeds from issuances of preferred stock, net |
|
| - |
|
|
| 13,586 |
|
|
| - |
|
Proceeds (tax withholding) from exercise of stock options and restricted stock awards, net |
|
| 289 |
|
|
| 2 |
|
|
| (523 | ) |
Proceeds from Employee Stock Purchase Plan |
|
| 672 |
|
|
| 565 |
|
|
| 594 |
|
Net cash provided by financing activities |
|
| 109,499 |
|
|
| 154,351 |
|
|
| 99,071 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 1,494 |
|
|
| (184 | ) |
|
| (482 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
| (7,790 | ) |
|
| (9,867 | ) |
|
| 22,754 |
|
Cash, cash equivalents and restricted cash at beginning of year |
|
| 40,100 |
|
|
| 49,967 |
|
|
| 27,213 |
|
Cash, cash equivalents and restricted cash at end of year |
| $ | 32,310 |
|
| $ | 40,100 |
|
| $ | 49,967 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest |
| $ | 16,541 |
|
| $ | 12,147 |
|
| $ | 6,583 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash acquisition of technology license |
| $ | - |
|
| $ | - |
|
| $ | 12,773 |
|
Purchases of property and equipment, not yet paid |
| $ | 361 |
|
| $ | 2,698 |
|
| $ | 920 |
|
Proceeds allocated to warrant liability at issuance |
| $ | - |
|
| $ | 7,360 |
|
| $ | - |
|
Right-of-use assets obtained in exchange for operating lease liabilities |
| $ | - |
|
| $ | 40,626 |
|
| $ | - |
|
See accompanying notes.
63
DYNAVAX TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Dynavax Technologies Corporation (“we,” “our,” “us,” “Dynavax” or the “Company”), is a commercial stage biopharmaceutical company focused on developing and commercializing novel vaccines. Our first marketed product, HEPLISAV-B® (Hepatitis B Vaccine (Recombinant), Adjuvanted) is approved by the United States Food and Drug Administration (“FDA”) for prevention of infection caused by all known subtypes of hepatitis B virus in adults age 18 years and older. We also manufacture and sell CpG 1018, the adjuvant used in HEPLISAV-B. We are working to develop CpG 1018 as a premier vaccine adjuvant through research collaborations and partnerships. Current collaborations are focused on adjuvanted vaccines for COVID-19, pertussis and universal influenza. We reincorporated in Delaware in 2000.
|
|
Basis of Presentation and Principles of Consolidation
The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include our accounts and those of our wholly-owned subsidiaries, Dynavax GmbH located in Düsseldorf, Germany and Dynavax India LLP in India. All significant intercompany accounts and transactions among the entities have been eliminated from the consolidated financial statements. We operate in 1 business segment: discovery, development and commercialization of novel vaccines.
Liquidity and Financial Condition
As of December 31, 2020, we had cash, cash equivalents and marketable securities of $165.0 million.
The Company has incurred losses and negative cash flows from operations since its inception and expects to incur operating losses for the foreseeable future as we continue to invest in commercialization of HEPLISAV-B and development of our CpG 1018 adjuvant. If we cannot generate a sufficient amount of revenue from product sales, we will need to finance our operations through strategic alliance and licensing arrangements and/or future public or private debt and equity financings. Adequate financing may not be available to us on acceptable terms, or at all.
We currently anticipate that our cash, cash equivalents and short-term marketable securities as of December 31, 2020, and anticipated revenues from HEPLISAV-B and CpG 1018 will be sufficient to fund our operations for at least the next 12 months from the date of this filing.
Our ability to raise additional capital in the equity and debt markets, should we choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of development and business risks and uncertainties, our creditworthiness and the uncertainty that we would be able to raise such additional capital at a price or on terms that are favorable to us. Raising additional funds through the issuance of equity or debt securities could result in dilution to our existing stockholders, increased fixed payment obligations, or both. In addition, these securities may have rights senior to those of our common stock and could include covenants that would restrict our operations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management’s estimates are based on historical information available as of the date of the consolidated financial statements and various other assumptions we believe are reasonable under the circumstances. Actual results could differ materially from these estimates.
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Foreign Currency Translation
We consider the local currency to be the functional currency for our international subsidiaries, Dynavax GmbH and Dynavax India LLP. Accordingly, assets and liabilities denominated in this foreign currency are translated into U.S. dollars using the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the year. Currency translation adjustments arising from period to period are charged or credited to accumulated other comprehensive income (loss) in stockholders’ equity.
As of December 31, 2020 and 2019, the cumulative translation adjustments balance was $0.2 million and $(2.5) million, respectively, primarily related to the translation of Dynavax GmbH assets, liabilities and operating results from Euros to U.S. dollars. For the years ended December 31, 2020, 2019 and 2018, we reported an unrealized gain (loss) of $2.7 million, $(0.5) million and $(1.1) million, respectively. Realized gains and losses resulting from currency transactions are included in other income (expense) in the consolidated statements of operations. For the years ended December 31, 2020, 2019 and 2018, we reported a (loss) gain of $(0.8) million, $0.2 million and $0.3 million, respectively, resulting from currency transactions in our consolidated statements of operations.
Cash, Cash Equivalents and Marketable Securities
We consider all liquid investments purchased with an original maturity of three months or less and that can be liquidated without prior notice or penalty to be cash equivalents. Management determines the appropriate classification of marketable securities at the time of purchase. In accordance with our investment policy, we invest in short-term money market funds, U.S. treasuries, U.S. government agency securities and corporate debt securities. We believe these types of investments are subject to minimal credit and market risk.
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 based on inputs that are observable, either directly or indirectly, such as quoted market prices for similar securities; 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 securities, with unrealized gains and losses included in accumulated other comprehensive 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 or expense. The cost of securities sold is based on the specific identification method. Management assesses whether declines in the fair value of investment securities are other than temporary. In determining whether a decline is other than temporary, management considers the following factors:
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To date, there have been no declines in fair value that have been identified as other than temporary.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that are subject to concentration of credit risk consist primarily of cash equivalents, marketable securities and accounts receivable.
Our policy is to invest cash in institutional money market funds and marketable securities of the U.S. government and corporate issuers with high credit quality to limit the amount of credit exposure. We currently maintain a portfolio of cash equivalents and marketable securities in a variety of securities, including short-term money market funds, U.S. treasuries, U.S. government agency securities and corporate debt securities. We have not experienced any losses on our cash equivalents and marketable securities.
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Our accounts receivable balance consists, primarily, of amounts due from product sales. Accounts receivable are recorded net of reserves for chargebacks, distribution fees, trade discounts and doubtful accounts. We estimate our allowance for doubtful accounts based onan evaluation of the aging of our receivables. Accounts receivable balances are written off against the allowance when it is probable that the receivable will not be collected. To date, we have not recorded any allowance for doubtful accounts.
Our product candidates will require approval from the FDA and foreign regulatory agencies before commercial sales can commence. There can be no assurance that our products will receive any of these required approvals. The denial or delay of such approvals may have a material adverse impact on our business and may impact our business in the future. In addition, after the approval of HEPLISAV-B by the FDA, there is still an ongoing risk of adverse events that did not appear during the drug approval process.
We are subject to risks common to companies in the biopharmaceutical industry, including, but not limited to, new technological innovations, clinical development risk, establishment of appropriate commercial partnerships, protection of proprietary technology, compliance with government and environmental regulations, uncertainty of market acceptance of product candidates, product liability, the volatility of our stock price and the need to obtain additional financing.
During the years ended December 31, 2020, 2019 and 2018, 77%, 100% and 83%, respectively, of our revenues were earned in the United States. As of December 31, 2020 and 2019, 57% and 62%, respectively, of our long-lived assets were located in the United States and the remaining long-lived assets were located in Germany.
Our source of product revenue consists of sales of HEPLISAV-B and CpG 1018.
We sell HEPLISAV-B to a limited number of wholesalers and specialty distributors in the U.S. All of our HEPLISAV-B revenue is from these customers. For the years ended December 31, 2020, 2019 and 2018, our three largest customers collectively represented approximately 61%, 62% and 68% of our HEPLISAV-B product revenue, respectively. All of our CpG 1018 sales were outside the U.S.
As of December 31, 2020 and 2019, our three largest customers collectively represented approximately 86% and 76% of our HEPLISAV-B trade receivable balance.
Inventories
Inventory is stated at the lower of cost or estimated net realizable value, on a first-in, first-out (“FIFO”), basis. We primarily use actual costs to determine our cost basis for inventories. Our assessment of market value requires the use of estimates regarding the net realizable value of our inventory balances, including an assessment of excess or obsolete inventory. We determine excess or obsolete inventory based on multiple factors, including an estimate of the future demand for our products, product expiration dates and current sales levels. Our assumptions of future demand for our products are inherently uncertain and if we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of inventory reserves that we report in a particular period. For the year ended December 31, 2020 and 2019, there were 0 inventory reserves recognized. During 2018, we recorded $1.0 million in inventory reserves, which is included in cost of sales – product.
We consider regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval are not capitalized as inventory but are expensed as research and development costs. We begin capitalization of these inventory related costs once regulatory approval is obtained.
HEPLISAV-B was approved by the FDA on November 9, 2017, at which time we began to capitalize inventory costs associated with the vial presentation of HEPLISAV-B. In March 2018, we received regulatory approval of the pre-filled syringe (“PFS”) presentation of HEPLISAV-B. Prior to FDA approval of HEPLISAV-B, all costs related to the manufacturing of HEPLISAV-B that could potentially be available to support the commercial launch, were charged to research and development expense in the period incurred as there was no alternative future use. Prior to regulatory approval of PFS, costs associated with resuming operating activities at the Düsseldorf manufacturing facility were also included in research and development expense. Subsequent to regulatory approval of PFS, costs associated with resuming manufacturing activities at the Düsseldorf facility were included in cost of sales – product, until commercial production resumed in mid-2018 at which time these costs were recorded as raw materials inventory.
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Intangible Assets
We record definite-lived intangible assets related to certain capitalized milestone and sublicense payments. After determining that the pattern of future cash flows associated with intangible asset could not be reliably estimated with a high level of precision, these assets are amortized on a straight-line basis over their remaining useful lives, which are estimated to be the remaining patent life. We assess our intangible assets for impairment if indicators are present or changes in circumstance suggest that impairment may exist. NaN impairment has been identified during the years presented.
Long-Lived Assets
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Additions, major renewals and improvements are capitalized and repair and maintenance costs are charged to expense as incurred. Leasehold improvements are amortized over the remaining life of the initial lease term or the estimated useful lives of the assets, whichever is shorter.
We evaluate the carrying value of long-lived assets, whenever events or changes in business circumstances or our planned use of long-lived assets indicate, based on undiscounted future operating cash flows, that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. When an indicator of impairment exists, undiscounted future operating cash flows of long-lived assets are compared to their respective carrying value. If the carrying value is greater than the undiscounted future operating cash flows of long-lived assets, the long-lived assets are written down to their respective fair values and an impairment loss is recorded. Fair value is determined primarily using the discounted cash flows expected to be generated from the use of assets. Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected cash flows. In the third quarter of 2019, we recorded accelerated depreciation of $3.0 million related to certain long-lived assets. See Note 17.
Leases
We determine if an arrangement includes a lease at inception. Operating leases are included in operating lease right-of-use assets, other current liabilities and long-term portion of lease liabilities in our consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, we use our incremental borrowing rate which represents an estimated rate of interest that we would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date.
The operating lease right-of-use assets also include any lease payments made and exclude any lease incentives. Our leases may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that we will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. We have elected not to apply the recognition requirements of ASC 842 for short-term leases. We have also elected the practical expedient to not separate lease components from non-lease components.
As lessors, we determine if an arrangement includes a lease at inception. We elected the practical expedient to not separate lease components from non-lease components. Sublease income is recognized on a straight-line basis over the expected lease term and is included in other income (expense) in our consolidated statements of operations.
Goodwill
Our goodwill balance relates to our April 2006 acquisition of Dynavax GmbH. Goodwill represents the excess purchase price over the fair value of tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized but is subject to an annual impairment test. In performing its goodwill impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If after assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, we will proceed to perform a test for goodwill impairment. The first step involves comparing the estimated fair value of the related reporting unit against its carrying amount including goodwill. If the carrying amount exceeds the fair value, the amount by which the carrying amount exceeds the reporting unit’s fair value is recorded as a charge in the consolidated statements of operations. We determined that we have only one operating segment and there are no components of that operating segment that are deemed to be separate reporting units such that we have one reporting unit for purposes of our goodwill impairment testing. We evaluate goodwill for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual impairment tests indicate that the asset might be impaired. NaN impairment has been identified for the years presented.
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Revenue Recognition
We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of Accounting Standards Codification (“ASC”) 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Product Revenue, Net – HEPLISAV-B
We sell HEPLISAV-B to a limited number of wholesalers and specialty distributors in the U.S. (collectively, our “Customers”). Revenues from product sales are recognized when we have satisfied our performance obligation, which is the transfer of control of our product upon delivery to the Customer. The timing between the recognition of revenue for product sales and the receipt of payment is not significant. Because our standard credit terms are short-term and we expect to receive payment in less than one-year, there is no significant financing component on the related receivables. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.
Overall, product revenue, net, reflects our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If our estimates differ significantly from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment.
Reserves for Variable Consideration
Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration such as product returns, chargebacks, discounts, rebates and other fees that are offered within contracts between us and our Customers, healthcare providers, pharmacies and others relating to our product sales. We estimate variable consideration using either the most likely amount method or the expected value method, depending on the type of variable consideration and what method better predicts the amount of consideration we expect to receive. We take into consideration relevant factors such as industry data, current contractual terms, available information about Customers’ inventory, resale and chargeback data and forecasted customer buying and payment patterns, in estimating each variable consideration. The variable consideration is recorded at the time product sales is recognized, resulting in a reduction in product revenue and a reduction in accounts receivable (if the Customer offsets the amount against its accounts receivable) or as an accrued liability (if we pay the amount through our accounts payable process). Variable consideration requires significant estimates, judgment and information obtained from external sources. The amount of variable consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If our estimates differ significantly from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment. If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of revenue that we report in a particular period. We evaluate our estimates of variable considerations including, but not limited to, product returns, chargebacks and rebates, periodically or when there is an event or change in circumstances that may indicate that our estimates may change. During the fourth quarter of 2020, based on an analysis of historical product returns and customer ordering patterns, we decreased our returns reserve resulting in an increase in HEPLISAV-B product revenue, net of approximately $0.8 million. There were no material adjustments to these estimates for the years ended December 31, 2019 and 2018.
Product Returns: Consistent with industry practice, we offer our Customers a limited right of return based on the product’s expiration date for product that has been purchased from us. We estimate the amount of our product sales that may be returned by our Customers and record this estimate as a reduction of revenue in the period the related product revenue is recognized. We consider several factors in the estimation of potential product returns including expiration dates of the product shipped, the limited product return rights, available information about Customers’ inventory, shelf life of the product and other relevant factors.
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Chargebacks: Our Customers subsequently resell our product to healthcare providers, pharmacies and others. In addition to distribution agreements with Customers, we enter into arrangements with qualified healthcare providers that provide for chargebacks and discounts with respect to the purchase of our product. Chargebacks represent the estimated obligations resulting from contractual commitments to sell product to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from us. Customers charge us for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Chargeback amounts are determined at the time of resale to the qualified healthcare providers by Customers, and we issue credits for such amounts generally within a few weeks of the Customer’s notification to us of the resale. Reserves for chargebacks consists of credits that we expect to issue for units that remain in the distribution channel inventories at each reporting period end that we expect will be sold to the qualified healthcare providers, and chargebacks for units that our Customers have sold to the qualified healthcare providers, but for which credits have not been issued.
Trade Discounts and Allowances: We provide our Customers with discounts which include early payment incentives that are explicitly stated in our contracts, and are recorded as a reduction of revenue in the period the related product revenue is recognized.
Distribution Fees: Distribution fees include fees paid to certain Customers for sales order management, data and distribution services. Distribution fees are recorded as a reduction of revenue in the period the related product revenue is recognized.
Rebates: Under certain contracts, customers may obtain rebates for purchasing minimum volumes of our product. We estimate these rebates based upon the expected purchases and the contractual rebate rate and record this estimate as a reduction in revenue in the period the related revenue is recognized.
Product Revenue, Net – CpG 1018
We also sell our novel adjuvant, CpG 1018, to our collaboration partners for use in their development and/or commercialization of COVID-19 vaccine. We have determined that our collaboration partners meet the definition of customers under ASC 606. Therefore, we accounted for our CpG 1018 sales under ASC 606. Revenues from product sales are recognized when we have satisfied our performance obligation, which is the transfer of control of our product to the customer. Because the timing between the recognition of revenue for product sales and the receipt of payment is less than one year, there is no significant financing component on the related receivables.
Overall, product revenue, net, reflects our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If our estimates differ significantly from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment.
Collaboration and Manufacturing Service Revenue
We have entered into collaborative arrangements and arrangements to provide manufacturing services to other companies. Such arrangements may include promises to customers which, if capable of being distinct, are accounted for as separate performance obligations. For agreements with multiple performance obligations, we allocate estimated revenue to each performance obligation at contract inception based on the estimated transaction price of each performance obligation. Revenue allocated to each performance obligation is then recognized when we satisfy the performance obligation by transferring control of the promised good or service to the customer. Collaboration and manufacturing service revenue is included in other revenue in our consolidated statements of operations.
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.
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We contract with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. Our accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations. We may terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the date of termination, although in certain instances we may be further responsible for termination fees and penalties. We estimate research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to us at that time. There have been no material adjustments to the prior period accrued estimates for clinical trial activities during the years presented.
