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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to . |
Commission file number: 000-24647
Dynavax Technologies Corporation
(Exact name of registrant as specified in its charter)
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Delaware |
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33-0728374 |
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(State or other jurisdiction of |
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(IRS Employer |
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incorporation or organization) |
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Identification No.) |
2929 Seventh Street, Suite 100
Berkeley, CA 94710-2753
(510) 848-5100
(Address, including Zip Code, and telephone number, including
area code, of the registrant’s principal executive
offices)
Securities registered pursuant to Section 12(b) of the
Act:
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Name of Each Exchange on Which Registered: |
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None |
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None |
Securities Registered Pursuant to Section 12(g) of the
Act:
Common Stock, par value $0.001 per share
(Title of Class)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past
90 days. Yes þ No o
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the
registrant is an accelerated filer (as defined in
Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of the voting
stock held by non-affiliates of the registrant, based upon the
closing sale price of the common stock on June 30, 2004 as
reported on the Nasdaq National Market, was approximately
$99,932,028. Shares of common stock held by each officer and
director and by each person known to the Company who owns 5% or
more of the outstanding common stock have been excluded in that
such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive
determination for other purposes.
As of February 28, 2005, registrant
had outstanding 24,745,201 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2005
Annual Meeting of Stockholders are incorporated by reference
into Part III of this Form 10-K.
INDEX
DYNAVAX TECHNOLOGIES CORPORATION
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 which are subject to a number of risks and
uncertainties. All statements that are not historical facts are
forward-looking statements, including statements about our
business strategy, our future research and development, our
preclinical and clinical product development efforts, the timing
of the introduction of our products, the effect of GAAP
accounting pronouncements, uncertainty regarding our future
operating results and our profitability, anticipated sources of
funds and all plans, objectives, expectations and intentions.
These statements appear in a number of places and can be
identified by the use of forward-looking terminology such as
“may,” “will,” “should,”
“expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,”
“future,” “intend,” or “certain”
or the negative of these terms or other variations or comparable
terminology, or by discussions of strategy.
Actual results may vary materially from those in such
forward-looking statements as a result of various factors that
are identified in “Item 7 —
Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and elsewhere in this document.
No assurance can be given that the risk factors described in
this Annual Report on Form 10-K are all of the factors that
could cause actual results to vary materially from the
forward-looking statements. All forward-looking statements speak
only as of the date of this Annual Report on Form 10-K.
Readers should not place undue reliance on these forward-looking
statements and are cautioned that any such forward-looking
statements are not guarantees of future performance. We assume
no obligation to update any forward-looking statements.
This Annual Report on Form 10-K includes trademarks and
registered trademarks of Dynavax Technologies Corporation.
Products or service names of other companies mentioned in this
Annual Report on Form 10-K may be trademarks or registered
trademarks of their respective owners. Investors and security
holders may obtain a free copy of the Annual Report on
Form 10-K and other documents filed by Dynavax with the
Securities and Exchange Commission (SEC) at the SEC’s
website at http://www.sec.gov. Free copies of the Annual Report
on Form 10-K and other documents filed by Dynavax with the
SEC may also be obtained from Dynavax by directing a request to
Dynavax, Attention: Jane M. Green, Ph.D., Vice President,
Corporate Communications, 2929 Seventh Street, Suite 100,
Berkeley, CA 94710-2753, (510) 848-5100.
PART I
Overview
Dynavax Technologies Corporation (the “Company”,
“we” or “us”) discovers, develops and
intends to commercialize innovative products to treat and
prevent allergies, infectious diseases and chronic inflammatory
diseases using versatile, proprietary approaches that alter
immune system responses in highly specific ways. Our clinical
development programs are based on immunostimulatory sequences,
or ISS, which are short DNA sequences that enhance the ability
of the immune system to fight disease and control chronic
inflammation.
Our most advanced clinical programs are based on our ISS
technology and include:
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AIC for Ragweed Allergy. We have developed a novel
injectable product candidate to treat ragweed allergy that we
call AIC. AIC is an immunotherapeutic intervention for ragweed
allergy, the most common seasonal allergy in North America.
Unlike existing products that treat chronic ragweed allergy
symptoms, our product candidate targets the underlying cause of
ragweed-induced seasonal allergic rhinitis. AIC has completed
Phase II trials, and is currently completing a two-year
Phase II/III clinical trial. At the end of 2004, we
reported that the one-year interim analysis of this
Phase II/ III trial showed a clear positive trend relative
to the trial’s major endpoint of nasal symptom scores, as
well as other secondary endpoints, following the 2004 ragweed
season. The interim analysis indicated that AIC was safely
administered and systemic adverse reactions were similar between
the AIC and control arms. We intend to complete the
Phase II/ III clinical trial as planned. We |
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anticipate initiating a supportive Phase III clinical trial
in a pediatric indication in the first half of 2005. Pending the
outcome of discussions with the US Food and Drug Administration
(FDA) in 2005 and the results of the Phase II/III
study, we plan to initiate a pivotal Phase III clinical
program in early 2006. |
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Hepatitis B Prophylaxis. A Phase II program in
adolescents conducted in Canada has been completed. In these
trials our hepatitis B vaccine induced more rapid immunity with
fewer immunizations than currently available vaccines. Based on
these results, we believe that our hepatitis B vaccine has the
potential to increase compliance and decrease the spread of the
disease. Results from Phase I and Phase II trials
demonstrated that our hepatitis B vaccine was well tolerated and
conferred protective hepatitis B antibody levels following two
injections over a two-month period. A Phase II/ III trial
in subjects who are less responsive to conventional vaccine is
currently underway in Singapore. Results from an interim
analysis of the Phase II/ III trial showed that our vaccine
demonstrated statistically significant superiority in protective
antibody response and robustness of protective effect after two
vaccinations when compared to GlaxoSmithKline’s
Engerix-Btm
vaccine. We anticipate initiating Phase III trials in
Canada, Europe and Asia in 2005, pending the outcome of the
current trial. Our intention is to initially commercialize our
hepatitis B vaccine outside of the United States. |
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Asthma. We have an inhaled therapeutic product candidate
for treatment of asthma, which has completed a Phase IIa
trial in Canada. Unlike current treatments for asthma, which
require chronic use, our product may provide long-term relief
following a single course of administration. Results from our
Phase I trial demonstrated that our product candidate was
well tolerated in healthy volunteers and may have the potential
to suppress both clinical symptoms and the underlying
inflammatory response associated with asthma. Results from a
Phase IIa asthma challenge study confirmed the safety of
inhaled immunostimulatory sequences in asthmatic patients, and
showed substantial and statistically significant pharmacological
activity, based upon the induction of genes associated with a
reprogrammed immune response. After allergen challenges at weeks
two and four, no significant changes in pulmonary function were
observed between placebo and treated groups. We anticipate
initiating a Phase II study in asthma in late 2005. |
We have preclinical programs focused on other allergies, chronic
inflammation, antiviral therapies and improved, next-generation
vaccines using ISS and other technologies. These include an
early-stage research program focused on a new class of
oligonucleotides called immunoregulatory sequence (IRS)
technology, as well as a program focused on developing orally
available small molecules in the thiazolopyrimidine
(TZP) class, to treat autoimmune disease.
The Immune System
The immune system is the body’s natural defense mechanism
against infectious pathogens, such as bacteria, viruses and
parasites, and plays an important role in identifying and
eliminating abnormal cells, such as cancer cells. The
body’s first line of defense against any foreign substance
is a specialized function called innate immunity, which serves
as a rapid response that protects the body during the days or
weeks needed for a second longer-term immune response, termed
adaptive immunity, to develop. Unique cells called dendritic
cells have two key functions in the innate immune response. They
produce molecules called cytokines that contribute to the
killing of viruses and bacteria. In addition, they ensure that
pathogens and other foreign substances are made highly visible
to specialized helper T cells, called Th1 and Th2 cells, which
coordinate the longer-term adaptive immune response. Dendritic
cells recognize different types of pathogens or offending
substances and are able to guide the immune system to make the
most appropriate type of response. When viruses, bacteria and
abnormal cells such as cancer cells are encountered, dendritic
cells trigger a Th1 response, whereas detection of a parasite
infection leads dendritic cells to initiate a Th2 response. Th1
and Th2 responses last for extended periods of time in the form
of Th1 and Th2 memory cells, conferring long-term immunity.
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The diagram above is a visual representation of how the immune
system reacts when it encounters antigen. Upon encountering
antigen, a cascade of events is initiated that leads to either a
Th1 or a Th2 immune response, as described more fully in the
paragraphs above.
The Th1 response leads to the production of specific cytokines,
including interferon-alpha, interferon-gamma and
interleukin 12, or IL-12, as well as the generation of
killer T cells, a specialized immune cell. These cytokines and
killer T cells are believed to be the body’s most potent
anti-infective weapons. In addition, protective IgG antibodies
are generated that also help rid the body of foreign antigens
and allergens. Once a population of Th1 cells specific to a
particular antigen or allergen is produced, it persists for a
long period of time in the form of memory Th1 cells, even if the
antigen or allergen target is eliminated. If another infection
by the same pathogen occurs, the immune system is able to react
more quickly and powerfully to the infection, because the memory
Th1 cells can reproduce immediately. When the Th1 response to an
infection is insufficient, chronic disease can result. When the
Th1 response is inappropriate, diseases such as rheumatoid
arthritis can result, in part from elevated levels of Th1
cytokines.
Activation of the Th2 response results in the production of
other cytokines, IL-4, IL-5 and IL-13. These cytokines attract
inflammatory cells such as eosinophils, basophils and mast cells
capable of destroying the invading organism. In addition, the
Th2 response leads to the production of a specialized antibody,
IgE. IgE has the ability to recognize foreign antigens and
allergens and further enhances the protective response. An
inappropriate activation of the Th2 immune response to
allergens, such as plant pollens, can lead to chronic
inflammation and result in allergic rhinitis, asthma and other
allergic diseases. This inflammation is sustained by memory Th2
cells that are reactivated upon subsequent exposures to the
allergen, leading to a chronic disease.
ISS and the Immune System
Our principal product development efforts are based on a
technology that uses short synthetic DNA molecules called ISS
that stimulate a Th1 immune response while suppressing Th2
immune responses. ISS contain specialized sequences that
activate the innate immune system. ISS are recognized by a
specialized subset of dendritic cells containing a unique
receptor called Toll-Like Receptor 9, or TLR-9. The
interaction of TLR-9 with ISS triggers the biological events
that lead to the suppression of the Th2 immune response and the
enhancement of the Th1 immune response.
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We believe ISS have the following benefits:
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ISS work by changing or reprogramming the immune responses that
cause disease rather than just treating the symptoms of disease. |
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ISS influence helper T cell responses in a targeted and highly
specific way by redirecting the response of only those T cells
involved in a given disease. As a result, ISS do not alter the
ability of the immune system to mount an appropriate response to
infecting pathogens. In addition, because TLR-9 is found only in
a specialized subset of dendritic cells, ISS do not cause a
generalized activation of the immune system, which might
otherwise give rise to an autoimmune response. |
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ISS, in conjunction with an allergen or antigen, establish
populations of memory Th1 cells, allowing the immune system to
respond appropriately to each future encounter with a specific
pathogen or allergen, leading to long-lasting therapeutic
effects. |
We have developed a number of proprietary ISS compositions and
formulations that make use of the different ways in which the
innate immune system responds to ISS. Depending on the
indication for which ISS is being explored as a therapy, we use
ISS in different ways.
ISS Linked to Allergens
We link ISS to allergens that are known to cause specific
allergies. By chemically linking ISS to allergens, rather than
simply mixing them, we generate a superior Th1 response due to
the fact that the ISS and allergen are presented simultaneously
to the same part of the immune system. The linked molecules
generate an increased Th1 response by the immune system in the
form of IgG antibodies and interferon-gamma. In addition, the
ISS-linked allergens have a highly specific and potent
inhibitory effect on the Th2 cells, thereby reprogramming the
immune response away from the Th2 response that causes specific
allergies. Upon subsequent natural exposure to the allergens,
the Th1 memory response is triggered, providing long-term
suppression of allergic responses.
ISS Linked to or Combined with Antigens
We also link ISS to antigens associated with cancer and
pathogens such as viruses and bacteria to stimulate an immune
response that will attack and destroy infected or abnormal
cells. ISS, linked to or combined with appropriate antigens,
increase the visibility of the antigen to the immune system and
induce a highly specific and enhanced Th1 response, including
increased IgG antibody production. As with ISS linked to
allergens, this treatment also generates memory T cells,
conferring long-term protection against specific pathogens. This
treatment may also have the potential for synergy with other
cancer or infectious disease therapies.
ISS Alone
We use ISS alone in diseases like asthma, where a large variety
of allergens may be associated with an inappropriate immune
response. ISS administered alone may suppress the Th2
inflammatory response caused by any number of allergens,
modifying the underlying cause of inflammation, as well as
providing symptomatic relief. ISS may also be used in
conjunction with a variety of anti-tumor monoclonal antibodies
as a combination therapy, with the goal of stimulating the
elimination of cancer cells.
Advanced ISS Technologies
We have developed proprietary technologies that modify the
molecular structure of ISS to significantly increase its
versatility and potency. We are using these technologies in most
of our preclinical programs and believe that they will be
essential to our future product development efforts. Our
advanced ISS technologies include novel ISS-like compounds,
which we call CICs, as well as advanced ISS formulations.
CICs are molecules that are a mixture of nucleotide and
non-nucleotide components. We have identified optimal sequences
that induce particular immune responses, including potent
interferon-alpha induction.
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CICs can be tailored to have specific immunostimulatory
properties and can be administered alone, or linked to allergens
or antigens.
We have also developed novel formulations for ISS and CICs that
can dramatically increase their potency. These advanced
formulations can be used in situations where high potency is
required to see a desired clinical outcome and can decrease the
dosage of ISS or CICs required to achieve therapeutic effect.
Our Primary Development Programs
We are using a proprietary ISS, a 22-base synthetic DNA molecule
called 1018 ISS, in our clinical development programs for
ragweed allergy, hepatitis B prophylaxis and asthma. To date, we
have administered 1018 ISS to more than 700 people without
observing any serious, drug-related, adverse events. We have
demonstrated the clinical benefit of AIC and our hepatitis B
vaccine, which are both 1018 ISS-based product candidates, in
Phase II/ III clinical trials. Our principal programs are
Seasonal Allergy Immunotherapy, Hepatitis B Products and Chronic
Inflammation, as described below.
Seasonal Allergy Immunotherapy
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AIC for Ragweed Allergy and its Benefits |
Our lead anti-allergy product, AIC, consists of 1018 ISS linked
to the purified major allergen of ragweed, called Amb a 1. AIC
targets the underlying cause of seasonal allergic rhinitis
caused by ragweed and offers a convenient six-week treatment
regimen potentially capable of providing long-lasting
therapeutic results. The linking of ISS to Amb a 1 ensures that
both ISS and ragweed allergen are presented simultaneously to
the same immune cells, producing a highly specific and potent
inhibitory effect and suppressing the Th2 cells responsible for
inflammation associated with ragweed allergy. Moreover, this
treatment reprograms the immune response away from the Th2
response and toward a Th1 memory response so that, upon
subsequent natural exposure to the ragweed allergen, long-term
immunity is achieved.
Over the last several years, we have generated a substantial
amount of clinical data on AIC. AIC has been tested in fourteen
clinical trials in the U.S., France and Canada, and more than
3,000 AIC injections have been administered in more than
500 patients. In these trials, AIC was shown to be safe and
well tolerated, to provide measurable improvements in allergy
symptoms and to reduce medication use. We are conducting a
two-year multi-site Phase II/ III trial in the U.S. to
evaluate the efficacy of AIC. We have enrolled 462 eligible
patients. Prior to the 2004 ragweed season, patients received a
six-week regimen of either placebo or escalating doses of up to
30 micrograms of AIC. Some patients will receive two additional
booster shots of AIC prior to the 2005 ragweed season. The
primary endpoint of this trial is the change in nasal symptoms
(i.e., congestion, runny nose, itchy nose, sneezing) relative to
placebo following the 2005 ragweed season. At the end of 2004,
we reported that the one-year interim analysis of this
Phase II/ III trial showed a clear positive trend relative
to the trial’s major endpoint of nasal symptom scores, as
well as other secondary endpoints, following the 2004 ragweed
season. The interim analysis indicated that AIC was safely
administered and systemic adverse reactions were similar between
the AIC and control arms. We intend to complete the two-year
clinical trial as planned, a decision that was endorsed by an
independent Drug Safety Monitoring Board. Pending the outcome of
discussions with the US Food and Drug Administration
(FDA) in 2005 and the results of the Phase II/III study, we
will determine the design, target populations and timing of
initiating a pivotal Phase III clinical program in early
2006. In addition, Dynavax will discuss with the FDA plans to
initiate a supportive Phase III trial in a pediatric
indication in 2005.
Medical management of seasonal allergic rhinitis is a
multibillion-dollar global market. In the U.S. alone,
approximately 40 million people suffer from allergic
rhinitis. The direct costs of prescription interventions for
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allergic rhinitis in the U.S. were $8 billion in 2004.
Ragweed is the single most common seasonal allergen, affecting
up to 75% of those with allergic rhinitis, or 30 million
Americans. In addition, 20-30% of those who suffer from allergic
rhinitis progress to asthma, leading to increased morbidity and
disease management costs. We believe that a significant market
opportunity exists for AIC in the treatment of ragweed allergic
individuals currently undergoing conventional immunotherapy or
using multiple prescription or over-the-counter
(OTC) medications. In addition, the product may also play a
role in earlier stage disease, potentially preventing the
“allergic march” from allergic rhinitis to asthma.
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Current Allergy Treatments and their Limitations |
Drug Treatments — Many individuals turn
to prescription and OTC pharmacotherapies such as
antihistamines, corticosteroids, anti-leukotriene agents and
decongestants to manage their seasonal allergy symptoms.
Although currently available pharmacotherapies may provide
temporary symptomatic relief, they can be inconvenient to use
and can cause side effects. Most importantly, these
pharmacotherapies need to be administered chronically and do not
modify the underlying disease state.
Allergy Shots (Immunotherapy) — Allergy
shots, or immunotherapy, are employed to alter the underlying
immune mechanisms that cause allergic rhinitis. Patients are
recommended for allergy immunotherapy only after attempts to
reduce allergic symptoms by drugs or limiting exposure to the
allergen have been deemed inadequate. Conventional immunotherapy
is a gradual immunizing process in which increasing
individualized concentrations of pollen extracts are mixed by
the allergist and administered to induce increased tolerance to
natural allergen exposure. The treatment regimen generally
consists of weekly injections over the course of six months to a
year, during which the dosing is gradually built up to a
therapeutic level so as not to induce a severe allergic
reaction. Once a therapeutic dosing level is reached,
individuals then receive bi-weekly or monthly injections to
build and maintain immunity over another two to four years. A
patient typically receives between 60 and 90 injections over the
course of treatment. Adverse reactions to conventional allergy
immunotherapy are common and can range from minor swelling at
the injection site to systemic reactions, and, in extremely rare
instances, death. Other major drawbacks from the patients’
perspective include the inconvenience of repeated visits to
doctors’ offices for each injection, the time lag between
the initiation of the regimen and the reduction of symptoms, and
the total number of injections required to achieve a therapeutic
effect. Consequently, patient compliance is a significant issue.
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Other Seasonal Allergy Immunotherapy Candidates |
As AIC progresses through clinical development, we intend to
produce similar ISS-allergen linked product candidates for the
treatment of other major seasonal allergies. Each of grass,
birch and cedar-induced seasonal allergic rhinitis is caused by
an allergic immune system response to identified and
characterized allergens. Consequently, product candidates for
each can be produced in a manner similar to AIC. For example,
the major grass allergen, Lol p 1, and the major cedar tree
allergen, Cry j 1, can be linked to ISS. As with AIC, we
believe our approach may provide distinct advantages over
conventional immunotherapy for these allergies, including a
potentially favorable safety profile, significantly shorter
dosing regimen and long-term therapeutic benefits.
AIC and our other seasonal allergy products should be well
positioned to compete against not only currently available
immunotherapies, but also other interventions targeting the
symptoms of seasonal allergic rhinitis. We believe that our
additional seasonal allergy products will present the same
advantages over symptomatic interventions as described for AIC.
As a result of these advantages and by providing a broader set
of seasonal allergy immunotherapies, we may ultimately achieve
an expansion into the large group of patients that currently
choose pharmacotherapies over existing immunotherapies.
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ISS for Peanut Allergy and its Benefits |
We believe that ISS linked with a major peanut allergen, Ara
h 2, may be able to suppress the Th2 response and reduce or
eliminate the allergic reaction without inducing anaphylaxis
during the course of
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immunotherapy. Our anticipated advantage in this area is the
potentially increased safety that may be achieved by linking ISS
to the allergen. By using ISS to block recognition of the
allergen by IgE and therefore prevent subsequent histamine
release, we may be able to administer enough of the ISS-linked
allergen to safely reprogram the immune response without
inducing a dangerous allergic reaction. We believe the resulting
creation of memory Th1 cells may provide long-term protection
against an allergic response due to accidental exposure to
peanuts.
