Dynavax(DVAX) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) Unaudited consolidated financial statements for Dynavax, covering balance sheets, operations, comprehensive income, equity, cash flows, and accounting notes Condensed Consolidated Balance Sheets | Metric | September 30, 2022 (unaudited) (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :------------------------------- | | Assets | | | | Cash and cash equivalents | $198,576 | $436,189 | | Marketable securities available-for-sale | $387,910 | $109,761 | | Total current assets | $932,944 | $972,520 | | Total assets | $999,337 | $1,039,246 | | Liabilities and Stockholders' Equity | | | | CEPI accrual | $107,738 | $128,848 | | Deferred revenue | $87,395 | $349,864 | | Total current liabilities | $244,080 | $556,402 | | Convertible Notes, net | $221,303 | $220,490 | | Total liabilities | $498,761 | $816,872 | | Total stockholders' equity | $500,576 | $222,374 | | Total liabilities and stockholders' equity | $999,337 | $1,039,246 | Condensed Consolidated Statements of Operations | Metric | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Product revenue, net | $163,815 | $106,996 | $531,462 | $242,558 | | Total revenues | $167,735 | $108,270 | $538,191 | $244,372 | | Cost of sales - product | $61,334 | $60,090 | $184,665 | $99,560 | | Research and development | $12,962 | $6,186 | $33,746 | $21,111 | | Selling, general and administrative | $32,042 | $26,926 | $100,393 | $70,932 | | Income from operations | $61,397 | $16,068 | $220,387 | $53,769 | | Net income (loss) | $63,809 | $(28,430) | $225,423 | $(23,066) | | Basic Net income (loss) per share | $0.50 | $(0.24) | $1.79 | $(0.20) | | Diluted Net income (loss) per share | $0.43 | $(0.24) | $1.51 | $(0.20) | Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income (loss) | $63,809 | $(28,430) | $225,423 | $(23,066) | | Change in unrealized gain (loss) on marketable securities available-for-sale | $(395) | $(18) | $(2,296) | $11 | | Foreign currency translation adjustments | $(2,307) | $(797) | $(4,700) | $(1,812) | | Total other comprehensive (loss) | $(2,702) | $(815) | $(6,996) | $(1,801) | | Total comprehensive income (loss) | $61,107 | $(29,245) | $218,427 | $(24,867) | Condensed Consolidated Statements of Stockholders' Equity | Metric | Balance at Dec 31, 2021 (in thousands) | Issuance of common stock upon exercise of warrants (in thousands) | Issuance of common stock upon exercise of stock options and/or release of restricted stock awards, net (in thousands) | Stock compensation expense (in thousands) | Net income (in thousands) | Balance at Sep 30, 2022 (in thousands) | | :----------------------------------- | :------------------------------------- | :------------------------------------------------ | :---------------------------------------------------------------------------------------------------- | :---------------------------------------- | :------------------------ | :------------------------------------- | | Common Shares | 122,945 | 1,879 | 2,603 | - | - | 127,581 | | Common Stock Par Amount | $123 | $2 | $2 | - | - | $127 | | Additional Paid-In Capital | $1,441,868 | $24,668 | $9,485 | $24,188 | - | $1,501,639 | | Accumulated Other Comprehensive (Loss) Income | $(2,266) | - | - | - | - | $(9,262) | | Accumulated Deficit | $(1,217,351) | - | - | - | $225,423 | $(991,928) | | Total Stockholders' Equity | $222,374 | $24,670 | $9,487 | $24,188 | $225,423 | $500,576 | Condensed Consolidated Statements of Cash Flows | Metric | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $27,768 | $215,031 | | Net cash used in investing activities | $(283,028) | $(40,713) | | Net cash provided by financing activities | $19,372 | $40,960 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(237,643) | $214,265 | | Cash, cash equivalents and restricted cash at end of period | $198,765 | $246,575 | Notes to Condensed Consolidated Financial Statements Detailed accounting policies and disclosures for financial statements, covering revenue, fair value, inventory, commitments, and collaboration agreements, with ASU 2016-13 and warrant liability updates - Dynavax is a commercial stage biopharmaceutical company focused on innovative vaccines, with HEPLISAV-B® (Hepatitis B Vaccine) approved in the US and EU, and CpG 1018® adjuvant used in COVID-19 vaccines[26] - The company operates in one business segment: discovery, development, and commercialization of novel vaccines[29] - ASU 2016-13, Financial Instruments – Credit Losses, will be effective for fiscal years beginning after December 15, 2022, but is not expected to have a material impact on financial statements[51] Fair