Stock-Based Compensation
Stock-based compensation expense for restricted stock units and stock options is estimated at the grant date based on the award’s estimated fair value and is recognized on a straight-line basis over the award’s requisite service period, assuming estimated forfeiture rates. Fair value of restricted stock units is determined at the date of grant using the Company’s closing stock price. Our determination of the fair value of stock options on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number of subjective variables. We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value-based measurement of our stock options. The Black-Scholes model requires the use of subjective assumptions which determine the fair value-based measurement of stock options. These assumptions include, but are not limited to, our expected stock price volatility over the term of the awards, and projected employee stock option exercise behaviors. In the future, as additional empirical evidence regarding these input estimates becomes available, we may change or refine our approach of deriving these input estimates. These changes could impact our fair value of stock options granted in the future. Changes in the fair value of stock awards could materially impact our operating results.
Our current estimate of volatility is based on the historical volatility of our stock price. To the extent volatility in our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation cost recognized in future periods. We derive the expected term assumption primarily based on our historical settlement experience, while giving consideration to options that have not yet completed a full life cycle. Stock-based compensation cost is recognized only for awards ultimately expected to vest. Our estimate of the forfeiture rate is based primarily on our historical experience. To the extent we revise this estimate in the future, our share-based compensation cost could be materially impacted in the period of revision. There have been no material adjustments to these estimates during the years presented.
Income Taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Tax law and rate changes are reflected in income in the period such changes are enacted. We include interest and penalties related to income taxes, including unrecognized tax benefits, within income tax expense.
Our income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.
Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis and includes a review of all available positive and negative evidence. Factors reviewed include projectionsevidence, including future reversals of pre-tax bookexisting taxable temporary differences, projected future taxable income, for the foreseeable future, determination of cumulative pre-tax book income after permanent differences, earnings history,tax planning strategies and reliability of forecasting.recent financial operations.
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Based on our review,all available evidence, both positive and negative, and the weight of that evidence to the extent such evidence can be objectively verified, we concludedbelieve that it wasrecognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, we have determined a need for a full valuation allowance. Given our current earnings, we believe that, we would not be ablewithin the next twelve months, sufficient positive evidence may become available to realizeallow us to reach a conclusion that a portion of the benefit of our domestic and foreign deferred tax assets in the future. This conclusion was based on historical and projected operating performance, as well as our expectation that our operations will not generate sufficient taxable income in future periods to realize the tax benefits associated withvaluation allowance recorded against the deferred tax assets withinheld may be reversed. A reversal would result in an income tax benefit for the statutory carryover periods. Therefore,quarterly and annual fiscal period in which we have maintained a fulldetermine to release the valuation allowance on our deferred tax assets asallowance. However, the exact timing and amount of December 31, 2020 and 2019. We will continue to assess the need for a valuation allowance release are subject to change on our deferred tax assets by evaluating both positive and negative evidencethe basis of the level of profitability that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the statement of operations for the period that the adjustment is determined to be required.we actually achieve.
Restructuring
Restructuring
Restructuring costs are comprised of severance, other termination benefit costs, stock-based compensation expense for stock award and stock option modifications related to workforce reductions and accelerated depreciation. We recognize restructuring charges when the liability is probable and the amount is estimable. Employee termination benefits are accrued at the date management has committed to a plan of termination and affected employees have been notified of their termination date and expected severance benefits.
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Recent Accounting Pronouncements
Accounting Standards Update 2019-12
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by removing certain exceptions and improving consistent application in certain areas of Topic 740. The ASU is effective for annual periods beginning after December 15, 2020 with early adoption permitted. We adopted this ASU on January 1, 2021 and the adoption of this standard did not have a material impact on our consolidated financial statements.
Accounting Standards Update 2020-06
We adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity on January 1, 2021 using the modified retrospective method. This ASU simplifies the accounting for convertible instruments and requires entities to use the if-converted method for all convertible instruments in calculating diluted earnings-per-share. Entities also need to recombine instruments that were previously separated into two units of account if separation is no longer required. The adoption of this ASU did not have a material impact on our consolidated financial statements as there were no outstanding financial instruments that require recombination at January 1, 2021.
Accounting Standards Update 2016-13
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments. The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. For public business entities, excluding smaller reporting companies, this ASU is effective for fiscal years beginning after December 15, 2019. Furthermore, the one-time determination of whether an entity is eligible to be a smaller reporting company shall be based on an entity’s most recent determination as of November 15, 2019, in accordance with SEC regulations. Because we were a smaller reporting company based on the most recent determination as of November 15, 2019, this ASU and its subsequent updates, will be effective for fiscal years beginning after December 15, 2022. We are currently evaluating the impact this standard will have on our consolidated financial statements.
Accounting Standards Update 2019-12
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by removing certain exceptions and improving consistent application in certain areas of Topic 740. The ASU is effective for annual periods beginning after December 15, 2020 with early adoption permitted. We adopted this ASU on January 1, 2021 and the adoption of this standard did not have a material impact on our consolidated financial statements.
Accounting Standards Update 2020-06
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies the accounting for convertible instruments. This ASU also requires entities to use the if-converted method for all convertible instruments in calculating diluted earnings-per-share. The ASU is effective for annual periods beginning after December 15, 2021 with early adoption permitted. We are currently evaluating the impact this standard will have on our condensed consolidated financial statements.
3. Fair Value Measurements
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We measure fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
| • Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities; • Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities; therefore, requiring an entity to develop its own valuation techniques and assumptions.
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Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. There were 0 transfers between Level 1, 2 and 3 during the years ended December 31, 20202021 and 2019.2020.
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.
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Recurring Fair Value Measurements
The following table represents the fair value hierarchy for our financial assets (cash equivalents and marketable securities) and liabilities measured at fair value on a recurring basis (in thousands):
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| Level 3 |
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December 31, 2021 |
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Assets |
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Money market funds | $ | 429,194 |
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| $ | 0 |
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| $ | 0 |
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| $ | 429,194 |
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U.S. treasuries |
| - |
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| 4,004 |
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| 0 |
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| 4,004 |
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U.S. government agency securities |
| - |
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| 26,548 |
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| 0 |
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| 26,548 |
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Corporate debt securities |
| - |
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| 79,209 |
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| 0 |
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| 79,209 |
| |||||||||||||||
Total assets | $ | 429,194 |
|
| $ | 109,761 |
|
| $ | 0 |
|
| $ | 538,955 |
| |||||||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Warrant liability | $ | 0 |
|
| $ | 0 |
|
| $ | 18,016 |
|
| $ | 18,016 |
| |||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Money market funds | $ | 23,128 |
|
| $ | - |
|
| $ | - |
|
| $ | 23,128 |
| $ | 23,128 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 23,128 |
|
U.S. treasuries |
| - |
|
|
| 32,579 |
|
|
| - |
|
|
| 32,579 |
|
| 0 |
|
|
| 32,579 |
|
|
| 0 |
|
|
| 32,579 |
|
U.S. government agency securities |
| - |
|
|
| 40,321 |
|
|
| - |
|
|
| 40,321 |
|
| 0 |
|
|
| 40,321 |
|
|
| 0 |
|
|
| 40,321 |
|
Corporate debt securities |
| - |
|
|
| 61,063 |
|
|
| - |
|
|
| 61,063 |
|
| 0 |
|
|
| 61,063 |
|
|
| 0 |
|
|
| 61,063 |
|
Total assets | $ | 23,128 |
|
| $ | 133,963 |
|
| $ | - |
|
| $ | 157,091 |
| $ | 23,128 |
|
| $ | 133,963 |
|
| $ | 0 |
|
| $ | 157,091 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Warrant liability | $ | - |
|
| $ | - |
|
| $ | 10,736 |
|
| $ | 10,736 |
| $ | 0 |
|
| $ | 0 |
|
| $ | 10,736 |
|
| $ | 10,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| |||||||||||||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Money market funds | $ | 27,854 |
|
| $ | - |
|
| $ | - |
|
| $ | 27,854 |
| |||||||||||||||
U.S. treasuries |
| - |
|
|
| 6,517 |
|
|
| - |
|
|
| 6,517 |
| |||||||||||||||
U.S. government agency securities |
| - |
|
|
| 51,273 |
|
|
| - |
|
|
| 51,273 |
| |||||||||||||||
Corporate debt securities |
| - |
|
|
| 61,373 |
|
|
| - |
|
|
| 61,373 |
| |||||||||||||||
Total assets | $ | 27,854 |
|
| $ | 119,163 |
|
| $ | - |
|
| $ | 147,017 |
| |||||||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Warrant liability | $ | - |
|
| $ | - |
|
| $ | 14,860 |
|
| $ | 14,860 |
| |||||||||||||||
Sublicense liability |
| - |
|
|
| - |
|
|
| 6,948 |
|
|
| 6,948 |
| |||||||||||||||
Total liabilities | $ | - |
|
| $ | - |
|
| $ | 21,808 |
|
| $ | 21,808 |
| |||||||||||||||
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.
Warrants were issued in connection with the underwritten public offering in August 2019 and are accounted for as a derivative liability at fair value. See Note 14. The fair value of the warrant liability is estimated using the Black-Scholes model which requires assumptions such as expected term, expected volatility and risk-free interest rate. These assumptions are subjective and require judgement to develop. Expected term is estimated using the full remaining contractual term of the warrants. We determine expected volatility based on our historical common stock price volatility. The warrant liability is classified as a Level 3 instrument as its value is based on unobservable inputs that are supported by little or no market activity.
72
As of December 31, 2020,2021, we used the following key assumptions to estimate the fair value of warrant liability:
Number of shares |
| |||
Expected term |
| |||
Expected volatility |
| |||
Risk-free interest rate | 0.1 | % | ||
Dividend yield | 0 | % | ||
79
The following table provides a summary of changes in the fair value warrant liability for year ended December 31, 20202021 and 20192020 (in thousands):
Balance at December 31, 2019 |
| $ | 14,860 |
|
Decrease in estimated fair value of warrant liability upon revaluation |
|
| (4,124 | ) |
Balance at December 31, 2020 |
| $ | 10,736 |
|
Decrease in fair value of warrants exercised |
|
| (4,765 | ) |
Warrants exercised |
|
| (42,074 | ) |
Increase in the estimated fair value of warrant liability upon revaluation |
|
| 54,119 |
|
Balance at December 31, 2021 |
| $ | 18,016 |
|
Balance at December 31, 2018 |
| $ | - |
|
Fair value of warrant liability at issuance date |
|
| 7,360 |
|
Increase in estimated fair value of warrant liability upon revaluation |
|
| 7,500 |
|
Balance at December 31, 2019 |
| $ | 14,860 |
|
Decrease in estimated fair value of warrant liability upon revaluation |
|
| (4,124 | ) |
Balance at December 31, 2020 |
| $ | 10,736 |
|
|
|
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows:
|
| December 31 |
|
| December 31 |
| ||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| ||||||
Cash and cash equivalents |
| $ | 32,073 |
|
| $ | 39,884 |
|
| $ | 49,348 |
|
| $ | 436,189 |
|
| $ | 32,073 |
|
| $ | 39,884 |
|
Restricted cash |
|
| 237 |
|
|
| 216 |
|
|
| 619 |
|
|
| 219 |
|
|
| 237 |
|
|
| 216 |
|
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows |
| $ | 32,310 |
|
| $ | 40,100 |
|
| $ | 49,967 |
|
| $ | 436,408 |
|
| $ | 32,310 |
|
| $ | 40,100 |
|
Restricted cash balances relate to certificates of deposit issued as collateral to certain letters of credit issued as security to our lease arrangements. See Note 9.8.
73
Cash, cash equivalents and marketable securities consist of the following (in thousands):
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Estimated |
| ||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash |
| $ | 6,995 |
|
| $ | - |
|
| $ | - |
|
| $ | 6,995 |
|
Money market funds |
|
| 429,194 |
|
|
| - |
|
|
| - |
|
|
| 429,194 |
|
Total cash and cash equivalents |
|
| 436,189 |
|
|
| - |
|
|
| - |
|
|
| 436,189 |
|
Marketable securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. treasuries |
|
| 4,005 |
|
|
| - |
|
|
| (1 | ) |
|
| 4,004 |
|
U.S. government agency securities |
|
| 26,555 |
|
|
| - |
|
|
| (7 | ) |
|
| 26,548 |
|
Corporate debt securities |
|
| 79,200 |
|
|
| 9 |
|
|
| - |
|
|
| 79,209 |
|
Total marketable securities available-for-sale |
|
| 109,760 |
|
|
| 9 |
|
|
| (8 | ) |
|
| 109,761 |
|
Total cash, cash equivalents and marketable securities |
| $ | 545,949 |
|
| $ | 9 |
|
| $ | (8 | ) |
| $ | 545,950 |
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash |
| $ | 7,945 |
|
| $ | - |
|
| $ | - |
|
| $ | 7,945 |
|
Money market funds |
|
| 23,128 |
|
|
| - |
|
|
| - |
|
|
| 23,128 |
|
Corporate debt securities |
|
| 1,000 |
|
|
| - |
|
|
| - |
|
|
| 1,000 |
|
Total cash and cash equivalents |
|
| 32,073 |
|
|
| - |
|
|
| - |
|
|
| 32,073 |
|
Marketable securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. treasuries |
|
| 32,548 |
|
|
| 31 |
|
|
| - |
|
|
| 32,579 |
|
U.S. government agency securities |
|
| 40,313 |
|
|
| 14 |
|
|
| (6 | ) |
|
| 40,321 |
|
Corporate debt securities |
|
| 60,071 |
|
|
| 3 |
|
|
| (11 | ) |
|
| 60,063 |
|
Total marketable securities available-for-sale |
|
| 132,932 |
|
|
| 48 |
|
|
| (17 | ) |
|
| 132,963 |
|
Total cash, cash equivalents and marketable securities |
| $ | 165,005 |
|
| $ | 48 |
|
| $ | (17 | ) |
| $ | 165,036 |
|
80
|
| Amortized Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Estimated Fair Value |
| ||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 7,945 |
|
| $ | - |
|
| $ | - |
|
| $ | 7,945 |
|
Money market funds |
|
| 23,128 |
|
|
| - |
|
|
| - |
|
|
| 23,128 |
|
Corporate debt securities |
|
| 1,000 |
|
|
| - |
|
|
| - |
|
|
| 1,000 |
|
Total cash and cash equivalents |
|
| 32,073 |
|
|
| - |
|
|
| - |
|
|
| 32,073 |
|
Marketable securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasuries |
|
| 32,548 |
|
|
| 31 |
|
|
| - |
|
|
| 32,579 |
|
U.S. government agency securities |
|
| 40,313 |
|
|
| 14 |
|
|
| (6 | ) |
|
| 40,321 |
|
Corporate debt securities |
|
| 60,071 |
|
|
| 3 |
|
|
| (11 | ) |
|
| 60,063 |
|
Total marketable securities available-for-sale |
|
| 132,932 |
|
|
| 48 |
|
|
| (17 | ) |
|
| 132,963 |
|
Total cash, cash equivalents and marketable securities |
| $ | 165,005 |
|
| $ | 48 |
|
| $ | (17 | ) |
| $ | 165,036 |
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 4,038 |
|
| $ | - |
|
| $ | - |
|
| $ | 4,038 |
|
Money market funds |
|
| 27,854 |
|
|
| - |
|
|
| - |
|
|
| 27,854 |
|
Corporate debt securities |
|
| 7,992 |
|
|
| - |
|
|
| - |
|
|
| 7,992 |
|
Total cash and cash equivalents |
|
| 39,884 |
|
|
| - |
|
|
| - |
|
|
| 39,884 |
|
Marketable securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasuries |
|
| 6,511 |
|
|
| 6 |
|
|
| - |
|
|
| 6,517 |
|
U.S. government agency securities |
|
| 51,235 |
|
|
| 50 |
|
|
| (12 | ) |
|
| 51,273 |
|
Corporate debt securities |
|
| 53,353 |
|
|
| 28 |
|
|
| - |
|
|
| 53,381 |
|
Total marketable securities available-for-sale |
|
| 111,099 |
|
|
| 84 |
|
|
| (12 | ) |
|
| 111,171 |
|
Total cash, cash equivalents and marketable securities |
| $ | 150,983 |
|
| $ | 84 |
|
| $ | (12 | ) |
| $ | 151,055 |
|
The maturities of our marketable securities available-for-sale are as follows (in thousands):
. |
| December 31, 2020 |
|
| December 31, 2021 |
| ||||||||||
|
| Amortized Cost |
|
| Estimated Fair Value |
|
| Amortized |
|
| Estimated |
| ||||
Mature in one year or less |
| $ | 122,156 |
|
| $ | 122,181 |
|
| $ | 109,760 |
|
| $ | 109,761 |
|
Mature after one year through two years |
|
| 10,776 |
|
|
| 10,782 |
|
|
| 0 |
|
|
| 0 |
|
|
| $ | 132,932 |
|
| $ | 132,963 |
|
| $ | 109,760 |
|
| $ | 109,761 |
|
There were 0 gross realized gains or losses on investments for each of the year ended December 31, 2021 and 2019. For the year ended December 31, 2020, there were gross realized gains on investments of $0.1$0.1 million and 0 gross realized losses. There were 0 gross realized gains or losses on investments for each of the year ended December 31, 2019 and 2018. Realized gains are included in interest income in the consolidated statements of operations. All investments with unrealized losses at December 31, 20202021 have been in a loss position for less than twelve months. We do not intend to sell the investments that are in an unrealized loss position before recovery of their amortized cost basis. To date, there have been no declines in fair value that have been identified as other than temporary.
