Dynavax(DVAX) - 2022 Q2 - Quarterly Report

Form 10-Q Cover Page Dynavax Technologies Corporation filed its Form 10-Q for the quarterly period ended June 30, 2022, as a large accelerated filer with 126,473,586 shares outstanding as of August 1, 2022 - Dynavax Technologies Corporation filed its Form 10-Q for the quarterly period ended June 30, 2022. The company is a large accelerated filer and had 126,473,586 shares of common stock outstanding as of August 1, 2022[1][2] INDEX The index outlines the Form 10-Q structure, detailing financial and other information with corresponding page numbers - The index outlines the structure of the Form 10-Q, dividing it into Part I (Financial Information) and Part II (Other Information), detailing specific items and their corresponding page numbers[4] FORWARD-LOOKING STATEMENTS This section warns that the report contains forward-looking statements whose actual results may differ materially due to various factors - This section warns readers that the report contains forward-looking statements regarding business operations, product commercialization (HEPLISAV-B, CpG 1018 adjuvant), clinical pipeline (Tdap, shingles, plague), regulatory strategy, capital needs, and future profitability. Actual results may differ materially due to various factors, including those detailed in 'Item 1A—Risk Factors'[6] RISK FACTOR SUMMARY Key risks include intense competition, COVID-19 impacts, intellectual property protection, financial variability, reimbursement uncertainty, and post-marketing obligations - Key risks include significant competition for HEPLISAV-B, adverse effects of the COVID-19 pandemic on business and collaborations, potential failure of CpG 1018 adjuvant intellectual property protection, significant quarterly financial variability, uncertainty regarding coverage and reimbursement, ongoing post-marketing obligations for HEPLISAV-B, and the company's history of net losses despite recent profitability[9][11] PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related notes for the reporting period ITEM 1. FINANCIAL STATEMENTS (unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, fair value measurements, and specific financial line items Condensed Consolidated Balance Sheets Presents the company's financial position, assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2022 (unaudited) | December 31, 2021 (Note 1) | |:-------------------------------------------|:--------------------------|:---------------------------| | Assets | | | | Cash and cash equivalents | $249,091 | $436,189 | | Marketable securities available-for-sale | $269,078 | $109,761 | | Accounts receivables, net | $172,270 | $116,216 | | Inventories, net | $73,979 | $61,335 | | Prepaid manufacturing | $54,477 | $159,655 | | Total current assets | $955,405 | $972,520 | | Total assets | $1,022,999 | $1,039,246 | | Liabilities and stockholders' equity | | | | CEPI accrual (Note 6) | $107,370 | $128,848 | | Deferred revenue | $191,998 | $349,864 | | Total current liabilities | $345,198 | $556,402 | | Convertible Notes, net | $221,030 | $220,490 | | Total liabilities | $600,200 | $816,872 | | Total stockholders' equity | $422,799 | $222,374 | | Total liabilities and stockholders' equity | $1,022,999 | $1,039,246 | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income for the three and six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Product revenue, net | $255,320 | $52,677 | $367,647 | $135,562 | | Other revenue | $1,144 | $90 | $2,809 | $540 | | Total revenues | $256,464 | $52,767 | $370,456 | $136,102 | | Cost of sales - product | $83,369 | $14,845 | $123,331 | $39,470 | | Research and development | $9,689 | $7,167 | $20,784 | $14,925 | | Selling, general and administrative | $36,179 | $21,583 | $68,351 | $44,006 | | Income from operations | $128,227 | $9,172 | $158,990 | $37,701 | | Net income | $128,755 | $4,473 | $161,614 | $5,364 | | Net income per share (Basic) | $1.02 | $0.04 | $1.29 | $0.04 | | Net income per share (Diluted) | $0.87 | $0.02 | $1.08 | $0.04 | Condensed Consolidated Statements of Comprehensive Income (Loss) Reports net income and other comprehensive income or loss components for the three and six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:--------------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net income | $128,755 | $4,473 | $161,614 | $5,364 | | Change in unrealized gain (loss) on marketable securities available-for-sale | ($629) | $38 | ($1,901) | $29 | | Foreign currency translation adjustments | ($1,768) | $375 | ($2,393) | ($1,015) | | Total other comprehensive income (loss) | ($2,397) | $413 | ($4,294) | ($986) | | Total comprehensive income | $126,358 | $4,886 | $157,320 | $4,378 | Condensed Consolidated Statements of Stockholders' Equity Summarizes changes in stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Item | Balances at Dec 31, 2021 | Issuance of common stock upon exercise of warrants | Issuance of common stock upon exercise of stock options and/or release of restricted stock awards, net | Issuance of common stock under Employee Stock Purchase Plan | Stock compensation expense | Total other comprehensive loss | Net income | Balances at June 30, 2022 | |:-------------------------------------------|:-------------------------|:---------------------------------------------------|:-----------------------------------------------------------------------|:--------------------------------------------|:---------------------------|:-------------------------------|:-----------|:--------------------------| | Common Shares | 122,945 | 