We are developing a peanut allergy product candidate that
consists of ISS linked to a major peanut allergen, Ara h 2. We
have demonstrated in mice that peanut allergen linked to ISS
induces much higher levels of Th1-induced IgG antibodies and
lower levels of IgE than natural peanut allergen. ISS-linked Ara
h 2 also induces much higher levels of interferon-gamma and much
lower levels of IL-5 than unmodified Ara h 2 in mice.
Immunization with our product candidate has also been shown to
protect peanut allergic animals from anaphylaxis and death
following exposure to peanut allergen. In addition, we have
demonstrated that ISS-linked Ara h 2 has significantly reduced
allergic response as measured by in vitro histamine release
assays using blood cells from peanut allergic patients.
Peanut allergy accounts for the majority of severe food-related
allergic reactions. Approximately 1.5 million people in the
U.S. have a potentially life-threatening allergy to peanuts
and the incidence is growing rapidly. There are an estimated 100
to 200 deaths from severe peanut allergy in the U.S. each
year.
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Current Peanut Allergy Treatments and their
Limitations |
There are currently no products available that prevent peanut
allergy. People allergic to peanuts must take extreme avoidance
measures, carefully monitoring their exposure to peanuts and
peanut byproducts. Emergency treatment following peanut exposure
and the onset of allergic symptoms primarily consists of the
administration of epinephrine to treat anaphylaxis. Our peanut
allergy immunotherapy is designed to allow patients to tolerate
exposure to higher levels of peanut products without
experiencing severe reactions.
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License and Development Agreement with UCB |
In February 2004, Dynavax and UCB Farchim, S.A., a subsidiary of
UCB, S.A., or UCB, established a strategic partnering agreement
for the development and commercialization of seasonal allergy
products. In March 2005, Dynavax and UCB agreed to end their
collaboration. Under the terms of the agreement, UCB will return
all rights to the allergy program to Dynavax and the current
ongoing Phase II/ III clinical trial of our AIC
immunotherapy for ragweed allergy will be completed as planned.
Dynavax will assume financial responsibility for all further
clinical, regulatory, manufacturing and commercial activities
related to AIC and for preclinical development programs in grass
and in peanut allergy.
Hepatitis B Products
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Our Hepatitis B Vaccine Product Candidate and its
Benefits |
Current hepatitis B vaccines consist of hepatitis B surface
antigen combined with alum as an adjuvant. Our vaccine candidate
is composed of hepatitis B surface antigen combined with 1018
ISS and, unlike conventional vaccines, appears to require only
two immunizations over two months to achieve protective
hepatitis B antibody responses. In clinical trials we have been
able to reduce both the time and number of injections required
to reach protective hepatitis B antibody responses because of
the potent immune-enhancing properties of ISS, which we believe
may lead to protective hepatitis B antibody responses after one
or two immunizations and thus provide superior field efficacy as
compared to current hepatitis B vaccines.
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Results from Phase I and from Phase II trials showed
that our vaccine candidate was well tolerated and induced more
rapid immunity with fewer immunizations than Engerix-B®, a
major currently available vaccine. Our Phase I trial
investigated the effects of escalating doses of ISS, from
0.3 mg to 3.0 mg, in each case administered with the
same amount of hepatitis B surface antigen as used in
conventional vaccines. In this trial we enrolled 48 subjects and
demonstrated that all subjects who received two injections of at
least 0.65 mg ISS with hepatitis B surface antigen achieved
protective hepatitis B antibody responses. We conducted a
Phase II trial in Canada evaluating the efficacy of two
injections of our vaccine candidate (hepatitis B surface antigen
plus 3.0 mg of 1018 ISS) compared to Engerix-B®. A
total of 99 healthy young adults were enrolled in this study,
randomized to our vaccine or Engerix-B®. Results show that
our vaccine induces a 79% rate of protective hepatitis B
antibody response after one injection and protective hepatitis B
antibody response in 100% of recipients after the second
injection at two months. In contrast, subjects receiving
Engerix-B® had protective hepatitis B antibody responses
after the first and second injections in 12% and 64% of
recipients, respectively. We are also conducting a
Phase II/ III trial in Singapore to evaluate the efficacy
of our vaccine in older subjects (ages 40-70 years)
who have a diminished ability to respond to current commercial
vaccines. Data from an interim analysis of the Company’s
hepatitis B virus (HBV) vaccine Phase II/ III clinical
trial showed statistically significant superiority in protective
antibody response and robustness of protective effect after two
vaccinations when compared to GlaxoSmithKline’s
Engerix-B®. The primary endpoint of the ongoing
Phase II/ III trial is seroprotection four weeks after
administration of the third dose. Pending the outcome of the
current trial, we intend to pursue a broad Phase III
clinical program in multiple age groups in mid-2005 with primary
endpoints of protective hepatitis B antibody responses after
each injection.
Hepatitis B is a common chronic infectious disease with an
estimated 350 million chronic carriers worldwide.
Prevention of hepatitis caused by the hepatitis B virus is
central to managing the spread of the disease, particularly in
regions of the world with large numbers of chronically infected
individuals. While many countries have instituted infant
vaccination programs, compliance is not optimal. Moreover, there
are large numbers of individuals born prior to the
implementation of these programs who are unvaccinated and are at
risk for the disease. In addition, not all individuals respond
to currently approved vaccines. Annual sales of hepatitis B
vaccines exceed $1.0 billion globally.
We are pursuing a diversified development and commercialization
strategy for its hepatitis B vaccine. Our clinical strategy is
to determine the effect of a two-dose regimen in adolescents and
young adults as well as a three-dose regimen in older patients
who are typically less responsive to conventional vaccines. The
vaccine may also be developed for the perinatal immunization of
infants born to infected mothers, a particularly high-risk
segment where transmission rates exceed 90%. We also plan to
develop our hepatitis B vaccine for high-risk populations that
may include the pre-hemodialysis market segment.
We plan to commercialize our hepatitis B vaccine initially in
various markets outside the U.S. We are also evaluating the
potential of developing more potent second-generation vaccines
that may offer advantages particularly for high-risk populations.
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Current Hepatitis B Vaccines and their Limitations |
Current hepatitis B vaccines consist of a three-dose
immunization regimen administered over six months. If completed,
current hepatitis B vaccination confers protective hepatitis B
antibody responses to approximately 95% of healthy young adults.
However, the protective hepatitis B antibody responses achieved
by conventional vaccines is lower for persons who are overweight
or who smoke. Additionally, there is an inversely proportional
relationship between age and the degree to which current
vaccines confer protective hepatitis B antibody responses: the
older you are, the less effective current vaccines are.
Compliance with the immunization regimen is also a significant
issue, as many patients fail to receive all three doses.
According to a survey of U.S. adolescents and adults
published by the Centers for Disease Control, of those who
received
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the first dose of vaccine, only 53% received the second dose of
vaccine and only 30% received the third. We believe that
compliance rates in other countries are similar or worse. For
healthy young adults, protective hepatitis B antibody responses
after the first dose are reported to be between 10% and 12% and
improve to only 38% to 56% after the second dose. Consequently,
an unacceptably large number of individuals who start the
immunization series remain susceptible to infection. Poor field
efficacy is of particular concern in regions with high hepatitis
B prevalence and constitutes a major public health issue.
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Benefits of our Approach to Hepatitis B Therapy |
Our product candidate for hepatitis B therapy, in which advanced
ISS is both linked to and combined with hepatitis B surface
antigen, may provide a more effective alternative for the
elimination of infection in chronic carriers, in conjunction
with existing antiviral therapies. Our immunotherapy is expected
to induce a potent immune response against virus-infected cells
in the liver and has the potential to eradicate the infection.
Preclinical experiments in mice have shown that our product
candidate for hepatitis B therapy redirects the immune response
toward Th1-based immunity, producing strong interferon-gamma and
cytotoxic T cell responses. Interferon-gamma and cytotoxic T
cell responses are thought to be important for the control
and/or elimination of chronic hepatitis B infection.
Hepatitis B infection is a major cause of acute and chronic
viral hepatitis, with morbidities ranging from asymptomatic
infection to liver failure, cancer and death. There is a large
population chronically infected with hepatitis B, including an
estimated one million patients in the U.S., two million in
Europe, nine million in Japan and 350 million in the rest
of the world. In many countries in Southeast Asia and the
Pacific Basin, HBV endemicity is as high as 20-25% of the
population.
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Currently Available Hepatitis B Therapies and their
Limitations |
Currently available therapies for chronic hepatitis B infection
include interferon alpha and antiviral drugs. Interferon-alpha
has been shown to normalize liver enzyme function in
approximately 40% of individuals treated. The approved antiviral
drugs, which work by inhibiting viral replication, reduce
hepatitis B viral load approximately 3,000-fold and normalize
liver enzymes in 50% to 75% of patients. However, both
interferon-alpha and antiviral drugs are expensive and may
induce significant side effects. In addition, patients typically
become resistant to antiviral drugs within one year of
initiating treatment, ultimately rendering them ineffective as
long-term therapies.
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License and Supply Agreement with Berna Biotech |
In October 2003, we entered into an agreement with Berna
Biotech, a publicly traded company based in Bern, Switzerland,
in which Berna agreed to supply us with its proprietary
hepatitis B surface antigen for use in our Phase III
clinical trials for our hepatitis B vaccine and, if merited, its
subsequent commercialization. According to terms of the
agreement, we will receive adequate supplies of hepatitis B
surface antigen for clinical development, and then will pay
fixed amounts for use of the antigen in the potential commercial
vaccine.
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Chronic Inflammation
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Inhaled ISS for Asthma and its Benefits |
In most people, asthma is an allergic inflammatory disease
caused by multiple allergens. As a result, an approach relying
on the linkage of ISS to a large number of allergens would be
technically and commercially challenging. To address this issue,
we have formulated ISS for pulmonary delivery with no linked
allergen, relying on natural exposure to multiple allergens to
produce specific long-term immunity. We anticipate that ISS
would be administered initially on a weekly basis. Once the
immune response to asthma-causing allergens has been
reprogrammed to a Th1 response, it may be possible to reduce
administrations of ISS to longer periodic intervals or only as
needed. In addition, based on preclinical data, we believe that
this therapy may lead to reversal of airway remodeling caused by
asthma.
We conducted a Phase I trial to evaluate the safety and
tolerability of inhaled 1018 ISS in 54 healthy subjects. In the
first part of the trial, ISS was found to be well tolerated at
escalating doses. In the second part of the trial, measurable
increases in the expression of cytokines induced by 1018 ISS
were observed in treated patients relative to placebo,
confirming our understanding of its mechanism of action. We have
completed a Phase IIa trial in Canada to evaluate the
preliminary safety and tolerability of 1018 ISS in mild
asthmatics and assess the efficacy of the treatment following
allergen challenge. In this trial, 39 patients were given
four weekly doses of either 1018 ISS or placebo. The primary
endpoint of this trial was a comparison between 1018 ISS and
placebo of the allergen-induced clinical symptoms following the
final dose. The safety results of the trial showed no
differences in treatment-emergent or drug-related adverse events
or in serious adverse events. ISS produced statistically
significant elevations, in both peripheral blood and induced
sputum, of genes induced by alpha interferon, the main agent in
the biological cascade triggered by ISS. No induction of these
genes was observed in the placebo-treated patients. After
allergen challenges at weeks two and four, no significant
changes in pulmonary function were observed between placebo and
treated groups. We anticipate initiating a Phase II study
in late 2005.
Asthma is a chronic disorder caused primarily by allergic
inflammation of the airways, leading to recurrent episodes of
wheezing, breathlessness, chest tightness, and coughing,
particularly in the night or early morning. If not properly
managed, asthma can be life threatening. Asthma affects more
than 300 million individuals worldwide. In the
U.S. alone, asthma is estimated to afflict 20 million
people. The incidence of asthma is increasing and often occurs
in response to triggering allergens. It is estimated that at
least 75% of patients with asthma also complain of allergic
symptoms and 20-30% of those with allergic rhinitis also have
asthma. Sales of asthma drugs worldwide approximated
$9.0 billion in 2002.
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Current Asthma Therapies and their Limitations |
Current asthma therapies are aimed at suppressing or
manipulating the immune and inflammatory components of asthma.
The most common therapy is the use of inhaled corticosteroids
that reduce swelling and inflammation. The requirement for daily
administration of inhaled corticosteroids to treat chronic
asthma often leads to poor compliance, especially in younger
patients. Other approaches include inhaled beta-agonists for
bronchodilation and leukotriene inhibitors to control
inflammation (these are delivered orally but demonstrate only
modest efficacy). The most recent entrant to the asthma
treatment market is an anti-IgE antibody, co-promoted by Tanox,
Genentech and Novartis, that is administered every two to four
weeks by injection for moderate to severe allergic asthma and is
priced at over $10,000 per year.
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Additional Programs
In addition to our primary product portfolio, we are pursuing
earlier stage programs in Next-Generation Vaccines, Cancer,
Antiviral Applications and Chronic Inflammation, as described
below.
We are using our advanced ISS technology to develop an improved
anthrax vaccine that we expect will be well tolerated and
provide protective immunity after one or two immunizations. The
only available anthrax vaccine, Anthrax Vaccine Adsorbed, or
AVA, was approved in the U.S. in 1970 and has been used
extensively by the military. The vaccine has been reported to
cause relatively high rates of local and systemic adverse
reactions. In addition, the administration of AVA requires six
subcutaneous injections over 18 months with subsequent
annual boosters. Our vaccine candidate will be composed of
recombinant anthrax protective antigen, or rPA, combined with
advanced ISS enhanced by a proprietary formulation. The use of
advanced ISS in this formulation should enhance both the speed
and magnitude of the antibody response developed against rPA
compared to AVA and other rPA-based products in development.
Preclinical experiments have demonstrated that rPA combined with
our advanced ISS formulations has generated significantly higher
toxin neutralizing antibody responses compared to rPA alone or
rPA combined with the standard vaccine adjuvant, alum. In the
third quarter of 2003, the National Institute of Allergy and
Infectious Diseases, or NIAID, awarded us a $3.7 million
grant over three and a half years to fund research and
development of an advanced anthrax vaccine as part of its
biodefense program.
Human viral influenza is an acute respiratory disease of global
dimension with high morbidity and mortality in annual epidemics.
In the U.S., there are an estimated 20,000 viral
influenza-associated deaths per year. Pandemics occur
infrequently, on average every 33 years, with high rates of
infection resulting in increased mortality. The last pandemic
occurred 37 years ago, and virologists anticipate that a
new pandemic strain could emerge any time.
Current flu vaccines are directed against specific surface
antigen proteins. These proteins vary significantly each year,
requiring the vaccine to be reconfigured and administered
annually. Our approach links advanced ISS to nucleoprotein, one
of the flu antigens that varies little from year to year, and
then adds it to conventional vaccine to augment its activity.
While nucleoprotein alone is not capable of inducing a
protective immune response, we believe that linked
ISS-nucleoprotein added to conventional vaccine will not only
increase antibody responses capable of blocking viral infections
but also confer protective immunity against divergent influenza
strains. In the third quarter of 2003 we were awarded a
$3.0 million grant over three and a half years to fund
research and development of an advanced pandemic influenza
vaccine under an NIAID program for biodefense administered by
the National Institutes of Health.
We are evaluating the potential of 1018 ISS to enhance the
cytotoxic effects of monoclonal antibodies on cancer cells. This
strategy has been shown to be effective in preclinical models
utilizing various anticancer monoclonal antibodies. We have
conducted an open-label Phase I, dose-escalation trial of
1018 ISS in combination with Rituxan® in 20 patients
with a cancer of the blood called non-Hodgkin’s lymphoma
(NHL) to evaluate the safety, tolerability,
pharmacokinetics and pharmacodynamics of 1018 ISS administered
in combination with Rituxan®. Results of this study showed
interferon-alpha/beta inducible gene expression, without
significant toxicity. These results provide a rationale for
further testing of this combination immunotherapy approach to
NHL.
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Increasing the resistance of individuals to a wide range of
potential pathogens by stimulating their innate immune response
would provide a complementary approach to vaccination against
specific pathogens. As the most likely route of exposure to
biological weapons is through the air, stimulation of innate
immune mechanisms in the lungs would be particularly important.
We have shown in animal models that ISS enhances innate immunity
and increases resistance to a variety of pathogens in both
prophylactic and therapeutic settings. We are currently
evaluating the effects of advanced ISS as prophylaxis against a
broad spectrum of biological agents in both mouse and primate
models. In the third quarter of 2003, we were awarded an NIAID
biodefense grant of $1.7 million over two and one-half
years. This grant will fund research and development of a
product candidate using pulmonary delivery to elicit
prophylactic innate immunity to airborne biological agents.
Tumor necrosis factor alpha, or TNF-alpha, is a cytokine that
plays a major role in the body’s response to infectious
diseases. Following bacterial or viral infection, TNF-alpha is
normally released as part of a Th1-dominated immune response to
fight the invading pathogen. In a number of diseases, such as
rheumatoid arthritis, Crohn’s disease and psoriasis,
however, inappropriately high levels of this cytokine are
produced, leading to the debilitating symptoms of these
conditions. A number of published studies have shown that
inhibition of TNF-alpha is effective in the treatment of these
diseases.
We are developing drugs based on a novel class of chemical
compounds called thiazolopyrimidines, or TZPs, for the treatment
of rheumatoid arthritis, a form of inflammatory bowel disease
called Crohn’s disease and other TNF-alpha mediated
diseases. TZPs are our proprietary small molecules that inhibit
the production of TNF-alpha and IL-12. They appear to have a
novel mechanism of action, including a high degree of
specificity, increasing their potential to be used as drugs.
We are conducting preclinical studies to determine the mechanism
of action of TZPs as well as evaluate their activity ex-vivo.
Based on the outcome of these studies, we will determine whether
to initiate clinical trials using TZPs in rheumatoid arthritis,
Crohn’s disease or potentially in other inflammatory
diseases.
In June 2003, we entered into a development collaboration
agreement with BioSeek, Inc. to conduct studies to determine the
mechanism of action for TZPs. Under the terms of the agreement,
a milestone payment is payable to BioSeek upon the achievement
of a milestone and royalties are payable if we partner or
commercialize our TZP program. The agreement may be terminated
by either party. As of December 31, 2004, BioSeek achieved
the contractual milestone, and as a result, we recorded an
accrual for $0.3 million.
We have pioneered a new approach to treating autoimmune disease
based upon a novel class of oligonucleotides, named
immunoregulatory sequences (IRS), that specifically inhibit the
toll-like receptor (TLR)-induced inflammatory response
implicated in disease progression. We are exploring development
of an IRS-based treatment for autoimmune disease, including
systemic lupus erythematosis (SLE or lupus). Based upon this
initial research, in the fourth quarter of 2004, the Alliance
for Lupus Research (ALR) awarded us a $0.5 million
grant over two years to explore new treatment approaches for SLE
based on the Company’s novel IRS technology.
Intellectual Property
Our intellectual property portfolio can be divided into three
main technology areas: ISS, TZP and vaccines using DNA. We have
entered into exclusive, worldwide license agreements with the
Regents of the University of California for technology and
related patent rights in these three technology areas.
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ISS technology: We have seventeen issued U.S. and foreign
patents, thirty-two pending U.S. patent applications, and
eighty-six pending foreign applications that seek worldwide
coverage of compositions and methods using ISS technology. Some
of these patents and applications have been exclusively licensed
worldwide from the Regents of the University of California.
Among others, we hold issued |
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U.S. patents covering 1018 ISS as a composition of matter;
the use of ISS alone to treat asthma; and ISS linked to
allergens and viral or tumor antigens. |
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TNF-alpha inhibitors: We have sixteen issued U.S. and
foreign patents and six pending U.S. and foreign patent
applications providing worldwide rights to a group of
small-molecule TNF-alpha synthesis inhibitors including TZPs. We
hold exclusive, worldwide licenses to these patents and patent
applications held by the Regents of the University of California. |
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Vaccines using DNA: We have fourteen issued U.S. and
foreign patents and nine pending U.S. and foreign patent
applications covering methods and compositions for vaccines
using DNA and methods for their use. We hold an exclusive,
worldwide license from the Regents of the University of
California for patents and patent applications relating to
vaccines using DNA, and we have the right to grant sublicenses
to third parties. Effective January 1998, we entered into a
cross-licensing agreement with Vical, Inc. that grants each
company exclusive, worldwide rights to combine the other
firm’s patented technology for DNA immunization with its
own for selected indications. |
Under the terms of our license agreements with the Regents of
the University of California, we are required to pay license
fees, make milestone payments and pay royalties on net sales
resulting from successful products originating from the licensed
technologies. We may terminate these agreements in whole or in
part on 60 days’ advance notice. The Regents of the
University of California may terminate these agreements if we
are in default for failure to make royalty payments, produce
required reports or fund internal research and we do not cure a
breach within 60 days after being notified of the breach.