5. Inventories, net
|
|
The following table presents inventories, net (in thousands):
|
| December 31 |
|
| December 31 |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Raw materials |
| $ | 25,121 |
|
| $ | 15,198 |
|
| $ | 26,637 |
|
| $ | 25,121 |
|
Work-in-process |
|
| 30,293 |
|
|
| 22,890 |
|
|
| 14,748 |
|
|
| 30,293 |
|
Finished goods |
|
| 8,275 |
|
|
| 3,244 |
|
|
| 19,950 |
|
|
| 8,275 |
|
Total |
| $ | 63,689 |
|
| $ | 41,332 |
|
| $ | 61,335 |
|
| $ | 63,689 |
|
74
As of December 31, 2021 and 2020, prepaid manufacturing on the consolidatedincluded in finished goods inventory was $18.6 million and $8.3 million of HEPLISAV-B inventory, respectively. The remaining balance sheets represents prepayments totaling $29.4 million made to a third-party manufacturer to producein finished goods inventory was CpG 1018 to fulfil our collaborators’ orders which we expect to be utilized in the manufacturing process and/or soldadjuvant. There was 0 CpG 1018 adjuvant within the next twelve months. See Note 10.
|
|
Intangible assets are related to certain capitalized milestoneraw materials and sublicense payments. The following table presents intangible assets (in thousands):
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Intangible assets |
| $ | 19,773 |
|
| $ | 19,773 |
|
Less accumulated amortization |
|
| (19,773 | ) |
|
| (17,273 | ) |
Total |
| $ | - |
|
| $ | 2,500 |
|
We recorded costwork-in-process inventory balance as of sales - amortization of intangible assets related to capitalized sublicense payments to Merck, Sharp & Dohme Corp. (“Merck”) that we capitalized upon FDA approval of HEPLISAV-B in November 2017. See Note 10. Cost of sales – amortization of intangible assetsDecember 31, 2021 and 2020. Additionally, for the year ended 2020 and 2019 was $2.5 million and $9.2 million, respectively. At December 31, 2020, intangible assets related2021, due to Merck has been fully amortized. NaN impairment of intangible assets has been identified during the years presented.
Sale of SD-101 Program
In May 2019, we announced a strategic restructuring to focusCOVID-19 pandemic and its prolonged impact on our vaccine businessutilization and curtail our investment in our immuno-oncology programs. In July 2020, we sold assets relatedcorresponding revisions to our immuno-oncology compound, SD-101, which included intellectual property, clinical and non-clinical data, regulatory filings, clinical supplysales forecast, we recorded an approximately $2.6 million write-off to cost of sales – product associated with HEPLISAV-B slow moving short-dated inventory and certain contracts to Surefire Medical Inc. d/b/a TriSalus Life Sciences (“TriSalus”). Pursuantthat had been manufactured prior to the Asset Purchase Agreement, we received $5 million upon closingbeginning of the transaction and $4 million in December 2020 as reimbursement for certain clinical trial expenses. In addition, we could receive up to an additional $250 million upon the achievement of certain development, regulatory, and commercial milestones and low double-digit royalties based on potential future net sales of product containing SD-101 compound. In connection with our agreement with Symphony Dynamo, Inc. and Symphony Dynamo Holdings LLC (“Holdings”) in November 2009, we paid $2.5 million to Holdings in August 2020. See Note 9.
COVID-19 pandemic. For the year ended December 31, 2020 we recognized a gain on saleand 2019, there were 0 inventory write-offs recognized.
We recorded prepaid manufacturing costs related to prepayments made to third-party manufacturers of SD-101 assetsCpG 1018 adjuvant, of $6.9$159.7 million based onand $29.4 million as of December 31, 2021 and 2020, respectively. We expect these costs to be converted into inventory within the amount of consideration received,next twelve months.
81
|
|
Property and equipment consist of the following (in thousands):
| Estimated Useful |
| December 31, |
| Estimated Useful |
| December 31, |
| ||||||||||
| Life (In years) |
| 2020 |
|
| 2019 |
| Life |
| 2021 |
|
| 2020 |
| ||||
Manufacturing equipment | 5-14 |
| $ | 13,884 |
|
| $ | 11,484 |
| 5-13 |
| $ | 12,532 |
| $ | 13,884 |
| |
Lab equipment | 5-13 |
|
| 2,888 |
|
|
| 2,522 |
| 5-13 |
|
| 2,492 |
| 2,888 |
| ||
Computer equipment | 3 |
|
| 5,255 |
|
|
| 5,009 |
| 3 |
|
| 5,336 |
| 5,255 |
| ||
Furniture and fixtures | 3-13 |
|
| 2,510 |
|
|
| 1,934 |
| 3-13 |
|
| 2,463 |
| 2,510 |
| ||
Leasehold improvements | 2-12 |
|
| 28,417 |
|
|
| 24,724 |
| 2-10 |
|
| 27,634 |
| 28,417 |
| ||
Assets in progress |
|
|
| 1,024 |
|
|
| 4,336 |
|
|
|
| 9,941 |
|
|
| 1,024 |
|
|
|
|
| 53,978 |
|
|
| 50,009 |
|
|
| 60,398 |
| 53,978 |
| |||
Less accumulated depreciation and amortization |
|
|
| (23,411 | ) |
|
| (17,987 | ) |
|
| (25,378 | ) |
|
| (23,411 | ) | |
Total |
|
| $ | 30,567 |
|
| $ | 32,022 |
|
| $ | 35,020 |
|
| $ | 30,567 |
| |
75
Depreciation and amortization expense on property and equipment was $4.3$4.3 million, $8.9$4.3 million and $3.6$8.9 million for the years ended December 31, 2021, 2020 2019 and 2018,2019, respectively. Included in depreciation and amortization expense for the year ended December 31, 2019 was accelerated depreciation of $3.0$3.0 million related to certain long-lived assets. See Note 17.
7. Current Accrued Liabilities and Accrued Research and Development
|
|
Current accrued liabilities and accrued research and development consist of the following (in thousands):
| December 31, |
| December 31, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Payroll and related expenses | $ | 8,684 |
|
| $ | 6,653 |
| $ | 13,011 |
|
| $ | 8,684 |
|
Revenue reserve accruals |
| 6,040 |
|
|
| 3,893 |
|
| 8,253 |
|
|
| 6,040 |
|
Third party research expenses |
| 1,963 |
|
|
| 2,308 |
| |||||||
Third party development expenses |
| 842 |
|
|
| 505 |
| |||||||
Restructuring liability |
| - |
|
|
| 675 |
| |||||||
Accrued inventory |
| 20,868 |
|
|
| 338 |
| |||||||
Other accrued liabilities |
| 4,375 |
|
|
| 4,888 |
|
| 7,664 |
|
|
| 4,037 |
|
Total | $ | 21,904 |
|
| $ | 18,922 |
| $ | 49,796 |
|
| $ | 19,099 |
|
Leases
|
|
Leases
We lease our facilities in Emeryville, California and Düsseldorf, Germany.
In July 2019, we entered into a sublease for office space located at 2100 Powell Street, Emeryville, California (the “Powell Street Sublease”) and the lease for our former corporate headquarters at 2929 Seventh Street, Berkeley, California was terminated effective August 31, 2019.. Under the terms of the Powell Street Sublease, we are leasing 23,976 square feet at the rate of $3.90$3.90 per square foot, paid on a monthly basis. Rent is subject to scheduled annual increases and we are responsible for certain operating expenses and taxes throughout the life of the Powell Street Sublease. The Powell Street Sublease will continue until June 30, 2022. 2022. There is no option to extend the sublease term.
OnIn September 17, 2018, we entered into a lease (“Horton Street Master Lease”) for office and laboratory space located at 5959 Horton Street, Emeryville, California (“Horton Street Premises”). Under the terms of the Horton Street Master Lease, we are leasing 75,662 square feet at the rate of $4.75$4.75 per square foot, paid on a monthly basis, starting on April 1, 2019 (“Commencement Date”). Rent is subject to scheduled annual increases, and we are also responsible for certain operating expenses and taxes throughout the life of Horton Street Master Lease. In connection with the Horton Street Master Lease, we are entitled to ahave received tenant improvement allowance of up to $8.3totaling $8.1 million of which $8.1 million was received through December 31, 2020. 2021. The Horton Street Master Lease has an initial term of 12 years, following the Commencement Date with an option to extend the lease for two successive five-year terms. terms. The optional periods were not included in the lease term used in determining the right-of-use asset or the lease liability as we did not consider it reasonably certain that we would exercise the options. The operating lease right-of-use assets and liabilities on our December 31, 20202021 and 20192020 consolidated balance sheets primarily relate to the Horton Street Master Lease. Lease expense related to the Horton Street Master Lease is included in operating expense in our consolidated statements of operations.
82
In connection with the organizational restructuring in May 2019, (see Note 17), we did not occupy the Horton Street Premises and in July 2019, we entered into an agreement to sublease the Horton Street Premises to a third party (“Horton Street Sublease”). Under the terms of the Horton Street Sublease, we are subleasing the entire 75,662 rentable square feet at the rate of $5.50$5.50 per square foot, paid on a monthly basis. Rent is subject to scheduled annual increases and the subtenant (“Subtenant”) is responsible for certain operating expenses and taxes throughout the life of the Horton Street Sublease. The Horton Street Sublease will continueterm is until March 31, 2031, unless earlier terminated, concurrent with the term of our Horton Street Master Lease. The Subtenant has no option to extend the sublease term. For the years ended December 31, 2021, 2020 and 2019, we recognized $7.7$7.7 million, $7.7 million and $2.6$2.6 million, respectively of sublease income included in other income (expense) in our consolidated statements of operations.
Under the terms of the Horton Street Master Lease, rent received from the Subtenant in excess of rent paid to the landlord is shared by paying the landlord 50%50% of the excess rent. The excess rent is considered a variable lease payment and the total estimated payments are being recognized as additional rent expense on a straight-line basis.
76In September 2021, we entered into a commercial lease agreement in Düsseldorf, Germany (the "New Düsseldorf Lease"). The New Düsseldorf Lease is for the same space that we currently lease in Düsseldorf, Germany and with the same landlord. Our existing lease will continue until December 31, 2021, at which point the New Düsseldorf Lease will be in effect. We have determined that the New Düsseldorf Lease qualifies as a modification not accounted for as a separate contract. The New Düsseldorf Lease has an initial term of 10 years, beginning on January 1, 2022, with an option to extend the lease for two successive five-year terms. The optional periods were not included in the lease term used in determining the right-of-use assets and liabilities as we did not consider it reasonably certain that we would exercise the options. Beginning on January 1, 2024, the base rent is subject to an annual increase at the same percentage of Consumer Price Index of Germany. We are also responsible for certain operating expenses and taxes throughout the life of the New Düsseldorf Lease. We used our estimated incremental borrowing rate of 10.1% to recognize the initial right-of-use asset for the New Düsseldorf Lease.
Our lease expense comprises of the following (in thousands):
|
| Year Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Operating lease expense |
| $ | 6,267 |
|
| $ | 6,886 |
|
| $ | 3,953 |
|
|
| Year Ended December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Operating lease expense |
| $ | 6,265 |
|
| $ | 6,267 |
|
| $ | 6,886 |
|
Cash paid for amounts included in the measurement of lease liabilities for the years ended December 31, 2021 and 2020 and 2019 was $6.9$7.0 million and $5.5$6.9 million, respectively and were included in change in lease liabilities in our consolidated statement of cash flows.
The balance sheet classification of our operating lease liabilities was as follows (in thousands):
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Operating lease liabilities: |
|
|
|
|
|
| ||
Current portion of lease liabilities (included in other current liabilities) |
| $ | 2,577 |
|
| $ | 3,247 |
|
Long-term portion of lease liabilities |
|
| 34,316 |
|
|
| 34,789 |
|
Total operating lease liabilities |
| $ | 36,893 |
|
| $ | 38,036 |
|
83
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Operating lease liabilities: |
|
|
|
|
|
|
|
|
Current portion of lease liabilities (included in other current liabilities) |
| $ | 3,247 |
|
| $ | 3,039 |
|
Long-term portion of lease liabilities |
|
| 34,789 |
|
|
| 37,845 |
|
Total operating lease liabilities |
| $ | 38,036 |
|
| $ | 40,884 |
|
At December 31, 2020,2021, the maturities of our sublease income and operating lease liabilities were as follows (in thousands):
Years ending December 31, |
| Sublease Income |
|
| Operating Lease |
| ||
2022 |
| $ | 5,357 |
|
| $ | 6,174 |
|
2023 |
|
| 5,518 |
|
|
| 5,634 |
|
2024 |
|
| 5,684 |
|
|
| 5,778 |
|
2025 |
|
| 5,854 |
|
|
| 5,927 |
|
2026 |
|
| 6,030 |
|
|
| 6,080 |
|
Thereafter |
|
| 27,712 |
|
|
| 28,259 |
|
Total |
| $ | 56,155 |
|
|
| 57,852 |
|
Less: |
|
|
|
|
|
| ||
Present value adjustment |
|
|
|
|
| (20,959 | ) | |
Total |
|
|
|
| $ | 36,893 |
| |
Years ending December 31, |
| Sublease Income |
|
| Operating Lease Liabilities |
| ||
2021 |
| $ | 5,201 |
|
| $ | 6,942 |
|
2022 |
|
| 5,357 |
|
|
| 6,268 |
|
2023 |
|
| 5,518 |
|
|
| 5,403 |
|
2024 |
|
| 5,684 |
|
|
| 5,547 |
|
2025 |
|
| 5,854 |
|
|
| 5,696 |
|
Thereafter |
|
| 33,742 |
|
|
| 30,760 |
|
Total |
| $ | 61,356 |
|
|
| 60,616 |
|
Less: |
|
|
|
|
|
|
|
|
Present value adjustment |
|
|
|
|
|
| (22,580 | ) |
Total |
|
|
|
|
| $ | 38,036 |
|
The weighted average remaining lease term and the weighted average discount rate used to determine the operating lease liability were as follows:
|
| December 31, 2020 |
|
| December 31, 2019 |
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||||
Weighted average remaining lease term |
| 9.1 years |
|
| 9.7 years |
|
| 9.1 years |
|
| 9.1 years |
| ||||
Weighted average discount rate |
|
| 10.1 | % |
|
| 10.1 | % |
| 10.1 | % |
| 10.1 | % | ||
Commitments
On February 20, 2018, we entered into a $175.0 million term loan agreement (“Loan Agreement”) with CRG Servicing LLC. We borrowed $100.0 million under the Loan Agreement at closing and the remaining $75.0 million in March 2019 (collectively, “Term Loans”). At our option, until September 30, 2023, a portion of the interest payments may be paid in kind, and thereby added to the principal. Through December 31, 2020, a portion of our interest was paid in kind, which increased the principal amount of the Term Loans. Included in our total contractual obligations of $188.1 million is the principal amount of $175.0 million, paid-in-kind interest of $5.9 million and the backend facility fee of $7.2 million. The Term Loans have a maturity date of December 31, 2023, unless earlier prepaid. See Note 11.
As of December 31, 2020,2021, our materialpurchase commitments include non-cancelable purchase and other commitments, for the supply of HEPLISAV-B and CpG 1018 and for clinical research totaled $21.7 million.
77
During 2004, we also established a letter of credit with Deutsche Bank as security foradjuvant. The following summarizes our Düsseldorf Lease in the amount of €0.2 million (Euros). The letter of credit remained outstanding throughmaterial purchase commitments at December 31, 20202021 and is collateralized by a certificate of deposit for €0.2 million, which has been includedthe effect those obligations are expected to have on our liquidity and cash flows in restricted cash in the consolidated balance sheets as of December 31, 2020 and 2019.future periods (in thousands):
Years ending December 31, |
| (in thousands) |
| |
2022 |
| $ | 55,318 |
|
2023 |
|
| 9,312 |
|
2024 |
|
| 10,857 |
|
2025 |
|
| 11,367 |
|
2026 |
|
| 11,872 |
|
Thereafter |
|
| 0 |
|
Total |
|
| 98,726 |
|
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 also rely on and have entered into agreements with research institutions, contract research organizations and clinical investigators as well as clinical 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.
As of December 31, 2020,2021, the aggregate principal amount of our non-cancelable obligationConvertible Notes was $225.5 million, excluding debt discount of $5.0 million (see Note 10). The Convertible Notes mature on May 15, 2026, unless converted, redeemed or repurchased in accordance with their terms prior to such date.
84
During 2004, we established a letter of credit with Deutsche Bank as security for servicesour Düsseldorf Lease in the amount of €0.2 million (Euros). The letter of credit remained outstanding through December 31, 2021 and materials providedis collateralized by these organizations totaled $0.3 million.
We provided $0.1a certificate of deposit for €0.2 million, of guaranteewhich has been included in restricted cash in the consolidated balance sheets as of December 31, 2021 and 2020.
Sale of SD-101 Program
In July 2020, we sold assets related to our immuno-oncology compound, SD-101, which included intellectual property, clinical and non-clinical data, regulatory filings, clinical supply inventory and certain contracts, to Surefire Medical Inc. d/b/a TriSalus Life Sciences (“TriSalus”). Pursuant to the Asset Purchase Agreement, we received $5 million upon closing of the transaction and $4 million in the form of a surety bond issued to support aDecember 2020 as reimbursement for certain license which requires a surety bond to ensure our compliance with a certain state’s requirements. We would only be liable for any penalty ofclinical trial expenses. In addition, we could receive up to an additional $250 million upon the guaranteedachievement of certain development, regulatory, and commercial milestones and low double-digit royalties based on potential future net sales of product containing SD-101 compound. In September 2021, we received payment of $1 million from TriSalus for their meeting a pre-commercialization milestone.
For the year ended December 31, 2021 and 2020, we recognized a gain on sale of SD-101 assets of $1 million and $6.9 million, respectively based on the amount in the event of a non-compliance,consideration received, net of which the probability is remote.any transaction costs.
In conjunction with our agreement with Symphony Dynamo, Inc. and Symphony Dynamo Holdings LLC (“Holdings”) in November 2009, we agreed to make contingent cash payments to Holdings equal to 50%50% of the first $50$50 million from any upfront, pre-commercialization milestone or similar payments received by us from any agreement with any third party with respect to the development and/or commercialization of cancer and hepatitis C therapies originally licensed to Symphony Dynamo, Inc., including SD-101. In July 2020,Pursuant to this agreement, we sold assets related to our SD-101 compound to TriSalus. See Note 6. We paid $2.5Holdings $0.5 million to Holdingsin September 2021 and $2.5 million in August 2020. We are obligated to pay Holdings 50%2020 which were included in selling, general and administrative expense in our consolidated statements of operations for the contingent pre-commercialization milestone payments that we may receive under the Asset Purchase Agreement. NaN liability has been recorded under this agreement as ofyear ended December 31, 2020.2021 and 2020, respectively.