1,879 | 1,533 | 82 | - | - | - | 126,439 | | Stock Par Amount | $123 | $2 | $1 | $- | $- | $- | $- | $126 | | Additional Paid-In Capital | $1,441,868 | $24,668 | $2,149 | $710 | $15,575 | $- | $- | $1,484,970 | | Accumulated Other Comprehensive (Loss) Income | ($2,266) | $- | $- | $- | $- | ($4,294) | $- | ($6,560) | | Accumulated Deficit | ($1,217,351) | $- | $- | $- | $- | $- | $161,614 | ($1,055,737) | | Total Stockholders' Equity | $222,374 | $24,670 | $2,150 | $710 | $15,575 | ($4,294) | $161,614 | $422,799 | Condensed Consolidated Statements of Cash Flows Provides a breakdown of cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021 Condensed Consolidated Statements of Cash Flows (in thousands) | Operating activities | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:------------------------------------------------------------|:-------------------------------|:-------------------------------| | Net income | $161,614 | $5,364 | | Net cash (used in) provided by operating activities | ($33,792) | $148,820 | | Net cash used in investing activities | ($163,981) | ($86,385) | | Net cash provided by financing activities | $11,315 | $35,638 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | ($657) | ($546) | | Net (decrease) increase in cash, cash equivalents and restricted cash | ($187,115) | $97,527 | | Cash, cash equivalents and restricted cash at beginning of period | $436,408 | $32,310 | | Cash, cash equivalents and restricted cash at end of period | $249,293 | $129,837 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's significant accounting policies, fair value measurements, and specific financial line items 1. Organization and Summary of Significant Accounting Policies This note describes Dynavax Technologies Corporation as a commercial-stage biopharmaceutical company focused on innovative vaccines, with HEPLISAV-B as its first marketed product and CpG 1018 adjuvant used in COVID-19 vaccines. It outlines the basis of financial statement presentation, the use of estimates, and significant accounting policies for revenue recognition, inventories, convertible notes, and recent accounting pronouncements - Dynavax is a commercial-stage biopharmaceutical company with HEPLISAV-B (Hepatitis B Vaccine) approved in the U.S. and EU, and commercial shipments commenced in Germany in May 2022[31][169] - The company manufactures and sells CpG 1018 adjuvant, used in HEPLISAV-B and in global commercial supply agreements for COVID-19 vaccines, and is advancing a clinical pipeline leveraging CpG 1018 for Tdap, shingles, and plague[31][167] - Revenue recognition follows ASC 606, recognizing revenue when control of goods or services is transferred to the customer. Product revenue, net, includes estimates for variable consideration like returns, chargebacks, discounts, rebates, and other fees[37][39][40] - Inventories are stated at the lower of cost or estimated net realizable value on a FIFO basis, with estimates for future demand and expiration dates. Manufacturing costs for product candidates are expensed as R&D until regulatory approval[50][52][53] - The company accounts for its 2.50% convertible senior notes due 2026 as a long-term liability and capped call transactions as stockholders' equity[54][55] 2. Fair Value Measurements This note details the company's fair value measurements for financial assets and liabilities, categorizing them into Level 1, Level 2, and Level 3 inputs based on observability. It also provides a summary of changes in the fair value of warrant liability Fair Value Hierarchy for Financial Assets (in thousands) | Item | June 30, 2022 | Level 1 | Level 2 | Level 3 | Total | |:------------------------------------|:--------------|:----------|:----------|:--------|:----------| | Money market funds | | $211,632 | - | - | $211,632 | | U.S. treasuries | | - | $62,891 | - | $62,891 | | U.S. government agency securities | | - | $1,748 | - | $1,748 | | Corporate debt securities | | - | $227,907 | - | $227,907 | | Total assets | | $211,632 | $292,546 | - | $504,178 | | | | | | | | | December 31, 2021 | | Level 1 | Level 2 | Level 3 | Total | | Money market funds | | $429,194 | - | - | $429,194 | | U.S. treasuries | | - | $4,004 | - | $4,004 | | U.S. government agency securities | | - | $26,548 | - | $26,548 | | Corporate debt securities | | - | $79,209 | - | $79,209 | | Total assets | | $429,194 | $109,761 | - | $538,955 | | Liabilities (Dec 31, 2021) | | - | - | $18,016 | $18,016 | 3. Cash, Cash Equivalents, Restricted Cash and Marketable Securities This note provides a reconciliation of cash, cash equivalents, and restricted cash, and details the composition and maturities of marketable securities classified as available-for-sale. It also discusses the company's policy for assessing other-than-temporary declines in fair value Cash, Cash Equivalents and Restricted Cash Reconciliation (in thousands) | Item | June 30, 2022 | December 31, 2021 | |:------------------------------------------------------------------|:--------------|:------------------| | Cash and cash equivalents | $249,091 | $436,189 | | Restricted cash | $202 | $219 | | Total cash, cash equivalents and restricted cash | $249,293 | $436,408 | Marketable Securities Available-for-Sale Maturities (in thousands) | Maturity | June 30, 2022 Amortized Cost | June 30, 2022 Estimated Fair Value | |:---------------------------------------|:-----------------------------|:-----------------------------------| | Mature in one year or less | $270,968 | $269,078 | | Mature after one year through two years | - | - | | Total | $270,968 | $269,078 | - All investment portfolio is classified as available-for-sale and short-term. Unrealized gains and losses are included in accumulated other comprehensive loss. No realized gains or losses from sales of marketable securities for the three and six months ended June 30, 2022 and 2021[70][71] 4. Inventories, net This note details the composition of the company's inventories, net, including raw materials, work-in-process, and finished goods, and provides information on prepaid manufacturing costs Inventories, net (in thousands) | Item | June 30, 2022 | December 31, 2021 | |:----------------|:--------------|:------------------| | Raw materials | $32,789 | $26,637 | | Work-in-process | $18,189 | $14,748 | | Finished goods | $23,001 | $19,950 | | Total | $73,979 | $61,335 | - Finished goods inventory as of June 30, 2022, included $11.4 million of HEPLISAV-B and the remaining balance was CpG 1018 adjuvant for collaboration partners. Prepaid manufacturing costs for CpG 1018 adjuvant were $54.5 million as of June 30, 2022, expected to convert to inventory within twelve months[72][73] 5. Commitments and Contingencies This note outlines the company's lease commitments for facilities in Emeryville, California, and Düsseldorf, Germany, including new lease agreements and sublease income. It also details material non-cancelable purchase commitments, convertible notes, and contingent payment obligations related to asset sales - The company entered into a new lease for its Emeryville office space (Powell Street Lease) in March 2022, effective June 1, 2022, replacing a sublease that expired June 30, 2022. The Horton Street Master Lease for office and laboratory space continues until March 31, 2031, with a sublease generating income[75][77][78][79] Operating Lease Liabilities (in thousands) | Item | June 30, 2022 | December 31, 2021 | |:------------------------------------------------------------------|:--------------|:------------------| | Current portion of lease liabilities | $3,039 | $2,577 | | Long-term portion of lease liabilities | $33,677 | $34,316 | | Total operating lease liabilities | $36,716 | $36,893 | - Material non-cancelable purchase and other commitments for HEPLISAV-B and CpG 1018 totaled $115.7 million as of June 30, 2022. The aggregate principal amount of Convertible Notes was $225.5 million[86] - The company received $1.0 million from TriSalus in May 2022 for meeting a pre-commercialization milestone related to the SD-101 asset sale, recognizing it as a gain on sale of assets[88] 6. Collaboration, Development and Supply Agreements This note details various agreements for the supply of CpG 1018 adjuvant for COVID-19 vaccines and other development programs. It covers agreements with CEPI, Clover, Bio E, Bio Farma, Medigen, Valneva, the U.S. Department of Defense, and Serum Institute of India Pvt. Ltd., outlining payment structures, revenue recognition, and key financial impacts - Under the CEPI Agreement, Dynavax received Advance Payments of approximately $175.1 million through June 30, 2022, for manufacturing and reserving CpG 1018 adjuvant. $107.4 million was recorded as CEPI accrual as of June 30, 2022[93][95] - For the three and six months ended June 30, 2022, CpG 1018 product revenue, net, from Clover was $91.3 million and $113.6 million, respectively. Contract asset balance from Clover was $71.3 million as of June 30, 2022[101][102] - CpG 1018 adjuvant net product revenue from Bio E was $51.0 million and $118.3 million for the three and six months ended June 30, 2022, respectively. Accounts receivable from Bio E was $95.6 million as of June 30, 2022[107] - In May 2022, Dynavax entered a supply agreement with Bio Farma, recognizing CpG 1018 adjuvant net product revenue of $12.3 million and $14.3 million for the three and six months ended June 30, 2022, respectively[109][112] - The Valneva Amendment in October 2021 modified the supply agreement, leading to the recognition of $68.0 million in CpG 1018 adjuvant net product revenue for the three and six months ended June 30, 2022, including $55.4 million of advance payments[120][121][122] - Revenue from the DoD agreement for plague vaccine development was $1.1 million and $2.7 million for the three and six months ended June 30, 2022, respectively[123] 7. Convertible Notes This note details the issuance of $225.5 million aggregate principal amount of 2.50% convertible senior notes due 2026, including their terms, conversion features, and accounting treatment. It also covers the associated capped call transactions - In May 2021, Dynavax issued $225.5 million aggregate principal amount of 2.50% convertible senior notes due 2026. Net proceeds of $219.8 million were used to retire previous debt and pay for capped calls[125] - The Convertible Notes are convertible into cash, common stock, or a combination, at an initial conversion rate of 95.5338 shares per $1,000 principal amount (approx. $10.47/share). Conversion conditions were not met as of July 1, 2022[128][130] - As of June 30, 2022, the fair value of the Convertible Notes was $337.3 million, recorded as a long-term liability of $225.5 million less unamortized issuance costs of $4.5 million[133] Interest Expense Related to Convertible Notes (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:-----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Stated coupon interest | $1,409 | $736 | $2,819 | $736 | | Amortization of debt issuance cost | $271 | $137 | $540 | $137 | | Total interest expense | $1,680 | $873 | $3,359 | $873 | - Capped call transactions totaling $27.2 million