Value Hierarchy of Financial Assets (September 30, 2022) | Asset Category | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :------------------------------ | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Money market funds | $159,964 | - | - | $159,964 | | U.S. treasuries | - | $40,943 | - | $40,943 | | U.S. government agency securities | - | $34,027 | - | $34,027 | | Corporate debt securities | - | $312,940 | - | $312,940 | | Total assets | $159,964 | $387,910 | - | $547,874 | - All outstanding warrants as of December 31, 2021, were exercised or expired during the three months ended March 31, 2022, resulting in $8.5 million cash proceeds and a decrease in fair value of warrant liability by $1.8 million for the nine months ended September 30, 2022[59][154] Inventories, net (in thousands) | Category | September 30, 2022 | December 31, 2021 | | :--------------- | :----------------- | :---------------- | | Raw materials | $29,170 | $26,637 | | Work-in-process | $20,902 | $14,748 | | Finished goods | $52,537 | $19,950 | | Total | $102,609 | $61,335 | - The company recorded a $14.5 million inventory write-off for CpG 1018 adjuvant raw materials due to a reduction in the scope of the Clover Supply Agreement[48][68] - As of September 30, 2022, material non-cancelable purchase and other commitments for HEPLISAV-B and CpG 1018 adjuvant totaled $61.0 million[82] - Through September 30, 2022, Dynavax received $175.1 million in Advance Payments from CEPI for CpG 1018 adjuvant, with $107.7 million recorded as CEPI accrual[91] - The Clover Supply Agreement was amended in August 2022, reducing CpG 1018 adjuvant quantities and resulting in $53.2 million revenue recognition and a $14.5 million inventory write-off[98][99][100] - The Bio E Supply Agreement was amended in June and October 2022, establishing new payment schedules and reducing the scope of CpG 1018 adjuvant quantities[109][110] - The Valneva Supply Agreement was amended in October 2021, canceling certain purchase orders and modifying the delivery schedule. $55.4 million of advance payments were recognized as product revenue in Q2 2022 upon fulfillment[122][123][124] - Dynavax entered an agreement with the DoD in September 2021 for a Phase 2 clinical trial of a recombinant plague vaccine, recognizing $3.9 million and $6.6 million in other revenue for the three and nine months ended September 30, 2022, respectively[126] Convertible Notes Interest Expense (in thousands) | Component | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Stated coupon interest | $1,409 | $1,409 | $4,228 | $2,145 | | Amortization of debt issuance cost | $273 | $265 | $812 | $402 | | Total interest expense | $1,682 | $1,674 | $5,040 | $2,547 | Disaggregation of Revenues (in thousands) | Revenue Type | Geographic Region | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------- | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | HEPLISAV-B | U.S. | $37,508 | $22,707 | $90,057 | $44,698 | | HEPLISAV-B | Non U.S. | - | - | $941 | - | | CpG 1018 adjuvant | Non U.S. | $126,307 | $84,289 | $440,464 | $197,860 | | Other revenue | U.S. | $3,877 | $1,200 | $6,566 | $1,460 | | Other revenue | Non U.S. | $43 | $74 | $163 | $354 | | Total Revenues | | $167,735 | $108,270 | $538,191 | $244,372 | CpG 1018 Adjuvant Product Revenue by Customer (in thousands) | Customer | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Clover | $87,483 | $52,431 | $201,061 | $58,170 | | Bio E | $27,643 | $24,968 | $145,954 | $25,908 | | Medigen | - | $6,890 | - | $24,382 | | Bio Farma | $11,181 | - | $25,436 | - | | Valneva | - | - | $68,013 | $89,400 | | Total | $126,307 | $84,289 | $440,464 | $197,860 | Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $1,532 | $798 | $4,271 | $2,607 | | Selling, general and administrative | $6,019 | $3,930 | $17,043 | $10,519 | | Cost of sales - product | $323 | $124 | $626 | $448 | | Inventory | $739 | $524 | $2,248 | $1,549 | | Total | $8,613 | $5,376 | $24,188 | $15,123 | - For the nine months ended September 30, 2022, the effective tax rate was approximately 0.4%, primarily due to the benefit of net operating losses and a full valuation allowance on deferred tax assets[160] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's analysis of financial performance and condition, highlighting revenue growth, COVID-19 impact, operating expenses, liquidity, capital resources, and future outlook Overview - Dynavax is a commercial-stage biopharmaceutical company focused on innovative vaccines, with HEPLISAV-B® approved in the US and EU, and CpG 1018® adjuvant used in COVID-19 vaccines and a multi-program clinical pipeline[165] HEPLISAV-B® Vaccine (Recombinant), Adjuvanted - HEPLISAV-B is the only two-dose hepatitis B vaccine for adults approved in the U.S. and European Union, demonstrating faster and higher protection rates than three-dose alternatives[166] - Commercial shipments of HEPLISAV-B commenced in Germany in May 2022, following EU Marketing Authorization approval in February 2021[167] HEPLISAV-B Product Revenue, Net (in thousands) | Period | Revenue | | :----------------------------------- | :-------- | | Three months ended September 30, 2022 | $37,508 | | Nine months ended September 30, 2022 | $91,000 | | Three months ended September 30, 2021 | $22,707 | | Nine months ended September 30, 2021 | $44,698 | CpG 1018® Adjuvant Supply for COVID-19 Vaccines - Dynavax has global commercial supply agreements for CpG 1018 adjuvant in COVID-19 vaccine development, including with CEPI, Bio E, Clover, Bio Farma, Medigen, and Valneva[169][170][173][175][176][177] - Amendments to the Bio E and Clover Supply Agreements in 2022 modified quantities, payment terms, and resulted in a $14.5 million inventory write-off for Clover[172][173][174] CpG 1018 Adjuvant Product Revenue, Net (in thousands) | Period | Revenue | | :----------------------------------- | :-------- | | Three months ended September 30, 2022 | $126,307 | | Nine months ended September 30, 2022 | $440,500 | | Three months ended September 30, 2021 | $84,289 | | Nine months ended September 30, 2021 | $197,860 | Other (Convertible Notes, Capped Calls) - In May 2021, Dynavax issued $225.5 million in 2.50% convertible senior notes due 2026, using proceeds to repay previous debt and fund capped call transactions[181] - Capped call transactions totaling $27.2 million were entered into to offset potential dilution from Convertible Notes conversion, with an initial strike price of $10.47 and cap price of $15.80 per share[182] COVID-19 Update - The COVID-19 pandemic continues to impact business operations, including HEPLISAV-B sales due to reduced adult vaccine utilization, though market share is increasing[183][184] - Dynavax has adapted to a flexible work environment and gradually returned to in-person interactions, but future disruptions are possible[185] - HEPLISAV-B post-marketing study showed no increased risk of acute myocardial infarction (AMI), and the dialysis study demonstrated an 89.3% seroprotection rate[186] - Collaborations leveraging CpG 1018 adjuvant for COVID-19 vaccines have led to emergency use authorization or full approval for three partners, with ongoing efforts to scale up production[189] Critical Accounting Estimates - No significant changes in critical accounting policies were identified during the nine months ended September 30, 2022, compared to the prior annual report[191] Results of Operations - Revenues Revenue Summary (in thousands, except percentages) | Revenue Type | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % Change (YoY) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % Change (YoY) | | :--------------------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | HEPLISAV-B | $37,508 | $22,707 | 65% | $90,998 | $44,698 | 104% | | CpG 1018 adjuvant | $126,307 | $84,289 | 50% | $440,464 | $197,860 | 123% | | Total product revenue, net | $163,815 | $106,996 | 53% | $531,462 | $242,558 | 119% | | Other revenue | $3,920 | $1,274 | 208% | $6,729 | $1,814 | 271% | | Total revenues | $167,735 | $108,270 | 55% | $538,191 | $244,372 | 120% | - HEPLISAV-B product revenue increased due to higher volume from improved market share and adult vaccine utilization[198] - Other revenue increased significantly due to $3.9 million and $6.6 million recognized from the DoD agreement for the three and nine months ended September 30, 2022, respectively[199] - CpG 1018 adjuvant product revenue increased due to higher sales volume from new supply and collaboration agreements, but future revenues are expected to decrease as initial stockpiling by customers concludes[200][201] Results of Operations - Cost of Sales – Product Cost of Sales – Product Summary (in thousands, except percentages) | Product | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % Change (YoY) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % Change (YoY) | | :-------------------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | HEPLISAV-B | $11,511 | $10,544 | 9% | $27,740 | $17,913 | 55% | | CpG 1018 adjuvant | $49,823 | $49,546 | 1% | $156,925 | $81,647 | 92% | | Total cost of sales - product | $61,334 | $60,090 | 2% | $184,665 | $99,560 | 85% | - HEPLISAV-B cost of sales increased due to higher sales volume and a $0.7 million excess capacity charge in Q3 