Contingencies
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 because 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 practices, which could in the future materially and adversely affect our financial position, financial statements, results of operations, or cash flows in a particular period.
78
9. Collaborative Research, Development and License Agreements
|
|
Coalition for Epidemic Preparedness Innovations
In September 2020, we entered into a Reservation Agreement for the Provision of Goods (the “Reservation Agreement”) with Coalition for Epidemic Preparedness Innovations (“CEPI”) to make available specified quantities of CpG 1018 adjuvant, for purchases at certain prices, to CEPI and its COVID-19 vaccine development partners (“CEPI Partners”).partners. Payments received under the Reservation Agreement are considered an exchange for our CpG 1018 adjuvant which is an output of our ordinary activities. As such, we account for the arrangement under the scope of ASC 606. Payments are recorded as deferred revenue and recognized as revenue in the period when we satisfy our performance obligation to deliver CpG 1018 ordered or when CEPI’s right to place an order expires. Pursuant to the Reservation Agreement, we received $6.3$6.3 million from CEPI in September 2020 for production scale-up and a fourth quarter 2020 reservation fee.
In October 2020, CEPI terminated the Reservation Agreement and its right to place an order expired. Therefore, we recognized $6.3$6.3 million as other revenue in the fourth quarter of 2020.
In January 2021, we entered into an agreement (the “CEPI Agreement”) with CEPI for the manufacture and reservation of a specified quantity of CpG 1018 adjuvant (“CpG 1018 Materials”). The CEPI Agreement enables CEPI to direct the supply of CpG 1018 Materials to CEPI partners. CEPI partner(s) would purchase CpG 1018 Materials under separately negotiated agreements. The CEPI Agreement also allows us to sell CpG 1018 Materials to third parties if not purchased by a CEPI partner within a two-year term.
85
In exchange for reserving CpG 1018 Materials and agreeing to sell CpG 1018 Materials to CEPI partner(s) at pre-negotiated prices, CEPI agreed to provide payments in the form of an interest-free, unsecured, forgivable loan (the “Advance Payments”) of up to $99.0 million. We are obligated to repay the Advance Payments, in proportion to quantity sold, if and to the extent we receive payments from sales of CpG 1018 Materials reserved under the CEPI Agreement. If the vaccine programs pursued by CEPI partner(s) are unsuccessful and no alternative use is found for CpG 1018 Materials reserved under the CEPI Agreement, the applicable Advance Payments will be forgiven at the end of the two-year term.
In May 2021, we entered into the first Amendment to the CEPI Agreement. This Amendment provided for the manufacture and reservation of an additional specified quantity of CpG 1018 adjuvant. In exchange for reserving an additional specified quantity of CpG 1018 adjuvant, CEPI agreed to provide additional Advance Payments of up to $77.4 million, together with the initial CEPI Agreement, for total Advance Payments of up to $176.4 million.
We determined that the accounting of the Advance Payments is under the scope of ASC 606. The Advance Payments are to cover the costs of manufacture and to reserve CpG 1018 Materials, which is an output of our ordinary activities. As such, the Advance Payments are initially classified as long-term deferred revenue in our consolidated balance sheets. We are obligated to repay CEPI, in proportion to quantity sold and within a certain period, upon receipt of payment from CEPI partner(s). Thus, when we deliver CpG 1018 Materials to CEPI partner(s) or when we receive payment from CEPI partner(s), we reclassify the Advanced Payments from long-term deferred revenue to accrued liabilities. We recognize the Advance Payments as revenue when the amount (or a portion thereof) is forgiven by CEPI when (i) the CpG 1018 Materials are not sold through to CEPI partner(s), (ii) there is no alternative use and (iii) the CpG 1018 Materials are destroyed.
Through December 31, 2021, we have received Advance Payments totaling approximately $168.5 million pursuant to the CEPI Agreement. As of December 31, 2021, advance payments totaling $5.4 million were included in other long-term liabilities and $128.8 million were recorded as CEPI accrual in our consolidated balance sheets. As of December 31, 2021, we recorded $14.6 million in CEPI receivable which is included in other receivables in our consolidated balance sheets. There were 0 such balances recorded in our consolidated balance sheets as of December 31, 2020.
Zhejiang Clover Biopharmaceuticals, Inc. and Clover Hong Kong Inc.
In June 2021, we entered into an agreement with Zhejiang Clover Biopharmaceuticals, Inc. and Clover Hong Kong Inc. (collectively, “Clover”), for the commercial supply of CpG 1018 adjuvant, for use with Clover’s COVID-19 vaccine candidate, SCB-2019 (the “Clover Supply Agreement”). Under the Clover Supply Agreement, Clover has committed to purchase specified quantities of CpG 1018 adjuvant, at pre-negotiated prices pursuant to the CEPI Agreement, for use in Clover’s commercialization of vaccines containing SCB-2019 and CpG 1018 adjuvant (“Clover Product”). The Clover Supply Agreement also provides terms for Clover to order additional quantities of CpG 1018 adjuvant beyond the quantities reserved by CEPI.
Pricing for CpG 1018 adjuvant is variable depending on the destination where Clover ultimately sells Clover Product to. Pursuant to the Clover Supply Agreement, our initial invoicing is at the lowest price tier, with a true-up mechanism to issue additional invoice for the difference between the initial invoice price and the higher tiered price, if any. In addition, if the net selling price of such Clover Product exceeds a threshold specified in the Clover Supply Agreement, we are entitled to a royalty calculated as a percentage of the excess portion of such net selling price.
For CpG 1018 adjuvant reserved for Clover under the CEPI Agreement, Clover is obligated to pay the purchase price upon the earliest of (i) the true-up exercise, (ii) within a specified period after Clover delivers Clover Product to a customer, or (iii) Clover’s receipt of payment for Clover Product from a customer. For CpG 1018 adjuvant ordered by Clover outside the CEPI Agreement, Clover is obligated to pay a specified percentage of the purchase price, as set forth in a purchase order submitted by Clover, upon our acceptance of such purchase order, and the remainder of the purchase price upon the release of such CpG 1018 adjuvant.
We recognize revenue at the lowest price tier upon transfer of control of CpG 1018 adjuvant to Clover. The potential true-up amount and royalties are considered constrained. There is no significant financing component, as the timing between shipment and payment is expected to be within twelve months. Payments received or invoices issued before we transfer control of CpG 1018 adjuvant are recorded as deferred revenue. When we transfer control of CpG 1018 adjuvant that is reserved under the CEPI Agreement, we recognize product revenue and a corresponding contract asset as our right to consideration is contingent on something other than the passage of time, as outlined above.
86
As of December 31, 2021, our contract asset balance of $62.5 million was included in other current assets in our consolidated balance sheets. As of December 31, 2021, we recorded accounts receivable balance of $2.1 million from Clover. As of December 31, 2021, we recognized approximately $191.1 million in deferred revenue for a portion of Clover’s binding commitment to purchase CpG 1018 adjuvant outside the CEPI Agreement. There was no deferred revenue recognized for a portion of Clover’s binding commitment to purchase CpG 1018 adjuvant that was reserved for Clover under the CEPI Agreement. There was 0 contract asset, accounts receivable or deferred revenue balance at the beginning of the period.
For the year ended December 31, 2021, we recognized CpG 1018 product revenue of $72.2 million from Clover. There was 0 CpG 1018 product revenue from Clover recognized during the year ended December 31, 2020 and 2019.
Biological E. Limited
In July 2021, we entered into an agreement (the “Bio E Supply Agreement”) with Biological E. Limited (“Bio E”), for the commercial supply of CpG 1018 adjuvant, for use with Bio E’s subunit COVID-19 vaccine candidate, CORBEVAX™. Under the Bio E Supply Agreement, Bio E has committed to purchase specified quantities of CpG 1018 adjuvant, at pre-negotiated prices pursuant to the CEPI Agreement, for use in Bio E’s commercialization of its CORBEVAX vaccine (“Bio E Product”) with specified delivery dates in 2021 and the first quarter of 2022. The Bio E Supply Agreement also provides terms for Bio E to order additional quantities of CpG 1018 adjuvant beyond the quantities reserved by CEPI.
Pricing for CpG 1018 adjuvant is variable depending on the destination where Bio E ultimately sells Bio E Product to. Pursuant to the Bio E Supply Agreement, our initial invoicing will be at the lowest price tier, with a true-up mechanism to issue additional invoice for the difference between the initial invoice price and the higher tiered price, if any. In addition, if the net selling price of such Bio E Product exceeds a threshold specified in the Bio E Supply Agreement, we are entitled to a royalty calculated as a percentage of the excess portion of such net selling price.
For CpG 1018 adjuvant reserved for Bio E under the CEPI Agreement, Bio E is obligated to pay, in full, the aggregate purchase price, as set forth in a purchase order submitted by Bio E, upon delivery of CpG 1018 adjuvant. For CpG 1018 adjuvant ordered by Bio E outside the CEPI Agreement, Bio E is obligated to pay a specified percentage of the purchase price, as set forth in a purchase order submitted by Bio E, upon our acceptance of such purchase order, and the remainder of the purchase price upon the delivery of such CpG 1018 adjuvant.
We recognize revenue at the lowest price tier upon transfer of control of CpG 1018 adjuvant to Bio E. The potential true-up amount and royalties are considered constrained. There is no significant financing component, as the timing between shipment and payment is expected to be within twelve months. Payments received or invoices issued before we transfer control of CpG 1018 adjuvant are recorded as deferred revenue.
As of December 31, 2021, we recorded accounts receivable balance of $96.1 million from Bio E. As of December 31, 2021, we recognized approximately $103.3 million in deferred revenue for a portion of Bio E’s binding commitment to purchase CpG 1018 adjuvant outside the CEPI Agreement. There was no deferred revenue recognized for a portion of Bio E’s binding commitment to purchase CpG 1018 adjuvant that was reserved for Bio E under the CEPI Agreement. There was 0 accounts receivable or deferred revenue balance at the beginning of the period.
For the year ended December 31, 2021, we recognized CpG 1018 product revenue of $185.7 million from Bio E. There was 0 CpG 1018 product revenue from Bio E recognized during the year ended December 31, 2020 and 2019.
Medigen Vaccine Biologics
In February 2021, we entered into a Supply Agreement (“Medigen Supply Agreement”) with Medigen Vaccine Biologics (“Medigen”) to manufacture and supply specified quantities of CpG 1018 adjuvant for use in the development and commercialization of Medigen’s COVID-19 vaccine for delivery in the first and second quarters of 2021.
In August 2021, we entered into a second supply agreement (“Medigen Supply Agreement No. 2”) to manufacture and supply additional specified quantities of CpG 1018 adjuvant for delivery in the third and fourth quarter of 2021.
Under Medigen Supply Agreement No. 2, pricing for CpG 1018 adjuvant is variable depending on the destination where Medigen ultimately sells Medigen Product to. Pursuant to the Medigen Supply Agreement No. 2, we invoice Medigen based on the highest-tier price, with a true-up mechanism to issue credit to Medigen for the difference between the initial invoice price and the lower tiered price, if any. We invoice Medigen a specified percentage of the aggregate price of the order upon acceptance of the order and the remaining upon delivery. In addition, we are entitled to a royalty calculated as a percentage of the adjusted net sales.
87
We recognize revenue upon transfer of control of CpG 1018 adjuvant to Medigen at the highest-tiered price. The potential royalties are considered constrained. There is no significant financing component, as the timing between shipment and payment is expected to be within twelve months. Payments received or invoices issued before we transfer control of CpG 1018 adjuvant are recorded as deferred revenue.
As of December 31, 2021, we recorded accounts receivable balance of $2.4 million from Medigen. There was 0 accounts receivable balance at the beginning of the period. For the year ended December 31, 2021 and 2020, we recognized CpG 1018 product revenue from Medigen of $26.7 million and $1.2 million, respectively. There was 0 CpG 1018 product revenue from Medigen recognized during the year ended December 31, 2019.
Valneva SE
In April 2020, we entered into a collaboration agreement ("Valneva Collaboration Agreement, as amended,Agreement") with Valneva Scotland Limited (“Valneva”) to provide CpG 1018 adjuvant for use in the development of Valneva’s COVID-19 vaccine candidate. Then,candidate ("VLA2001"). The Valneva Collaboration Agreement was amended in July 2020, we entered into a Clinical Collaboration Agreement, as amended, to provide additional quantities of CpG 1018 adjuvant. In September 2020, we entered into a Supply Agreementsupply agreement (“Valneva Supply Agreement”) with Valneva to manufacture and supply specified quantities of CpG 1018 adjuvant for use in the commercialization of Valneva's COVID-19 vaccine candidate.VLA2001.
We concluded that the Valneva Collaboration Agreement and the Valneva Supply Agreement were entered into at or near the same time, with the same customer and were negotiated as a package with a single commercial objective that is the provision ofto provide CpG 1018 adjuvant to Valneva. Therefore, the Valneva Collaboration Agreement and the Valneva Supply Agreement should be combined and accounted for as a single arrangement.
Pursuant to ourIn October 2021, we and Valneva entered into a letter agreement (the “Valneva Amendment”) modifying certain deliverables of the Valneva Supply Agreement. Specifically, the Valneva Amendment modifies the original Valneva Supply Agreement as follows: (1) cancels certain purchase orders for CpG 1018 adjuvant previously issued under the original Valneva Supply Agreement that had not been fulfilled as of the date of the Valneva Amendment; and (2) provides a future delivery schedule for commercial supply agreement with Valneva, in the fourth quarter of 2020, we received payments from Valneva totaling $20.0 million and issued an invoice to Valneva for $17.1 million for advanced payment to purchase specified quantities of CpG 1018 adjuvant through 2022. As of the date of the Valneva Amendment, we had received non-refundable advance payments of approximately $55.4 million associated with the cancelled purchase orders.
In accordance with revenue recognition guidance in ASC 606, the first halfValneva Amendment was determined to be a contract modification and will be accounted for prospectively as one agreement with consideration allocated to future performance obligations. We have identified one remaining performance obligation which is the delivery of 2021. We recorded theCpG 1018 adjuvant through 2022. The total amount of $37.1consideration allocated to the remaining performance obligation includes approximately $55.4 million of advance payments received as of the date of the Valneva Amendment plus additional future consideration to be received in connection with final delivery of product. As of December 31, 2021, approximately $55.4 million of advance payments remain recorded as deferred revenue inand will be recognized as product revenue when we satisfy our consolidated balance sheets asremaining performance obligation to deliver CpG 1018 adjuvant under the Valneva Amendment.
As of December 31, 2020.2021 and 2020, deferred revenue related to Valneva was $55.4 million and $37.0 million, respectively. For the year ended December 31, 2021 and 2020, we recognized CpG 1018 product revenue of $89.4 million and $2.0 million, respectively. There was 0 CpG 1018 product revenue from Valneva recognized during the year ended December 31, 2019.
Bill & Melinda Gates Foundation Grant Agreement
In July 2020, we entered into a grant agreement (the "Grant"BMGF Grant Agreement") with Bill & Melinda Gates Foundation (“BMGF”), under which we were awarded a grant of up to $3.4$3.4 million to scale up production of our CpG 1018 adjuvant to support the global COVID-19 response (the “Project”) and we received $1.2$1.2 million of the grant from BMGF which we accounted for as deferred revenue in our consolidated balance sheets atas of December 31, 2020. Any grant funds, plus any income, that have not been used for, or committed
In July 2021, the BMGF Grant Agreement expired. Pursuant to the Project must be returned promptlyBMGF Grant Agreement, we were not obligated to BMGF upon expiration or terminationreturn the $1.2 million funding that we spent on grant-related activities. For the year ended December 31, 2021, we recognized $1.2 million as other revenue in our consolidated statements of the Grant Agreement.operations.
We and BMGF had also planned to execute a Global Access and Strategy/Commitment Agreement (“GASC Agreement”) in connection88
U.S. Department of Defense
In September 2021, we entered into an agreement with the Grant Agreement. Upon executionU.S. Department of Defense ("DoD") for the GASC Agreement, we would receivedevelopment of a recombinant plague vaccine adjuvanted with CpG 1018 for approximately $22.0 million over two and a half years. Under the remaining $2.2 million in grant funding. As of February 25, 2021, the GASC Agreement has not been executed and if it is not executedagreement, we will not receiveconduct a Phase 2 clinical trial combining our CpG 1018 adjuvant with the remaining grant funding.DoD's rF1V vaccine. We anticipate the Phase 2 trial will commence in 2022. For the year ended December 31, 2021, we recognized revenue of $0.5 million which are included in other revenue in our consolidated statements of operations.
Serum Institute of India Pvt. Ltd.
In June 2017, we entered into an agreement to provide Serum Institute of India Pvt. Ltd. (“SIIPL”) with technical support. In consideration, SIIPL agreed to pay us at an agreed upon hourly rate for services and reimburse certain out-of-pocket expenses. In addition, we have rights to commercialization of certain potential products manufactured at the SIIPL facility. For the years ended December 31, 2021, 2020 2019 and 2018,2019, we recognized collaboration revenue of $0.9$0.4 million, $0.1$0.9 million and $1.4$0.1 million, respectively.respectively which are included in other revenue in our consolidated statements of operations.
In May 2021, we issued $200.0 million aggregate principal amount of 2.50% convertible senior notes due 2026 in a private placement. The purchasers also partially exercised their option to purchase additional Convertible Notes in May 2021 and we issued an additional $25.5 million of the Convertible Notes. Total proceeds from the issuance of the Convertible Notes, net of debt issuance and offering costs of $5.7 million, were $219.8 million. We used $190.2 million of the net proceeds to repay, in full, our outstanding debt and other obligations under the Loan Agreement (see Note 11) and $27.2 million of the net proceeds to pay the costs of the capped call transactions described below.
79
Merck, Sharp & Dohme Corp.The Convertible Notes are general unsecured obligations and accrue interest at a rate of 2.50% per annum payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The Convertible Notes mature on May 15, 2026, unless converted, redeemed or repurchased in accordance with their terms prior to such date.