were entered into, covering 21,542,871 shares, with an initial strike price of $10.47 and cap price of $15.80 per share. The cost was recorded as a reduction to additional paid-in capital[136][137] 8. Revenue Recognition This note disaggregates total revenues by product and geographic region, identifies major customers and collaboration partners, and summarizes contract balances including accounts receivable reserves, revenue reserve accruals, contract assets, and deferred revenue Disaggregation of Revenues (in thousands) | Item | Three Months Ended June 30, 2022 (U.S.) | Three Months Ended June 30, 2022 (Non U.S.) | Three Months Ended June 30, 2022 (Total) | Three Months Ended June 30, 2021 (U.S.) | Three Months Ended June 30, 2021 (Non U.S.) | Three Months Ended June 30, 2021 (Total) | |:-----------------------------------|:----------------------------------------|:--------------------------------------------|:-----------------------------------------|:----------------------------------------|:--------------------------------------------|:-----------------------------------------| | HEPLISAV-B | $31,739 | $941 | $32,680 | $13,688 | - | $13,688 | | CpG 1018 | - | $222,640 | $222,640 | - | $38,989 | $38,989 | | Total product revenue, net | $31,739 | $223,581 | $255,320 | $13,688 | $38,989 | $52,677 | | Other revenue | $1,083 | $61 | $1,144 | - | $90 | $90 | | Total revenues | $32,822 | $223,642 | $256,464 | $13,688 | $39,079 | $52,767 | | | Six Months Ended June 30, 2022 (U.S.) | Six Months Ended June 30, 2022 (Non U.S.) | Six Months Ended June 30, 2022 (Total) | Six Months Ended June 30, 2021 (U.S.) | Six Months Ended June 30, 2021 (Non U.S.) | Six Months Ended June 30, 2021 (Total) | | HEPLISAV-B | $52,549 | $941 | $53,490 | $21,991 | - | $21,991 | | CpG 1018 | - | $314,157 | $314,157 | - | $113,571 | $113,571 | | Total product revenue, net | $52,549 | $315,098 | $367,647 | $21,991 | $113,571 | $135,562 | | Other revenue | $2,689 | $120 | $2,809 | $260 | $280 | $540 | | Total revenues | $55,238 | $315,218 | $370,456 | $22,251 | $113,851 | $136,102 | HEPLISAV-B Product Revenue from Largest Customers (as % of total HEPLISAV-B net product revenue) | Customer | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:--------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Largest Customer | 18 % | 28 % | 21 % | 28 % | | Second largest Customer | 18 % | 21 % | 18 % | 23 % | | Third largest Customer | 18 % | 16 % | 17 % | 17 % | CpG 1018 Product Revenue from Largest Collaboration Partners (as % of total CpG 1018 adjuvant net product revenue) | Partner | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Largest collaboration partner | 41 % | 63 % | 38 % | 79 % | | Second largest collaboration partner | 31 % | 27 % | 36 % | 15 % | | Third largest collaboration partner | 23 % | 10 % | 22 % | 5 % | Contract Asset and Deferred Revenue Activities (in thousands) - Six Months Ended June 30, 2022 | Item | Balance at Beginning of Period | Additions | Subtractions | Revenue recognized in current period | Balance at End of Period | |:-----------------------------------|:-------------------------------|:----------|:-------------|:-------------------------------------|:-------------------------| | Contract asset | $62,525 | $12,134 | ($3,151) | - | $71,508 | | Deferred revenue | $349,864 | $12,068 | ($6,534) | ($163,400) | $191,998 | | Long-term deferred revenue | $5,385 | $6,582 | ($11,967) | - | - | 9. Net Income Per Share This note details the computation of basic and diluted net income per share using the two-class method, accounting for participating securities and the dilutive effects of stock-based compensation plans, warrants, and convertible notes Net Income Per Share Computations (in thousands, except per share amounts) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:------------------------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net income attributable to common stockholders, basic | $128,755 | $4,140 | $161,298 | $4,954 | | Net income attributable to common stockholders, diluted | $130,015 | $2,043 | $162,332 | $4,954 | | Weighted average common stock outstanding, basic | 126,347 | 114,629 | 125,456 | 113,339 | | Weighted average common stock outstanding, diluted | 149,905 | 118,830 | 149,821 | 114,978 | Anti-Dilutive Securities Excluded from Diluted EPS (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:------------------------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Stock options and stock awards | 9,647 | 6,991 | 9,067 | 8,476 | | Series B Convertible Preferred Stock (as converted to common stock) | - | 4,140 | - | 4,140 | | Warrants (as exercisable into common stock) | - | - | - | 2,474 | | Convertible Notes (as converted to common stock) | - | 11,363 | - | 5,713 | | Total | 9,647 | 22,494 | 9,067 | 20,803 | 10. Common Stock, Preferred Stock and Warrants This note provides details on the company's common stock, preferred stock, and warrants. It includes information on outstanding shares, past offerings, and the exercise or expiration of warrants - As of June 30, 2022, there were 126,439,073 shares of common stock outstanding[151] - All Series B Preferred Stock had been converted into common stock as of June 30, 2022[154] - All 1,882,600 outstanding warrants as of December 31, 2021, were exercised or expired during the three months ended March 31, 2022, generating $8.5 million in cash proceeds. No warrants were outstanding as of June 30, 2022[155][215] 11. Equity Plans and Stock-Based Compensation This note outlines the company's equity incentive plans, including