Dynavax(DVAX) - 2020 Q4 - Annual Report

Part I Business Dynavax is a biopharmaceutical company focused on its FDA-approved hepatitis B vaccine, HEPLISAV-B, and its proprietary adjuvant, CpG 1018 - The company's primary commercial product is HEPLISAV-B®, the only two-dose hepatitis B vaccine for adults approved in the U.S. and also approved in the European Union in February 2021[20] - A key growth driver is the proprietary adjuvant CpG 1018, which is sold for use in HEPLISAV-B and supplied to partners like Valneva for COVID-19 vaccine development[21][50] - The COVID-19 pandemic negatively impacted HEPLISAV-B sales due to reduced adult vaccination rates but simultaneously increased demand and interest in the CpG 1018 adjuvant for new vaccine development[23][24] U.S. Market Opportunity for HEPLISAV-B (in millions) | Market Scenario | Estimated Annual Net Sales | | :--- | :--- | | Current U.S. Market (2019 data) | ~$400 | | Potential Future Market | >$600 | - The company faces significant competition from established hepatitis B vaccines marketed by GlaxoSmithKline (Engerix-B, Twinrix) and Merck (Recombivax-HB), with VBI Vaccines also a potential future competitor[67][159] - Intellectual property for CpG 1018 lacks composition of matter patent protection, forcing reliance on method-of-use patents and trade secrets[145][221] Risk Factors The company faces significant commercial, financial, manufacturing, regulatory, and intellectual property risks, particularly for HEPLISAV-B - Commercial Risk: As the company's first marketed product, the commercial success and uptake of HEPLISAV-B are unpredictable and face significant competition[119] - Pandemic Risk: The COVID-19 pandemic has adversely affected and may continue to affect business operations and HEPLISAV-B sales due to reduced utilization of adult vaccines[128][131] - Financial Risk: The company has a history of net losses and anticipates continued losses, potentially requiring substantial additional capital to finance operations[162][164] - Manufacturing Risk: The company relies on its facility in Germany and a limited number of third-party suppliers, including a single supplier for its critical CpG 1018 adjuvant, creating supply chain vulnerability[140][141] - Regulatory Risk: Dynavax is subject to extensive and ongoing FDA post-marketing obligations for HEPLISAV-B, which are costly and could result in penalties or withdrawal of approval if not met[153] - Intellectual Property Risk: CpG 1018 has no composition of matter patent protection, forcing reliance on method-of-use patents and trade secrets, which may be inadequate to prevent competition[145][221] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[248] Properties Dynavax leases all its facilities, including headquarters in Emeryville, California, and manufacturing space in Düsseldorf, Germany - Leases office space for its global headquarters at 2100 Powell Street, Emeryville, California, under a sublease until June 2022[249] - Leases and subleases 75,662 square feet of laboratory and office space at 5959 Horton Street, Emeryville, California, with both agreements expiring in March 2031[250] - Leases approximately 5,600 square meters of manufacturing and office space in Düsseldorf, Germany, with the lease expiring in March 2023[251] Legal Proceedings The company states that it is not currently aware of any material legal proceedings involving the company - Not currently aware of any material legal proceedings[253] Mine Safety Disclosure This item is not applicable to the company - Not applicable[254] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "DVAX"; it has never paid cash dividends and does not anticipate doing so - Common stock is traded on the Nasdaq Capital Market under the ticker symbol "DVAX"[257] - The company has never paid cash dividends and does not plan to in the foreseeable future[258] Selected Financial Data The company has elected to omit this disclosure in reliance on the amended Item 301 of Regulation S-K - The Company has elected to omit this disclosure[261] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, total revenues increased to $46.6 million, net loss significantly reduced to $75.2 million, with $165.0 million cash Financial Performance Summary (2020 vs. 2019, in millions) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $46.6 | $35.2 | +32% | | HEPLISAV-B Revenue, Net | $36.0 | $34.6 | +4% | | CpG 1018 Revenue, Net | $3.3 | $0 | N/A | | R&D Expense | $28.6 | $62.3 | -54% | | Net Loss | ($75.2) | ($152.6) | +51% | - The COVID-19 pandemic continued to disrupt the adult vaccine market, with hepatitis B market utilization down approximately 35% in Q4 2020 compared to the prior year, negatively affecting HEPLISAV-B sales[273] - The company ended 2020 with $165.0 million in cash, cash equivalents, and marketable securities and believes these funds are sufficient for at least the next 12 months[330][386] - In July 2020, the company sold assets related to its immuno-oncology compound SD-101, recognizing a net gain of $6.9 million[271][324] Results of Operations In 2020, total revenues grew 32% to $46.6 million, driven by CpG 1018 and other revenue, with R&D expenses down 54% Revenue Breakdown (in thousands) | Revenue Source | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | HEPLISAV-B | $36,030 | $34,644 | 4% | | CpG 1018 | $3,277 | $0 | NM | | Other