2022 (compared to $3.2 million in Q3 2021)[204][205] - CpG 1018 adjuvant cost of sales increased due to higher sales volume and a $14.5 million inventory write-off related to the Clover Amendment No 1[207] Results of Operations - Research and Development Expense Research and Development Expense Summary (in thousands, except percentages) | Program/Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % Change (YoY) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % Change (YoY) | | :----------------------------------------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | HEPLISAV-B development | $959 | $1,695 | (43)% | $3,064 | $7,185 | (57)% | | CpG 1018 adjuvant development | $487 | $1,060 | (54)% | $2,182 | $4,216 | (48)% | | Tetanus, diphtheria, and acellular pertussis | $2,902 | $1,260 | 130% | $6,742 | $3,575 | 89% | | Shingles | $3,549 | $957 | 271% | $9,337 | $1,390 | 572% | | Plague | $1,834 | - | 100% | $3,025 | - | 100% | | Other | $1,187 | $94 | 1163% | $3,693 | $950 | 289% | | Facility costs | $512 | $322 | 59% | $1,432 | $1,188 | 21% | | Non-cash stock-based compensation | $1,532 | $798 | 92% | $4,271 | $2,607 | 64% | | Total research and development | $12,962 | $6,186 | 110% | $33,746 | $21,111 | 60% | - Overall R&D expenses increased due to investments in product candidates with CpG 1018 adjuvant, additional discovery efforts, and a one-time wind-down cost for the immuno-oncology program[210] - Decreases in HEPLISAV-B and CpG 1018 adjuvant development costs were due to the completion of the HEPLISAV-B dialysis study and prior-year production scale-up costs[212] - Non-cash stock-based compensation increased due to higher headcount supporting clinical vaccine programs[213] Results of Operations - Selling, General and Administrative Expense Selling, General and Administrative Expense Summary (in thousands, except percentages) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % Change (YoY) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % Change (YoY) | | :-------------------------------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Compensation and related personnel costs | $12,755 | $11,389 | 12% | $38,865 | $29,765 | 31% | | Outside services | $9,738 | $8,020 | 21% | $33,555 | $20,307 | 65% | | Legal costs | $438 | $487 | (10)% | $1,590 | $1,481 | 7% | | Facility costs | $3,092 | $3,100 | - | $9,340 | $8,860 | 5% | | Non-cash stock-based compensation | $6,019 | $3,930 | 53% | $17,043 | $10,519 | 62% | | Total selling, general and administrative | $32,042 | $26,926 | 19% | $100,393 | $70,932 | 42% | - Compensation and personnel costs increased due to higher headcount and increased business travel as COVID-19 restrictions eased[216] - Outside services increased due to expanded commercial and marketing efforts related to ACIP universal recommendation and market share expansion[216] - Non-cash stock-based compensation increased due to higher headcount and increased valuation of equity awards[217] Results of Operations - Gain on Sale of Assets - In May 2022, Dynavax recognized a $1.0 million gain on sale of SD-101 assets from TriSalus for meeting a pre-commercialization milestone[219] Results of Operations - Other Income (Expense) Other Income (Expense) Summary (in thousands, except percentages) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % Change (YoY) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % Change (YoY) | | :------------------------------------ | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Interest income | $2,562 | $39 | 6469% | $3,588 | $134 | 2578% | | Interest expense | $(1,685) | $(1,676) | 1% | $(5,048) | $(9,497) | (47)% | | Sublease income | $2,026 | $2,022 | - | $5,660 | $5,714 | (1)% | | Loss on debt extinguishment | - | - | - | - | $(5,232) | (100)% | | Change in fair value of warrant liability | - | $(45,121) | 100% | $1,801 | $(68,576) | 103% | | Other | $(208) | $238 | (187)% | $(63) | $622 | (110)% | - Interest income increased due to higher yields and balances in marketable securities[221] - Interest expense decreased for the nine months ended September 30, 2022, due to the repayment of long-term debt in May 2021 and issuance of Convertible Notes at a lower effective interest rate[221] - The change in fair value of warrant liability was primarily due to a decrease in stock price and the expiration of warrants by February 2022[221] Results of Operations - Income Taxes - A provision for income taxes of $0.3 million and $0.9 million was recorded for the three and nine months ended September 30, 2022, respectively, with an effective tax rate of approximately 0.4% for the nine-month period[222] Liquidity and