Otherwise, the agreements do not terminate until the last patent
claiming a product licensed under the agreement or its
manufacture or use expires, or in the absence of patents, until
the date the last patent application is abandoned, except for
the TZP agreement, which will expire on such date or in October
2013, whichever is later.
Although we believe our patents and patent applications,
including those that we license, provide a competitive
advantage, the patent positions of pharmaceutical and
biopharmaceutical companies are highly uncertain and involve
complex legal and factual questions. We and our collaborators or
licensors may not be able to develop patentable products or be
able to obtain patents from pending patent applications. Even if
patent claims are allowed, the claims may not issue, or in the
event of issuance, may not be sufficient to protect the
technology owned by or licensed to us. These current patents, or
patents that issue on pending applications, may be challenged,
invalidated, infringed or circumvented, and the rights granted
in those patents may not provide proprietary protection or
competitive advantages to us. Patent applications filed before
November 29, 2000 in the U.S. are maintained in
secrecy until patents issue; later filed U.S. applications
and patent applications in most foreign countries generally are
not published until at least 18 months after they are
filed. Scientific and patent publication often occurs long after
the date of the scientific discoveries disclosed in those
publications. Accordingly, we cannot be certain that we were the
first to invent the subject matter covered by any patent
application or that we were the first to file a patent
application for any inventions.
Our commercial success depends significantly on our ability to
operate without infringing patents and proprietary rights of
third parties. A number of pharmaceutical companies,
biotechnology companies, including Coley Pharmaceutical Group,
or Coley, as well as universities and research institutions may
have filed patent applications or may have been granted patents
that cover technologies similar to the technologies owned or
licensed to us. We cannot determine with certainty whether
patents or patent applications of other parties may materially
affect our ability to make, use or sell any products. The
existence of third-party patent applications and patents could
significantly reduce the coverage of the patents owned by or
licensed to us and limit our ability to obtain meaningful patent
protection.
If patents containing competitive or conflicting claims are
issued to third parties, we may be enjoined from pursuing
research, development or commercialization of products or be
required to obtain licenses to these patents or to develop or
obtain alternative technology. In addition, other parties may
duplicate, design around or independently develop similar or
alternative technologies to ours or our licensors. If another
party controls patents or patent applications covering our
products, we may not be able to obtain the rights we need
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to those patents or patent applications in order to
commercialize our products. We have developed second-generation
technology that we believe reduces many of these risks.
Litigation may be necessary to enforce patents issued or
licensed to us or to determine the scope or validity of another
party’s proprietary rights. U.S. Patent Office
interference proceedings may be necessary if we and another
party both claim to have invented the same subject matter. Coley
has issued U.S. patent claims, as well as patent claims
pending with the U.S. Patent and Trademark Office, that, if
held to be valid, could require us to obtain a license in order
to commercialize one or more of our formulations of ISS in the
U.S., including AIC. In December 2003 the United States Patent
and Trademark Office declared an interference to resolve
first-to-invent disputes between a patent application filed by
the Regents of the University of California, which is
exclusively licensed to us, and an issued U.S. patent owned
by Coley relating to immunostimulatory DNA sequences. The
declaration of interference names the Regents of the University
of California as senior party, indicating that a patent
application filed by the Regents of the University of California
and licensed to us was filed prior to a patent application owned
by Coley that led to an issued U.S. patent. The
interference provides the first forum to challenge the validity
and priority of certain of Coley’s patents. If successful,
the interference action would establish our founders as the
inventors of the inventions in dispute. On March 10, 2005,
the U.S. Patent and Trademark Office issued a decision in the
interference which did not address the merits of the case, but
dismissed it on a legal technicality related to the timing of
Dynavax’s filing of its claims and request for
interference. Dynavax has appealed this non-final decision. If
we do not prevail in the interference proceeding, we may not be
able to obtain patent protection on the subject matter of the
interference, which would have a material adverse impact on our
business. In addition, if Coley prevails in the interference, it
may seek to enforce its rights under issued claims, including,
for example, by suing us for patent infringement. Consequently,
we may need to obtain a license to issued and/or pending claims
held by Coley by paying cash, granting royalties on sales of our
products or offering rights to our own proprietary technologies.
Such a license may not be available to us on acceptable terms,
if at all.
We could incur substantial costs if:
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litigation is required to defend against patent suits brought by
third parties; |
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we participate in patent suits brought against or initiated by
our licensors; |
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we initiate similar suits; or |
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we pursue an interference proceeding. |
In addition, we may not prevail in any of these actions or
proceedings. An adverse outcome in litigation or an interference
or other proceeding in a court or patent office could:
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subject us to significant liabilities; |
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require disputed rights to be licensed from other
parties; or |
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require us to cease using some of our technology. |
We also rely on trade secrets and proprietary know-how,
especially when we do not believe that patent protection is
appropriate or can be obtained. Our policy is to require each of
our employees, consultants and advisors to execute a
confidentiality and inventions agreement before beginning their
employment, consulting or advisory relationship with us. These
agreements generally provide that the individuals must keep
confidential and not disclose to other parties any confidential
information developed or learned by the individuals during the
course of their relationship with us except in limited
circumstances. These agreements also generally provide that we
own all inventions conceived by the individuals in the course of
rendering services to us.
In the future, we may collaborate with other entities on
research, development and commercialization activities. Disputes
may arise about inventorship and corresponding rights in
know-how and inventions resulting from the joint creation or use
of intellectual property by us and our collaborators, licensors,
scientific collaborators and consultants. In addition, other
parties may circumvent any proprietary protection we do have. As
a result, we may not be able to maintain our proprietary
position.
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Manufacturing
The process for manufacturing oligonucleotides such as ISS is
well established and uses commercially available equipment and
raw materials. To date, we have manufactured small quantities of
our oligonucleotide formulations for research purposes. We have
relied on a single contract manufacturer to produce our ISS for
clinical trials. We have identified several additional
manufacturers with whom we could contract for the manufacture of
ISS.
AIC consists of ISS linked to Amb a 1, the principal
ragweed allergen, which is purified from ragweed pollen
purchased on an as-needed basis from commercial suppliers of
ragweed pollen. If we are unable to purchase ragweed pollen from
commercial suppliers, we may be required to contract directly
with collectors of ragweed pollen which may in turn subject us
to unknown pricing and supply risks.
As we develop product candidates addressing other allergies,
including grass, tree and plant allergies, we may face similar
supply risks. In the past, AIC was produced for us by a single
contract manufacturer. Our existing supplies of AIC are
sufficient for us to conduct our currently planned
Phase III clinical trial in a pediatric indication. We plan
to qualify and enter into manufacturing agreements with one or
more new commercial manufacturers to produce additional supplies
of AIC as required for completion of clinical trials and
commercialization.
Our hepatitis B vaccine consists of ISS combined with clinical
grade hepatitis B surface antigen using standard fill and finish
processes. Hepatitis B surface antigen is manufactured worldwide
by several companies. We have acquired hepatitis B surface
antigen for our clinical trials to date from a single commercial
manufacturer. We entered into a license and supply agreement
with Berna Biotech, under which Berna will provide a supply of
antigen necessary to permit us to commence our planned
Phase III trials and to commercialize our hepatitis B
vaccine product candidate.
Marketing
We have no sales, marketing or distribution capability. We
intend to seek global or regional partners to help us market
certain product candidates. Although we have not yet determined
our commercialization strategy for our other product candidates,
we are inclined to license commercial rights to larger
pharmaceutical or biotechnology companies with appropriate
marketing and distribution capabilities, except in instances
where it may prove feasible to build a small direct sales
organization targeting a narrow specialty or therapeutic area.
Competition
The biotechnology and pharmaceutical industries are
characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary products. Many
of our competitors, including biotechnology and pharmaceutical
companies, academic institutions and other research
organizations, are actively engaged in the discovery, research
and development of products that could compete directly or
indirectly with our products under development.
If AIC is approved and commercialized, it will compete directly
with conventional allergy immunotherapy. Conventional allergy
immunotherapy products are mixed by allergists and customized
for individual patients from commercially available plant
material extracts. Because conventional immunotherapies are
customized on an individual patient basis, they are not marketed
or sold as FDA approved pharmaceutical products. Other companies
such as ALK-Abello and Allergy Therapeutics are developing
enhanced allergy immunotherapeutic products formulated for both
injection and sublingual delivery. We believe that our AIC
program for ragweed allergy is the more advanced and, if
developed, approved and commercialized, could reach the market
ahead of these other products. A number of companies, including
GlaxoSmithKline Plc, Merck & Co., Inc., and AstraZeneca
Plc, produce pharmaceutical products, such as antihistamines,
corticosteroids and anti-leukotriene agents, which manage
seasonal allergy symptoms. We consider these pharmaceutical
products to be indirect competition for AIC because although
they are targeting the same disease, they do not attempt to
treat the underlying cause of the disease.
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Our hepatitis B vaccine, if it is approved and commercialized,
will compete directly with existing, three-injection vaccine
products produced by Merck & Co., Inc., GlaxoSmithKline
Plc, and Berna Biotech AG, among others. There are also
two-injection hepatitis B vaccine products in clinical
development, including a vaccine being developed by
GlaxoSmithKline Plc. In addition, our hepatitis B vaccine will
compete against a number of multivalent vaccines that
simultaneously protect against hepatitis B in addition to other
diseases. Our hepatitis B immunotherapy, if developed, approved
and commercialized, will compete directly with existing
hepatitis B therapeutic products (including antiviral drugs and
interferon alpha) manufactured by Roche Group, Schering-Plough
Corporation, Gilead Sciences, Inc., GlaxoSmithKline Plc and
other companies.
Our inhaled 1018 ISS asthma product candidate would indirectly
compete with existing asthma therapies, including
corticosteroids, leukotriene inhibitors and IgE monoclonal
antibodies, including those produced by Novartis Corporation,
AstraZeneca Plc, Schering-Plough Corporation and GlaxoSmithKline
Plc. We consider these existing therapies to be indirect
competition because they only attempt to address the symptoms of
the disease and, unlike our product candidate, do not attempt to
address the underlying cause of the disease. We are also aware
of a preclinical injectable product, which may target the
underlying cause of asthma, rather than just the symptoms, which
is being developed by Aventis Group under a collaboration
agreement with Coley Pharmaceutical Group. This product, if
approved and commercialized, may compete directly with our
asthma product candidate.
Many of the entities developing and marketing these competing
products have significantly greater financial resources and
expertise in research and development, manufacturing,
preclinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing than us. Smaller or
early-stage companies may also prove to be significant
competitors, particularly for collaborative agreements with
large, established companies and access to capital. These
entities may also compete with us in recruiting and retaining
qualified scientific and management personnel, as well as in
acquiring technologies complementary to, or necessary for, our
programs.
We expect that competition among products approved for sale will
primarily be based on the efficacy, ease of use, safety profile,
and price. Our ability to compete effectively, develop products
that can be manufactured cost-effectively and market them
successfully based on differentiated label claims will depend on
our ability to:
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show efficacy and safety in our clinical trials; |
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obtain required government and other public and private
approvals on a timely basis; |
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enter into collaborations to manufacture, market and sell our
products; |
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maintain a proprietary position in our technologies and
products; and |
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attract and retain key personnel. |
Regulatory Considerations
The advertising, labeling, storage, record-keeping, safety,
efficacy, research, development, testing, manufacture,
promotion, marketing and distribution of our potential products
are subject to extensive regulation by numerous governmental
authorities in the U.S. and other countries. In the U.S.,
pharmaceutical products are subject to rigorous review by the
Food and Drug Administration (FDA) under the Federal Food,
Drug, and Cosmetic Act, the Public Health Service Act and other
federal statutes and regulations. The steps ordinarily required
by the FDA before a new drug or biologic may be marketed in the
U.S. are similar to steps required in most other countries
and include:
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completion of preclinical laboratory tests, preclinical trials
and formulation studies; |
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submission to the FDA of an investigational new drug
application, or IND, for a new drug or biologic which must
become effective before clinical trials may begin; |
18
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|
|
| |
• |
performance of adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug or
biologic for each proposed indication; |
| |
| |
• |
the submission of a new drug application, or NDA, or a biologics
license application, or BLA, to the FDA; and |
| |
| |
• |
FDA review and approval of the NDA or BLA before any commercial
marketing, sale or shipment of the drug. |
If we do not comply with applicable requirements,
U.S. regulatory authorities may fine us, require that we
recall our products, seize our products, require that we totally
or partially suspend the production of our products, refuse to
approve our marketing applications, criminally prosecute us,
and/or revoke previously granted marketing authorizations.
To secure FDA approval, we must submit extensive non-clinical
and clinical data, manufacturing information, and other
supporting information to the FDA for each indication to
establish a product candidate’s safety and efficacy. The
number of preclinical studies and clinical trials that will be
required for FDA and foreign regulatory agency approvals varies
depending on the product candidate, the disease or condition for
which the product candidate is in development and regulations
applicable to any particular drug candidate. Data obtained from
preclinical and clinical activities are susceptible to varying
interpretations, which could delay, limit or prevent regulatory
approval or clearance. Further, the results from preclinical
testing and early clinical trials are often not predictive of
results obtained in later clinical trials. The approval process
takes many years, requires the expenditures of substantial
resources, involves post-marketing surveillance and may involve
requirements for additional post-marketing studies. The FDA may
also require post-marketing testing and surveillance to monitor
the effects of approved products or place conditions on any
approvals that could restrict the commercial applications of
these products. The FDA may withdraw product approvals if we do
not continue to comply with regulatory standards or if problems
occur following initial marketing. Delays experienced during the
governmental approval process may materially reduce the period
during which we will have exclusive rights to exploit patented
products or technologies. Delays can occur at any stage of
clinical trials and as result of many factors, certain of which
are not under our control, including:
|
|
|
| |
• |
lack of efficacy, or incomplete or inconclusive results from
clinical trials; |
| |
| |
• |
unforeseen safety issues; |
| |
| |
• |
failure by investigators to adhere to protocol requirements,
including patient enrollment criteria; |
| |
| |
• |
slower than expected rate of patient recruitment; |
| |
| |
• |
failure by subjects to comply with trial protocol requirements; |
| |
| |
• |
inability to follow patients adequately after treatment; |
| |
| |
• |
inability to qualify and enter into arrangements with third
parties to manufacture sufficient quality and quantities of
materials for use in clinical trials; |
| |
| |
• |
failure by a contract research organization to fulfill
contractual obligations; and |
| |
| |
• |
adverse changes in regulatory policy during the period of
product development or the period of review of any application
for regulatory approval or clearance. |
Non-clinical studies involve laboratory evaluation of product
characteristics and animal studies to assess the initial
efficacy and safety of the product. The FDA, under its good
laboratory practices regulations, regulates non-clinical
studies. Violations of these regulations can, in some cases,
lead to invalidation of those studies, requiring these studies
to be replicated. The results of the non-clinical tests,
together with manufacturing information and analytical data, are
submitted to the FDA as part of an investigational new drug
application, which must be approved by the FDA before we can
commence clinical investigations in humans. Unless the FDA
objects to an investigational new drug application, the
investigational new drug application will become effective
30 days following its receipt by the FDA. Clinical trials
involve the
19
administration of the investigational product to humans under
the supervision of a qualified principal investigator. We must
conduct our clinical trials in accordance with good clinical
practice under protocols submitted to the FDA as part of the
investigational new drug application. In addition, each clinical
trial must be approved and conducted under the auspices of an
investigational review board and with patient informed consent.
The investigational review board will consider, among other
things, ethical factors, the safety of human subjects and the
possibility of liability of the institution conducting the trial.
The stages of the FDA regulatory process include research and
preclinical studies and clinical trials in three sequential
phases that may overlap. Research and preclinical studies do not
involve the introduction of a product candidate in human
subjects. These activities involve identification of potential
product candidates, modification of promising candidates to
optimize their biological activity, as well as preclinical
studies to assess safety and effectiveness in animals. In
clinical trials, the product candidate is administered to
humans. Phase I clinical trials typically involve the
administration of a product candidate into a small group of
healthy human subjects. These trials are the first attempt to
evaluate a drug’s safety, determine a safe dose range and
identify side effects. During Phase II trials, the product
candidate is introduced into patients who suffer from the
medical condition that the product candidate is intended to
treat. Phase II studies are designed to evaluate whether a
product candidate shows evidence of effectiveness, to further
evaluate dosage, and to identify possible adverse effects and
safety risks. When Phase II evaluations demonstrate that a
product candidate appears to be both safe and effective,
Phase III trials are undertaken to confirm a product
candidate’s effectiveness and to test for safety in an
expanded patient population. If the results of Phase III
trials appear to confirm effectiveness and safety, the data
gathered in all phases of clinical trials form the basis for an
application for FDA regulatory approval of the product candidate.
We and all of our contract manufacturers are required to comply
with the applicable FDA current good manufacturing practice
regulations. Manufacturers of biologics also must comply with
FDA’s general biological product standards. Failure to
comply with the statutory and regulatory requirements subjects
the manufacturer to possible legal or regulatory action, such as
suspension of manufacturing, seizure of product or voluntary
recall of a product. Good manufacturing practice regulations
require quality control and quality assurance as well as the
corresponding maintenance of records and documentation. Prior to
granting product approval, the FDA must determine that our or
our third party contractor’s manufacturing facilities meet
good manufacturing practice requirements before we can use them
in the commercial manufacture of our products. In addition, our
facilities are subject to periodic inspections by the FDA for
continued compliance with good manufacturing practice
requirements following product approval. Adverse experiences
with the product must be reported to the FDA and could result in
the imposition of market restriction through labeling changes or
in product removal.
Outside the U.S., our ability to market a product is contingent
upon receiving marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct
of clinical trials, marketing authorization, pricing and
reimbursement vary widely from country to country.
At present, foreign marketing authorizations are applied for at
a national level, although within the European Union
registration procedures are mandatory for biotechnology and some
other novel drugs and are available to companies wishing to
market a product in more than one European Union member state.
The regulatory authority generally will grant marketing
authorization if it is satisfied that we have presented it with
adequate evidence of safety, quality and efficacy.
We are also subject to various federal, state and local laws,
regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of
hazardous or potentially hazardous substances, including
radioactive compounds and infectious disease agents, used in
connection with our research. We cannot accurately predict the
extent of government regulation that might result from any
future legislation or administrative action.
Employees
As of February 28, 2005, we had 71 full-time
employees, including 14 Ph.D.s, 3 M.D.s and 4 others with
advanced degrees. Of the 71 employees, 49 were dedicated to
research and development activities. None of
20
our employees is subject to a collective bargaining agreement,
and we believe our relations with our employees are good.
Executive Officers and Key Employees
Our executive officers and key employees and their respective
ages as of February 28, 2005 are as follows:
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
Dino Dina, M.D.
|
|
|
58 |
|
|
President, Chief Executive Officer, and Director |
|
Robert L. Coffman, Ph.D.
|
|
|
58 |
|
|
Vice President and Chief Scientific Officer |
|
Jane M. Green, Ph.D.
|
|
|
53 |
|
|
Vice President, Corporate Communications |
|
Timothy G. Henn
|
|
|
47 |
|
|
Vice President, Finance & Administration and Chief
Accounting Officer |
|
D. Kevin Kwok, Pharm.D.
|
|
|
43 |
|
|
Vice President and Chief Business Officer |
|
Daniel Levitt, M.D., Ph.D.
|
|
|
57 |
|
|
Vice President and Chief Medical Officer |
|
Deborah A. Smeltzer
|
|
|
51 |
|
|
Vice President, Operations and Chief Financial Officer |
|
Stephen F. Tuck, Ph.D.
|
|
|
43 |
|
|
Vice President, Biopharmaceutical Development |
|
Gary A. Van Nest, Ph.D.
|
|
|
55 |
|
|
Vice President, Preclinical Research |
Dino Dina, M.D. has been our President and a member
of our Board of Directors since May 1997 and our Chief Executive
Officer since May 1998. From 1982 until he joined us in 1997,
Dr. Dina was an employee of Chiron Corporation, a
biopharmaceutical company. At Chiron, Dr. Dina held a
series of positions with increasing responsibility. He
ultimately served as president of Chiron Vaccines (formerly
Biocine Company), which he directed from its inception in 1987.
Under Dr. Dina’s direction, Chiron Vaccines received
the first-ever approval of an adjuvanted influenza vaccine in
Italy, successfully completed development of the first
genetically engineered pertussis vaccine, and conducted clinical
trials for vaccines to prevent HIV, herpes simplex type II,
cytomegalovirus, and hepatitis B infections. The virology group
he directed was responsible for several key scientific findings,
including the discovery, cloning, and sequencing of the
hepatitis C virus, and the cloning and sequencing of the
viral genomes for HIV and hepatitis A viruses. Prior to joining
Chiron, Dr. Dina was employed at Albert Einstein College of
Medicine in Bronx, New York, as an assistant professor of
genetics from 1977 to 1982. He received his M.D. from the
University of Genoa Medical School in Italy.
Robert L. Coffman, Ph.D. has been our Vice President
and Chief Scientific Officer since December 2000.