the Amended 2018 EIP, and provides activity summaries for stock options, restricted stock units (RSUs), and performance-based restricted stock units (PSUs). It also details the weighted-average assumptions used for fair value measurements and the components of stock-based compensation expense - Stockholders approved the Amended 2018 Equity Incentive Plan in May 2022, increasing authorized shares by 15,000,000 to a maximum of 32,600,000 shares. As of June 30, 2022, 15,465,070 shares were reserved for issuance[156][157] Stock-Based Compensation Expense (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Research and development | $1,463 | $937 | $2,739 | $1,809 | | Selling, general and administrative | $5,597 | $3,445 | $11,024 | $6,589 | | Cost of sales - product | $143 | $155 | $303 | $324 | | Inventory | $726 | $487 | $1,509 | $1,025 | | Total | $7,929 | $5,024 | $15,575 | $9,747 | 12. Income Taxes This note details the company's income tax provision and effective tax rate, explaining the primary differences from the federal statutory rate due to net operating losses and a full valuation allowance on deferred tax assets - For the three and six months ended June 30, 2022, the company recorded an income tax provision of approximately $0.6 million, with an effective tax rate of approximately 0.4%[162][217] - The low effective tax rate is primarily due to the benefit of net operating losses utilized and a full valuation allowance established on federal, state, and certain foreign deferred tax assets[162][163][217] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides a narrative overview of Dynavax's financial condition and results of operations, discussing product performance, collaboration agreements, the impact of COVID-19, critical accounting estimates, and liquidity. It highlights significant revenue growth driven by CpG 1018 adjuvant sales and HEPLISAV-B market share gains Overview Dynavax is a commercial-stage biopharmaceutical company focused on innovative vaccines, with HEPLISAV-B as its first marketed product and CpG 1018 adjuvant used in COVID-19 vaccines. The company is advancing a multi-program clinical pipeline and has seen significant revenue from CpG 1018 adjuvant supply agreements. The COVID-19 pandemic continues to impact business operations and vaccine utilization rates - Dynavax is a commercial-stage biopharmaceutical company with HEPLISAV-B approved in the U.S. and EU, and CpG 1018 adjuvant used in COVID-19 vaccines. Commercial shipments of HEPLISAV-B commenced in Germany in May 2022[167][169] - HEPLISAV-B product revenue, net, was $32.7 million and $53.5 million for the three and six months ended June 30, 2022, respectively, driven by market share improvement and adult vaccine utilization[170][194] - CpG 1018 product revenue, net, was $222.6 million and $314.2 million for the three and six months ended June 30, 2022, respectively, due to increased sales volume from supply and collaboration agreements, including $55.4 million from Valneva advance payments[179][195] - The COVID-19 pandemic continues to impact business, with adult hepatitis B vaccine utilization rates remaining below pre-pandemic levels, though showing gradual recovery. The company has adapted to remote work and in-person interactions[184][185] - HEPLISAV-B post-marketing study showed no increased risk of acute myocardial infarction (AMI). Data from the autoimmune portion of the observational study is expected in Q4 2022[186] Critical Accounting Estimates The company's critical accounting estimates involve significant uncertainty and can materially affect financial condition or results. No significant changes were reported in these policies during the six months ended June 30, 2022, compared to the prior annual report - Critical accounting estimates involve significant uncertainty and can materially affect financial condition or results. No significant changes were reported in these policies during the six months ended June 30, 2022[190] Results of Operations Dynavax experienced substantial revenue growth for the three and six months ended June 30, 2022, primarily driven by increased sales of CpG 1018 adjuvant and HEPLISAV-B. Operating expenses also increased due to higher sales volume, R&D investments, and commercialization efforts. Net income saw a significant increase compared to the prior year Summary of Revenues (in thousands, except percentages) | Revenues: | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | |:---------------------------------|:---------------------------------|:---------------------------------|:-------------------------------------|:-------------------------------------| | HEPLISAV-B | $32,680 | $13,688 | $18,992 | 139 % | | CpG 1018 | $222,640 | $38,989 | $183,651 | 471 % | | Total product revenue, net | $255,320 | $52,677 | $202,643 | 385 % | | Other revenue | $1,144 | $90 | $1,054 | 1,171 % | | Total revenues | $256,464 | $52,767 | $203,697 | 386 % | | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | | HEPLISAV-B | $53,490 | $21,991 | $31,499 | 143 % | | CpG 1018 | $314,157 | $113,571 | $200,586 | 177 % | | Total product revenue, net | $367,647 | $135,562 | $232,085 | 171 % | | Other revenue | $2,809 | $540 | $2,269 | 420 % | | Total revenues | $370,456 | $136,102 | $234,354 | 172 % | Summary of Cost of Sales – Product (in thousands, except percentages) | Cost of Sales - Product | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | |:--------------------------------|:---------------------------------|:---------------------------------|:-------------------------------------|:-------------------------------------| | HEPLISAV-B | $10,252 | $4,624 | $5,628 | 122 % | | CpG 1018 | $73,117 | $10,221 | $62,896 | 615 % | | Total cost of sales - product | $83,369 | $14,845 | $68,524 | 462 % | | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | | HEPLISAV-B | $16,229 | $7,369 | $8,860 | 120 % | | CpG 1018 | $107,102 | $32,101 | $75,001 | 234 % | | Total cost of sales - product | $123,331 | $39,470 | $83,861 | 212 % | Summary of Research and Development Expense (in thousands, except percentages) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | |:------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------------|:-------------------------------------| | HEPLISAV-B development | $866 | $2,356 | ($1,490) | (63) % | | CpG 1018 adjuvant development | $562 | $1,768 | ($1,206) | (68) % | | Tetanus, diphtheria, and acellular pertussis | $2,275 | $1,156 | $1,119 | 97 % | | Shingles | $2,855 | $381 | $2,474 | 649 % | | Plague (1) | $439 | - | $439 | NM | | Other (2) | $677 | $99 | $578 | 584 % | | Facility costs | $552 | $470 | $82 | 17 % | | Non-cash stock-based compensation | $1,463 | $937 | $526 | 56 % | | Total research and development | $9,689 | $7,167 | $2,522 | 35 % | | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | | HEPLISAV-B development | $2,105 | $5,490 | ($3,385) | (62) % | | CpG 1018 adjuvant development | $1,695 | $3,156 | ($1,461) | (46) % | | Tetanus, diphtheria, and acellular pertussis | $3,840 | $2,315 | $1,525 | 66 % | | Shingles | $5,788 | $433 | $5,355 | 1,237 % | | Plague (1) | $1,191 | - | $1,191 | NM | | Other (2) | $2,506 | $856 | $1,650 | 193 % | | Facility costs | $920 | $866 | $54 | 6 % | | Non-cash stock-based compensation | $2,739 | $1,809 | $930 | 51 % | | Total research and development | $20,784 | $14,925 | $5,859 | 39 % | Summary of Selling, General and Administrative Expense (in thousands, except percentages) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | |:------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------------|:-------------------------------------| | Compensation and related personnel costs | $12,929 | $9,172 | $3,757 | 41 % | | Outside services | $13,751 | $5,699 | $8,052 | 141 % | | Legal costs | $444 | $508 | ($64) | (13) % | | Facility costs | $3,458 | $2,759 | $699 | 25 % | | Non-cash stock-based compensation | $5,597 | $3,445 | $2,152 | 62 % | | Total selling, general and administrative | $36,179 | $21,583 | $14,596 | 68 % | | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | | Compensation and related personnel costs | $26,110 | $18,376 | $7,734 | 42 % | | Outside services | $23,817 | $12,287 | $11,530 | 94 % | | Legal costs | $1,152 | $994 | $158 | 16 % | | Facility costs | $6,248 | $5,760 | $488 | 8 % | | Non-cash stock-based compensation | $11,024 | $6,589 | $4,435 | 67 % | | Total selling, general and administrative | $68,351 | $44,006 | $24,345 | 55 % | - In May 2022, Dynavax recognized a $1 million gain on sale of SD-101 assets from a pre-commercialization milestone payment by TriSalus Life Sciences[213] Summary of Other Income (Expense) (in thousands, except percentages) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | |:------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------------|:-------------------------------------| | Interest income | $765 | $48 | $717 | 1,494 % | | Interest expense | ($1,683) | ($3,109) | ($1,426) | (46) % | | Sublease income | $2,025 | $1,670 | $355 | 21 % | | Loss on debt extinguishment | - | ($5,232) | ($5,232) | NM | | Change in fair value of warrant liability | - | $2,097 | ($2,097) | NM | | Other | $40 | ($173) | ($213) | (123) % | | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Increase (Decrease) 2021 to 2022 ($) | Increase (Decrease) 2021 to 2022 (%) | | Interest income | $1,026 | $95 | $931 | 980 % | | Interest expense | ($3,363) | ($7,821) | ($4,458) | (57) % | | Sublease income | $3,634 | $3,692 | ($58) | (2) % | | Loss on debt extinguishment | - | ($5,232) | ($5,232) | NM | | Change in fair value of warrant liability | $1,801 | ($23,455) | $25,256 | 108 % | | Other | $145 | $384 | ($239) | (62) % | - For the three and six months ended June 30, 2022, the company recorded an income tax provision of approximately $0.6 million, with an effective tax rate of approximately 0.4%. This is primarily due to the benefit of net operating losses and a full valuation allowance on deferred tax assets[217] Liquidity and Capital Resources Dynavax's liquidity is supported by $518.2 million in cash, cash equivalents, and marketable securities as of June 30, 2022. The company anticipates these resources, along with anticipated revenues, will fund operations for at least the next 12 months. Cash flow from operations shifted from a generation in 2021 to a usage in 2022, primarily due to changes in operating assets and liabilities - As of June 30, 2022, Dynavax had $518.2 million in cash, cash equivalents, and marketable securities, expected to fund operations for at least the next 12 months[218] - During the six months ended June 30, 2022, the company used $33.8 million of cash from operations, compared to generating $148.8 million in the same period of 2021. This shift is attributed to net income and changes in operating assets and liabilities[221] - Net cash used in investing activities was $164.0 million in H1 2022, primarily due to net purchases of marketable securities. Net cash provided by financing activities was $11.3 million, mainly from warrant and stock option exercises[222][223] - The company had $120.5 million available under its 2020 ATM