Capital Resources - As of September 30, 2022, Dynavax had $586.5 million in cash, cash equivalents, and marketable securities, anticipated to be sufficient to fund operations for at least the next 12 months and longer-term[223] - Net cash provided by operating activities was $27.8 million for the nine months ended September 30, 2022, a decrease from $215.0 million in the prior year, primarily due to changes in deferred revenue and operating assets/liabilities[227] - Net cash used in investing activities increased to $283.0 million for the nine months ended September 30, 2022, mainly due to higher net purchases of marketable securities[228] - Net cash provided by financing activities was $19.4 million for the nine months ended September 30, 2022, primarily from warrant exercises and stock options/ESPP, compared to $41.0 million in 2021 which included Convertible Notes proceeds and debt repayment[229] - The company reported net income of $63.8 million and $225.4 million for the three and nine months ended September 30, 2022, respectively, but acknowledges that sustainability of product sales revenue is uncertain[230] Contractual Obligations - As of September 30, 2022, material non-cancelable purchase commitments for HEPLISAV-B and CpG 1018 adjuvant totaled $61.0 million[232] - The company had $120.5 million available under its 2020 ATM Agreement as of September 30, 2022[234] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes to market risk disclosures were reported for the nine months ended September 30, 2022, compared to the prior annual report - No material changes to market risk disclosures were reported for the nine months ended September 30, 2022[235] ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal controls despite remote work - Disclosure controls and procedures were deemed effective at a reasonable assurance level as of September 30, 2022[237] - No material changes in internal controls over financial reporting occurred during the most recent fiscal quarter, even with the adoption of a remote work model[238] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is not currently aware of any material legal proceedings arising from the ordinary course of business - No material legal proceedings involving the company are currently known[241] ITEM 1A. RISK FACTORS Outlines forward-looking statements and factors that could cause actual results to differ, including a summary of material risks across business, intellectual property, common stock, convertible notes, and general operations - Forward-looking statements are subject to risks and uncertainties, including the impact of COVID-19, regulatory approvals, collaborations, manufacturing, and financial performance[242] RISK FACTOR SUMMARY - HEPLISAV-B faces significant competition and unpredictable uptake, risking sustained commercial success - Business operations are adversely affected by the COVID-19 pandemic, and collaborations for CpG 1018 adjuvant may not be successful - Financial results may vary significantly, impacting stock price - Uncertainty regarding coverage, pricing, and reimbursement for products - Ongoing FDA and EMA post-marketing obligations for HEPLISAV-B may incur significant expense and penalties for non-compliance - Market acceptance, labeling indications, and marketing claims limitations could hinder revenue generation - Competition from companies with greater financial resources and expertise poses a threat - Servicing debt requires substantial cash flow, and Convertible Notes conversion may dilute ownership - Despite recent profitability, the company anticipates potential future losses without sustained HEPLISAV-B commercialization or CpG 1018 adjuvant sales - International expansion of HEPLISAV-B or other candidates requires significant resources and carries risks - Clinical trials are expensive, time-consuming, and have uncertain outcomes - Reliance on CROs and clinical sites for trials, with failure to comply with GCP standards posing risks - Regulatory authorities may require additional clinical trials, causing delays - Reliance on oligonucleotide TLR agonists in programs poses risks if serious adverse event data emerges - Financial commitments for increased supply capacity may outpace actual demand - Reliance on third parties for manufacturing products and candidates, with limited suppliers for oligonucleotides - Intellectual property disputes and litigation could be costly and delay commercialization - Stock price is subject to volatility, and future sales of common stock could depress its price[245] Risks Related to our Business and Capital Requirements - Commercialization of HEPLISAV-B in