Dr. Coffman joined Dynavax from the DNAX Research Institute
where he had been since 1981, most recently as Distinguished
Research Fellow. Prior to that, he was a postdoctoral fellow at
Stanford University Medical School. Dr. Coffman has made
fundamental discoveries about the regulation of immune responses
in allergic and infectious diseases. He shared the William S.
Coley Award for Research in Immunology for discovery of the Th1
and Th2 subsets of T lymphocytes, the cells that control most
immune responses. Dr. Coffman received his Ph.D. from the
University of California, San Diego and his AB from Indiana
University.
Jane M. Green, Ph.D. joined Dynavax in September
2004. Dr. Green is responsible for the Company’s
external and internal communications programs, including
investor relations, public relations, media relations, and
communications strategy. Prior to Dynavax, Dr. Green was
Vice President, Corporate Communications at Exelixis, Inc. where
she developed and managed the Company’s communications
strategy to support its transition from a technology to
product-focused enterprise. Prior to Exelixis, Dr. Green
was Senior Director at Caliper Technologies where she
coordinated the company’s initial public offering and
established the corporate communications and investor relations
function. Dr. Green brings over 20 years of experience
in corporate communications, investor relations, and marketing
communications. Dr. Green holds a BA in literature from the
University of Pennsylvania and a Ph.D. in English literature
from the State University of New York at Buffalo.
21
Timothy G. Henn has been our Chief Accounting Officer
since January 2005 and our Vice President, Finance &
Administration since August 2004. Prior to Dynavax,
Mr. Henn was at Incyte Corporation from 1997 to 2004, where
he was most recently Senior Vice President, Finance and
Corporate Controller, having responsibility for company wide
accounting, financial planning, and purchasing. He brings over
20 years of experience in accounting and finance, and has
been instrumental in numerous strategic, financial and
operational activities. Mr. Henn received his MBA from
Golden Gate University and his BS in accounting from the
University of Illinois.
D. Kevin Kwok, Pharm.D. has been our Vice President
and Chief Business Officer since March 2004. He was most
recently Vice President for the Transaction Advisory Group at
Clearview Projects, where he was responsible for the start-up
and client management of the San Francisco practice. He
brings more than 18 years of diverse industry experience
with both pharmaceutical and biotechnology companies in various
commercial areas. Prior to Clearview Projects, Dr. Kwok
directed global strategic marketing, business development, and
corporate development at SUGEN from 1997 to 2000. After its
merger with Pharmacia, he led strategic marketing and brand
management for the Company’s joint angiogenesis portfolio
in oncology. Previously, he also has held various management
positions in U.S. and international marketing, sales, new
business ventures, and other areas at Bristol-Myers Squibb and
the Upjohn Company. Dr. Kwok earned his Doctor of Pharmacy
degree from the University of Michigan.
Daniel Levitt, M.D., Ph.D. has been our Vice
President and Chief Medical Officer since August 2003 and is
responsible for our clinical, regulatory, and medical affairs.
From 2002 until he joined us in 2003, Dr. Levitt was chief
operating officer and head, research and development at Affymax.
From 1996 to 2002, Dr. Levitt was senior vice president,
drug development, and then president, research and development,
at Protein Design Labs, Inc. Prior to Protein Design Labs, he
had a successful and progressive career in scientific
management, clinical, and regulatory affairs at Geron, from 1995
to 1996, Sandoz, from 1990 to 1995, and Hoffman-LaRoche, from
1986 to 1990. His academic appointments included Senior
Scientist and Associate Director at the Guthrie Research
Institute in Sayre, Pennsylvania from 1983 to 1986 and Assistant
Professor of Pediatrics and Immunology at the University of
Chicago Hospitals and Clinics from 1980 to 1983. He earned his
M.D. and Ph.D. in biology from the University of Chicago,
completed his residency at Yale-New Haven Hospital, was a
clinical and research fellow at the University of Alabama
Medical Center from 1977 to 1980 and graduated magna cum laude,
Phi Beta Kappa from Brandeis University.
Deborah A. Smeltzer joined Dynavax in January 2005 as
Vice President, Operations and Chief Financial Officer.
Previously she was with Applied Biosystems from 1999 through
2004, where she served most recently as Vice President and
General Manager of the company’s genetic analysis business.
She previously served as Vice President and General Manager of
the company’s knowledge business and Vice President,
Finance for the organization with responsibility for business
development. Prior to Applied Biosystems, Ms. Smeltzer
served as Chief Financial Officer and Vice President for Genset
SA, a Paris-based global genomics company, from 1996 to 1999.
Ms. Smeltzer brings to Dynavax more than 20 years of
operating, business, and financial management experience,
including venture capital, investment banking, academic
research, and quality assurance. She holds a BS in biological
sciences and an MS in medical microbiology from the University
of California, Irvine, and an MBA from Stanford University
Graduate School of Business.
Stephen F. Tuck, Ph.D. has been our Vice President,
Biopharmaceutical Development since November 2000 and previously
served as our Senior Director of Biopharmaceutical Development
since joining us in November 1997. From 1992 until he joined us
in 1997, Dr. Tuck was employed by Chiron Corporation, where
he had served in various capacities in the Technical Affairs and
Process Development departments. At Chiron, Dr. Tuck was
involved in the development of Fluad®, a novel adjuvanted
influenza vaccine, various subunit vaccines, adjuvants and
protein therapeutics. Prior to joining Chiron, Dr. Tuck was
a post-doctoral fellow at Johns Hopkins University School of
Medicine and the University of California, San Francisco.
He has over 15 years of experience in pharmaceutical
chemistry. Dr. Tuck received his Ph.D. and B.Sc. from
Imperial College, University of London.
Gary A. Van Nest, Ph.D. has been our Vice President,
Preclinical Research since November 2000 and previously served
as our Senior Director of Preclinical Research since joining us
in November 1997. From
22
1982 until he joined us in 1997, Dr. Van Nest was employed
by Chiron Corporation, where he served in several positions of
increasing responsibility culminating in a position as Acting
Head of Vaccine Research. At Chiron, Dr. Van Nest directed
the development of novel adjuvants and delivery vehicles for
subunit vaccines for herpes, HIV, influenza, hepatitis B virus,
hepatitis C virus and cytomegalovirus. Dr. Van Nest
has authored over 40 publications. He received his Ph.D. in
biochemistry from the University of Arizona and his BA from the
University of California, Riverside.
The Company leases approximately 67,000 square feet of
laboratory and office space in Berkeley, California, expiring in
September 2014, of which approximately 13,000 square feet
is subleased through August 2007. The lease can be terminated at
no cost to the Company in September 2009 but otherwise extends
automatically until September 2014.
|
|
| ITEM 3. |
LEGAL PROCEEDINGS |
None.
|
|
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
23
PART II
|
|
| ITEM 5. |
MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS |
Market Information and Holders
Our common stock is traded on the Nasdaq Stock Market under the
symbol “DVAX”. Public trading of our common stock
commenced on February 19, 2004. Prior to that, there was no
public market for our common stock. The following table sets
forth for the periods indicated the high and low sale prices per
share of our common stock on the Nasdaq Stock Market.
| |
|
|
|
|
|
|
|
|
| |
|
Common Stock | |
| |
|
Price | |
| |
|
| |
| 2004 |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
First Quarter
|
|
$ |
9.98 |
|
|
$ |
7.10 |
|
|
Second Quarter
|
|
$ |
9.35 |
|
|
$ |
5.14 |
|
|
Third Quarter
|
|
$ |
6.87 |
|
|
$ |
4.02 |
|
|
Fourth Quarter
|
|
$ |
8.80 |
|
|
$ |
4.75 |
|
As of February 28, 2005, there were approximately 112
holders of record of our common stock, as shown on the records
of our transfer agent. The number of record holders does not
include shares held in “street name” through brokers.
Dividends
We do not pay any cash dividends on our common stock. We
currently expect to retain future earnings, if any, for use in
the operation and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future.
Equity Compensation Plan Information
The information under the caption Equity Compensation Plan
Information appearing in the Proxy Statement is incorporated
herein by reference.
Use of Proceeds from Sales of Registered Securities
On February 24, 2004, we completed our initial public
offering of 6,900,000 shares of common stock, including
900,000 shares subject to the underwriters’
over-allotment option (which was exercised in full) at a public
offering price of $7.50 per share and realized an aggregate
offering price of $51.8 million. Our registration statement
on Form S-1 (Reg. No. 333-109965) was declared
effective by the Securities and Exchange Commission on
February 11, 2004. The underwriters for the initial public
offering were Bear, Stearns & Co. Inc., Deutsche Bank
Securities Inc. and Piper Jaffray & Co.
We received net proceeds from the offering of approximately
$46.5 million. These proceeds are net of $3.6 million
in underwriting discounts and commissions, $1.4 million in
legal, accounting and printing fees and $0.3 million in
other expenses. We used $0.4 million of the net proceeds to
make a one-time cash payment to the University of California
pursuant to the terms of several license agreements with them.
During 2004, the net proceeds were used for research and
development activities and general corporate purposes. We will
retain broad discretion over the use of the net proceeds
received from our offering. The amount and timing of our actual
expenditures may vary significantly depending on numerous
factors, such as the progress of our product candidate
development and commercialization efforts and the amount of cash
used by our operations.
24
|
|
| ITEM 6. |
SELECTED FINANCIAL DATA |
The following selected financial data should be read in
conjunction with Management’s Discussion and Analysis of
Financial Condition and Results of Operations, and with the
Consolidated Financial Statements and Notes thereto which are
included elsewhere in this Form 10-K. The Consolidated
Statements of Operations Data for the years ended
December 31, 2004, 2003 and 2002 and the Consolidated
Balance Sheets Data as of December 31, 2004 and 2003 are
derived from the audited Consolidated Financial Statements
included elsewhere in this Form 10-K. The Consolidated
Statements of Operations Data for the years ended
December 31, 2001 and 2000 and the Consolidated Balance
Sheets Data as of December 31, 2002, 2001 and 2000 are
derived from Consolidated Financial Statements that are not
included in this Form 10-K. Historical results are not
necessarily indicative of results to be anticipated in the
future.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration and grant revenues
|
|
$ |
14,812 |
|
|
$ |
826 |
|
|
$ |
1,427 |
|
|
$ |
2,359 |
|
|
$ |
2,054 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
|
23,129 |
|
|
|
13,786 |
|
|
|
15,965 |
|
|
|
17,363 |
|
|
|
8,267 |
|
| |
General and administrative
|
|
|
8,543 |
|
|
|
4,804 |
|
|
|
4,121 |
|
|
|
4,527 |
|
|
|
3,451 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total operating expenses
|
|
|
31,672 |
|
|
|
18,590 |
|
|
|
20,086 |
|
|
|
21,890 |
|
|
|
11,718 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(16,860 |
) |
|
|
(17,764 |
) |
|
|
(18,659 |
) |
|
|
(19,531 |
) |
|
|
(9,664 |
) |
|
Interest income, net
|
|
|
889 |
|
|
|
412 |
|
|
|
621 |
|
|
|
1,119 |
|
|
|
1,149 |
|
|
Deemed dividend
|
|
|
— |
|
|
|
(633 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$ |
(15,971 |
) |
|
$ |
(17,985 |
) |
|
$ |
(18,038 |
) |
|
$ |
(18,412 |
) |
|
$ |
(26,724 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share attributable to common
stockholders
|
|
$ |
(0.75 |
) |
|
$ |
(10.04 |
) |
|
$ |
(10.65 |
) |
|
$ |
(12.29 |
) |
|
$ |
(22.59 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted net loss per share
attributable to common stockholders
|
|
|
21,187 |
|
|
|
1,791 |
|
|
|
1,694 |
|
|
|
1,498 |
|
|
|
1,183 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$ |
65,844 |
|
|
$ |
29,097 |
|
|
$ |
29,410 |
|
|
$ |
11,757 |
|
|
$ |
26,792 |
|
|
Working capital
|
|
|
64,017 |
|
|
|
26,340 |
|
|
|
25,913 |
|
|
|
9,498 |
|
|
|
26,578 |
|
|
Total assets
|
|
|
73,646 |
|
|
|
31,585 |
|
|
|
31,478 |
|
|
|
15,117 |
|
|
|
29,590 |
|
|
Equipment financing, net of current portion
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
Minority interest in Dynavax Asia
|
|
|
— |
|
|
|
14,733 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Mandatorily redeemable convertible preferred stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
45,479 |
|
|
|
45,486 |
|
|
Convertible preferred stock
|
|
|
— |
|
|
|
83,635 |
|
|
|
83,635 |
|
|
|
5,799 |
|
|
|
5,799 |
|
|
Accumulated deficit
|
|
|
(95,336 |
) |
|
|
(79,365 |
) |
|
|
(62,013 |
) |
|
|
(43,975 |
) |
|
|
(25,563 |
) |
|
Total stockholders’ equity (net capital deficiency)
|
|
|
59,876 |
|
|
|
(71,932 |
) |
|
|
(56,371 |
) |
|
|
(40,216 |
) |
|
|
(23,798 |
) |
25
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations contains
forward-looking statements under federal securities laws.
Forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties. Our
actual results could differ materially from those indicated by
forward-looking statements as a result of various factors,
including but not limited to those set forth under this Item,
“Item 1 — Business,” as well as those
discussed elsewhere in this document and those that may be
identified from time to time in our reports and registration
statements filed with the Securities and Exchange Commission.
The following discussion and analysis is intended to provide
an investor with a narrative of our financial results and an
evaluation of our financial condition and results of operations.
The discussion should be read in conjunction with
“Item 6 — Selected Financial Data” and
the Consolidated Financial Statements and the related notes
thereto set forth in “Item 8 — Financial
Statements and Supplementary Data.”
Overview
We discover, develop, and intend to commercialize innovative
products to treat and prevent allergies, infectious diseases,
and chronic inflammatory diseases using versatile, proprietary
approaches that alter immune system responses in highly specific
ways. Our clinical development programs are based on
immunostimulatory sequences, or ISS, which are short DNA
sequences that enhance the ability of the immune system to fight
disease and control chronic inflammation. ISS are being
developed in three initial indications: a ragweed allergy
immunotherapeutic, a hepatitis B vaccine, and an asthma
immunotherapeutic.
We have developed a novel injectable product candidate to treat
ragweed allergy that we call AIC. AIC has completed
Phase II trials, and is currently completing a two-year
Phase II/ III clinical trial. At the end of 2004, we
reported that the one-year interim analysis of this
Phase II/ III trial showed a clear positive trend relative
to the trial’s major endpoint of nasal symptom scores, as
well as other secondary endpoints, following the 2004 ragweed
season. We intend to complete the Phase II/ III clinical
trial as planned. We anticipate initiating a supportive
Phase III clinical trial in a pediatric indication in the
first half of 2005. Pending the outcome of discussions with the
US Food and Drug Administration (FDA) in 2005 and the
results of the Phase II/III study, we plan to initiate a
pivotal Phase III clinical program in early 2006.
We have developed a product candidate for hepatitis B therapy. A
Phase II/ III trial in subjects who are less responsive to
conventional vaccine is currently underway in Singapore. Results
from an interim analysis of the Phase II/ III trial showed
that our vaccine demonstrated statistically significant
superiority in protective antibody response and robustness of
protective effect after two vaccinations when compared to
GlaxoSmithKline’s
Engerix-Btm
vaccine. We anticipate initiating Phase III trials in
Canada, Europe and Asia in 2005, pending the outcome of the
current trial. Our intention is to initially commercialize our
hepatitis B vaccine outside of the United States.
We have an inhaled therapeutic product candidate for treatment
of asthma, which has completed a Phase IIa trial in Canada.
Results from a Phase IIa asthma challenge study confirmed
the safety of inhaled immunostimulatory sequences in asthmatic
patients, and showed substantial and statistically significant
pharmacological activity, based upon the induction of genes
associated with a reprogrammed immune response. We anticipate
initiating a Phase II study in asthma in late 2005.
For the year ended December 31, 2004, our net loss was
$16.0 million, compared to $17.4 million in 2003 and
$18.0 million in 2002. As of December 31, 2004, we had
an accumulated deficit of $95.3 million. We expect to incur
substantial and increasing losses as we continue the development
of the lead product candidates and preclinical and research
programs. If we were to receive regulatory approval for any of
our product candidates, we would be required to invest
significant capital to develop, or otherwise secure through
collaborative relationships, commercial scale manufacturing,
marketing and sales capabilities. Even if we are able to obtain
approval for our product candidates, we are likely to incur
increased operating losses until product sales grow sufficiently
to support the organization.
26
We do not have any products that generate revenue. Total
revenues for the year ended December 31, 2004 were
$14.8 million, compared to $0.8 million for 2003 and
$1.4 million for 2002. For the fiscal year ended
December 31, 2004, 93% of our revenues were derived from a
collaboration agreement and the remaining revenues were earned
from government grants for biodefense programs. For the fiscal
year ended December 31, 2003, our revenue was derived
solely from government grants. Through the fiscal year ended
December 31, 2002, we generated revenue primarily through
research and development collaboration agreements.
During 2004, we completed our initial public offering of common
stock, continued to advance our clinical programs, and expanded
our senior management team. For the year ended December 31,
2005, excluding the potential impact of any equity offerings,
business collaborations or other transactions that may be
entered into, we anticipate that our operating expenses will
increase in connection with our growing clinical development
programs and overall organizational growth. Currently, total
revenues consist primarily of revenue recognized from our
development and commercialization collaboration with UCB
Farchim, SA (UCB). In March 2005, we agreed to end the
collaboration agreement with UCB.
Critical Accounting Policies and the Use of Estimates
The accompanying discussion and analysis of our financial
condition and results of operations are based upon our
Consolidated Financial Statements and the related disclosures,
which have been prepared in accordance with U.S. generally
accepted accounting principles. The preparation of these
financial statements requires us to make estimates, assumptions
and judgments that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the balance sheet dates and the reported amounts of revenues
and expenses for the periods presented. On an ongoing basis, we
evaluate our estimates, including those related to revenue
recognition, research and development activities, stock-based
compensation, investments, impairment, the estimated useful life
of assets, income taxes and contingencies. We base our estimates
on historical experience and on various other assumptions that
we believe to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
While our significant accounting policies are more fully
described in Note 2 to the Consolidated Financial
Statements, we believe the following critical accounting
policies reflect the more significant judgments and estimates
used in the preparation of our financial statements.
Revenue Recognition. In accordance with the criteria
outlined in Staff Accounting Bulletin (SAB) No. 104,
“Revenue Recognition” and Emerging Issues Task Force
(EITF) Issue 00-21, “Revenue Arrangements with
Multiple Deliverables,” we recognize collaboration, upfront
and other revenue based on the terms specified in the
agreements, generally as work is performed or approximating a
straight-line basis over the period of the collaboration. Any
amounts received in advance of performance are recorded as
deferred revenue and amortized over the estimated term of the
performance obligation. Revenue from milestones with substantive
performance risk is recognized upon achievement of the
milestone. All revenue recognized to date under these
collaborations and milestones is nonrefundable.
Revenues related to government grants are recognized as the
related research expenses are incurred. Additionally, we
recognize revenue based on the facilities and administrative
cost rate reimbursable per the terms of the grant awards. Any
amounts received in advance of performance are recorded as
deferred revenue until earned.
Research and Development Expense and Related Accruals.
Research and development expenditures are charged to operations
as incurred. Research and development expense consists of the
direct and indirect internal costs of specific functional areas,
as well as fees paid to contract research organizations,
research institutions, contract manufacturing organizations, and
other service providers which conduct certain research and
development activities on behalf of the Company.
27
Preclinical and clinical studies are a significant component of
research and development expense. We accrue costs related to
clinical trials on a straight-line basis over the term of the
service period based on our initial estimate that the work
performed under the contracts occurs ratably over the periods to
the expected milestone, event or total contract completion date.
The estimates may or may not match the actual services performed
by research institutions and contract research organizations
that conduct and manage clinical trials on our behalf, as
determined by patient enrollment levels and other measures of
activities specified in the contract. As a result, we adjust our
estimates at the end of each reporting period, if required,
based on our ongoing review of the level of effort actually
incurred by the organizations.
The financial terms of these agreements are subject to
negotiation and variation from contract to contract and may
result in uneven payment flows. Payments under these contracts
depend on factors such as the successful enrollment of patients
or the completion of clinical trial milestones. We may terminate
these contracts upon written notice and we are generally only
liable for actual effort expended by the organizations at any
point in time during the contract, regardless of payment status.
Stock-Based Compensation. Statement of Financial
Accounting Standards (FAS) No. 123, “Accounting
for Stock-Based Compensation,” established accounting and
disclosure requirements using a fair value based method of
accounting for stock-based compensation plans. We have adopted
the pro forma disclosure requirements of FAS No. 123,
as amended by FAS No. 148, “Accounting for
Stock-Based Compensation — Transition and
Disclosure.” As permitted under FAS No. 123, we
continue to recognize employee stock compensation under the
intrinsic value method of accounting as prescribed by Accounting
Principles Board Opinion (APB) No. 25 and its
interpretations. We account for stock compensation to
non-employees in accordance with FAS No. 123, as
amended by FAS No. 148 and EITF Issue 96-18,
“Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling
Goods or Services.”