InThe Convertible Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at an initial conversion rate of 95.5338 shares of our common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $10.47 per share of our common stock. The Convertible Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding February 2018,15, 2026, only under the following circumstances:
On or after February 15, 2026 until the termsclose of business on the second scheduled trading day immediately preceding the maturity date, holders of the Sublicense Agreement,Convertible Notes may convert all or any portion of their Convertible Notes regardless of the foregoing circumstances. The Convertible Notes were convertible, in whole or in part, at the option of the holders between October 1, 2021 through December 31, 2021 as the conditions allowing holders of the Convertible Notes to convert have been met. None of the Convertible Notes had been converted during this period.
On January 1, 2022, the conditional conversion feature of the Convertible Notes was triggered as the last reported sale price of our common stock was more than or equal to 130% of the conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on December 31, 2021 (the last trading day of the immediately preceding fiscal quarter), and therefore the Convertible Notes are currently convertible, in whole or in part, at the option of the holders between January 1, 2022 through March 31, 2022. Whether the Convertible Notes will be convertible following such period
89
will depend on the continued satisfaction of this condition or another conversion condition in the future. We had not received any conversion notices. Since we were obligatedhave the election of repaying the Convertible Notes in cash, shares of our common stock, or a combination of both, we continued to pay $21.0 millionclassify the Convertible Notes as long-term debt on the consolidated balance sheets as of December 31, 2021.
We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after May 20, 2024 and prior to the 31st scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in 3 installments. The first, secondeffect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and third installmentunpaid interest to, but excluding, the redemption date.
If we undergo a fundamental change (as set forth in the indenture governing the Convertible Notes), noteholders may require us to repurchase for cash all or any portion of $7.0 million each was paidtheir Convertible Notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to the fundamental change repurchase date. In addition, following certain corporate events (as set forth in February 2018, 2019 and 2020, respectively. The Sublicense Agreement expiredthe indenture governing the Convertible Notes) or if we deliver a notice of redemption prior to the maturity date, we will, in April 2020, at which timecertain circumstances, adjust the license became perpetual, irrevocable, fully paid-up and royalty free.conversion rate for a noteholder who elects to convert its notes in connection with such a corporate event or such notice of redemption.
As a result of adopting ASU 2020-06, we accounted for the Convertible Notes as a single liability. As of December 31, 2020,2021, the intangible asset has been fully amortized. AtConvertible Notes were recorded at the aggregate principal amount of $225.5 million less unamortized issuance costs of $5.0 million as a long-term liability on the consolidated balance sheets. As of December 31, 2019,2021, the intangible asset, net balancefair value of the Convertible Notes was $2.5$368.6 million. See Note 6.2. The debt issuance costs are amortized to interest expense over the contractual term of the Convertible Notes at an effective interest rate of 3.1%.
|
|
The following table presents the components of interest expense related to Convertible Notes (in thousands):
|
| Year Ended December 31, 2021 |
| |
Stated coupon interest |
| $ | 3,555 |
|
Amortization of debt issuance cost |
|
| 669 |
|
Total interest expense |
| $ | 4,224 |
|
Capped Calls
In connection with the issuance of the Convertible Notes, we entered into capped call transactions with one of the initial purchasers of the Convertible Notes and other financial institutions, totaling $27.2 million (the “Capped Calls”). The Capped Calls cover, subject to customary adjustments, the number of shares of our common stock that initially underlie the Convertible Notes (or 21,542,871 shares of our common stock). The Capped Calls have an initial strike price and an initial cap price of $10.47 per share and $15.80 per share, respectively, subject to certain adjustments. Conditions that cause adjustments to the initial strike price of the Capped Calls mirror conditions that result in corresponding adjustments to the conversion price of the Convertible Notes. The Capped Calls are expected to offset the potential dilution to our common stock as a result of any conversion of the Convertible Notes, subject to a cap based on the cap price.
For accounting purposes, the Capped Calls are considered separate financial instruments and not part of the Convertible Notes. As the Capped Calls transactions meet certain accounting criteria, we recorded the cost of the Capped Calls, totaling $27.2 million, as a reduction to additional paid-in capital within the consolidated statements of stockholders’ equity.
Long-Term Debt
On February 20, 2018, we entered into a $175.0$175.0 million term Loan Agreement with CRG Servicing LLC (“CRG”LLC. We borrowed $100.0 million under the Loan Agreement at closing and the remaining $75.0 million in March 2019 (collectively, “Term Loans”). Net proceeds under the Loan Agreement were $173.3$173.3 million. The Term Loans under the Loan Agreement bearbore interest at a rate equal to 9.5%9.5% per annum. At The Term Loans had a maturity date of December 31, 2020, the effective interest rate was 10.3%2023. At our option, until September 30, 2023, a portion of the interest payments may be paid in kind, and thereby added to the principal. Through December 31, 2020, a portion of our interest was paid in kind, which increased
90
In May 2021, we repaid the principal amounton the Term Loans, in full, using the net proceeds from the Convertible Notes issuance. In connection with the early repayment of the Term Loans, in the second quarter of 2021, we recorded $5.2 million loss on debt extinguishment related to $180.9 million, net of debt discount of $1.1 million. Thethe amount we paid to terminate the Term Loans have a maturity datein excess of December 31, 2023, unless earlier prepaid. The Term Loans and paid-in-kind interest will be entirely payableits carrying value at maturity.
In August 2019, we entered into a second amendmentthe time of the repayment. Our final payment of $190.2 million to CRG Servicing LLC satisfied all of our obligations under the Loan Agreement (the “Second Amendment”). The Second Amendment amendedAgreement. With the annual net sales threshold for sales of HEPLISAV-B, revising the twelve-month measurement periods from beginning on January 1 of each year to beginning on July 1 of each year and ending on June 30, 2023. The Second Amendment also revised the fee payable upon partial prepayment or at maturityfull repayment of the Term Loans, from 3% to 4% of the aggregate principal amounts.
In November 2020, we entered into a third amendment to the Loan Agreement (the “Third Amendment”). The Third Amendment modified the annual net sales threshold requirement to include sales of CpG 1018all security interests, covenants, liens and removed the annual net sales threshold requirement for the twelve-month period beginning July 1, 2020 and ending on June 30, 2021.
The obligationsencumbrances under the Loan Agreement are secured, subject to customary permitted liens and other agreed upon exceptions, by a perfected security interest in (i) all tangible and intangible assets of the Company and any future subsidiary guarantors, except for certain customary excluded property, and (ii) all of the capital stock owned by the Company and such future subsidiary guarantors (limited, in the case of the stock of certain non-U.S. subsidiaries of the Company and certain U.S. subsidiaries substantially all of whose assets consist of equity interests in non-U.S. subsidiaries, to 65% of the capital stock of such subsidiaries, subject to certain exceptions). The obligations under the Loan Agreement will be guaranteed by each of the Company’s future direct and indirect subsidiaries (other than certain non-U.S. subsidiaries of the Company and certain U.S. subsidiaries substantially all of whose assets consist of equity interests in non-U.S. subsidiaries, subject to certain exceptions). The Loan Agreement contains customary covenants and requires us to comply with a $15.0 million daily minimum combined cash and investment balance covenant and a twelve-month period revenue requirement starting on July 1, 2019 for sales of HEPLISAV-B and CpG 1018.were permanently released.
We recorded $19.1$7.0 million, $16.5$19.1 million and $8.8$16.5 million of interest expense related to the Term Loans during the year ended December 31, 2021, 2020 and 2019, and 2018, respectively.
Disaggregation of Revenues
|
|
OurThe following table disaggregates our product revenue, net consistedby product and geographic region and disaggregates our other revenues by geographic region (in thousands):
|
| Year Ended |
|
| Year Ended |
|
| Year Ended |
| |||||||||||||||||||||||||||
|
| December 31, 2021 |
|
| December 31, 2020 |
|
| December 31, 2019 |
| |||||||||||||||||||||||||||
|
| U.S. |
|
| Non U.S. |
|
| Total |
|
| U.S. |
|
| Non U.S. |
|
| Total |
|
| U.S. |
|
| Non U.S. |
|
| Total |
| |||||||||
Product revenue, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
HEPLISAV-B |
| $ | 61,870 |
|
| $ | - |
|
| $ | 61,870 |
|
| $ | 36,030 |
|
| $ | - |
|
| $ | 36,030 |
|
| $ | 34,644 |
|
| $ | - |
|
| $ | 34,644 |
|
CpG 1018 |
|
| - |
|
|
| 375,229 |
|
|
| 375,229 |
|
|
| - |
|
|
| 3,277 |
|
|
| 3,277 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total product revenue, net |
| $ | 61,870 |
|
| $ | 375,229 |
|
| $ | 437,099 |
|
| $ | 36,030 |
|
| $ | 3,277 |
|
| $ | 39,307 |
|
| $ | 34,644 |
|
| $ | - |
|
| $ | 34,644 |
|
Other revenue |
|
| 1,915 |
|
|
| 428 |
|
|
| 2,343 |
|
|
| - |
|
|
| 7,244 |
|
|
| 7,244 |
|
|
| 410 |
|
|
| 165 |
|
|
| 575 |
|
Total revenues |
| $ | 63,785 |
|
| $ | 375,657 |
|
| $ | 439,442 |
|
| $ | 36,030 |
|
| $ | 10,521 |
|
| $ | 46,551 |
|
| $ | 35,054 |
|
| $ | 165 |
|
| $ | 35,219 |
|
Revenues from Major Customers
The following table summarizes HEPLISAV-B product revenue from each of the following:our three largest Customers (as a percentage of total HEPLISAV-B product revenue):
|
| Year Ended |
| |||||||||
|
| December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Largest Customer |
|
| 21 | % |
|
| 21 | % |
|
| 22 | % |
Second largest Customer |
|
| 19 | % |
|
| 20 | % |
|
| 21 | % |
Third largest Customer |
|
| 19 | % |
|
| 20 | % |
|
| 19 | % |
|
| Year Ended |
| |||||||||
|
| December 31 |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
HEPLISAV-B |
| $ | 36,030 |
|
| $ | 34,644 |
|
| $ | 6,812 |
|
CpG 1018 |
|
| 3,277 |
|
|
| - |
|
|
| - |
|
Total |
| $ | 39,307 |
|
| $ | 34,644 |
|
| $ | 6,812 |
|
80The following table summarizes CpG 1018 product revenue from each of our three largest collaboration partners (as a percentage of total CpG 1018 product revenue):
|
| Year Ended |
| |||||||||
|
| December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Largest collaboration partner |
|
| 49 | % |
|
| 62 | % |
|
| 0 | % |
Second largest collaboration partner |
|
| 24 | % |
|
| 36 | % |
|
| 0 | % |
Third largest collaboration partner |
|
| 19 | % |
|
| 2 | % |
|
| 0 | % |
91
Contract Balances
The following table summarizes balances and activities in HEPLISAV-B product revenue allowance and reserve categories for the year ended December 31, 2020 and 2019 (in thousands):
|
| Balance at |
|
| Provisions |
|
| Credit or payments |
|
| Balance |
| ||||
Year ended December 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable reserves(1) |
| $ | 2,836 |
|
| $ | 18,209 |
|
| $ | (17,222 | ) |
| $ | 3,823 |
|
Revenue reserve accruals(2) |
| $ | 6,040 |
|
| $ | 13,077 |
|
| $ | (10,864 | ) |
| $ | 8,253 |
|
Year ended December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable reserves(1) |
| $ | 2,701 |
|
| $ | 11,417 |
|
| $ | (11,282 | ) |
| $ | 2,836 |
|
Revenue reserve accruals(2) |
| $ | 3,893 |
|
| $ | 6,694 |
|
| $ | (4,547 | ) |
| $ | 6,040 |
|
When we transfer control of CpG 1018 adjuvant that is reserved under the CEPI Agreement to Clover, we recognize product revenue and a corresponding contract asset as our right to consideration is conditioned on something other than the passage of time. See Note 9 for further discussion. The following table summarizes balances and activities in our contract asset account (in thousands):
|
| Balance at |
|
| Additions (1) |
|
| Subtractions |
|
| Balance |
| ||||
Year ended December 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contract asset |
| $ | 0 |
|
| $ | 62,525 |
|
| $ | - |
|
| $ | 62,525 |
|
Year ended December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contract asset |
| $ | 0 |
|
| $ | - |
|
| $ | - |
|
| $ | 0 |
|
Payments received or invoices issued before we satisfy our performance obligations are recorded as deferred revenue until we satisfy such performance obligations. Our deferred revenue activities are related to CpG 1018 product sales. The following table summarizes balances and activities in our deferred revenue accounts (in thousands):
|
| Balance at |
|
| Additions (1) |
|
| Subtractions (2) |
|
| Revenue recognized in the current period included in deferred revenue balance at the beginning of the period |
|
| Balance |
| |||||
Year ended December 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Deferred revenue |
| $ | 38,212 |
|
| $ | 371,860 |
|
| $ | (21,996 | ) |
| $ | (38,212 | ) |
| $ | 349,864 |
|
Long-term deferred revenue |
|
| - |
|
|
| 168,467 |
|
|
| (163,082 | ) |
|
| - |
|
|
| 5,385 |
|
Year ended December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Deferred revenue |
| $ | - |
|
| $ | 38,212 |
|
| $ | - |
|
| $ | - |
|
| $ | 38,212 |
|
Long-term deferred revenue |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
92
We compute net income (loss) per share of common stock using the two-class method required for participating securities. We consider Series B Preferred Stocks and warrants to be participating securities because holders of such shares have dividend rights in the event of our declaration of a dividend for common shares. Undistributed earnings allocated to participating securities are subtracted from net income (loss) in determining net income (loss) attributable to common stockholders.
|
| Balance at Beginning of Period |
|
| Provisions related to current period sales |
|
| Credit or payments made during the period |
|
| Balance at End of Period |
| ||||
Year ended December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable reserves(1) |
| $ | 2,701 |
|
| $ | 11,417 |
|
| $ | (11,282 | ) |
| $ | 2,836 |
|
Revenue reserve accruals(2) |
| $ | 3,893 |
|
| $ | 6,694 |
|
| $ | (4,547 | ) |
| $ | 6,040 |
|
Year ended December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable reserves(1) |
| $ | 1,272 |
|
| $ | 11,042 |
|
| $ | (9,613 | ) |
| $ | 2,701 |
|
Revenue reserve accruals(2) |
| $ | 1,033 |
|
| $ | 6,632 |
|
| $ | (3,772 | ) |
| $ | 3,893 |
|
|
|
|
|
|
|
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 lossincome (loss) per share is computed by dividing the net lossincome (loss) attributable to common stockholders by the weighted-average number of shares of our 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, outstanding stock options, stock awards, warrants and Series B Convertible Preferred Stock are considered to be potentially dilutive common shares and are only included inoutstanding.
For the calculation of diluted net lossincome (loss) per share, when theirnet income (loss) attributable to common stockholders for basic net income (loss) per share is adjusted by the effect of dilutive securities, including awards under our equity compensation plans and change in fair value of warrant liability. Diluted net income (loss) per share attributable to common stockholders is dilutive.computed by dividing the resulting net income (loss) attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding.
|
| Year Ended |
| |||||||||
|
| December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Numerator |
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
| $ | 76,713 |
|
| $ | (75,240 | ) |
| $ | (152,600 | ) |
Less: undistributed earnings allocated to participating securities |
|
| (4,569 | ) |
|
| - |
|
|
| - |
|
Less: preferred stock deemed dividend |
|
| - |
|
|
| - |
|
|
| (3,267 | ) |
Net income (loss) allocable to common stockholders, basic |
|
| 72,144 |
|
|
| (75,240 | ) |
|
| (155,867 | ) |
Add: undistributed earnings allocated to Series B and warrants |
|
| 4,569 |
|
|
| 0 |
|
|
| 0 |
|
Less: undistributed earnings allocated to Series B and warrants |
|
| (4,190 | ) |
|
| 0 |
|
|
| 0 |
|
Add: interest expense on convertible notes |
|
| 3,168 |
|
|
| - |
|
|
| - |
|
Less: removal of change in fair value of warrant liability |
|
| - |
|
|
| (4,124 | ) |
|
| - |
|
Net income (loss) allocable to common stockholders, diluted |
| $ | 75,691 |
|
| $ | (79,364 | ) |
| $ | (155,867 | ) |
Denominator |
|
|
|
|
|
|
|
|
| |||
Weighted average shares used to compute net income (loss) allocable to |
|
| 116,264 |
|
|
| 100,753 |
|
|
| 72,024 |
|
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
| |||
Stock-based compensation plans |
|
| 3,075 |
|
|
| - |
|
|
| - |
|
Convertible Notes (as converted to common stock) |
|
| 13,667 |
|
|
| - |
|
|
| - |
|
Effect of dilutive warrants |
|
| - |
|
|
| 751 |
|
|
| - |
|
Weighted average shares used to compute net income (loss) allocable to |
|
| 133,006 |
|
|
| 101,504 |
|
|
| 72,024 |
|
|
| Year Ended |
| |||||||||
|
| December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (75,240 | ) |
| $ | (152,600 | ) |
| $ | (158,899 | ) |
Preferred stock deemed dividend |
|
| - |
|
|
| (3,267 | ) |
|
| - |
|
Net loss allocable to common stockholders, basic |
|
| (75,240 | ) |
|
| (155,867 | ) |
|
| (158,899 | ) |
Removal of change in fair value of warrant liability |
|
| (4,124 | ) |
|
| - |
|
|
| - |
|
Net loss allocable to common stockholders, diluted |
| $ | (79,364 | ) |
| $ | (155,867 | ) |
| $ | (158,899 | ) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute net loss allocable to common stockholders per share, basic |
|
| 100,753 |
|
|
| 72,024 |
|
|
| 62,362 |
|
Effect of dilutive warrants |
|
| 751 |
|
|
| - |
|
|
| - |
|
Weighted average shares used to compute net loss allocable to common stockholders per share, diluted |
|
| 101,504 |
|
|
| 72,024 |
|
|
| 62,362 |
|
The following were excluded from the calculation of diluted net lossincome (loss) per share as the effect of their inclusion would have been anti-dilutive:
|
| December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Outstanding securities not included in diluted net income (loss) allocable to |
|
|
|
|
|
|
|
|
| |||
Stock options and stock awards |
|
| 5,953 |
|
|
| 10,299 |
|
|
| 9,789 |
|
Series B Convertible Preferred Stock (as converted to common stock) |
|
| 0 |
|
|
| 4,140 |
|
|
| 4,840 |
|
Warrants (as exercisable into common stock) |
|
| 1,883 |
|
|
| 0 |
|
|
| 5,841 |
|
Convertible Notes (as converted to common stock) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Outstanding securities not included in diluted net loss per share calculation (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and stock awards |
|
| 10,299 |
|
|
| 9,789 |
|
|
| 7,344 |
|
Series B Convertible Preferred Stock (as converted to common stock) |
|
| 4,140 |
|
|
| 4,840 |
|
|
| - |
|
Warrants (as exercisable into common stock) |
|
| - |
|
|
| 5,841 |
|
|
| - |
|
8193
14. Common Stock
|
|
Common Stock Outstanding
As of December 31, 2020,2021, there were 110,189,859122,945,357 shares of our common stock outstanding.