the U.S. and Germany faces challenges including unpredictable uptake, competition, and the need to recruit and retain effective sales personnel[248][251][253] - The COVID-19 pandemic continues to adversely affect business operations, including HEPLISAV-B sales due to reduced adult vaccine utilization and potential disruptions to supply chains and customer interactions[261][262][263][264][267] - Scaling up production for HEPLISAV-B and CpG 1018 adjuvant requires significant financial commitments, which may not be recovered if demand falls short, as exemplified by a $14.5 million inventory write-off due to a Clover Supply Agreement amendment[270] - Financial results are highly volatile, with CpG 1018 adjuvant sales accounting for 81.8% of overall revenue and two customers for 64.5% in the nine months ended September 30, 2022, making future revenue difficult to predict[273][274] - Reliance on a limited number of third-party suppliers for CpG 1018 adjuvant and pre-filled syringe presentation of HEPLISAV-B poses risks to manufacturing and supply chain stability[275][276] - Collaborations for CpG 1018 adjuvant in vaccines, including COVID-19, carry risks of unsuccessful development, lack of control over partners' decisions, and potential intellectual property waivers[279][281][282] - Uncertainty regarding coverage, pricing, and reimbursement from third-party payors, especially for new products like HEPLISAV-B, could hinder profitability[284][285] - Ongoing FDA and EMA post-marketing obligations for HEPLISAV-B, including observational studies and pregnancy registries, require significant resources and non-compliance could lead to penalties or withdrawal of approval[287][289][290] - Significant competition from established pharmaceutical and biotechnology companies with greater resources could harm business and revenue generation[293][294][296] - Despite recent profitability, the company has an accumulated deficit of $991.9 million as of September 30, 2022, and future losses are anticipated due to ongoing investments in commercialization and R&D[297][298] - Substantial additional capital may be required to finance operations if product sales revenue is not sustainable, with risks of dilution or restrictive debt covenants[299][301] - Regulatory authorities may require more clinical trials or additional data, leading to delays, increased costs, and impaired revenue generation[302] - International expansion of products involves significant costs, regulatory complexities, and risks related to managing distant operations and currency fluctuations[303][304][306] - Clinical trials are expensive, time-consuming, and have uncertain outcomes, with potential for delays, adverse events, or insufficient data for regulatory approval[307][308][312][314][315][316] - Reliance on CROs and clinical sites for trials means failure to comply with GCP standards or meet deadlines could lead to increased costs, program delays, or disqualification of trial data[309][310][311] - Programs relying on oligonucleotide TLR agonists face risks if serious adverse event data emerges, potentially requiring reduced operations or reevaluation of strategic alternatives[317] - Compliance with extensive healthcare fraud and abuse, anticorruption, privacy, and transparency laws is critical, with violations potentially leading to significant criminal, civil, and administrative penalties[329][331][334] - Enacted or future legislation, such as the Inflation Reduction Act of 2022, could unfavorably impact pharmaceutical pricing, reimbursement, and overall business operations[339][340][341][343][345] - As a defense contractor with the U.S. Department of Defense, the company is subject to additional administrative burdens and compliance requirements, including ITAR, with limited experience in managing such programs[346] - Product liability exposure, if not adequately covered by insurance, could result in significant financial liability, diversion of management attention, and harm to the business[347] Risks Related to our Intellectual Property - The company faces potential intellectual property disputes and litigation, including claims of infringement or challenges to its patents, which could be costly and delay product development or commercialization[348][350][351] - HEPLISAV-B and CpG 1018 adjuvant lack composition of matter patent protection, relying primarily on method of use patent claims and trade secret protection, which may be inadequate to prevent competitors[354] - Uncertainty in biopharmaceutical patent laws outside the U.S. may limit patent protection for product candidates, especially in markets where method of use patents