We record deferred stock compensation as a component of
stockholders’ equity in connection with the grant of stock
options to employees and non-employees. For options granted to
employees, deferred stock compensation is calculated based on
the difference, if any, between the estimated fair value of our
common stock and the option exercise price on the date of grant.
For stock options granted to non-employees, deferred stock
compensation is calculated based on the fair value of the
options using the Black-Scholes valuation model on the date of
grant. Periodically, we re-measure the estimated fair value of
unvested options granted to non-employees and adjust deferred
stock compensation accordingly. Deferred stock compensation is
amortized as a charge to operations using the straight-line
method over the vesting option period, ranging up to
4 years. The amount of stock-based compensation expense to
be recorded in future periods may decrease if unvested options,
for which deferred stock compensation has been recorded, are
subsequently canceled.
The estimated fair value of each option and employee purchase
right is estimated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded
options which have no restrictions and are fully transferable.
In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility and expected life of the option. The expected stock
price volatility was estimated using the historical closing
stock price per day since January 1, 2004, assuming that
the daily stock price from January 1, 2004 through the date
of our public offering in February 2004 was equal to the initial
public offering price per share. Since the Company’s
initial public offering in February 2004, there has been a
limited history of option exercises. As a result, management
determined that the most accurate assumption for the expected
life of the option is four years, based on the vesting cycle.
Because our employee stock options have characteristics
significantly different from those of traded options, and
because changes in the subjective input assumptions can
materially affect the fair value estimate, in management’s
opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of our stock options.
Long-lived Assets. We assess the impairment of long-lived
assets, which include property and equipment as well as other
assets, whenever events or changes in circumstances indicate
that the carrying value may not be recoverable, in accordance
with the provisions of FAS No. 144, “Accounting
for the Impairment or
28
Disposal of Long-lived Assets.” Factors we consider
important that could indicate the need for an impairment review
include the following:
|
|
|
| |
• |
significant changes in the strategy for our overall business; |
| |
| |
• |
significant underperformance relative to expected historical or
projected future operating results; |
| |
| |
• |
significant changes in the manner of our use of the acquired
assets; |
| |
| |
• |
significant negative industry or economic trends; |
| |
| |
• |
significant decline in our stock price for a sustained
period; and |
| |
| |
• |
our market capitalization relative to net book value. |
When we determine that the carrying value of long-lived assets
may not be recoverable based upon the existence of one or more
of the above indicators of impairment, we perform an
undiscounted cash flow analysis to determine if impairment
exists. If impairment exists, we measure the impairment based on
the difference between the asset’s carrying amount and its
fair value.
Results of Operations
The following table sets forth the results of operations for the
years ended December 31, 2004, 2003 and 2002 (in thousands,
except percentages):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Increase (Decrease) | |
|
Increase (Decrease) | |
| |
|
Years Ended December 31, | |
|
from 2004 to 2003 | |
|
from 2003 to 2002 | |
| |
|
| |
|
| |
|
| |
| Results of Operations: |
|
2004 | |
|
2003 | |
|
2002 | |
|
$ | |
|
% | |
|
$ | |
|
% | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue
|
|
$ |
13,782 |
|
|
$ |
— |
|
|
$ |
1,427 |
|
|
$ |
13,782 |
|
|
|
N/A |
|
|
$ |
(1,427 |
) |
|
|
(100 |
)% |
|
Grant revenue
|
|
|
1,030 |
|
|
|
826 |
|
|
|
— |
|
|
|
204 |
|
|
|
25 |
% |
|
|
826 |
|
|
|
— |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
14,812 |
|
|
$ |
826 |
|
|
$ |
1,427 |
|
|
$ |
13,986 |
|
|
|
1,693 |
% |
|
$ |
(601 |
) |
|
|
(42 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$ |
23,129 |
|
|
$ |
13,786 |
|
|
$ |
15,965 |
|
|
$ |
9,343 |
|
|
|
68 |
% |
|
$ |
(2,179 |
) |
|
|
(14 |
)% |
|
General and administrative
|
|
|
8,543 |
|
|
|
4,804 |
|
|
|
4,121 |
|
|
|
3,739 |
|
|
|
78 |
% |
|
|
683 |
|
|
|
17 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$ |
31,672 |
|
|
$ |
18,590 |
|
|
$ |
20,086 |
|
|
$ |
13,082 |
|
|
|
70 |
% |
|
$ |
(1,496 |
) |
|
|
(7 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Interest income, net
|
|
$ |
889 |
|
|
$ |
412 |
|
|
$ |
621 |
|
|
$ |
477 |
|
|
|
116 |
% |
|
$ |
(209 |
) |
|
|
(34 |
)% |
|
Deemed dividend upon issuance of ordinary share of Dynavax Asia
|
|
$ |
— |
|
|
$ |
633 |
|
|
$ |
— |
|
|
$ |
(633 |
) |
|
|
(100 |
)% |
|
$ |
633 |
|
|
|
N/A |
|
Total revenues for the year ended December 31, 2004 were
$14.8 million, consisting of $13.8 million from our
collaborative agreement with UCB in ragweed and grass allergies,
which was initiated in the first quarter of 2004, and
$1.0 million from government grants. In March 2005, we
agreed to end the development and commercialization
collaboration agreement with UCB.
Total revenues for the years ended December 31, 2003 and
2002 were $0.8 million and $1.4 million, respectively.
Revenues for the year ended December 31, 2003 resulted
entirely from NIH grants. The National Institutes of Health
(NIH) awarded the Company grants totaling $8.4 million
in the third quarter of 2003, to be received over as long as
three and one-half years to fund research and development of
certain biodefense programs. Revenues for the year ended
December 31, 2002 resulted from two research and
development collaboration agreements and another agreement
providing a customer with an option to negotiate rights to
license technology we developed. The first of these two
collaborations, focused on infectious diseases, was terminated
by mutual consent in September 2002 and provided revenues of
$1.0 million for the year ended December 31, 2002. The
second of these two collaborations, focused on the treatment and
prevention of hepatitis and HIV, was terminated in November 2002
and provided revenues of $0.2 million for
29
the year ended December 31, 2002. The agreement with a
customer lapsed in April 2002 when the customer did not exercise
its option and generated revenues of $0.2 million for the
year ended December 31, 2002.
Research and development expense consists of the costs of our
preclinical experiments and clinical trials, activities related
to regulatory filings, manufacturing our product candidates for
our preclinical experiments and clinical trials, compensation
and related benefits, allocated facility costs, supplies and
depreciation of laboratory equipment. We expense our research
and development costs as they are incurred.
Research and development expenses of $23.1 million for the
year ended December 31, 2004 increased by
$9.3 million, or 68%, from the same period in 2003. The
increase over the prior year was primarily due to
$6.5 million in increased clinical trial and clinical
manufacturing costs associated with our ragweed allergy and
hepatitis B vaccine programs, as well as $1.1 million in
increased preclinical work associated with government grants for
biodefense programs. Facilities costs rose by $0.8 million
as a result of increased rent and operating costs for our
facility, and compensation and related benefits increased by
$0.9 million due to growth in headcount from 36 employees
as of December 31, 2003 to 50 employees as of
December 31, 2004. Non-cash stock-based compensation
expense included in research and development expenses was
$1.3 million for the year ended December 31, 2004.
Research and development expenses of $13.8 million for the
year ended December 31, 2003 decreased by 14% from the
$16.0 million reported for the year ended December 31,
2002. This decrease was primarily the result of fewer and less
extensive clinical trials in our hepatitis B vaccine and asthma
programs being conducted during the year ended December 31,
2003. Non-cash stock-based compensation expense included in
research and development expense was approximately
$1.3 million and $1.0 million for the year ended
December 31, 2003, and 2002, respectively.
During 2005, we anticipate that our research and development
expense will increase in connection with our growing clinical
development programs, including our plans to initiate a
supportive Phase III AIC trial in a pediatric indication
anticipated to begin in 2005, and Phase III clinical trials
for our hepatitis B vaccine which we expect to initiate in 2005.
|
|
|
General and Administrative |
General and administrative expense consists primarily of
compensation and related benefits, professional expenses, such
as legal, accounting, consulting and public relations, insurance
and allocated facility costs.
General and administrative expenses of $8.5 million for the
year ended December 31, 2004 increased by
$3.7 million, or 78%, from the same period in 2003,
reflecting higher costs of operating as a public company. The
increase over the prior year includes $1.7 million in
higher expenditures for legal, accounting, consulting and
insurance costs, as well as $0.7 million in higher
compensation, benefits and recruitment costs, primarily
associated with the expansion of our management team and overall
organizational growth. General and administrative headcount
increased from 12 employees as of December 31, 2003 to 21
employees as of December 31, 2004. Non-cash stock-based
compensation expense included in general and administrative
expense was approximately $1.5 million for the year ended
December 31, 2004.
General and administrative expenses of $4.8 million for the
year ended December 31, 2003 increased by 17% over the
$4.1 million reported for the year ended December 31,
2002. This increase reflects higher compensation and benefits
during the year ended December 31, 2003 associated with the
addition of our management team and expenditures for consulting
services. Non-cash stock-based compensation expense included in
general and administrative expense was approximately
$0.5 million and $0.9 million for the years ended
December 31, 2003, and 2002, respectively.
During 2005, we expect general and administrative expenses to
increase primarily resulting from the full year impact of
organizational growth that occurred in 2004.
30
Interest income, net of interest expense and amortization on
marketable securities, was $0.9 million for the year ended
December 31, 2004. The increase was primarily due to the
interest income related to the proceeds from our initial public
offering and a higher average marketable securities balances
during 2004. Interest income, net was $0.4 million for the
year ended December 31, 2003 compared to $0.6 million
reported for the year ended December 31, 2002. The decrease
was primarily due to lower average cash balances during the year
ended December 31, 2003.
In October 2003, we completed a sale of 15,200,000 ordinary
shares in our subsidiary, Dynavax Asia, to investors. The
Company recorded a deemed dividend of $0.6 million on the
difference between the estimated fair value of the common stock
at the issuance date and the conversion price of the ordinary
shares.
Recent Accounting Pronouncements
On December 16, 2004, the FASB issued
FAS No. 123R (revised 2004), “Share-Based
Payment,” that requires all share-based payments to
employees, including grants of employee stock options, to be
recognized based on their fair values. Pro forma disclosure is
no longer an alternative. FAS No. 123R supersedes APB
No. 25, “Accounting for Stock Issued to
Employees,” and amends FAS No. 95,
“Statement of Cash Flows.” Under
FAS No. 123R, share-based payments result in a cost
that will be measured at fair value on the awards’ grant
date, based on the estimated number of awards that are expected
to vest. Compensation cost for awards that vest would not be
reversed if the awards expire without being exercised. When
measuring fair value, companies can choose an option-pricing
model (e.g., Black-Scholes or binomial models) that
appropriately reflects their specific circumstances and the
economics of their transactions. Public companies are allowed to
select from three alternative transition methods–each
having different reporting implications. FAS No. 123R
is effective for interim and annual periods beginning after
June 15, 2005, and applies to all outstanding and unvested
share-based payments as of the adoption date. Although we have
elected to follow the intrinsic value method prescribed by APB
No. 25 through the year ended December 31, 2004, we
will adopt FAS No. 123R in 2005. The adoption of
FAS No. 123R’s fair value method will have a
significant impact on our result of operations, although it will
have no impact on our overall financial position. The impact of
adoption of FAS No. 123R cannot be predicted at this
time because we are in the process of reevaluating our
methodology used to determine fair value, including
consideration of an option-pricing model and related
assumptions. In addition, the impact of adoption will depend on
levels of share-based payments granted in the future. However,
we believe that had we adopted FAS No. 123R in prior
periods using the Black-Scholes model, the impact of that
standard could have approximated the impact as described in the
disclosure of pro forma net loss and net loss per share in
Note 1 to the Consolidated Financial Statements.
Liquidity and Capital Resources
We have financed our operations since inception primarily
through the sale of shares of our common stock, shares of our
convertible preferred stock, and ordinary shares in a
subsidiary, which have yielded a total of approximately
$144.8 million in net cash proceeds and, to a lesser
extent, through amounts received under collaborative agreements
and government grants for biodefense programs. We completed an
initial public offering in February 2004, raising net proceeds
of approximately $46.5 million from the sale of
6,900,000 shares of common stock. As of December 31,
2004, we had approximately $65.8 million in cash, cash
equivalents and marketable securities. Our funds are currently
invested in a variety of securities, including highly liquid
institutional money market funds, commercial paper, government
and non-government debt securities and corporate obligations.
Cash used in operating activities of $7.3 million during
the year ended December 31, 2004 declined from the
$14.4 million used during the year ended December 31,
2003. The decrease from the prior year of $7.1 million was
due primarily to an $8.0 million upfront payment made to us
by UCB and a narrower net loss from operations, partially offset
by an increase in working capital. Cash used in operating
activities during the
31
year ended December 31, 2003 increased by $0.4 million
over 2002, due primarily to an increase in working capital,
partially offset by a decrease in net loss.
Cash used in investing activities of $46.0 million during
the year ended December 31, 2004 consisted primarily of net
purchases of investments of $44.1 million in addition to
purchases of property and equipment of $1.9 million. Cash
provided by investing activities of $17.8 million during
the year ended December 31, 2003, consisted primarily of
maturities and net sales of investments of $18.0 million.
Cash used in investing activities of $17.6 million during
the year ended December 31, 2002 primarily included net
purchases of investments of $17.1 million.
Our financing activities provided cash of $46.4 million
during the year ended December 31, 2004, primarily from the
issuance of 6,900,000 shares of common stock in our initial
public offering in February 2004. Cash provided by financing
activities of $14.9 million during the year ended
December 31, 2003 consisted primarily of $14.7 million
in net proceeds from the issuance of ordinary shares in Dynavax
Asia Pte. Ltd., which became a wholly owned subsidiary upon the
closing of our initial public offering in February 2004. Cash
provided by financing activities of $32.4 million during
the year ended December 31, 2002 included
$32.4 million in net proceeds from the issuance of
preferred stock.
Excluding the potential impact of any equity offerings, business
collaborations or other transactions that may be entered into,
we expect our cash, cash equivalents and marketable securities
to decline by December 31, 2005, primarily due to cash used
for operations.
The following summarizes our significant contractual obligations
as of December 31, 2004, and the effect those obligations
are expected to have on our liquidity and cash flow in future
periods (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period |
| |
|
|
| |
|
|
|
Less than | |
|
|
|
After |
| Contractual Obligations: |
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
4-5 Years | |
|
5 Years |
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
Future minimum payments under our operating lease
|
|
$ |
8,123 |
|
|
$ |
1,649 |
|
|
$ |
3,447 |
|
|
$ |
3,027 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
8,123 |
|
|
$ |
1,649 |
|
|
$ |
3,447 |
|
|
$ |
3,027 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company leases its facility under an operating lease that
expires in September 2014. The lease can be terminated at no
cost to the Company in September 2009 but otherwise extends
automatically until September 2014. We have entered into a
sublease agreement for a certain portion of the leased space
with scheduled payments to us of $104,656 in 2004 and $339,990
annually thereafter through 2007. This sublease agreement
includes an option for early termination in August 2006 but
otherwise extends automatically until August 2007.
The table above excludes certain commitments that are contingent
upon future events. The most significant of these contractual
commitments that we consider to be contingent obligations are
summarized below.
During the fourth quarter of 2004, we established a letter of
credit with Silicon Valley Bank as security for our property
lease in the amount of $0.4 million. The letter of credit
remained outstanding as of December 31, 2004 and is
collateralized by a certificate of deposit which has been
included in restricted cash in the Consolidated Balance Sheets
as of December 31, 2004. Under the terms of the lease
agreement, if the total amount of our cash, cash equivalents and
marketable securities falls below $20.0 million for a
period of more than 30 consecutive days during the lease term,
the amount of the required security deposit will increase to
$1.1 million, until such time as our projected cash and
cash equivalents will exceed $20.0 million for the
remainder of the lease term, or until our actual cash and cash
equivalents remains above $20.0 million for a period of 12
consecutive months.
We rely on research institutions and contract research
organizations that conduct and manage clinical trials on our
behalf. As of December 31, 2004, under the terms of an
agreement with a contract research organization, we are
obligated to make future payments as services are provided up to
$3.0 million in 2005.
32
In February 2004, we entered into an agreement with UCB in which
we licensed the technology, know-how, and preclinical and
clinical data related to our AIC and grass allergy programs to
UCB on an exclusive, worldwide basis. According to terms of the
agreement, we received an upfront payment of $8.0 million.
In March 2005, we agreed to end our development and
commercialization collaboration with UCB. Under the terms of the
agreement, UCB will return all rights to the allergy program to
Dynavax and the current ongoing Phase II/ III clinical
trial of our AIC immunotherapy for ragweed allergy will be
completed as planned. Dynavax will assume financial
responsibility for all further clinical, regulatory,
manufacturing and commercial activities related to AIC and for
preclinical development programs in grass and in peanut allergy.
The agreement also provides for the partial reimbursement of
certain patent interference fees and expenses, subject to a
maximum amount. In 2004, the reimbursement amount was negligible.
Under the terms of the exclusive license agreements with the
Regents of the University of California, we are obligated to pay
milestones and royalties on net sales of products originating
from the licensed technologies. As partial consideration for the
technology licenses, during 2004 we paid one-time charges of
$0.4 million upon the closing of the Company’s initial
public offering and $0.2 million related to the upfront
payment from UCB. No other milestones were achieved as of
December 31, 2004.
Under the development collaboration agreement with BioSeek,
Inc., we will make various payments for the achievement of a
milestone and based on the success and timing of the
Company’s signing of a third party partnering agreement
where the Company grants to the third party, directly or
indirectly, any right or option to market, sell, distribute or
otherwise commercialize a thiazolopyrimidine (TZP) product
in any geographic territory. As of December 31, 2004, we
recorded an accrual of $0.3 million associated with the
achievement of the contractual milestone.
Under the terms of an agreement with Berna Biotech, we agreed to
make certain commercialization and sales milestone payments to
Berna regarding the Company’s hepatitis B vaccine. None of
these milestones were achieved as of December 31, 2004.
We believe our existing capital resources will be adequate to
satisfy our capital needs for at least the next twelve months.
Because of the significant time it will take for any of our
product candidates to complete the clinical trials process, be
approved by regulatory authorities and successfully
commercialized, we may require substantial additional capital
resources. We may raise additional funds through public or
private equity offerings, debt financings, capital lease
transactions, corporate collaborations or other means. We may
attempt to raise additional capital due to favorable market
conditions or strategic considerations even if we have
sufficient funds for planned operations.
Additional financing may not be available on acceptable terms,
if at all. Capital may become difficult or impossible to obtain
due to poor market or other conditions that are outside of our
control. If at any time sufficient capital is not available,
either through existing capital resources or through raising
additional funds, we may be required to delay, scale back or
eliminate some or all of our research or development programs,
to lose rights under existing licenses or to relinquish greater
or all rights to product candidates at an earlier stage of
development or on less favorable terms than we would otherwise
choose or may adversely affect our ability to operate as a going
concern.
Risk Factors
Various discussions in this Annual Report on Form 10-K
contain forward-looking statements concerning our future
products, expenses, revenues, liquidity and cash needs, as well
as our plans and strategies. These forward-looking statements
are based on current expectations and we assume no obligation to
update this information. Numerous factors could cause our actual
results to differ significantly from the results described in
these forward-looking statements, including the following risk
factors.
33
|
|
|
We have incurred substantial losses since inception and do
not have any commercial products that generate revenue. |
We have experienced significant operating losses in each year
since our inception in August 1996. Currently, our revenue
results from a collaboration agreement and government grants for
biodefense programs. The collaboration agreement is subject to
termination under specified circumstances. The grants are
subject to annual review based on the achievement of milestones
and other factors and will terminate in 2006 at the latest. Our
accumulated deficit was $95.3 million as of
December 31, 2004, and we anticipate that we will incur
substantial additional operating losses for the foreseeable
future. These losses have been, and will continue to be,
principally the result of the various costs associated with our
research and development activities. We expect our losses to
increase primarily as a consequence of our continuing product
development efforts.
We do not have any products that generate revenue. In 2004, we
began Phase II/ III trials for AIC, an immunotherapy for
ragweed allergy, and Phase II/ III trials for our hepatitis
B vaccine. Our product candidates may never be commercialized,
and we may never generate product-related revenue. Our ability
to generate product revenue depends upon:
|
|
|
| |
• |
demonstrating in clinical trials that our product candidates are
safe and effective, in particular, in the planned Phase III
trials for AIC and our hepatitis B vaccine; |
| |
| |
• |
obtaining regulatory approvals for our product candidates in the
U.S. and international markets; |
| |
| |
• |
entering into collaborative relationships on commercially
reasonable terms for the development, manufacturing, sales and
marketing of our product candidates, and then successfully
managing these relationships; and |
| |
| |
• |
commercial acceptance of our products, in particular AIC and our
hepatitis B vaccine. |
If we are unable to generate revenues or achieve profitability,
we may be required to significantly reduce or discontinue our
operations or raise additional capital under adverse
circumstances.
|
|
|
If we are unable to secure additional funding, we will have
to reduce or discontinue operations. |
We believe our existing capital resources will be adequate to
satisfy our capital needs for at least the next twelve months.