In August 2019, we sold (i) 18,525,000 shares of our common stock, par value $0.001$0.001 per share, (ii) 4,840 shares of our Series B Convertible Preferred Stock, par value $0.001$0.001 per share (“Series B Preferred Stock”) and (iii) warrants to purchase up to an aggregate of 5,841,250 shares of our common stock in an underwritten public offering (the “Offering”). Each share for aggregate net proceeds of common stock was sold together with a warrant to purchase 0.25 shares of common stock, at a combined price of $3.00 per share of common stock and the accompanying warrant. Each share of Series B Preferred Stock was sold together with a warrant to purchase 250 shares of common stock, at a combined price of $3,000 per share and the accompanying warrant. Proceeds from the Offering were approximately $65.6 million, net of issuance costs of $4.5$65.6 million.
Investment funds associated with Bain Capital Life Sciences Investors, LLC (Bain(“Bain Capital Life Sciences)Sciences”) purchased approximately $35.0$35.0 million of common stock, Series B Preferred Stock and warrants in this Offering at the public offering price. Pursuant to the Offering (i) Bain Capital Life Sciences Fund, L.P. purchased 6,826,266 shares of common stock, 3,756 shares of Series B Preferred Stock and warrants to purchase 2,645,566 shares of common stock for a total purchase price of approximately $31.7 million and (ii) BCIP Life Sciences Associates, L.P. purchased 698,734 shares of common stock, 384 shares of Series B Preferred Stock and warrants to purchase 270,684 shares of common stock for a total purchase price of approximately $3.2 million (together, “Bain Life Sciences Funds”). Bain Capital Life Sciences is the general partner of Bain Life Sciences Funds. The participation by these investors was on the same terms as the other investors in the Offering.
Following the offering,Offering, Andrew A. F. Hack, M.D., Ph.D andPh.D., a Managing Director of Bain Capital Life Sciences, (a related party), was appointed to our board of directors.
On March 11, 2020, we entered into a warrant exchange agreement withIn June 2021, Bain Capital Life Sciences Funds pursuantand its affiliates sold warrants to which we agreed that we would, upon future notice from Bain Life Sciences Funds, exchangepurchase an aggregate of 2,916,250 shares of our common stock for aggregate consideration of $11.8 million, representing all or a portion of the common stock warrants held by Bain Capital Life Sciences Funds for warrants to purchase a new Series C convertible preferred stock (“Series C Warrants”). Each share of Series C convertible preferred stock would be convertible into 1,000 shares of common stock, with a conversion price of $4.50 and would have substantially identical rights to our Series B Preferred Stock. As of December 31, 2020, Bain Life Sciences Funds have not exercised their rights to exchange common stock warrants with Series C Warrants.its affiliates.
In May 2020, we completed an underwritten public offering of 16,100,000 shares of our common stock, par value $0.001$0.001 per share, including 2,100,000 shares sold pursuant to the full exercise of an overallotment option previously granted to the underwriters. All of the shares were offered at a price to the public of $5.00$5.00 per share. The net proceeds to us from this offering were approximately $75.4$75.4 million, after deducting the underwriting discount and other offering expenses payable by us. Bain Life Sciences Funds purchased 1,000,000 shares of common stock in the underwritten public offering. Bain Capital Life Sciences is the general partner of Bain Life Sciences Funds. The participation by Bain Life Sciences Funds was on the same terms as the other investors in the offering.
For year ended December 31, 2020, we sold 8,005,467 shares of our common stock and received net cash proceeds of $32.3 million pursuant to a 2017 At Market Sales Agreement (“2017 ATM Agreement”) with Cowen and Company, LLC (“Cowen”) that terminated in August 2020.
On August 6, 2020, we entered into an at-the-market Sales Agreement (the “2020 ATM Agreement”) with Cowen and Company, LLC (“Cowen”), under which we may offer and sell from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150$150 million through Cowen as our sales agent. We agreed to pay Cowen a commission of up to 3%3% of the gross sales proceeds of any common stock sold through Cowen under the 2020 ATM Agreement. For the year ended December 31, 2020,2021, we received net cash proceeds of $0.8$28.2 million resulting from sales of 109,1762,878,567 shares of our common stock pursuant to the 2020 ATM Agreement. All of these shares were sold during the three months ended March 31, 2021. As of December 31, 2020,2021, we had $149.1$120.5 million remaining under the 2020 ATM Agreement. Subsequent to December 31, 2020 and through February 22, 2021, we sold 2,299,952 shares of common stock for net proceeds of $22.7 million under the 2020 ATM Agreement.
82
Preferred Stock Outstanding
AsIn August 2021, all of December 31, 2020, there were the 4,140 shares of Series B Preferred Stock outstanding.
In the second quarter of 2020, 700 shares of our Series B Preferred Stock were converted into 700,0004,140,000 shares of common stock.
Each share As of Series B Preferred Stock is convertible into 1,000 shares of common stock at any time at the holder’s option. However, the holder is prohibited from converting the Series B Preferred Stock into shares of common stock if, as a result of such conversion, the holder and its affiliates would own more than 4.99% of the total number of shares of common stock then issued and outstanding, which percentage may be changed at the holders’ election to a higher or lower percentage (not to exceed 19.99%) upon 61 days’ notice to the Company. In the event of liquidation, dissolution, or winding up, the holder of Series B Preferred Stock will receive payment onDecember 31, 2021, there were 0 shares of Series B Preferred Stock (determined on an as-converted to common stock basis) equal tooutstanding.
Warrants
During the amount that would be paid on our common stock. Sharesyear ended December 31, 2021, 3,958,650 of Series B Preferred Stock generally have no voting rights, except as required by law and except that the consent of holders of a majority of the outstanding Series B Preferred Stock is required to amend the terms of the Series B Preferred Stock. Holders of Series B Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by our board of directors. The Series B Preferred Stock ranks on parity with our common stock as to distributionswarrants were exercised. There was 0 exercise of assets upon liquidation, dissolution or winding up. The Series B Preferred Stock may rank senior to, on parity with or junior to any class or series of capital stock created in the future depending upon the specific terms of such future stock issuance.
The fair value of theour common stock into whichwarrants during the Series B Preferred Stock is convertible exceeded the allocated purchase price of the Series B Preferred Stock by $3.3 million on the date of issuance, for which we recorded a deemed dividend. We recognized a deemed dividend equal to the number of common stock into which the Series B Preferred Stock is convertible multiplied by the difference between the value of the common stockyear ended December 31, 2020 and the Series B Preferred Stock conversion price per share on the date of issuance, which is the date the stock first became convertible. The dividend was reflected as a one-time, non-cash, deemed dividend to the holders of Series B Preferred Stock on the date of issuance2019. .
Warrants
As of December 31, 2020,2021, the following common stock warrants were outstanding:
Warrants Issuance Date |
| Shares Issuable |
|
| Expiration Date |
| Exercise Price |
|
| Outstanding as of |
| |||
August 12, 2019 |
|
| 1,883 |
|
| February 12, 2022 |
| $ | 4.50 |
|
|
| 1,883 |
|
Warrants Issuance Date |
| Shares Issuable (in thousands) |
|
| Expiration Date |
| Exercise Price per Share |
|
| Outstanding as of December 31, 2020 (in thousands) |
| |||
August 12, 2019 |
|
| 5,841 |
|
| February 12, 2022 |
| $ | 4.50 |
|
|
| 5,841 |
|
As of February 28, 2022, all 1,882,600 of the outstanding warrants as of December 31, 2021 have been exercised or expired resulting in cash settlement of $8.5 million.
In February 2021, 750,000 of our common stock warrants were exercised.
Warrants were exercisable upon issuance. The holder is prohibited from exercising these warrants if, as a result of such exercise, the holder and its affiliates, would own more than 4.99%4.99% of the total number of shares of common stock then issued
94
and outstanding, which percentage may be changed at the holders’ election to a higher or lower percentage (not to exceed 19.99%19.99%) upon 61 days’ notice to the Company.
The warrants contain provisions that may obligate us to repurchase them for an amount that does not represent fair value in the event of a change of control. Due to this provision, the warrants do not meet the criteria to be considered indexed to our own stock. Accordingly, we recorded the warrants as a derivative liability at fair value of $7.4 million on the issuance date, which was estimated using the Black-Scholes model.liability.
The warrants will be revalued at each reporting period using the Black-Scholes model and the change in the fair value of the warrants will recognized as other income (expense) in the consolidated statements of operations. At December 31, 20202021 and 2019,2020, the estimated fair value of warrant liability was $10.7$18.0 million and $14.9$10.7 million, respectively. For the year ended December 31, 2021 and 2019, we recognized $49.4 million and $7.5 million increase in the estimated fair value of warrant liability, respectively, as a loss in other income (expense) in our consolidated statements of operations. For the year ended December 31, 2020, we recognized $4.1$4.1 million decrease in the estimated fair value of warrant liability as income in other income (expense) in our consolidated statements of operations. For the year ended December 31, 2019,
Equity Plans
In January 2021, we recognized $7.5 million increase in the estimated fair value of warrant liability as a loss in other income (expense) in our consolidated statements of operations.
83
|
|
Equity Plans
Our 2018 Equity Incentive Plan (the “2018 EIP”) is intended to be the successor to and continuation ofadopted the Dynavax Technologies Corporation 2011 Equity Incentive2021 Inducement Award Plan (the “2011 EIP”(“2021 Inducement Plan”). The aggregate number of shares of our common stock that may be issued under the 2018 EIP (subject, pursuant to adjustment for certain changes in capitalization) is comprised of the sum of (i) 5,000,000 newlywhich we reserved1,500,000 shares of common stock (ii) 140,250 unallocated shares of common stock remaining available for grantissuance under the 2011 EIP asplan to be used exclusively for grants of May 31, 2018, and (iii) 7,477,619 shares subjectawards to outstanding stock awards granted underindividuals who were not previously employees or directors of the 2011 EIP andCompany. In June 2021, we amended the Dynavax Technologies Corporation 20172021 Inducement Award Plan that may become available from time to time as set forth in the 2018 EIP. The 2018 EIP provides for the issuance of up to 12,617,869 shares of our common stock to our employees and directors.
On May 28, 2020 and on May 30, 2019, our stockholders approved an amendment to 2018 Equity Incentive Plan (the “Amended 2018 EIP”(“Amended 2021 Inducement Plan”) to among other things, increase the aggregate number of shares of common stock authorized for issuance by 7,600,000reserved under the 2021 Inducement Plan to 3,250,000.
As of December 31, 2021, the 2018 Equity Incentive Plan, as amended, (“Amended 2018 EIP”), the Amended 2021 Inducement Plan and 2,300,000, respectively.the Amended and Restated 2014 Employee Stock Purchase Plan are our active plans. Under the Amended 2018 EIP, the aggregate number of shares of our common stock that may be issued to employees and directors (subject to adjustment for certain changes in capitalization) is 22,517,869.22,517,869.
In January 2021, we adopted the Dynavax Technologies Corporation 2021 Inducement Award Plan, pursuant to which we reserved 1,500,000 shares of common stock for issuance under the plan to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company.
The Amended 2018 EIP is administered by our Board of Directors, or a designated committee of the Board of Directors, and awards granted under the Amended 2018 EIP have a term of 7 years unless earlier terminated by the Board of Directors. As of December 31, 2020,2021, there were 8,349,8534,851,391 shares of common stock reserved for issuance under the Amended 2018 EIP.
Activity under our stock plans is set forth below:
|
| 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, 2019 |
|
| 8,006 |
|
| $ | 13.86 |
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Shares Underlying |
|
| Weighted-Average Exercise |
|
| Weighted-Average |
|
| Aggregate |
| ||||||||||||||||||||
Balance at December 31, 2020 |
|
| 8,505 |
|
| $ | 11.57 |
|
|
|
|
|
|
| ||||||||||||||||||
Options granted |
|
| 2,003 |
|
|
| 5.76 |
|
|
|
|
|
|
|
|
|
|
| 3,894 |
|
|
| 10.49 |
|
|
|
|
|
|
| ||
Options exercised |
|
| (72 | ) |
|
| 4.20 |
|
|
|
|
|
|
|
|
|
|
| (1,035 | ) |
|
| 6.46 |
|
|
|
|
|
|
| ||
Options cancelled: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Options forfeited (unvested) |
|
| (356 | ) |
|
| 7.24 |
|
|
|
|
|
|
|
|
|
|
| (521 | ) |
|
| 8.13 |
|
|
|
|
|
|
| ||
Options expired (vested) |
|
| (1,076 | ) |
|
| 19.75 |
|
|
|
|
|
|
|
|
|
|
| (444 | ) |
|
| 18.48 |
|
|
|
|
|
|
| ||
Balance at December 31, 2020 |
|
| 8,505 |
|
| $ | 11.57 |
|
|
| 4.25 |
|
| $ | 616 |
| ||||||||||||||||
Vested and expected to vest at December 31, 2020 |
|
| 8,314 |
|
| $ | 11.69 |
|
|
| 4.21 |
|
| $ | 607 |
| ||||||||||||||||
Exercisable at December 31, 2020 |
|
| 5,551 |
|
| $ | 14.13 |
|
|
| 3.35 |
|
| $ | 516 |
| ||||||||||||||||
Balance at December 31, 2021 |
|
| 10,399 |
|
| $ | 11.55 |
|
|
| 4.16 |
|
| $ | 42,756 |
| ||||||||||||||||
Vested and expected to vest at |
|
| 10,029 |
|
| $ | 11.57 |
|
|
| 4.08 |
|
| $ | 41,321 |
| ||||||||||||||||
Exercisable at December 31, 2021 |
|
| 5,796 |
|
| $ | 13.07 |
|
|
| 2.64 |
|
| $ | 20,488 |
| ||||||||||||||||
The total intrinsic value of stock options exercised during the years ended December 31, 2021, 2020 and 2019 was $7.9 million, $0.1 million and 2018 was $0.1 million, $26,000 and $0.2 million,$26,000, respectively. The total intrinsic value of exercised stock options is calculated based on the difference between the exercise price and the quoted market price of our common stock as of the close of the exercise date.
The total fair value of stock options vested during the years ended December 31, 2021, 2020 and 2019 and 2018 was $13.8$9.0 million, $19.5$13.8 million and $8.1$19.5 million, respectively.
8495
Our non-vested stock awards are comprised of restricted stock units granted with performance and time-based vesting criteria. A summary of the status of non-vested restricted stock units as of December 31, 2020,2021, and activities during 20202021 are summarized as follows:
| Number of Shares (In thousands) |
|
| Weighted-Average Grant-Date Fair Value |
| |||||||||
Non-vested as of December 31, 2019 |
| 1,784 |
|
| $ | 9.16 |
| |||||||
| Number of Shares |
|
| Weighted-Average |
| |||||||||
Non-vested as of December 31, 2020 |
| 1,794 |
|
| $ | 7.23 |
| |||||||
Granted |
| 1,412 |
|
|
| 5.64 |
|
| 1,818 |
|
|
| 9.50 |
|
Vested |
| (1,139 | ) |
|
| 8.18 |
|
| (537 | ) |
|
| 8.85 |
|
Forfeited |
| (263 | ) |
|
| 7.68 |
|
| (424 | ) |
|
| 8.21 |
|
Non-vested as of December 31, 2020 |
| 1,794 |
|
| $ | 7.23 |
| |||||||
Non-vested as of December 31, 2021 |
| 2,651 |
|
| $ | 8.30 |
| |||||||
Stock-based compensation expense related to restricted stock units was approximately $4.9$7.9 million for the year ended December 31, 2020.2021. The aggregate intrinsic value of the restricted stock units outstanding as of December 31, 2020,2021, based on our stock price on that date, was $8.0$37.3 million.
The total fair value of restricted stock units vested during the years ended December 31, 2021, 2020 and 2019 and 2018 was $4.9$4.7 million, $7.9$4.9 million and $19.4$7.9 million, respectively.
We granted performance-based restricted stock unit (“PSU”) to certain executives in February 2021. These PSUs vest upon a specified market condition. The summary of PSU activities for the year ended December 31, 2021 is as follows:
|
| Number of Shares |
|
| Weighted-Average |
| ||
Non-vested as of December 31, 2020 |
|
| - |
|
| $ | - |
|
Granted |
|
| 297 |
|
|
| 8.40 |
|
Forfeited |
|
| (60 | ) |
|
| 8.40 |
|
Non-vested as of December 31, 2021 |
|
| 237 |
|
| $ | 8.40 |
|
Stock-based compensation expense related to PSUs was approximately $1.8 million for the year ended December 31, 2021. The aggregate intrinsic value of the PSUs outstanding as of December 31, 2021, based on our stock price on that date, was $3.3 million. NaN of the PSUs vested as of December 31, 2021.