are restricted[355] - Failure to obtain issued patents for applications or licensed rights - Issued patents may not provide meaningful protection or be valid/enforceable - Inability to develop additional patentable proprietary technologies - Competitors may independently develop similar technologies or design around existing patents - Pending or issued patents may be challenged by third parties in litigation or other proceedings[357] - Reliance on trade secret protection and confidentiality agreements for proprietary know-how carries risks of disclosure and competitive disadvantage[358] - Dependence on third-party intellectual property licenses subjects the company to risks of disputes, termination, or inability to maintain exclusivity, potentially harming development and commercialization efforts[359] Risks Related to our Common Stock - The company's stock price is highly volatile, influenced by clinical trial results, regulatory approvals, collaborations, capital raising, intellectual property disputes, economic conditions, and the COVID-19 pandemic[360][362] - Future sales of common stock, including those under the $150 million 2020 ATM Agreement (with $120.5 million remaining), or the perception of such sales, could depress the market price and impair capital raising ability[365][366] Risks Related to Our Outstanding Convertible Notes - Servicing the $225.5 million Convertible Notes requires significant cash flow, and the company may not have sufficient funds to make scheduled payments or refinance debt[368] - The company may lack the funds to settle Convertible Notes conversions in cash or repurchase them upon a fundamental change, potentially leading to default or limitations by future debt agreements[369] - The conditional conversion feature of the Convertible Notes, if triggered, could require cash payments or reclassification of debt to current liability, adversely affecting liquidity and working capital[370] - Conversion of Convertible Notes into common stock could dilute existing stockholders' ownership or depress the stock price, potentially encouraging short selling[371][373] - Provisions in the Convertible Notes indenture, such as repurchase requirements upon a fundamental change, could delay or prevent beneficial takeover attempts[374] - The Capped Calls, while intended to offset dilution, may affect the value of Convertible Notes and common stock due to hedging activities by option counterparties[375][376] - The company is exposed to counterparty risk with respect to the Capped Calls, as default by an option counterparty could lead to unsecured claims, adverse tax consequences, and increased stock dilution[377][378] General Risk Factors - Loss of key personnel or difficulties in managing commercial growth and expanding operations could delay objectives and harm financial performance[379][380][382] - Business operations are vulnerable to interruptions from natural disasters, health epidemics (like COVID-19), and other catastrophic events, potentially disrupting manufacturing, distribution, and sales[383][384][385][386] - Significant disruptions of information technology systems or data security breaches (e.g., phishing, ransomware) could lead to loss of intellectual property, exposure of sensitive data, financial losses, and regulatory penalties[387][388][391][392][393][394] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds were reported[395] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities to report - No defaults upon senior securities were reported[396] ITEM 4. MINE SAFETY DISCLOSURES There were no mine safety disclosures to report - No mine safety disclosures were reported[396] ITEM 5. OTHER INFORMATION There was no other information to report - No other information was reported[397] ITEM 6. EXHIBITS Lists exhibits filed with Form 10-Q, including corporate governance documents, stock certificates, warrant forms, Convertible Notes indenture, and various certifications - Exhibits include amendments to the Certificate of Incorporation and Bylaws, specimen common stock certificate, warrant forms, and the indenture for Convertible Notes[400] - Recent amendments to supply agreements with Biological E. Limited and Zhejiang Clover Biopharmaceuticals, Inc. are included[400][401][402][403] - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed[404] SIGNATURES The report is signed by the Chief Executive Officer, Chief Financial Officer, and Controller, Chief Accounting Officer, certifying its submission on November 03, 2022 - The report was signed by Ryan Spencer (CEO), Kelly MacDonald (CFO), and Justin Burgess (Controller, CAO) on November 03, 2022[410]