We expect capital outlays and operating expenditures to increase
over the next several years as we expand our operations. Because
of the significant time and resources it will take to develop
our product candidates, potentially commercialize them and
generate revenues, we may require substantial additional capital
resources in order to continue our operations, and any such
funding may not cover our costs of operations. We may also need
to secure more funding than currently anticipated because we may
change our product development plans or clinical programs.
We may be unable to obtain additional capital from financing
sources or from agreements with collaborators on acceptable
terms, or at all. If at any time sufficient capital is not
available, we may be required to delay, reduce the scope of, or
eliminate some or all of our research, preclinical or clinical
programs or discontinue our operations.
|
|
|
All of our product candidates are unproven, and our success
depends on our product candidates being approved through
uncertain and time-consuming regulatory processes. Failure to
prove our products safe and effective in clinical trials and
obtain regulatory approvals could require us to discontinue
operations. |
None of our product candidates has been proven safe and
effective in clinical trials or approved for sale in the
U.S. or any foreign market. Any product candidate we
develop is subject to extensive regulation by Federal, state and
local governmental authorities in the U.S., including the FDA,
and by foreign regulatory agencies. Our success is primarily
dependent on our ability to obtain regulatory approval for AIC,
our ragweed allergy product candidate, and our hepatitis B
vaccine product candidate. We intend to commercialize our
hepatitis B vaccine initially outside the U.S., which will
require us to seek approval from foreign regulatory agencies.
Approval processes in the U.S. and in other countries are
uncertain, take many years and
34
require the expenditure of substantial resources. Product
development failure can occur at any stage of clinical trials
and as a result of many factors, many of which are not under our
control.
Currently, only three of our product candidates have advanced to
Phase II clinical trials: AIC, our hepatitis B vaccine and
our inhaled therapeutic for treatment of asthma. We have only
limited clinical data for these product candidates, some of
which may not be supportive of ultimate regulatory approval. We
will need to demonstrate in Phase III clinical trials that
each product candidate is safe and effective before we can
obtain necessary approvals from the FDA and foreign regulatory
agencies. We initiated a two-year, multi-site Phase II/ III
trial in the first quarter of 2004 in the U.S. for AIC.
Pending the outcome of discussions with the FDA in 2005 and the
results of the Phase II/III study, we plan to initiate a pivotal
Phase III clinical program in early 2006. We also
anticipate initiating Phase III trials for our hepatitis B
vaccine in Canada, Europe and Asia in 2005. The FDA or foreign
regulatory agencies may require us to conduct additional
clinical trials prior to approval in their jurisdictions.
Many new drug candidates, including many drug candidates that
have completed Phase III clinical trials, have shown
promising results in early clinical trials and subsequently
failed to establish sufficient safety and efficacy to obtain
regulatory approval. Despite the time and money expended,
regulatory approvals are never guaranteed. Failure to complete
clinical trials and prove that our products are safe and
effective would have a material adverse effect on our ability to
eventually generate revenues and could require us to reduce the
scope of or discontinue our operations.
|
|
|
Our clinical trials may be suspended, delayed or terminated
at any time. Even short delays in the commencement and progress
of our trials may lead to substantial delays in the regulatory
approval process for our product candidates, which will impair
our ability to generate revenues. |
We may suspend or terminate clinical trials at any time for
various reasons, including regulatory actions by the FDA or
foreign regulatory agencies, actions by institutional review
boards, failure to comply with good clinical practice
requirements and concerns regarding health risks to test
subjects. In addition, our ability to conduct clinical trials
for some of our product candidates, notably AIC and our asthma
product candidate, is limited due to the seasonal nature of
ragweed allergy and allergic asthma. Even a small delay in a
trial for any of these product candidates could require us to
delay commencement of the trial until the next appropriate
season, which could result in a delay of an entire year.
Consequently, we may experience additional delays in obtaining
regulatory approval for these product candidates.
Suspension, termination or unanticipated delays of our clinical
trials for AIC, hepatitis B, or asthma may:
|
|
|
| |
• |
adversely affect our ability to commercialize or market any
product candidates we may develop; |
| |
| |
• |
impose significant additional costs on us; |
| |
| |
• |
potentially diminish any competitive advantages that we may
attain; |
| |
| |
• |
adversely affect our ability to enter into collaborations,
receive milestone payments or royalties from potential
collaborators; |
| |
| |
• |
cause us to abandon the development of the affected product
candidate; and |
| |
| |
• |
limit our ability to obtain additional financing on acceptable
terms, if at all. |
|
|
|
If we receive regulatory approval for our product candidates,
we will be subject to ongoing FDA and foreign regulatory
obligations and continued regulatory review, which may be costly
and subject us to various enforcement actions. |
Any regulatory approvals that we receive for our product
candidates are likely to contain requirements for post-marketing
follow-up studies, which may be costly. Product approvals, once
granted, may be modified, resulting in limitations on our
labeling indications or marketing claims, or withdrawn
completely if problems occur after commercialization. Thus, even
if we receive FDA and other regulatory approvals, our product
35
candidates may later exhibit qualities that limit or prevent
their widespread use or that force us to withdraw those products
from the market.
In addition, we or our contract manufacturers will be required
to adhere to Federal regulations setting forth current good
manufacturing practice. The regulations require that our product
candidates be manufactured and our records maintained in a
prescribed manner with respect to manufacturing, testing and
quality control activities. Furthermore, we or our contract
manufacturers must pass a pre-approval inspection of
manufacturing facilities by the FDA and foreign regulatory
agencies before obtaining marketing approval and will be subject
to periodic inspection by the FDA and corresponding foreign
regulatory agencies under reciprocal agreements with the FDA.
Further, to the extent that we contract with third parties for
the manufacture of our products, our ability to control
third-party compliance with FDA requirements will be limited to
contractual remedies and rights of inspection.
Failure to comply with regulatory requirements could prevent or
delay marketing approval or require the expenditure of money or
other resources to correct. Failure to comply with applicable
requirements may also result in warning letters, fines,
injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, refusal of the
government to renew marketing applications and criminal
prosecution, any of which could be harmful to our ability to
generate revenues and our stock price.
|
|
|
Our product candidates in clinical trials rely on a single
lead ISS compound, 1018 ISS, and most of our earlier stage
programs rely on ISS-based technology. Serious adverse safety
data relating to either 1018 ISS or other ISS-based technology
may require us to reduce the scope of or discontinue our
operations. |
Our product candidates in clinical trials are based on 1018 ISS,
and substantially all of our research and development programs
use ISS-based technology. If any of our product candidates in
clinical trials produce serious adverse safety data, we may be
required to delay or discontinue all of our clinical trials. In
addition, as all of our clinical product candidates contain 1018
ISS, potential collaborators may also be reluctant to establish
collaborations for our products in distinct therapeutic areas
due to the common safety risk across therapeutic areas. If
adverse safety data are found to apply to our ISS-based
technology as a whole, we may be required to discontinue our
operations.
|
|
|
A key part of our business strategy is to establish
collaborative relationships to commercialize and fund
development of our product candidates. We may be unsuccessful in
establishing and managing collaborative relationships, which may
significantly limit our ability to develop and commercialize our
products successfully, if at all. |
We will have to establish collaborative relationships to obtain
domestic and international sales, marketing and distribution
capabilities for our product candidates. We also intend to enter
into collaborative relationships to provide funding to support
our research and development programs. We have established a
collaborative relationship with Berna Biotech for our hepatitis
B vaccine and hepatitis B therapeutic product candidates. Our
collaboration agreement with UCB for AIC and grass allergy
immunotherapy ended in March 2005. The process of establishing
collaborative relationships is difficult, time-consuming and
involves significant uncertainty. Moreover, even if we do
establish collaborative relationships, our collaborators may
seek to renegotiate or terminate their relationships with us due
to unsatisfactory clinical results, a change in business
strategy, a change of control or other reasons. If any
collaborator fails to fulfill its responsibilities in a timely
manner, or at all, our research, clinical development or
commercialization efforts related to that collaboration could be
delayed or terminated, or it may be necessary for us to assume
responsibility for expenses or activities that would otherwise
have been the responsibility of our collaborator. If we are
unable to establish and maintain collaborative relationships on
acceptable terms, we may have to delay or discontinue further
development of one or more of our product candidates, undertake
development and commercialization activities at our own expense
or find alternative sources of funding.
36
|
|
|
We rely on third parties to supply component materials
necessary for our clinical product candidates and manufacture
product candidates for our clinical trials. Loss of these
suppliers or manufacturers, or failure to replace them may delay
our clinical trials and research and development efforts and may
result in additional costs, which would preclude us from
producing our product candidates on commercially reasonable
terms. |
We rely on contract relationships with third parties to obtain
the component materials that are necessary for our clinical
product candidates and to manufacture our product candidates for
clinical trials. Termination or interruption of these
relationships may occur due to circumstances that are outside
our control, resulting in higher costs or delays in our product
development efforts.
In particular, we have relied on a single supplier to produce
our ISS for clinical trials. ISS is a critical component of both
of our AIC and hepatitis B vaccine product candidates. To date,
we have manufactured only small quantities of ISS ourselves for
research purposes. If we were unable to maintain or replace our
existing source for ISS, we would have to establish an in-house
ISS manufacturing capability, incurring increased capital and
operating costs and potential delays in commercializing our
product candidates. We or other third parties may not be able to
produce ISS at a cost, quantity and quality that are available
from our current third-party supplier.
In addition, we do not currently have a contract manufacturer
for AIC or enough AIC to supply ongoing clinical and,
potentially, commercial needs. We believe that our existing
supplies of AIC are sufficient for us to conduct our currently
planned Phase III clinical trial in a pediatric indication.
We intend to qualify and enter into manufacturing agreements
with one or more new commercial-scale contract manufacturers to
produce additional supplies of AIC as required for completion of
clinical trials and commercialization. If we are unable to
complete such agreements, we would have to establish an internal
commercial scale manufacturing capability for AIC, incurring
increased capital and operating costs, delays in the commercial
development of AIC and higher manufacturing costs than we have
experienced to date.
|
|
|
We have or intend to contract with one or more third parties
to conduct our Phase II/ III clinical trials for AIC and
Phase II/ III trials for our hepatitis B vaccine. If these
third parties do not carry out their contractual obligations or
meet expected deadlines, our planned clinical trials may be
delayed and we may fail to obtain the regulatory approvals
necessary to commercialize AIC or our hepatitis B vaccine. |
We are unable to independently conduct our planned clinical
trials for AIC or our hepatitis B vaccine, and we have or intend
to contract with third party contract research organizations to
manage and conduct these trials. If these third parties do not
carry out their contractual duties or obligations or meet
expected deadlines, if the third parties need to be replaced or
if the quality or accuracy of the clinical data they obtain is
compromised due to failure to adhere to our clinical protocols
or for other reasons, our planned clinical trials may be
extended, delayed or terminated. Any extension, delay or
termination of our trials would delay our ability to
commercialize AIC or our hepatitis B vaccine and generate
revenues.
|
|
|
If any products we develop are not accepted by the market or
if regulatory agencies limit our labeling indications or
marketing claims, we may be unable to generate significant
revenues, if any. |
We do not anticipate that any of our product candidates will be
commercially available until 2007 at the earliest, if at all.
Furthermore, even if we obtain regulatory approval for our
product candidates and are able to successfully commercialize
them, our product candidates may not gain market acceptance
among physicians, patients, health care payors and the medical
community. The FDA or other regulatory agencies could limit the
labeling indication for which our product candidates may be
marketed or could otherwise constrain our marketing claims,
reducing our or our collaborators’ ability to market the
benefits of our products to particular patient populations. If
we are unable to successfully market any approved product
candidates, or are limited in our marketing efforts by
regulatory limits on labeling indications or marketing claims,
our ability to generate revenues could be significantly impaired.
In particular, treatment with AIC, if approved, will require a
series of injections, and we expect that some of the patients
that currently take oral or inhaled pharmaceutical products to
treat their allergies would not
37
consider our product. We believe that market acceptance of AIC
will also depend on our ability to offer competitive pricing,
increased efficacy and improved ease of use as compared to
existing or potential new allergy treatments.
We expect that Asia will be the primary target market for our
hepatitis B vaccine, if approved. While we may seek partners for
purposes of commercializing this product candidate in Asian and
other non-U.S. markets in addition to or as a replacement
for our current collaborative partner, which has an exclusive
option to commercialize our hepatitis B vaccine and therapeutic
product candidates, marketing challenges vary by market and
could limit or delay acceptance in any particular country. We
believe that market acceptance of our hepatitis B vaccine will
depend on our ability to offer increased efficacy and improved
ease of use as compared to existing or potential new hepatitis B
vaccine products.
|
|
|
We face uncertainty related to coverage, pricing and
reimbursement due to health care reform and heightened scrutiny
from third party payors, which may make it difficult or
impossible to sell our product candidates on commercially
reasonable terms. |
In both domestic and foreign markets, our ability to generate
revenues from the sales of any approved product candidates in
excess of the costs of producing the product candidates will
depend in part on the availability of reimbursement from third
party payors. Existing laws affecting the pricing and coverage
of pharmaceuticals and other medical products by government
programs and other third party payors may change before any of
our product candidates are approved for marketing. In addition,
third party payors are increasingly challenging the price and
cost-effectiveness of medical products and services. Significant
uncertainty therefore exists as to coverage and reimbursement
levels for newly approved health care products, including
pharmaceuticals. Because we intend to offer products, if
approved, that involve new technologies and new approaches to
treating disease, the willingness of third party payors to
reimburse for our products is particularly uncertain. We will
have to charge a price for our products that is sufficiently
high to enable us to recover the considerable capital resources
we have spent and will continue to spend on product development.
Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize a
return on our investment in product development. If it becomes
apparent, due to changes in coverage or pricing of
pharmaceuticals in our market or a lack of reimbursement, that
it will be difficult, if not impossible, for us to generate
revenues in excess of costs, we will need to alter our business
strategy significantly. This could result in significant
unanticipated costs, harm our future prospects and reduce our
stock price.
|
|
|
Many of our competitors have greater financial resources and
expertise than we do. If we are unable to successfully compete
with existing or potential competitors despite these
disadvantages we may be unable to generate revenues and our
business will be harmed. |
We compete with many companies and institutions, including
pharmaceutical companies, biotechnology companies, academic
institutions and research organizations, in developing
alternative therapies to treat or prevent allergy, infectious
diseases, asthma and cancer, as well as those focusing more
generally on the immune system. Competitors may develop more
effective, more affordable or more convenient products or may
achieve earlier patent protection or commercialization of their
products. These competitive products may render our product
candidates obsolete or limit our ability to generate revenues
from our product candidates. Many of the companies developing
competing technologies and products have significantly greater
financial resources and expertise in research and development,
manufacturing, preclinical and clinical testing, obtaining
regulatory approvals and marketing than we do.
AIC, if approved, will compete directly with conventional
allergy shots and indirectly with antihistamines,
corticosteroids and anti-leukotriene agents, which manage
seasonal allergy symptoms, including those produced by
GlaxoSmithKline Plc, Merck & Co., Inc. and AstraZeneca
Plc. Since our AIC ragweed allergy treatment would require a
series of injections, we expect that some of the patients that
currently take oral or inhaled pharmaceutical products to treat
their allergies would not consider our product.
38
Our hepatitis B vaccine, if approved, will compete with existing
three-shot vaccines produced by GlaxoSmithKline Plc and
Merck & Co., Inc., among others, as well as potentially
with a two-shot vaccine in clinical development by
GlaxoSmithKline Plc.
Existing and potential competitors may also compete with us for
qualified scientific and management personnel, as well as for
technology that would be advantageous to our business. If we are
unable to compete with existing and potential competitors we may
not be able to obtain financing, sell our product candidates or
generate revenues.
|
|
|
We intend to develop, seek regulatory approval for and market
our product candidates outside the U.S., requiring a significant
commitment of resources. Failure to successfully manage our
international operations could result in significant
unanticipated costs and delays in regulatory approval or
commercialization of our hepatitis B vaccine and therapeutic
product candidates. |
We plan to introduce our hepatitis B vaccine in various markets
outside the U.S. Developing, seeking regulatory approval
for and marketing our product candidates outside the
U.S. could impose substantial burdens on our resources and
divert management’s attention from domestic operations. We
may also conduct operations in other foreign jurisdictions.
International operations are subject to risk, including:
|
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|
| |
• |
the difficulty of managing geographically distant operations,
including recruiting and retaining qualified employees, locating
adequate facilities and establishing useful business support
relationships in the local community; |
| |
| |
• |
compliance with varying international regulatory requirements; |
| |
| |
• |
securing international distribution, marketing and sales
capabilities; |
| |
| |
• |
adequate protection of our intellectual property rights; |
| |
| |
• |
difficulties and costs associated with complying with a wide
variety of complex international laws and treaties; |
| |
| |
• |
legal uncertainties and potential timing delays associated with
tariffs, export licenses and other trade barriers; |
| |
| |
• |
adverse tax consequences; |
| |
| |
• |
the fluctuation of conversion rates between foreign currencies
and the U.S. dollar; and |
| |
| |
• |
geopolitical risks. |
If we are unable to successfully manage our international
operations, we may incur significant unanticipated costs and
delays in regulatory approval or commercialization of our
hepatitis B vaccine and therapeutic product candidates, as well
as other product candidates that we may choose to commercialize
internationally, which would impair our ability to generate
revenues.
|
|
|
We use hazardous materials in our business. Any claims or
liabilities relating to improper handling, storage or disposal
of these materials could be time consuming and costly to
resolve. |
Our research and product development involve the controlled
storage, use and disposal of hazardous and radioactive materials
and biological waste. We are subject to Federal, state and local
laws and regulations governing the use, manufacture, storage,
handling and disposal of these materials and certain waste
products. We are currently in compliance with all government
permits that are required for the storage, use and disposal of
these materials. However, we cannot eliminate the risk of
accidental contamination or injury to persons or property from
these materials. In the event of an accident related to
hazardous materials, we could be held liable for damages,
cleanup costs or penalized with fines, and this liability could
exceed the limits of our insurance policies and exhaust our
internal resources. We may have to incur significant costs to
comply with future environmental laws and regulations.