Agreement as of June 30, 2022. Despite recent profitability, the company expects to incur substantial expenses and may require additional capital if product sales revenue is not sustainable[225][226] - Material non-cancelable purchase commitments for HEPLISAV-B and CpG 1018 adjuvant totaled $115.7 million as of June 30, 2022[228] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section states that there were no material changes to the company's market risk disclosures during the six months ended June 30, 2022, compared to those reported in the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to market risk disclosures were reported for the six months ended June 30, 2022[230] ITEM 4. CONTROLS AND PROCEDURES Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022. There were no material changes in internal controls over financial reporting during the most recent fiscal quarter - Disclosure controls and procedures were deemed effective as of June 30, 2022, ensuring timely and accurate reporting[232] - No material changes in internal controls over financial reporting occurred during the most recent fiscal quarter[233] PART II. OTHER INFORMATION This section provides additional disclosures including legal proceedings, risk factors, and exhibits ITEM 1. LEGAL PROCEEDINGS The company is not currently aware of any material legal proceedings, though it may be involved in claims arising from ordinary business operations from time to time - The company is not currently aware of any material legal proceedings[236] ITEM 1A. RISK FACTORS This section details various risks that could materially affect Dynavax's business, financial condition, and operating results. These risks are categorized into those related to business and capital requirements, intellectual property, common stock, outstanding convertible notes, and general operational factors Risks Related to our Business and Capital Requirements This subsection highlights risks associated with commercializing HEPLISAV-B in competitive markets, the ongoing impact of the COVID-19 pandemic on operations and demand, challenges in managing commercial growth and supply chain, and uncertainties regarding pricing, reimbursement, and post-marketing obligations for approved products - Commercial success of HEPLISAV-B is unpredictable due to significant competition, the company's limited experience as a first-marketed product, and challenges in establishing and maintaining distribution channels and salesforce effectiveness[238][239][241] - The COVID-19 pandemic continues to adversely affect business operations, including reduced adult vaccine utilization (excluding COVID-19 vaccines) and potential disruptions to supply chains and customer interactions[249][251][252] - Scaling up production for HEPLISAV-B and CpG 1018 adjuvant involves significant financial commitments to CMOs, which may not be fully recovered if actual demand falls short of expectations[258] - Financial results may vary significantly due to the unpredictable nature of CpG 1018 adjuvant sales, which accounted for 85% of overall revenue in H1 2022, with two customers making up 63% of that revenue[260][261] - The company relies on a limited number of suppliers for oligonucleotides and a single contract manufacturer for HEPLISAV-B's pre-filled syringe presentation, posing risks of supply disruptions and increased costs if alternative capabilities are needed[264][265] - Collaboration agreements for CpG 1018 adjuvant, including for COVID-19 vaccines, may not be successful, and the company has limited control over collaborators' development and commercialization decisions[267][268] - Uncertainty regarding coverage, pricing, and reimbursement from third-party payors, especially in the EU, could hinder the commercialization of HEPLISAV-B and future products[273][274] - Ongoing FDA and EMA post-marketing obligations for HEPLISAV-B, including observational studies and a pregnancy registry, require significant resources, and non-compliance could lead to penalties or withdrawal of approval[278][279] Risks Related to our Intellectual Property This subsection addresses the risks associated with intellectual property, including potential infringement claims, challenges to existing patents, and the adequacy of patent and trade secret protection for products like HEPLISAV-B and CpG 1018 adjuvant. It also covers the reliance on third-party licenses and the uncertainties of the biopharmaceutical patent environment - The company faces risks of intellectual property disputes and litigation, which could be costly, time-consuming, and delay or prevent product commercialization if third parties successfully assert infringement claims or challenge Dynavax's patents[339][340] - HEPLISAV-B and CpG 1018 adjuvant lack composition of matter patent protection, relying primarily on method of use patents and trade secrets. There is no assurance that patent applications for CpG 1018 will be granted or provide adequate protection[343] - The biopharmaceutical patent environment outside the U.S. is uncertain, potentially limiting patent protection for products addressing international markets. Disclosure of trade secrets could allow competitors to gain an advantage[345][347] - Reliance on third-party licenses for intellectual property poses risks, including disputes, termination for non-compliance, or inability to obtain or maintain advantageous licenses, which could severely harm the business[348] Risks Related to our Common Stock This subsection discusses the inherent volatility of the company's stock price, influenced by various