revenue | $7,244 | $575 | 1160% | | Total revenues | $46,551 | $35,219 | 32% | Operating Expenses (in thousands) | Expense Category | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Cost of sales - product | $11,410 | $10,172 | 12% | | Research and development | $28,607 | $62,331 | (54)% | | Selling, general and administrative | $79,256 | $74,986 | 6% | - The significant decrease in R&D expenses was a direct result of the May 2019 restructuring, which focused the company on its vaccine business and wound down immuno-oncology programs[317] - Other revenue in 2020 was substantially boosted by a $6.3 million payment recognized upon the termination of an agreement with the Coalition for Epidemic Preparedness Innovations (CEPI)[307] Liquidity and Capital Resources As of December 31, 2020, Dynavax held $165.0 million in cash, bolstered by $75.4 million from a public offering and $33.1 million from ATM sales - The company ended 2020 with $165.0 million in cash, cash equivalents, and marketable securities[330] - Major financing activities in 2020 included a $75.4 million public offering in May and $33.1 million raised through ATM sales agreements[268][269][333] - As of Dec 31, 2020, the principal amount of the term loan with CRG Servicing LLC was $180.9 million, with a maturity date of December 2023[330][339] Contractual Obligations as of December 31, 2020 (in thousands) | Obligation Type | Total | Due in 2021 | Due in 2022-2023 | Due in 2024-2025 | Due Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $60,616 | $6,942 | $11,671 | $11,243 | $30,760 | | Long-term debt obligation | $188,141 | $0 | $188,141 | $0 | $0 | | Purchase commitments | $21,948 | $21,948 | $0 | $0 | $0 | | Total | $270,705 | $28,890 | $199,812 | $11,243 | $30,760 | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk on its investment portfolio and foreign currency risk from its German subsidiary - The company is subject to interest rate risk on its investment portfolio; a 100 basis point change in interest rates is estimated to change the fair value of investments by $1.2 million[347] - Foreign currency risk exposure comes from the operations of its German subsidiary, Dynavax GmbH, but the effect has not been material[349] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2020, including the unqualified auditor's report and detailed notes Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the financial statements, highlighting product return reserves as a critical audit matter - The auditor, Ernst & Young LLP, issued an unqualified (clean) opinion on the financial statements[355] - A Critical Audit Matter was identified related to the reserves for product returns, citing the challenge of auditing management's assumptions due to limited historical returns data[360][361] Consolidated Financial Statements The consolidated financial statements show $353.3 million in total assets, $294.6 million in liabilities, $46.6 million in revenues, and a $75.2 million net loss Consolidated Balance Sheet Highlights (as of Dec 31, 2020, in thousands) | Account | Amount | | :--- | :--- | | Cash, cash equivalents, & marketable securities | $165,036 | | Total Assets | $353,272 | | Long-term debt, net | $179,811 | | Total Liabilities | $294,579 | | Total Stockholders' Equity | $58,693 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2020, in thousands) | Account | Amount | | :--- | :--- | | Total Revenues | $46,551 | | Total Operating Expenses | $114,922 | | Loss from Operations | ($68,371) | | Net Loss | ($75,240) | | Basic Net Loss Per Share | ($0.75) | Consolidated Statement of Cash Flows Highlights (Year ended Dec 31, 2020, in thousands) | Activity | Amount | | :--- | :--- | | Net cash used in operating activities | ($92,251) | | Net cash used in investing activities | ($26,532) | | Net cash provided by financing activities | $109,499 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, fair value, intangible assets, commitments, debt, revenue recognition, and equity transactions Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[547] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective, with the auditor issuing an unqualified opinion - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[548] - Management concluded that internal control over financial reporting was effective as of December 31, 2020[549] - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[552] Other Information The company reports no other information for this item - None[559] Part III Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders[562] Executive Compensation Information required by this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Definitive Proxy Statement[564] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Definitive Proxy Statement[565] Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Definitive Proxy Statement[566] Principal Accounting Fees and Services Information required by this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Definitive Proxy Statement[567] Part IV Exhibits, Financial Statement Schedules This item lists all documents filed as part of the annual report, including consolidated financial statements, notes, and a comprehensive list of exhibits - Lists all financial statements, schedules, and exhibits filed with the Form 10-K[570] Form 10-K Summary The company reports no Form 10-K summary - None[576]