39
|
|
|
We face product liability exposure, which, if not covered by
insurance, could result in significant financial liability. |
While we have not experienced any product liability claims to
date, the use of any of our product candidates in clinical
trials and the sale of any approved products will subject us to
potential product liability claims and may raise questions about
a product’s safety and efficacy. As a result, we could
experience a delay in our ability to commercialize one or more
of our product candidates or reduced sales of any approved
product candidates. In addition, a product liability claim may
exceed the limits of our insurance policies and exhaust our
internal resources. We have obtained limited product liability
insurance coverage in the amount of $1 million for each
occurrence for clinical trials with umbrella coverage of an
additional $4 million. This coverage may not be adequate or
may not continue to be available in sufficient amounts, at an
acceptable cost or at all. We also may not be able to obtain
commercially reasonable product liability insurance for any
product approved for marketing in the future. A product
liability claim, product recalls or other claims, as well as any
claims for uninsured liabilities or in excess of insured
liabilities, would divert our management’s attention from
our business and could result in significant financial liability.
|
|
|
If the combination of patents, trade secrets and contractual
provisions that we rely on to protect our intellectual property
is inadequate, the value of our product candidates will
decrease. |
Our success depends on our ability to:
|
|
|
| |
• |
obtain and protect commercially valuable patents or the rights
to patents both domestically and abroad; |
| |
| |
• |
operate without infringing upon the proprietary rights of
others; and |
| |
| |
• |
prevent others from successfully challenging or infringing our
proprietary rights. |
We will be able to protect our proprietary rights from
unauthorized use only to the extent that these rights are
covered by valid and enforceable patents or are effectively
maintained as trade secrets. We try to protect our proprietary
rights by filing and prosecuting U.S. and foreign patent
applications. Legal standards relating to the validity and scope
of patent claims in the biopharmaceutical field can be highly
uncertain, are still evolving and involve complex legal and
factual questions for which important legal principles remain
unresolved. The biopharmaceutical patent environment outside the
U.S. is even more uncertain. We may be particularly
affected by this uncertainty, given that several of our product
candidates may address market opportunities outside the
U.S. For example, we expect to market our hepatitis B
vaccine, if approved, in foreign countries with high incidences
of hepatitis B, particularly in Asia. The risks and
uncertainties that we face with respect to our patents and other
proprietary rights include the following:
|
|
|
| |
• |
we might not have been the first to make the inventions covered
by each of our pending patent applications and issued patents; |
| |
| |
• |
we might not have been the first to file patent applications for
these inventions; |
| |
| |
• |
the pending patent applications we have filed or to which we
have exclusive rights may not result in issued patents or may
take longer than we expect to result in issued patents; |
| |
| |
• |
the claims of any patents that are issued may not provide
meaningful protection; |
| |
| |
• |
our issued patents may not provide a basis for commercially
viable products or may not be valid or enforceable; |
| |
| |
• |
we might not be able to develop additional proprietary
technologies that are patentable; |
| |
| |
• |
the patents licensed or issued to us or our collaborators may
not provide a competitive advantage; |
| |
| |
• |
patents issued to other companies, universities or research
institutions may harm our ability to do business; |
40
|
|
|
| |
• |
other companies, universities or research institutions may
independently develop similar or alternative technologies or
duplicate our technologies and commercialize discoveries that we
attempt to patent; and |
| |
| |
• |
other companies, universities or research institutions may
design around technologies we have licensed, patented or
developed. |
We also rely on trade secret protection and confidentiality
agreements to protect our interests in proprietary know-how that
is not patentable and for processes for which patents are
difficult to enforce. We cannot be certain that we will be able
to protect our trade secrets adequately. Any leak of
confidential data into the public domain or to third parties
could allow our competitors to learn our trade secrets. If we
are unable to adequately obtain or enforce proprietary rights we
may be unable to commercialize our products, enter into
collaborations, generate revenues or maintain any advantage we
may have with respect to existing or potential competitors.
|
|
|
If third parties successfully assert that we have infringed
their patents and proprietary rights or challenge the validity
of our patents and proprietary rights, we may become involved in
intellectual property disputes and litigation that would be
costly, time consuming, and delay or prevent development of our
product candidates. |
We may be exposed to future litigation by third parties based on
claims that our product candidates, proprietary technologies or
the licenses on which we rely, infringe their intellectual
property rights, or we may be required to enter into litigation
to enforce patents issued or licensed to us or to determine the
scope or validity of another party’s proprietary rights. If
we become involved in any litigation, interference or other
administrative proceedings related to our intellectual property
or the intellectual property of others, we will incur
substantial expenses and it will divert the efforts of our
technical and management personnel. Others may succeed in
challenging the validity of our issued and pending claims. If we
are unsuccessful in defending or prosecuting any such claim we
could be required to pay substantial damages and we may be
unable to commercialize our product candidates or use these
proprietary technologies unless we obtain a license from the
third party. A license may require us to pay substantial
royalties, require us to grant a cross-license to our technology
or may not be available to us on acceptable terms. In addition,
we may be required to redesign our technology so it does not
infringe a third party’s patents, which may not be possible
or could require substantial funds and time. Any of these
outcomes may require us to change our business strategy and
could reduce the value of our business.
In particular, one of our potential competitors, Coley
Pharmaceutical Group, or Coley, has issued U.S. patent
claims, as well as patent claims pending with the
U.S. Patent and Trademark Office, that, if held to be
valid, could require us to obtain a license in order to
commercialize one or more of our formulations of ISS in the
U.S., including AIC. In December 2003 the United States Patent
and Trademark Office declared an interference to resolve
first-to-invent disputes between a patent application filed by
the Regents of the University of California, which is
exclusively licensed to us, and an issued U.S. patent owned
by Coley relating to immunostimulatory DNA sequences. The
declaration of interference names the Regents of the University
of California as senior party, indicating that a patent
application filed by the Regents of the University of California
and licensed to us was filed prior to a patent application owned
by Coley that led to an issued U.S. patent. The
interference provides the first forum to challenge the validity
and priority of certain of Coley’s patents. If successful,
the interference action would establish our founders as the
inventors of the inventions in dispute. On March 10, 2005,
the U.S. Patent and Trademark Office issued a decision in the
interference which did not address the merits of the case, but
dismissed it on a legal technicality related to the timing of
Dynavax’s filing of its claims and request for
interference. Dynavax has appealed this non-final decision. If
we do not prevail in the interference proceeding, we may not be
able to obtain patent protection on the subject matter of the
interference, which would have a material adverse impact on our
business. In addition, if Coley prevails in the interference, it
may seek to enforce its rights under issued claims, including,
for example, by suing us for patent infringement. Consequently,
we may need to obtain a license to issued and/or pending claims
held by Coley by paying cash, granting royalties on sales of our
products or offering
41
rights to our own proprietary technologies. Such a license may
not be available to us on acceptable terms, if at all.
|
|
|
We rely on our licenses from the Regents of the University of
California. Impairment of these licenses or our inability to
maintain them would severely harm our business. |
Our success depends upon our license arrangements with the
Regents of the University of California. These licenses are
critical to our research and product development efforts. Our
dependence on these licenses subjects us to numerous risks, such
as disputes regarding the invention and corresponding ownership
rights in inventions and know-how resulting from the joint
creation or use of intellectual property by us and the Regents
of the University of California, or scientific collaborators.
Additionally, our agreements with the Regents of the University
of California generally contain diligence or milestone-based
termination provisions. Our failure to meet any obligations
pursuant to these provisions could allow the Regents of the
University of California to terminate any of these licensing
agreements or convert them to non-exclusive licenses. In
addition, our license agreements with the Regents of the
University of California may be terminated or may expire by
their terms, and we may not be able to maintain the exclusivity
of these licenses. If we cannot maintain licenses that are
advantageous or necessary to the development or the
commercialization of our product candidates, we may be required
to expend significant time and resources to develop or license
similar technology.
|
|
|
We expect that our stock price will be volatile, and your
investment may suffer a decline in value. |
The market prices for securities of biopharmaceutical companies
have in the past been, and are likely to continue in the future
to be, very volatile. The market price of our common stock may
be subject to substantial volatility depending upon many
factors, many of which are beyond our control, including:
|
|
|
| |
• |
progress or results of any of our clinical trials, in particular
any announcements regarding the progress or results of our
planned Phase III trials for AIC and our hepatitis B
vaccine; |
| |
| |
• |
progress of regulatory approval of our product candidates, in
particular AIC and our hepatitis B vaccine, and compliance with
ongoing regulatory requirements; |
| |
| |
• |
our ability to establish collaborations for the development and
commercialization of our product candidates; |
| |
| |
• |
market acceptance of our product candidates; |
| |
| |
• |
our ability to raise additional capital to fund our operations,
whether through the issuance of equity securities or debt; |
| |
| |
• |
technological innovations, new commercial products or drug
discovery efforts and preclinical and clinical activities by us
or our competitors; |
| |
| |
• |
changes in our intellectual property portfolio or developments
or disputes concerning the proprietary rights of our products or
product candidates; |
| |
| |
• |
our ability to obtain component materials and successfully enter
into manufacturing relationships for our product candidates or
establish manufacturing capacity on our own; |
| |
| |
• |
our ability to form strategic partnerships or joint ventures; |
| |
| |
• |
maintenance of our existing licensing agreements with the
Regents of the University of California; |
| |
| |
• |
changes in government regulations; |
| |
| |
• |
issuance of new or changed securities analysts’ reports or
recommendations; |
| |
| |
• |
general economic conditions and other external factors; |
42
|
|
|
| |
• |
actual or anticipated fluctuations in our quarterly financial
and operating results; and |
| |
| |
• |
degree of trading liquidity in our common stock. |
One or more of these factors could cause a decline in the price
of our common stock. In addition, securities class action
litigation has often been brought against a company following a
decline in the market price of its securities. We may in the
future be the target of similar litigation. Securities
litigation could result in substantial costs, divert
management’s attention and resources and disrupt our
business operations.
|
|
|
If the ownership of our common stock continues to be highly
concentrated, it may prevent stockholders from influencing
significant corporate decisions and may result in conflicts of
interest that could cause our stock price to decline. |
Our executive officers, directors and their affiliates
beneficially owned or controlled approximately 41% of our
outstanding common stock as of February 28, 2005.
Accordingly, these executive officers, directors and their
affiliates, acting as a group, will have substantial influence
over the outcome of corporate actions requiring stockholder
approval, including the election of directors, any merger,
consolidation or sale of all or substantially all of our assets
or any other significant corporate transactions. These
stockholders may also delay or prevent a change of control of
us, even if such a change of control would benefit our other
stockholders. The significant concentration of stock ownership
may adversely affect the trading price of our common stock due
to investors’ perception that conflicts of interest may
exist or arise.
|
|
|
Anti-takeover provisions of our certificate of incorporation,
bylaws and Delaware law may prevent or frustrate a change in
control, even if an acquisition would be beneficial to our
stockholders, which could affect our stock price adversely and
prevent attempts by our stockholders to replace or remove our
current management. |
Provisions of our certificate of incorporation and bylaws may
delay or prevent a change in control, discourage bids at a
premium over the market price of our common stock and adversely
affect the market price of our common stock and the voting or
other rights of the holders of our common stock. These
provisions include:
|
|
|
| |
• |
authorizing our Board of Directors to issue additional preferred
stock with voting rights to be determined by the Board of
Directors; |
| |
| |
• |
limiting the persons who can call special meetings of
stockholders; |
| |
| |
• |
prohibiting stockholder actions by written consent; |
| |
| |
• |
creating a classified board of directors pursuant to which our
directors are elected for staggered three year terms; |
| |
| |
• |
providing that a supermajority vote of our stockholders is
required for amendment to certain provisions of our certificate
of incorporation and bylaws; and |
| |
| |
• |
establishing advance notice requirements for nominations for
election to our Board of Directors or for proposing matters that
can be acted on by stockholders at stockholder meetings. |
In addition, we are subject to the provisions of the Delaware
corporation law that, in general, prohibit any business
combination with a beneficial owner of 15% or more of our common
stock for five years unless the holder’s acquisition of our
stock was approved in advance by our board of directors.
|
|
|
Being a public company increases our administrative costs. |
As a public company, we incur significant legal, accounting and
other expenses that we did not incur as a private company. In
addition, the Sarbanes-Oxley Act of 2002, as well as new rules
subsequently implemented by the Securities and Exchange
Commission and new listing requirements subsequently adopted by
Nasdaq in response to Sarbanes-Oxley, have required changes in
corporate governance practices of public companies. These new
rules, regulations, and listing requirements have increased our
legal and
43
financial compliance costs, and made some activities more time
consuming and costly. For example, as a result of becoming a
public company, we have created several board committees,
adopted additional internal controls and disclosure controls and
procedures, retained a transfer agent and a financial printer,
adopted an insider trading policy, and have all of the internal
and external costs of preparing and distributing periodic public
reports in compliance with our obligations under the securities
laws. These new rules and regulations have made it more
difficult and more expensive for us to obtain director and
officer liability insurance. These new rules and regulations
could also make it more difficult for us to attract and retain
qualified members of our board of directors, particularly to
serve on our audit committee, and qualified executive officers.
|
|
|
We are currently reviewing and testing our material internal
control systems, processes and procedures in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act of
2002. |
Sarbanes-Oxley Section 404 requires us to review and test
our material internal control systems, processes and procedures
to ensure compliance. There can be no assurance that our review
and testing of material internal control systems, processes and
procedures will not result in the identification of significant
control deficiencies or result in an adverse opinion from our
independent auditors.
|
|
| ITEM 7A. |
MARKET RISK DISCLOSURE INFORMATION |
|
|
|
Quantitative and Qualitative Disclosure About Market Risk |
The primary objective of our investment activities is to
preserve principal while at the same time maximize the income we
receive from our investments without significantly increasing
risk. Some of the securities that we invest in may have market
risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. To
minimize this risk, we maintain our portfolio of cash
equivalents and investments in a variety of securities,
including commercial paper, money market funds, government and
non-government debt securities and corporate obligations.
Because of the short-term maturities of our cash equivalents and
marketable securities, we do not believe that an increase in
market rates would have any significant negative impact on the
realized value of our investments.
Interest Rate Risk. We do not use derivative financial
instruments in our investment portfolio. Due to the short
duration and conservative nature of our cash equivalents and
marketable securities, we do not expect any material loss with
respect to our investment portfolio.
Foreign Currency Risk. We have no significant investments
outside the U.S. and do not have transactional foreign currency
risk because nearly all of our business is transacted in
U.S. dollars. As a result, we have little to no exposure to
foreign exchange rate fluctuations.
44
|
|
| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
| |
|
Page No. |
| |
|
|
|
Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm
|
|
|
46 |
|
|
Audited Consolidated Financial Statements
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
47 |
|
|
Consolidated Statements of Operations
|
|
|
48 |
|
|
Consolidated Statement of Convertible Preferred Stock and
Stockholders’ Equity
(Net Capital Deficiency)
|
|
|
49 |
|
|
Consolidated Statements of Cash Flows
|
|
|
51 |
|
|
Notes to Consolidated Financial Statements
|
|
|
53 |
|
45
Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm
To The Board of Directors and Stockholders
Dynavax Technologies Corporation
We have audited the accompanying consolidated balance sheets of
Dynavax Technologies Corporation as of December 31, 2004
and 2003, and the related consolidated statements of operations,
convertible preferred stock and stockholders’ equity (net
capital deficiency), and cash flows for each of the three years
in the period ended December 31, 2004. These financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Dynavax Technologies Corporation at
December 31, 2004 and 2003, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles.
Palo Alto, California
February 4, 2005 except for the second paragraph of
Note 7
as to which the date is March 18, 2005
46
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Assets |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
16,590 |
|
|
$ |
23,468 |
|
| |
Marketable securities
|
|
|
49,254 |
|
|
|
5,629 |
|
| |
Restricted cash
|
|
|
408 |
|
|
|
— |
|
| |
Accounts receivable
|
|
|
3,131 |
|
|
|
220 |
|
| |
Prepaid expenses and other current assets
|
|
|
1,396 |
|
|
|
1,422 |
|
| |
|
|
|
|
|
|
|
Total current assets
|
|
|
70,779 |
|
|
|
30,739 |
|
|
Property and equipment, net
|
|
|
2,465 |
|
|
|
828 |
|
|
Other assets
|
|
|
402 |
|
|
|
18 |
|
| |
|
|
|
|
|
|
|
Total assets
|
|
$ |
73,646 |
|
|
$ |
31,585 |
|
| |
|
|
|
|
|
|
| |
Liabilities, minority interest, convertible preferred stock,
and stockholders’ equity
(net capital deficiency) |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
1,391 |
|
|
$ |
1,410 |
|
| |
Accrued liabilities
|
|
|
4,371 |
|
|
|
2,989 |
|
| |
Deferred revenues
|
|
|
1,000 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,762 |
|
|
|
4,399 |
|
|
Deferred revenues, noncurrent
|
|
|
6,750 |
|
|
|
750 |
|
|
Other long-term liabilities
|
|
|
258 |
|
|
|
— |
|
|
Minority interest in Dynavax Asia
|
|
|
— |
|
|
|
14,733 |
|
|
Convertible preferred stock: $0.001 par value; no shares
authorized at December 31, 2004 and 61,767 shares
authorized at December 31, 2003; no shares outstanding at
December 31, 2004 and 39,514 shares issued and
outstanding at December 31, 2003
|
|
|
— |
|
|
|
83,635 |
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (net capital deficiency):
|
|
|
|
|
|
|
|
|
| |
Preferred stock: $0.001 par value; 5,000 shares
authorized and no shares issued and outstanding at
December 31, 2004 and 2003
|
|
|
— |
|
|
|
— |
|
| |
Common stock: $0.001 par value; 100,000 and
28,333 shares authorized at December 31, 2004 and
2003, respectively; 24,627 and 1,884 shares issued and
outstanding at December 31, 2004 and 2003, respectively
|
|
|
25 |
|
|
|
2 |
|
| |
Additional paid-in capital
|
|
|
159,074 |
|
|
|
12,762 |
|
| |
Deferred stock compensation
|
|
|
(3,366 |
) |
|
|
(4,677 |
) |
| |
Notes receivable from stockholders
|
|
|
(419 |
) |
|
|
(654 |
) |
| |
Accumulated other comprehensive loss
|
|
|
(102 |
) |
|
|
— |
|
| |
Accumulated deficit
|
|
|
(95,336 |
) |
|
|
(79,365 |
) |
| |
|
|
|
|
|
|
|
Total stockholders’ equity (net capital deficiency)
|
|
|
59,876 |
|
|
|
(71,932 |
) |
| |
|
|
|
|
|
|
|
Total liabilities, minority interest, convertible preferred
stock, and stockholders’ equity (net capital deficiency)
|
|
$ |
73,646 |
|
|
$ |
31,585 |
|
| |
|
|
|
|
|
|
See accompanying notes.
47
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Collaboration revenue
|
|
$ |
13,782 |
|
|
$ |
— |
|
|
$ |
1,427 |
|
| |
Grant revenue
|
|
|
1,030 |
|
|
|
826 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
14,812 |
|
|
|
826 |
|
|
|
1,427 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
|
23,129 |
|
|
|
13,786 |
|
|
|
15,965 |
|
| |
General and administrative
|
|
|
8,543 |
|
|
|
4,804 |
|
|
|
4,121 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
31,672 |
|
|
|
18,590 |
|
|
|
20,086 |
|
| |
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(16,860 |
) |
|
|
(17,764 |
) |
|
|
(18,659 |
) |
|
Interest income, net
|
|
|
889 |
|
|
|
412 |
|
|
|
621 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(15,971 |
) |
|
|
(17,352 |
) |
|
|
(18,038 |
) |
|
Deemed dividend upon issuance of ordinary shares of Dynavax Asia
|
|
|
— |
|
|
|
(633 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$ |
(15,971 |
) |
|
$ |
(17,985 |
) |
|
$ |
(18,038 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share attributable to common
stockholders
|
|
$ |
(0.75 |
) |
|
$ |
(10.04 |
) |
|
$ |
(10.65 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic and diluted net loss per share
attributable to common stockholders
|
|
|
21,187 |
|
|
|
1,791 |
|
|
|
1,694 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes.