factors including clinical trial results, regulatory approvals, market competition, and broader economic conditions. It also addresses the potential for dilution from future stock sales and the impact of outstanding equity instruments - The market price of Dynavax's common stock is highly volatile, influenced by factors such as clinical trial results, regulatory approvals, competition, intellectual property disputes, and general economic conditions, including the COVID-19 pandemic[351][352] - Future sales of common stock, including those under the universal shelf registration statement or the 2020 ATM Agreement ($120.5 million remaining as of June 30, 2022), or the perception of such sales, could depress the stock price and impair the ability to raise additional capital[355][356] Risks Related to Our Outstanding Convertible Notes This subsection outlines risks associated with the company's $225.5 million Convertible Notes, including the significant cash required for debt servicing, potential inability to settle conversions or repurchases in cash, and the dilutive effect of conversions on common stock ownership. It also covers the impact of certain indenture provisions on potential takeovers and counterparty risk related to capped call transactions - Servicing the $225.5 million Convertible Notes requires significant cash flow, and the company may not have sufficient funds from operations to meet these obligations, potentially requiring asset sales or additional financing[357] - The company may lack the ability to generate or raise funds necessary to settle cash conversions or repurchase notes upon a fundamental change, which could lead to default under the indenture[358] - The conditional conversion feature of the Convertible Notes, if triggered, could adversely affect liquidity by requiring cash payments or dilute common stockholders' ownership if settled in shares[359][361][362] - Provisions in the Convertible Notes indenture, such as repurchase requirements upon a fundamental change, could make a takeover attempt more difficult or expensive[363] - The company is exposed to counterparty risk with respect to the capped call transactions, as a default by an option counterparty could lead to adverse tax consequences and increased dilution[367][368] General Risk Factors This subsection addresses broader operational risks, including the loss of key personnel, challenges in managing growth, vulnerability to natural disasters and health epidemics (like COVID-19), and the potential for significant disruptions from information technology system failures or data security breaches. It also covers compliance with healthcare fraud and abuse laws and the impact of future legislation - Loss of key personnel or difficulties in managing continued growth and expanding operations could delay achieving objectives and adversely affect commercial and business efforts[369][370] - Business operations are vulnerable to interruptions from natural disasters, health epidemics (e.g., COVID-19), and other catastrophic events, which could harm manufacturing, distribution, sales, and financial results[371][373] - Significant disruptions of information technology systems or data security breaches (including cyberattacks, ransomware) could lead to loss of trade secrets, public exposure of sensitive data, financial losses, reputational harm, and regulatory penalties[376][377][378][381] - Failure to comply with extensive healthcare fraud and abuse, anticorruption, privacy (e.g., CCPA, GDPR), and transparency laws in various jurisdictions could result in significant criminal, civil, and administrative penalties[321][326][327][329] - Enacted or future legislation, including unfavorable pricing regulations or healthcare reform initiatives (e.g., ACA, Medicare payment reductions), may adversely affect operations and business by limiting coverage and reimbursement[330][331][334][335] - As a defense contractor for the U.S. Department of Defense, the company is subject to new administrative burdens and control requirements, including ITAR compliance, with potential reputational or financial impact for non-compliance[336] - The company faces product liability exposure from clinical trials and product sales, which, if not adequately covered by insurance, could result in significant financial liability and diversion of management attention[337] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[382] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section indicates that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[383] ITEM 4. MINE SAFETY DISCLOSURES This section states that there are no mine safety disclosures applicable to the company - No mine safety disclosures are applicable[384] ITEM 5. OTHER INFORMATION This section indicates that there is no other information to report for the period - No other information to report[385] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including certifications, corporate documents, and financial instruments, indicating whether they are filed herewith or incorporated by reference - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and various corporate and financial documents (e.g., Certificate of Incorporation, Bylaws, Indenture for Convertible Notes, Equity Incentive Plan) as exhibits[387][388] SIGNATURES The report is formally signed by the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer - The report is signed by Ryan Spencer (Chief Executive Officer), Kelly MacDonald (Chief Financial Officer), and Justin Burgess (Controller, Chief Accounting Officer) on August 4, 2022[394]