Stock-Based Compensation
Under our stock-based compensation plans, option awards generally vest over a three-year or four-year period contingent upon continuous service and unless exercised, expire seven or ten years from the date of grant (or earlier upon termination of continuous service). The Company has also granted performance-based equity awards to certain of our employees. As of December 31, 2020, approximately 117,000 shares underlying stock options and approximately 247,000 restricted stock unit awards with performance-based vesting criteria were outstanding. None of the awards with performance-based vesting criteria were deemed probable as of December 31, 2020. We recognized stock-based compensation expense for awards with performance-based vesting criteria during the years ended December 31, 2020, 2019 and 2018 of $0.1 million, $0.5 million and $1.9 million, respectively.
The fair value of each option is estimated on the date of grant using the Black-Scholes option valuation model andmodel. The fair value of each RSU is determined at the followingdate of grant using our closing stock price. The fair value of each PSU is estimated using the Monte Carlo simulation method on the date of grant. The weighted-average assumptions:assumptions used in the calculations of these fair value measurements are as follows:
|
| Stock Options |
|
| Employee Stock Purchase Plan |
|
| Stock Options |
|
| Market-Based Performance Stock Unit (“PSUs”) |
|
| Employee Stock Purchase Plan |
| |||||||||||||||||||||||||||||||||||||
|
| Year Ended December 31, |
|
| Year Ended December 31, |
|
| Year Ended December 31, |
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| |||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||||||||||
Weighted-average fair value |
| $ | 3.91 |
|
| $ | 4.58 |
|
| $ | 10.75 |
|
| $ | 2.82 |
|
| $ | 2.72 |
|
| $ | 8.30 |
|
| $ | 7.17 |
|
| $ | 3.91 |
|
| $ | 4.58 |
|
| $ | 8.40 |
|
| $ | 6.48 |
| $ | 2.82 |
| $ | 2.72 |
| ||
Risk-free interest rate |
|
| 1.0 | % |
|
| 2.1 | % |
|
| 2.5 | % |
|
| 0.9 | % |
|
| 1.9 | % |
|
| 2.4 | % |
|
| 0.7 | % |
|
| 1.0 | % |
|
| 2.1 | % |
| From 0.03% to 1.92% |
|
| 0.1 | % |
|
| 0.9 | % |
|
| 1.9 | % | ||
Expected life (in years) |
|
| 4.5 |
|
|
| 4.5 |
|
|
| 4.2 |
|
|
| 1.2 |
|
|
| 1.2 |
|
|
| 1.3 |
|
|
| 4.5 |
|
|
| 4.5 |
|
|
| 4.5 |
|
|
| 2.9 |
|
|
| 1.2 |
| 1.2 |
| 1.2 |
| ||||
Expected Volatility |
|
| 0.9 |
|
|
| 0.9 |
|
|
| 0.8 |
|
|
| 0.7 |
|
|
| 0.7 |
|
|
| 1.1 |
|
|
| 0.9 |
|
|
| 0.9 |
|
|
| 0.9 |
|
|
| 0.9 |
|
|
| 1.0 |
| 0.7 |
| 0.7 |
| ||||
96
Expected volatility is based on historical volatility of our stock price. The expected life of options granted is estimated based on historical option exercise and employee termination data. Our senior management, who hold a majority of the options outstanding, and other employees were grouped and considered separately for valuation purposes. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasurytreasury yield curve in effect at the time of grant. Forfeiture estimates are based on historical employee turnover. The dividend yield is 0 percent for all years and is based on our history and expectation of dividend payouts.
85
Compensation expense is based on awards ultimately expected to vest and reflects estimated forfeitures. For equity awards with time-based vesting, the fair value is amortized to expense on a straight-line basis over the vesting periods. For equity awards with performance-based vesting criteria, the fair value is amortized to expense when the achievement of the vesting criteria becomes probable. Stock-based compensation for the year ended December 31, 2020 included reversal of expenses related to cancellation of certain equity grants in the first quarter of 2020. Stock-based compensation cost for the year ended December 31, 2019 includes incremental cost of $4.1$4.1 million for accelerated vesting of stock awards and extension of exercise period of stock options in connection with the retirement of our Chief Executive Officer. See Note 17.
The Company has also granted performance-based equity awards to certain of our employees. For equity awards with performance-based vesting criteria, the fair value is amortized to expense when the achievement of the vesting criteria becomes probable. NaN stock-based compensation expense for awards with performance-based vesting criteria was recognized during the year ended December 31, 2021. We recognized stock-based compensation expense for awards with performance-based vesting criteria during the years ended December 31, 2020 and 2019 of $0.1 million and $0.5 million, respectively. As of December 31, 2021, approximately 117,000 shares underlying stock options and approximately 202,050 restricted stock unit awards with performance-based vesting criteria were outstanding. None of the awards with performance-based vesting criteria were deemed probable as of December 31, 2021.
We recognized the following amounts of stock-based compensation expense (in thousands):
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| ||||||
Employees and directors stock-based compensation expense |
| $ | 13,484 |
|
| $ | 25,456 |
|
| $ | 23,478 |
|
| $ | 21,285 |
|
| $ | 13,484 |
|
| $ | 25,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| ||||||
Research and development |
| $ | 1,000 |
|
| $ | 8,058 |
|
| $ | 9,604 |
|
| $ | 3,818 |
|
| $ | 1,000 |
|
| $ | 8,058 |
|
Selling, general and administrative |
|
| 9,585 |
|
|
| 10,224 |
|
|
| 11,761 |
|
|
| 14,894 |
|
|
| 9,585 |
|
|
| 10,224 |
|
Cost of sales - product |
|
| 619 |
|
|
| 1,088 |
|
|
| 1,354 |
|
|
| 553 |
|
|
| 619 |
|
|
| 1,088 |
|
Inventory |
|
| 2,280 |
|
|
| 1,964 |
|
|
| 759 |
|
|
| 2,020 |
|
|
| 2,280 |
|
|
| 1,964 |
|
Restructuring |
|
| - |
|
|
| 4,122 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,122 |
|
Total |
| $ | 13,484 |
|
| $ | 25,456 |
|
| $ | 23,478 |
|
| $ | 21,285 |
|
| $ | 13,484 |
|
| $ | 25,456 |
|
As of December 31, 2020,2021, the total unrecognized compensation cost related to non-vested stock options and awards deemed probable of vesting, including all stock options with time-based vesting, net of estimated forfeitures, amounted to $15.9$33.0 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.8 years. Additionally, as2 years. As of December 31, 2020,2021, the total unrecognized compensation cost related to equity awards with performance-based vesting criteria amounted to $1.2$1.0 million. As of December 31, 2021, the total unrecognized compensation cost related to PSUs amounted to $0.2 million.
Employee Stock Purchase Plan
The Amended and Restated 2014 Employee Stock Purchase Plan (the “Purchase“Employee Stock Purchase Plan”) provides for the purchase of common stock by eligible employees and became effective onemployees. In May 28, 2014. On May 31, 2018,2021, our stockholders approved anthe amendment toand restatement of the Employee Stock Purchase Plan to increase the aggregateauthorized number of shares of common stock authorized for issuance by 600,000 shares. 1,000,000. The maximum number of shares of common stock that may be issued under the Employee Stock Purchase Plan will not exceed 1,850,000 shares of common stock.
The purchase price per share is the lesser of (i) 85%85% of the fair market value of the common stock on the commencement of the two-year offer period (generally, the sixteenth day in February or August) or (ii) 85%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). For the year ended December 31, 2020,2021, employees have acquired 195,334217,270 shares of our common
97
stock under the Employee Stock Purchase Plan and 255,5831,038,313 shares of our common stock remained available for future purchases under the Employee Stock Purchase Plan.
As of December 31, 2020,2021, the total unrecognized compensation cost related to shares of our common stock under the Employee Stock Purchase Plan amounted to $0.2$1.1 million, which is expected to be recognized over the remaining weighted-average vesting period of 1 year.1.5 years.
16. Employee Benefit Plan
|
|
We maintain a 401(k) Plan, which qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating employees may defer a portion of their pretax earnings. We may, at our discretion, contribute for the benefit of eligible employees. The Company’s contribution to the 401(k) Plan was approximately $0.2$0.3 million, $0.3$0.2 million and $0.2$0.3 million for the years ended December 31, 2021, 2020 and 2019, and 2018, respectively.
86
17. Restructuring
|
|
On May 23, 2019, we implemented a strategic organizational restructuring, principally to align our operations around our vaccine business and significantly curtail further investment in our immuno-oncology business. In connection with the restructuring, we reduced our workforce by approximately 80 positions, or approximately 36%36%, of U.S.-based personnel. Also, in connection with the restructuring, our Chief Executive Officer, also a member of the Board of Directors (the “Board”), submitted notice of his retirement from the Company and the Board, effective August 1, 2019. As of December 31, 2020, we have completed our restructuring activities and all costs have been incurred.
The major components of our restructuring costs are summarized as follows (in thousands):
Components of Restructuring Costs |
| Restructuring Costs |
| |
Severance and other termination benefits |
| $ | 6,277 |
|
Stock-based compensation expense (a) |
|
| 4,122 |
|
Accelerated depreciation |
|
| 2,957 |
|
Total restructuring cost |
| $ | 13,356 |
|
Components of Restructuring Costs |
| Restructuring Costs Incurred for the Year Ended December 31, 2019 |
| |
Severance and other termination benefits |
| $ | 6,277 |
|
Stock-based compensation expense (a) |
|
| 4,122 |
|
Accelerated depreciation |
|
| 2,957 |
|
Total restructuring cost |
| $ | 13,356 |
|
| As a result of accelerated vesting of stock awards and |
The outstanding restructuring liabilities are included in accrued liabilities on the consolidated balance sheets. Asextension of December 31, 2020 and 2019, the componentsexercise period of the restructuring liabilities were as follows (in thousands):
| Severance and Other Termination Benefits |
| |
Balance at December 31, 2018 | $ | - |
|
Severance and other termination benefits |
| 6,277 |
|
Cash payments or settlements |
| (5,602 | ) |
Balance at December 31, 2019 | $ | 675 |
|
Cash payments or settlements |
| (675 | ) |
Balance at December 31, 2020 | $ | - |
|
|
|
Consolidated income (loss) income before provision for income taxes consisted of the following (in thousands):
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| ||||||
U.S. |
| $ | (76,324 | ) |
| $ | (154,605 | ) |
| $ | (160,032 | ) |
| $ | 75,954 |
| $ | (76,324 | ) |
| $ | (154,605 | ) | |
Non U.S. |
|
| 1,084 |
|
|
| 2,005 |
|
|
| 1,133 |
|
|
| 1,567 |
|
|
| 1,084 |
|
|
| 2,005 |
|
Total |
| $ | (75,240 | ) |
| $ | (152,600 | ) |
| $ | (158,899 | ) |
| $ | 77,521 |
|
| $ | (75,240 | ) |
| $ | (152,600 | ) |
8798
There was 0 income tax provision for the years ended December 31, 2020 and 2019. The components of the consolidated income tax provision for the year ended December 31, 2021 were as follows (in thousands):
|
|
|
| |
|
| Year Ended December 31, 2021 |
| |
Current |
|
|
| |
Federal |
| $ | 345 |
|
State |
|
| 260 |
|
Non-US |
|
| 203 |
|
Total current tax expense |
|
| 808 |
|
Deferred |
|
|
| |
Federal |
|
| 0 |
|
State |
|
| 0 |
|
Non-US |
|
| 0 |
|
Total deferred tax expense |
|
| 0 |
|
|
|
|
| |
Total income tax expense |
| $ | 808 |
|
NaN income tax expense was recorded for the years ended December 31, 2020 2019 and 20182019 due to oura full valuation allowance position.allowance. The difference between the consolidated income tax benefitprovision (benefit) and the amount computed by applying the federal statutory income tax rate to the consolidated lossincome before income taxes was as follows (in thousands):
|
| Year Ended December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Income tax provision (benefit) at federal statutory rate |
| $ | 16,397 |
|
| $ | (15,756 | ) |
| $ | (32,046 | ) |
State tax |
|
| 3,576 |
|
|
| (3,194 | ) |
|
| (3,153 | ) |
Business credits |
|
| (982 | ) |
|
| (773 | ) |
|
| (1,757 | ) |
Uncertain tax positions |
|
| 424 |
|
|
| 193 |
|
|
| 5,426 |
|
Deferred compensation charges |
|
| 131 |
|
|
| 809 |
|
|
| 4,600 |
|
Change in valuation allowance |
|
| (86,847 | ) |
|
| 19,009 |
|
|
| 22,715 |
|
Section 162(m) limitation |
|
| 1,241 |
|
|
| 473 |
|
|
| 2,439 |
|
Mark-to-market of warrants |
|
| 10,364 |
|
|
| (866 | ) |
|
| 1,575 |
|
Net operating loss and tax credit limitation |
|
| 56,459 |
|
|
| 0 |
|
|
| 0 |
|
Other |
|
| 45 |
|
|
| 105 |
|
|
| 201 |
|
Total income tax expense |
| $ | 808 |
|
| $ | 0 |
|
| $ | 0 |
|
99
|
| Year Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Income tax benefit at federal statutory rate |
| $ | (15,756 | ) |
| $ | (32,046 | ) |
| $ | (33,366 | ) |
State tax |
|
| (3,194 | ) |
|
| (3,153 | ) |
|
| (5,591 | ) |
Business credits |
|
| (773 | ) |
|
| (1,757 | ) |
|
| (3,065 | ) |
Uncertain tax positions |
|
| 193 |
|
|
| 5,426 |
|
|
| - |
|
Deferred compensation charges |
|
| 809 |
|
|
| 4,600 |
|
|
| (1,165 | ) |
Change in valuation allowance |
|
| 19,009 |
|
|
| 22,715 |
|
|
| 43,134 |
|
Section 162(m) limitation |
|
| 473 |
|
|
| 2,439 |
|
|
| - |
|
Mark-to-market of warrants |
|
| (866 | ) |
|
| 1,575 |
|
|
| - |
|
Other |
|
| 105 |
|
|
| 201 |
|
|
| 53 |
|
Total income tax expense |
| $ | - |
|
| $ | - |
|
| $ | - |
|
Deferred tax assets and liabilities consisted of the following (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net operating loss carry forwards |
| $ | 224,161 |
|
| $ | 207,385 |
| ||||||||
Research tax credit carry forwards |
|
| 28,578 |
|
|
| 27,883 |
| ||||||||
Net operating loss carryforwards |
| $ | 155,503 |
| $ | 224,161 |
| |||||||||
Research credit carryforwards |
|
| 12,870 |
| 28,578 |
| ||||||||||
Lease liability |
|
| 8,515 |
| - |
| ||||||||||
Stock compensation |
|
| 5,798 |
| - |
| ||||||||||
Accruals and reserves |
|
| 17,264 |
|
|
| 17,312 |
|
|
| 5,792 |
| 17,264 |
| ||
Capitalized research costs |
|
| - |
|
|
| 256 |
| ||||||||
Other |
|
| 3,250 |
|
|
| 2,437 |
|
|
| 212 |
|
|
| 3,250 |
|
Total deferred tax assets |
|
| 273,253 |
|
|
| 255,273 |
|
|
| 188,690 |
| 273,253 |
| ||
Less valuation allowance |
|
| (266,100 | ) |
|
| (247,092 | ) |
|
| (179,253 | ) |
|
| (266,100 | ) |
Net deferred tax assets |
|
| 7,153 |
|
|
| 8,181 |
|
|
| 9,437 |
|
|
| 7,153 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Fixed assets |
|
| (275 | ) |
|
| (275 | ) |
|
| (3,283 | ) |
| (275 | ) | |
Operating lease right-of-use assets |
|
| (6,878 | ) |
|
| (7,906 | ) |
|
| (6,124 | ) |
| (6,878 | ) | |
Other |
|
| (30 | ) |
|
| - |
| ||||||||
Total deferred tax liabilities |
|
| (7,153 | ) |
|
| (8,181 | ) |
|
| (9,437 | ) |
|
| (7,153 | ) |
Net deferred tax assets |
| $ | - |
|
| $ | - |
|
| $ | 0 |
|
| $ | 0 |
|
The tax benefit of net operating losses, temporary differences and credit carryforwards is required to be recorded as an asset to the extent that management assesses that realization is “more"more likely than not.”" Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. BecauseA high degree of ourjudgment is required to determine if, and the extent to which, valuation allowances should be recorded against deferred tax assets. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent historyfinancial operations. Based on all available evidence, both positive and negative, and the weight of operating losses,that evidence to the extent such evidence can be objectively verified, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a full valuation allowance. Given our current earnings, management believes that, within the next twelve months, sufficient positive evidence may become available to allow management to reach a conclusion that a portion of the valuation allowance recorded against the deferred tax assets held may be reversed. A reversal would result in an income tax benefit for the quarterly and annual fiscal period in which we release the valuation allowance. However, the exact timing and amount of a valuation allowance release are subject to change on the basis of the level of profitability that we actually achieve.
The valuation allowance increaseddecreased by $19.0$86.8 million and $22.3 million forduring the yearsyear ended December 31, 20202021 and 2019, respectively,increased by $19.0 million during the year ended December 31, 2020. The decrease in valuation allowance during the year ended December 31, 2021 was due to an increasea decrease in our deferred tax assets.assets, predominantly related to utilization of net operating losses and Section 382 limitations.
As of December 31, 2020,2021, we had federal net operating loss carryforwards of approximately $955.0$303.8 million which will begin to expire in the year 20212022, federal net operating loss carryforwards of approximately $333.4 million, which do not expire and federal research and development tax credits of approximately $22.5$1.9 million, which expire in the years 20212022 through 2040.2041.
As of December 31, 2020,2021, we had net operating loss carryforwards for California and other states for income tax purposes of approximately $373.2$345.9 million, which expire in the years 20212022 through 2040,2041, and California state research and development tax credits of approximately $19.8$19.6 million, which do not expire.
As of December 31, 2020,2021, we had net operating loss carryforwards for foreign income tax purposes of approximately $6.7$3.5 million, which do not expire.
88100
Uncertain Income Tax positions
The total amount of unrecognized tax benefits was $10.6$5.6 million and $10.3$10.6 million as of December 31, 20202021 and 2019,2020, respectively. If recognized, NaN of the unrecognized tax benefits would affect the effective tax rate.
The following table summarizes the activity related to our unrecognized tax benefits:
Balance at December 31, 2019 |
| $ | (10,322 | ) |
Tax positions related to the current year |
|
|
|
|
Additions |
|
| (243 | ) |
Reductions |
|
| - |
|
Tax positions related to the prior year |
|
|
|
|
Additions |
|
| - |
|
Reductions |
|
| - |
|
Balance at December 31, 2020 |
| $ | (10,565 | ) |
Balance at December 31, 2020 | $ | (10,565 | ) | |||
Tax positions related to the current year | ||||||
Additions | (308 | ) | ||||
Reductions | 0 | |||||
Tax positions related to the prior year | ||||||
Additions | 0 | |||||
Reductions | 5,258 | |||||
Settlements | 0 | |||||
Lapses in statute | 0 | |||||
Balance at December 31, 2021 | $ | (5,615 | ) | |||
Our policy is to account for interest and penalties as income tax expense. As of December 31, 2021, there was 0 interest and $0.2 million of penalties recognized in the provision for income taxes. As of December 31, 2020, there was 0 interest related to unrecognized tax benefits. NaN amounts ofor penalties related to unrecognized tax benefits were recognized in the provision for income taxes. We do not anticipate any significant change within 12 months of this reporting date of its uncertain tax positions.
The Tax Reform Act of 1986 limits the annual use of net operating loss and tax credit carryforwards in certain situations where changes occur in stock ownership of a company. In the event there is a change in ownership, as defined, the annual utilization of such carryforwards could be limited. Based on an analysis under Section 382 of the Internal Revenue Code, completed through December 31, 2018,2021, we experienced ownership changes in 2008, 2009, 2012, and 20122019 which limit the future use of itsour pre-change federal and state net operating loss carryforwards and federal research and development tax credits. We excluded these federalthe net operating loss carryforwards and federal research and development tax credits that will expire as a result of the annual limitations in the deferred tax assets and corresponding uncertain tax positions as of December 31, 2020. A limitation calculation has not been performed with respect to the California net operating loss carryforwards and research and development tax credits and we believe that our ability to use these California net operating loss carryforwards and research and development tax credits in the future may be limited. We have not completed an analysis and a limitation calculation has not been performed subsequent to the period ending December 31, 2018. Due to equity issuances in 2020 and 2019 and changes in ownership of our common stock, we believe that our net operating losses and tax credits in the future may be further limited.2021.
We are subject to income tax examinations for U.S. federal and state income taxes from 20012002 forward. We are subject to tax examination in Germany from 20172018 forward and in India from 20182019 forward.
101
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. ITEM 9A. CONTROLS AND PROCEDURES
|
|
CEPI Agreement
On January 29, 2021, we entered into an agreement (the “Agreement”) with CEPI for the manufacture and reservation of a specified quantity of CpG 1018 (“CpG 1018 Materials”). The Agreement enables CEPI to direct the supply of CpG 1018 Materials to CEPI partner(s). CEPI partner(s) would purchase CpG 1018 Materials under separately negotiated agreements, subject to specified pricing requirements. The Agreement also allows us to sell CpG 1018 Materials to third-parties if not purchased by a CEPI partner within a defined period of time.
In exchange for reserving CpG 1018 Materials, CEPI has agreed to provide an interest-free, unsecured, forgivable loan of up to $99 million (the “Loan Amount”) which is equivalent to the anticipated manufacturing costs of CpG 1018 Materials. The Loan Amount will be funded in part upon the execution of the Agreement, in part upon the exercise of CEPI’s option to reserve additional quantity of CpG 1018 Materials and in part upon the release of CpG 1018 Materials. We are obligated to repay the Loan Amount, on a proportional basis, if and to the extent we receive payment for CpG 1018 Materials reserved under the Agreement. If the vaccine programs pursued by CEPI partner(s) are unsuccessful and no alternative use is found for CpG 1018 Materials reserved under the Agreement, the applicable Loan Amount will be forgiven.
Amendment to CRG Loan Agreement
On January 29, 2021, we entered into a fourth amendment to the Loan Agreement with CRG (the “Fourth Amendment”). The Fourth Amendment amended the Loan Agreement to, among other things, allow us to enter into the Agreement with CEPI and to perform our obligations thereunder.
89
|
|
None.
|
|
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“the Exchange Act”)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable, not absolute, assurance of achieving the desired control objectives.
Based on their evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures are effective and were operating at the reasonable assurance level to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.2021. The Company’s independent registered public accountants, Ernst & Young LLP, audited the consolidated financial statements included in this Annual Report on Form 10-K and have issued a report on the Company’s internal control over financial reporting. The report on the audit of internal control over financial reporting appears below.
90
102
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Dynavax Technologies Corporation
Opinion on Internal Control over Financial Reporting
We have audited Dynavax Technologies Corporation’s internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Dynavax Technologies Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20202021 and 2019,2020, and the related consolidated statements of operations, comprehensive loss,income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 20202021 and the related notes of the Company and our report dated February 25, 202128, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Francisco, California
February 25, 202128, 2022
103
(c) Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. 104 |
|
None.
91
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
|
Information required by this Item is incorporated by reference to the sections entitled “Proposal 1—Elections of Directors,” “Executive Officers,” “Corporate Governance” and “Delinquent Section 16(a) Reports” in our Definitive Proxy Statement in connection with the 20212022 Annual Meeting of Stockholders (the “Proxy Statement”) which will be filed with the Securities and Exchange Commission within 120 days after the fiscal year ended December 31, 2020.2021.
We have adopted the Dynavax Code of Business Conduct and Ethics (“Code of Conduct”), a code of ethics that applies to our employees, including our Chief Executive Officer, Chief Financial Officer and to our non-employee directors. The Code of Conduct is publicly available on our website under the Investors and Media section at www.dynavax.com. This website address is intended to be an inactive, textual reference only; none of the material on this website is part of this report. If any substantive amendments are made to the Code of Conduct or any waiver granted, including any implicit waiver, from a provision of the Code of Conduct to our Chief Executive Officer or Chief Financial Officer, we will disclose the nature of such amendment or waiver on that website or in a report on Form 8-K. We will provide a written copy of the Dynavax Code of Conduct to anyone without charge, upon request written to Dynavax, Attention: Corporate Secretary, 2100 Powell Street, Suite 900, Emeryville, CA 94608, (510) 848-5100.
ITEM 11. EXECUTIVE COMPENSATION
|
|
Information required by this Item is incorporated by reference to the section entitled “Executive“Compensation Discussion and Analysis,” “Summary Compensation Program,Table,” “Director Compensation,” “Compensation Overview,” “Report“Grants of the Compensation Committee of the Board of Directors on Executive Compensation,Plan Based Awards,” “Outstanding Equity Awards at Fiscal Year End”End,” and “Compensation Committee Interlocks and Insider Participation”“Corporate Governance” in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
|
Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement. Information regarding our stockholder approved and non-approved equity compensation plans are incorporated by reference to the section entitled “Equity Compensation Plans” in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
|
Information required by this Item is incorporated by reference to the sections entitled “Certain Transactions With Related Parties” and “Independence of the Board of Directors” in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
|
Information required by this Item is incorporated by reference to the section entitled “Audit Fees” in the Proxy Statement.
92105
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
|
(a) Documents filed as part of this report:
1. Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive LossIncome (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
None, as all required disclosures have been made in the Consolidated Financial Statements and notes thereto or are not applicable.
(b) Exhibits
93
106
|
| Incorporated by Reference |
| |||||||
Exhibit Number | Document | Exhibit Number | Filing | Filing Date | File No. | Filed Herewith | ||||
3.10 | Certificate of Amendment of the Sixth Amended and Restated Certificate of Incorporation | 3.1 | 8-K | May 29, 2020 | 001-34207 |
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3.11 | 3.1 | 8-K | August 8, 2019 | 001-34207 |
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4.1 |
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| X | |||||
4.2 | Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10 and 3.11 above |
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4.3 | 4.2 | S-1/A | January 16, 2004 | 333-109965 |
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4.4 | 4.3 | 10-Q | November 7, 2019 | 001-34207 |
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4.5 | 4.1 | 8-K | August 8, 2019 | 001-34207 |
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10.1 | 10.47 | 10-K | March 16, 2010 | 001-34207 |
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10.2+ | Employment Agreement, dated July 12, 2013, by and between Robert Janssen, M.D. and the Company | 10.85 | 10-K | March 10, 2014 | 001-34207 |
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10.3+ | 99.4 | S-8 | June 1, 2016 | 333-211747 |
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10.4+ | 10.2 | 10-Q | August 7, 2019 | 001-34207 |
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10.6+ | 10.1 | 8-K | November 30, 2017 | 001-34207 |
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10.7† | 10.33 | 10-K | March 8, 2018 | 001-34207 |
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10.8† | Supply Agreement, dated November 2, 2016, between Company and Becton, Dickinson and Company | 10.34 | 10-K | March 8, 2018 | 001-34207 |
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10.9† | Supply Agreement, dated October 1, 2012, between Company and Nitto Denko Avecia, Inc. | 10.35 | 10-K | March 8, 2018 | 001-34207 |
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10.10† | Supply Agreement, dated July 27, 2016, between Company and West Pharmaceutical Services, Inc. | 10.36 | 10-K | March 8, 2018 | 001-34207 |
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94
3.8 | Certificate of Amendment of the Sixth Amended and Restated Certificate of Incorporation | 3.1 | 8-K | May 29, 2020 | 001-34207 |
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3.9 | 3.8 | 10-Q | November 6, 2018 | 001-34207 |
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4.1 | 4.1 | 10-K |
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4.2 | Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8 and 3.9 above |
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4.3 | 4.2 | S-1/A | January 16, 2004 | 333-109965 |
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4.5 | Indenture between Company and U.S. Bank National Association, as trustee, dated May 13, 2021 | 4.1 | 8-K | May 13, 2021 | 001-34207 |
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4.6 | 4.2 | 8-K | May 13, 2021 | 001-34207 |
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10.1 | 10.47 | 10-K | March 16, 2010 | 001-34207 |
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10.2+ | Employment Agreement, dated July 12, 2013, by and between Robert Janssen, M.D. and the Company | 10.85 | 10-K | March 10, 2014 | 001-34207 |
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10.3+ | 10.2 | 10-Q | August 7, 2019 | 001-34207 |
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10.4† | 10.33 | 10-K | March 8, 2018 | 001-34207 |
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| Incorporated by Reference |
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Exhibit Number | Document | Exhibit Number | Filing | Filing Date | File No. | Filed Herewith | ||||
10.11+ | 10.2 | 10-Q | August 6, 2020 | 001-34207 |
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10.12 | 10.3 | 10-Q | May 9, 2018 | 001-34207 |
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10.13+ | 10.1 | 10-Q | August 6, 2020 | 001-34207 |
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10.14+ | 10.2 | 8-K | June 1, 2018 | 001-34207 |
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10.15+ | Form of Option Grant Notice and Option Agreement under the 2018 Equity Incentive Plan | 10.3 | 8-K | June 1, 2018 | 001-34207 |
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10.16 | Office/Laboratory Lease, dated September 17, 2018, between the Company and Emery Station West, LLC | 10.1 | 10-Q | November 6, 2018 | 001-34207 |
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10.17+ | Chief Executive Officer Letter, dated December 13, 2019, between the Company and Ryan Spencer | 10.17 | 10-K | March 11, 2020 | 001-34207 |
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10.18+ | 10.18 | 10-K | March 11, 2020 | 001-34207 |
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10.19+ | 10.1 | 10-Q | November 7, 2019 | 001-34207 |
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10.20 | 10.2 | 10-Q | November 7, 2019 | 001-34207 |
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10.21 | Sublease, by and between Dynavax Technologies Corporation and Zymergen Inc., dated July 12, 2019 | 10.3 | 10-Q | November 7, 2019 | 001-34207 |
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10.22 | 10.4 | 10-Q | November 7, 2019 | 001-34207 |
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10.23+ | 10.23 | 10-K | March 11, 2020 | 001-34207 |
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| Incorporated by Reference |
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Exhibit Number | Document | Exhibit Number | Filing | Filing Date | File No. | Filed Herewith | ||||
10.24 | 99.D | 13D/A | March 12, 2020 | 005-80035 |
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10.25 | 99.E | 13D/A | March 12, 2020 | 005-80035 |
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10.26^ | 10.2 | 10-Q | November 5, 2020 | 001-34207 |
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10.27+ | 10.3 | 10-Q | November 5, 2020 | 001-34207 |
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10.28 | 10.4 | 10-Q | November 5, 2020 | 001-34207 |
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10.29 | Sales Agreement, dated August 6, 2020, between the Company and Cowen and Company, LLC | 10.3 | 10-Q | August 6, 2020 | 001-34207 |
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10.30+ | 10.1 | 8-K | January 12, 2021 | 001-34207 |
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10.31^ |
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10.32 |
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10.33+ |
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21.1 |
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23.1 |
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96
10.17 | Sublease, by and between Dynavax Technologies Corporation and Zymergen Inc., dated July 12, 2019 | 10.3 | 10-Q | November 7, 2019 | 001-34207 |
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10.18+ | 10.23 | 10-K | March 11, 2020 | 001-34207 |
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10.19 | 99.D | 13D/A | March 12, 2020 | 005-80035 |
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10.20^ | 10.2 | 10-Q | November 5, 2020 | 001-34207 |
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10.21^ |
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10.22+ | 10.3 | 10-Q | November 5, 2020 | 001-34207 |
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10.23 | Sales Agreement, dated August 6, 2020, between the Company and Cowen and Company, LLC | 10.3 | 10-Q | August 6, 2020 | 001-34207 |
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10.24^ | 10.31 | 10-K | February 25, 2021 | 001-34207 |
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10.25+ | Offer Letter, dated December 14, 2020, by and between the Company and Kelly MacDonald | 10.33 | 10-K | February 25, 2021 | 001-34207 |
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10.26^ | 10.1 | 10-Q | August 4, 2021 | 001-34207 |
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10.27+ | Amended and Restated Dynavax Technologies Corporation 2021 Inducement Award Plan | 10.3 | 10-Q | August 4, 2021 | 001-34207 |
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109
10.28+ | Dynavax Technologies Corporation Amended and Restated 2014 Employee Stock Purchase Plan | Appendix A | DEF 14A | April 16, 2021 | 001-34207 |
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10.29 | 10.1 | 8-K | May 13, 2021 | 001-34207 |
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10.30^ | 10.6 | 10-Q | August 4, 2021 | 001-34207 |
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10.31^ | Supply Agreement, dated July 1, 2021, by and between Company and Biological E. Limited | 10.7 | 10-Q | August 4, 2021 | 001-34207 |
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10.32 | 10.2 | 10-Q | November 4, 2021 | 001-34207 |
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10.33^ | 10.3 | 10-Q | November 4, 2021 | 001-34207 |
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10.34+ |
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| X | |
21.1 |
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23.1 |
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| X | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| X |
31.2 |
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| X | |
32.1* | Certification of Chief Executive Officer to Section 906 of the Sarbanes-Oxley Act of 2002 |
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| X |
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EX—101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
EX—101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
EX—101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
EX—101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
EX—101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
EX—101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
EX—104 | The cover page for the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, has been formatted in Inline XBRL |
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| † We have been granted confidential treatment with respect to certain portions of this agreement. Omitted portions have been filed separately with the Securities and Exchange Commission. + Indicates management contract, compensatory plan or arrangement. ^ Certain portions of this exhibit (indicated by asterisks) have been omitted as the Registrant has determined that (i) the omitted information is not material and (ii) the omitted information would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant agrees to furnish supplementally an unredacted copy of any exhibit to the Securities and Exchange Commission upon request; provided, however, that the Registrant may request confidential treatment of omitted items. * The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Form 10-K), irrespective of any general incorporation language contained in such filing. ITEM 16. FORM 10-K SUMMARY |
None.
97111
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Emeryville, State of California.
Dynavax Technologies Corporation | |||
By: |
| /s/ RYAN SPENCER | |
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| Ryan Spencer Chief Executive Officer (Principal Executive Officer) | |
Date: February 25, 202128, 2022
By: |
| /s/ | |
|
|
Chief Financial Officer (Principal Financial Officer) |
Date: February 25, 202128, 2022
By: |
| /s/ JUSTIN BURGESS | |
|
| Justin Burgess Controller (Principal Accounting Officer) |
Date: February 25, 202128, 2022
98112
Signature | Title |
| Date | |
/s/ RYAN SPENCER | Chief Executive Officer | February | ||
Ryan Spencer | (Principal Executive Officer) | |||
/s/ | Chief Financial Officer | February | ||
| (Principal Financial Officer) | |||
/s/ JUSTIN BURGESS | Controller | February | ||
Justin Burgess | (Principal Accounting Officer) | |||
/s/ | Chairman of the Board | February | ||
| ||||
/s/ FRANCIS R. CANO | Director | February | ||
Francis R. Cano, Ph.D. | ||||
/s/ JULIE EASTLAND | Director | February | ||
Julie Eastland | ||||
/s/ ANDREW HACK | Director | February 28, 2022 | ||
Andrew Hack, M.D., Ph.D. | ||||
/s/ DANIEL L. KISNER | Director | February | ||
Daniel L. Kisner, M.D. | ||||
/s/ BRENT MACGREGOR | Director | February | ||
Brent MacGregor | ||||
/s/ PETER R. PARADISO | Director | February | ||
Peter R. Paradiso | ||||
/s/ PEGGY V. PHILLIPS | Director | February | ||
Peggy V. Phillips | ||||
/s/ NATALE S. RICCIARDI | Director | February | ||
Natale S. Ricciardi | ||||
/s/ ELAINE D. SUN | Director | February 28, 2022 | ||
Elaine D. Sun |
99113