48
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY (NET CAPITAL DEFICIENCY)
(In thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Convertible | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Preferred Stock | |
|
Common Stock | |
|
|
|
|
|
|
|
Accumulated | |
|
|
|
Stockholders’ | |
| |
|
| |
|
| |
|
Additional | |
|
|
|
Notes Receivable | |
|
Other | |
|
|
|
Equity (Net | |
| |
|
|
|
|
|
Par | |
|
Paid-In | |
|
Deferred Stock | |
|
From | |
|
Comprehensive | |
|
Accumulated | |
|
Capital | |
| |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Stockholders | |
|
Income | |
|
Deficit | |
|
Deficiency) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balances at December 31, 2001
|
|
|
22,632 |
|
|
$ |
51,278 |
|
|
|
1,902 |
|
|
$ |
2 |
|
|
$ |
9,811 |
|
|
$ |
(5,267 |
) |
|
$ |
(804 |
) |
|
$ |
17 |
|
|
$ |
(43,975 |
) |
|
$ |
(40,216 |
) |
| |
Issuance of Series D convertible preferred stock at $2.06,
net of cash issuance costs of $2,420 and non-cash issuance costs
of $322
|
|
|
16,882 |
|
|
|
32,357 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Issuance of common stock upon exercise of options at $0.30 to
$12.00 per share for cash
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
| |
Interest accrued on notes receivable from stockholders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(46 |
) |
|
|
— |
|
|
|
— |
|
|
|
(46 |
) |
| |
Repayment of notes receivable from stockholders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
136 |
|
|
|
— |
|
|
|
— |
|
|
|
136 |
|
| |
Common stock repurchased
|
|
|
— |
|
|
|
— |
|
|
|
(57 |
) |
|
|
— |
|
|
|
(65 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(65 |
) |
| |
Deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,326 |
) |
|
|
1,326 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Amortization of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,821 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,821 |
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Change in unrealized gain on marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34 |
|
|
|
— |
|
|
|
34 |
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18,038 |
) |
|
|
(18,038 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,004 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
39,514 |
|
|
$ |
83,635 |
|
|
|
1,849 |
|
|
$ |
2 |
|
|
$ |
8,423 |
|
|
$ |
(2,120 |
) |
|
$ |
(714 |
) |
|
$ |
51 |
|
|
$ |
(62,013 |
) |
|
$ |
(56,371 |
) |
| |
Issuance of common stock upon exercise of options at $0.50 to
$3.00 per share for cash
|
|
|
— |
|
|
|
— |
|
|
|
55 |
|
|
|
— |
|
|
|
73 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
73 |
|
| |
Interest accrued on notes receivable from stockholders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(40 |
) |
|
|
— |
|
|
|
— |
|
|
|
(40 |
) |
| |
Repayment of notes receivable from stockholders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100 |
|
|
|
— |
|
|
|
— |
|
|
|
100 |
|
| |
Common stock repurchased
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
— |
|
|
|
(43 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(43 |
) |
| |
Deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,309 |
|
|
|
(4,309 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Amortization of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,752 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,752 |
|
| |
Deemed dividend upon issuance of ordinary shares of Dynavax Asia
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
633 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(633 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Change in unrealized loss on marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(51 |
) |
|
|
— |
|
|
|
(51 |
) |
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,352 |
) |
|
|
(17,352 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,403 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003 (carried forward)
|
|
|
39,514 |
|
|
$ |
83,635 |
|
|
|
1,884 |
|
|
$ |
2 |
|
|
$ |
12,762 |
|
|
$ |
(4,677 |
) |
|
$ |
(654 |
) |
|
$ |
— |
|
|
$ |
(79,365 |
) |
|
$ |
(71,932 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY
(NET CAPITAL DEFICIENCY) (CONTINUED)
(In thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Convertible | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Preferred Stock | |
|
Common Stock | |
|
|
|
|
|
|
|
Accumulated | |
|
|
|
Stockholders’ | |
| |
|
| |
|
| |
|
Additional | |
|
|
|
Notes Receivable | |
|
Other | |
|
|
|
Equity (Net | |
| |
|
|
|
|
|
Par | |
|
Paid-In | |
|
Deferred Stock | |
|
From | |
|
Comprehensive | |
|
Accumulated | |
|
Capital | |
| |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Stockholders | |
|
Income | |
|
Deficit | |
|
Deficiency) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balances at December 31, 2003 (brought forward)
|
|
|
39,514 |
|
|
$ |
83,635 |
|
|
|
1,884 |
|
|
$ |
2 |
|
|
$ |
12,762 |
|
|
$ |
(4,677 |
) |
|
$ |
(654 |
) |
|
$ |
— |
|
|
$ |
(79,365 |
) |
|
$ |
(71,932 |
) |
| |
Issuance of common stock upon initial public offering
|
|
|
— |
|
|
|
— |
|
|
|
6,900 |
|
|
|
7 |
|
|
|
46,448 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
46,455 |
|
| |
Conversion of preferred stock upon initial public offering
|
|
|
(39,514 |
) |
|
|
(83,635 |
) |
|
|
13,712 |
|
|
|
14 |
|
|
|
83,621 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
83,635 |
|
| |
Conversion of ordinary shares in Dynavax Asia upon initial
public offering
|
|
|
— |
|
|
|
— |
|
|
|
2,111 |
|
|
|
2 |
|
|
|
14,731 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,733 |
|
| |
Exercise of stock options
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
| |
Issuance of common stock under Employee Stock Purchase Plan
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
70 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70 |
|
| |
Interest accrued on notes receivable from stockholders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(37 |
) |
|
|
— |
|
|
|
— |
|
|
|
(37 |
) |
| |
Repayment of notes receivable from stockholders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
272 |
|
|
|
— |
|
|
|
— |
|
|
|
272 |
|
| |
Deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,426 |
|
|
|
(1,426 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Amortization of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,737 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,737 |
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Change in unrealized loss on marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(102 |
) |
|
|
— |
|
|
|
(102 |
) |
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,971 |
) |
|
|
(15,971 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,073 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
— |
|
|
$ |
— |
|
|
|
24,627 |
|
|
$ |
25 |
|
|
$ |
159,074 |
|
|
$ |
(3,366 |
) |
|
$ |
(419 |
) |
|
$ |
(102 |
) |
|
$ |
(95,336 |
) |
|
$ |
59,876 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
50
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(15,971 |
) |
|
$ |
(17,352 |
) |
|
$ |
(18,038 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization
|
|
|
536 |
|
|
|
576 |
|
|
|
678 |
|
| |
Loss on disposal of property and equipment
|
|
|
18 |
|
|
|
34 |
|
|
|
1 |
|
| |
Accretion and amortization on marketable securities
|
|
|
361 |
|
|
|
581 |
|
|
|
329 |
|
| |
Interest accrued on notes receivable from stockholders
|
|
|
(37 |
) |
|
|
(40 |
) |
|
|
(46 |
) |
| |
Amortization of stock-based compensation expense
|
|
|
2,737 |
|
|
|
1,752 |
|
|
|
1,821 |
|
| |
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts receivable
|
|
|
(2,911 |
) |
|
|
(220 |
) |
|
|
1,402 |
|
| |
|
Prepaid expenses and other current assets
|
|
|
26 |
|
|
|
(705 |
) |
|
|
(323 |
) |
| |
|
Other assets
|
|
|
(384 |
) |
|
|
33 |
|
|
|
3 |
|
| |
|
Accounts payable
|
|
|
(19 |
) |
|
|
14 |
|
|
|
951 |
|
| |
|
Accrued liabilities
|
|
|
1,312 |
|
|
|
921 |
|
|
|
(438 |
) |
| |
|
Deferred revenues
|
|
|
7,000 |
|
|
|
— |
|
|
|
(339 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(7,332 |
) |
|
|
(14,406 |
) |
|
|
(13,999 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(49,637 |
) |
|
|
(7,022 |
) |
|
|
(28,754 |
) |
|
Maturities and sales of marketable securities
|
|
|
5,549 |
|
|
|
25,000 |
|
|
|
11,630 |
|
|
Purchases of property and equipment
|
|
|
(1,863 |
) |
|
|
(138 |
) |
|
|
(469 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(45,951 |
) |
|
|
17,840 |
|
|
|
(17,593 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of ordinary shares in Dynavax Asia, net
of issuance costs
|
|
|
— |
|
|
|
14,733 |
|
|
|
— |
|
|
Proceeds from issuance of preferred stock, net of issuance costs
|
|
|
— |
|
|
|
— |
|
|
|
32,357 |
|
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
46,455 |
|
|
|
73 |
|
|
|
3 |
|
|
Exercise of stock options
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
Proceeds from employee stock purchase plan
|
|
|
70 |
|
|
|
— |
|
|
|
— |
|
|
Repurchase of common stock
|
|
|
— |
|
|
|
(43 |
) |
|
|
(65 |
) |
|
Repayment of notes receivable from stockholders
|
|
|
272 |
|
|
|
100 |
|
|
|
136 |
|
|
Restricted cash
|
|
|
(408 |
) |
|
|
— |
|
|
|
— |
|
|
Repayments of equipment financing
|
|
|
— |
|
|
|
— |
|
|
|
(15 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
46,405 |
|
|
|
14,863 |
|
|
|
32,416 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(6,878 |
) |
|
|
18,297 |
|
|
|
824 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
23,468 |
|
|
|
5,171 |
|
|
|
4,347 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
16,590 |
|
|
$ |
23,468 |
|
|
$ |
5,171 |
|
| |
|
|
|
|
|
|
|
|
|
51
DYNAVAX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Supplemental disclosure of non-cash investing and financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease incentive
|
|
$ |
350 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Net unrealized (loss) gain on marketable securities
|
|
$ |
(102 |
) |
|
$ |
(51 |
) |
|
$ |
34 |
|
| |
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock upon initial public offering
|
|
$ |
83,635 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Conversion of ordinary shares in Dynavax Asia upon initial
public offering
|
|
$ |
14,733 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock for notes receivable
|
|
$ |
— |
|
|
$ |
43 |
|
|
$ |
65 |
|
| |
|
|
|
|
|
|
|
|
|
|
Interest accrued on notes receivable
|
|
$ |
37 |
|
|
$ |
40 |
|
|
$ |
46 |
|
| |
|
|
|
|
|
|
|
|
|
|
Deemed dividend upon issuance of ordinary shares of Dynavax Asia
|
|
$ |
— |
|
|
$ |
633 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes.
52
DYNAVAX TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dynavax Technologies Corporation (“Dynavax”, the
“Company”, “we” or “us”) is a
biopharmaceutical company that discovers, develops, and intends
to commercialize innovative products to treat and prevent
allergies, infectious diseases, and chronic inflammatory
diseases. The Company was originally incorporated in California
on August 29, 1996 and reincorporated in Delaware on
March 26, 2001.
In February 2004, the Company sold a total of
6,900,000 shares of its common stock, after adjusting for a
one-for-three reverse stock split, in an underwritten initial
public offering, raising net proceeds of approximately
$46.5 million. The effect of the reverse stock split is
reflected in the Consolidated Financial Statements for all
periods presented. As a result of the initial public offering,
all outstanding shares of Preferred Stock converted to
13,712,128 shares of common stock.
Subsidiaries
In October 2003, the Company formed Dynavax Asia Pte. Ltd.
(Dynavax Asia), a 100% owned subsidiary in Singapore which
focuses on the Company’s clinical and preclinical hepatitis
B programs. In October 2003, the Company completed a sale of
15,200,000 ordinary shares in Dynavax Asia, which reduced the
Company’s ownership in Dynavax Asia from 100% to 50%. The
sale raised net proceeds of $14.7 million, which were
recorded as a minority interest liability in the Consolidated
Financial Statements as of December 31, 2003. In addition,
the Company recorded a deemed dividend of $0.6 million for
the year ended December 31, 2003 on the difference between
the estimated fair value of the common stock at the issuance
date and the conversion price of the ordinary shares. In
connection with the February 2004 initial public offering, the
ordinary shares in Dynavax Asia were converted to
2,111,111 shares of common stock and Dynavax Asia became a
wholly owned subsidiary.
In December 2004, the Company formed Ryden Therapeutics KK
(Ryden), a 100% owned Japan subsidiary, to explore development,
commercialization and financing options for ISS-based
immunotherapies for cedar tree allergy in Japan.
|
|
| 2. |
Summary of Significant Accounting Policies |
Basis of Presentation
The Consolidated Financial Statements include the accounts of
Dynavax, Dynavax Asia and Ryden. All significant intercompany
accounts and transactions have been eliminated. The Company
operates in one business segment, the development of
biopharmaceutical products.
Certain reclassifications of prior year amounts related to
deferred revenue (current and long-term), research and
development, and general and administrative expenses have been
made to conform with the current year presentation. These
reclassifications did not have a material impact on our
financial position or results of operations.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the Consolidated Financial
Statements and accompanying notes. Actual results could differ
from these estimates.
Foreign Currency
The Company considers the local currency to be the functional
currency for our international subsidiaries. Accordingly, assets
and liabilities denominated in foreign currencies are translated
into U.S. dollars using the
53
exchange rate on the balance sheet date. Revenues and expenses
are translated at average exchange rates prevailing throughout
the year. Currency translation adjustments are charged or
credited to accumulated other comprehensive income (loss) in the
Consolidated Balance Sheets. Gains and losses resulting from
currency transactions are included in the Consolidated
Statements of Operations. To date, virtually all operations of
Dynavax Asia and Ryden are conducted in the U.S. and, as such,
no foreign currency translation adjustments or transaction gains
or losses have been recorded as of December 31, 2004.
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
Management determines the appropriate classification of
marketable securities at the time of purchase. The Company has
classified its entire investment portfolio as
available-for-sale. The Company views its available-for-sale
portfolio as available for use in current operations, and
accordingly, has classified all investments as short-term
although the stated maturity may be one year or more beyond the
current balance sheet date. In accordance with
FAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities,” available-for-sale
securities are carried at fair value based on quoted market
prices, with unrealized gains and losses included in accumulated
other comprehensive income in stockholders’ equity.
Realized gains and losses and declines in value, if any, judged
to be other than temporary on available-for-sale securities are
included in interest income or expense. The cost of securities
sold is based on the specific identification method.
Fair Value of Financial Instruments
Carrying amounts of certain of our financial instruments,
including cash and cash equivalents, marketable securities,
restricted cash, accounts receivable, prepaid expenses and other
current assets, accounts payable, and accrued liabilities,
approximate fair value due to their short maturities.
Concentration of Credit Risk and Other Risks and
Uncertainties
Financial instruments that are subject to concentration of
credit risk consist primarily of cash and cash equivalents,
accounts receivable, and marketable securities. The
Company’s policy is to invest its cash in institutional
money market funds and marketable securities of
U.S. government and corporate issuers with high credit
quality in order to limit the amount of credit exposure. We have
not experienced any losses on our cash and cash equivalents and
marketable securities.
Trade accounts receivable are recorded at invoice value. The
Company reviews its exposure to accounts receivable and to date
has not experienced any losses. The Company does not currently
require collateral for any of its trade accounts receivable. The
following table summarizes the revenues and accounts receivable
balances from customers in excess of 10% of the total revenues
or total accounts receivable balances, respectively:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Revenues |
|
Accounts Receivable |
| |
|
|
|
|
| |
|
Years Ended December 31, |
|
December 31, |
| Significant |
|
|
|
|
| Customers |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
| |
|
|
|
|
|
|
|
|
|
|
| |
A |
|
|
|
— |
|
|
|
— |
|
|
|
69 |
% |
|
|
— |
|
|
|
— |
|
| |
B |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
% |
|
|
— |
|
|
|
— |
|
| |
C |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
% |
|
|
— |
|
|
|
— |
|
| |
D |
|
|
|
7 |
% |
|
|
100 |
% |
|
|
— |
|
|
|
13 |
% |
|
|
100 |
% |
| |
E |
|
|
|
93 |
% |
|
|
— |
|
|
|
— |
|
|
|
87 |
% |
|
|
— |
|
For the fiscal year ended December 31, 2004, the majority
of our revenues and accounts receivable were derived from a
collaboration agreement with UCB Farchim, SA (UCB) which
ended in March 2005. The Company expects to collect all
receivables due from UCB that remained outstanding at
December 31, 2004.
54
The Company’s future products will require approval from
the U.S. Food and Drug Administration and foreign
regulatory agencies before commercial sales can commence. There
can be no assurance that the Company’s products will
receive any of these required approvals. The denial or delay of
such approvals would have a material adverse impact on the
Company’s consolidated financial position and results of
operations.
The Company relies on a single contract manufacturer to produce
material for certain of its clinical trials. While the Company
has identified several additional manufacturers with whom it
could contract for the manufacture of material, the Company has
not entered into agreements with them and loss of its current
supplier could delay development or commercialization of the
Company’s product candidates. To date, the Company has
manufactured only small quantities of material for research
purposes.
The Company is subject to risks common to companies in the
biopharmaceutical industry, including, but not limited to, new
technological innovations, protection of proprietary technology,
compliance with government regulations, uncertainty of market
acceptance of products, product liability, and the need to
obtain additional financing.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the respective assets: three years for computer
equipment and furniture, and five years for laboratory
equipment. Leasehold improvements are amortized using the
straight-line method over the remaining life of the initial
lease term or the estimated useful lives of the assets,
typically five years, whichever is shorter. Repair and
maintenance costs are charged to expense as incurred.
Long-lived Assets
The Company identifies and records impairment losses on
long-lived assets when events and circumstances indicate that
the carrying value may not be recoverable. Recoverability is
measured by comparison of the assets’ carrying amounts to
the future net undiscounted cash flows the assets are expected
to generate. If these assets are considered impaired, the
impairment recognized is measured by the amount by which the
carrying value of the assets exceed the projected discounted
future net cash flows associated with the assets. None of these
events or circumstances has occurred with respect to the
Company’s long-lived assets, which consist mainly lab
equipment.
Revenue Recognition
We recognize collaboration, upfront and other revenue based on
the terms specified in the agreements, generally as work is
performed or approximating a straight-line basis over the period
of the collaboration. Any amounts received in advance of
performance are recorded as deferred revenue and amortized over
the estimated term of the performance obligation. Revenue from
milestones with substantive performance risk is recognized upon
achievement of the milestone. All revenue recognized to date
under these collaborations and milestones is nonrefundable.
Revenues related to government grants are recognized as the
related research expenses are incurred. Additionally, we
recognize revenue based on the facilities and administrative
cost rate reimbursable per the terms of the grant awards. Any
amounts received in advance of performance are recorded as
deferred revenue until earned.
Research and Development Expense and Related Accruals
Research and development expenditures are charged to operations
as incurred. Research and development expense consists of direct
and indirect internal costs related to specific functional areas
and projects, as well as fees paid to contract research
organizations, research institutions, contract manufacturing
organizations, and other service providers which conduct certain
research and development activities on behalf of the Company.
55
Preclinical and clinical studies are a significant component of
research and development expense. We accrue costs related to
clinical trials on a straight-line basis over the term of the
service period based on our initial estimate that the work
performed under the contracts occurs ratably over the periods to
the expected milestone, event or total contract completion date.
The estimates may or may not match the actual services performed
by research institutions and contract research organizations
that conduct and manage clinical trials on our behalf, as
determined by patient enrollment levels and other measures of
activities specified in the contract. As a result, we adjust our
estimates at the end of each reporting period, if required,
based on our ongoing review of the level of effort actually
incurred by the organizations.
The financial terms of these agreements are subject to
negotiation and variation from contract to contract and may
result in uneven payment flows. Payments under these contracts
depend on factors such as the successful enrollment of patients
or the completion of clinical trial milestones. We may terminate
these contracts upon written notice and we are generally only
liable for actual effort expended by the organizations at any
point in time during the contract, regardless of payment status.
Stock-Based Compensation
The Company has adopted the pro forma disclosure requirements of
FAS No. 123, “Accounting for Stock-Based
Compensation” as amended by FAS No. 148,
“Accounting for Stock-Based Compensation —
Transition and Disclosure.” As permitted under
FAS No. 123, we continue to recognize employee stock
compensation under the intrinsic value method of accounting as
prescribed by APB No. 25 and its interpretations. Under APB
No. 25, compensation expense is based on the difference, if
any, between the estimated fair value of our common stock and
the option exercise price on the date of grant.
The following table illustrates the pro forma effect on our net
loss and net loss per share as if we had applied the fair value
recognition provisions of FAS No. 123 to employee
stock compensation (in thousands, except per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net loss attributable to common stockholders, as reported
|
|
$ |
(15,971 |
) |
|
$ |
(17,985 |
) |
|
$ |
(18,038 |
) |
| |
|
Add: Stock-based employee compensation expense included in net
loss
|
|
|
2,170 |
|
|
|
1,752 |
|
|
|
1,821 |
|
| |
|
Less: Stock-based employee compensation expense determined under
the fair value based method
|
|
|
(2,816 |
) |
|
|
(1,996 |
) |
|
|
(2,013 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders, pro forma
|
|
$ |
(16,617 |
) |
|
$ |
(18,229 |
) |
|
$ |
(18,230 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic and diluted, as reported
|
|
$ |
(0.75 |
) |
|
$ |
(10.04 |
) |
|
$ |
(10.65 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Basic and diluted, pro forma
|
|
$ |
(0.78 |
) |
|
$ |
(10.18 |
) |
|
$ |
(10.76 |
) |
| |
|
|
|
|
|
|
|
|
|
Such pro forma disclosure may not be representative of future
stock-based compensation expense because such options vest over
several years and additional grants may be made each year.
The estimated fair value of each option and employee purchase
right is estimated on the date of grant using the Black-Scholes
option-pricing model, assuming no expected dividends and the
following weighted-average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Employee Stock |
| |
|
Employee Stock Options |
|
Purchase Plan |
| |
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
Weighted-average fair value
|
|
|
$5.04 |
|
|
|
$6.68 |
|
|
|
$1.32 |
|
|
|
$7.50 |
|
|
Risk-free interest rate
|
|
|
2.3% to 3.5% |
|
|
|
2.4% to 2.9% |
|
|
|
2.4% to 3.5% |
|
|
|
2.0% |
|
|
Expected life (in years)
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
0.5 |
|
|
Volatility
|
|
|
0.7 |
|
|
|
1.0 |
|
|
|
0.7 |
|
|
|
0.7 |
|
56
Comprehensive Loss
Comprehensive loss is comprised of net loss and other
comprehensive income (loss), which includes certain changes in
equity that are excluded from net loss. The Company includes
unrealized holding gains and losses on marketable securities in
accumulated other comprehensive loss.
Income Taxes
We account for income taxes using the asset and liability method
under FAS No. 109, “Accounting for Income
Taxes.” Under this method, deferred tax assets and
liabilities are determined based on temporary differences
resulting from the different treatment of items for tax and
financial reporting purposes. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to reverse. Additionally, we must
assess the likelihood that deferred tax assets will be recovered
as deductions from future taxable income. We have provided a
full valuation allowance on our deferred tax assets because we
believe it is more likely than not that our deferred tax assets
will not be realized. We evaluate the realizability of our
deferred tax assets on a quarterly basis. Currently, there is no
provision for income taxes as the Company has incurred losses to
date.
Recent Accounting Pronouncements
On December 16, 2004, the FASB issued
FAS No. 123R (revised 2004), “Share-Based
Payment,” that requires all share-based payments to
employees, including grants of employee stock options, to be
recognized based on their fair values. Pro forma disclosure is
no longer an alternative. FAS No. 123R supersedes APB
No. 25, “Accounting for Stock Issued to
Employees,” and amends FAS No. 95,
“Statement of Cash Flows.” Under
FAS No. 123R, share-based payments result in a cost
that will be measured at fair value on the awards’ grant
date, based on the estimated number of awards that are expected
to vest. Compensation cost for awards that vest would not be
reversed if the awards expire without being exercised. When
measuring fair value, companies can choose an option-pricing
model (e.g., Black-Scholes or binomial models) that
appropriately reflects their specific circumstances and the
economics of their transactions. Public companies are allowed to
select from three alternative transition methods–each
having different reporting implications. FAS No. 123R
is effective for interim and annual periods beginning after
June 15, 2005, and applies to all outstanding and unvested
share-based payments as of the adoption date. Although we have
elected to follow the intrinsic value method prescribed by APB
No. 25 through the year ended December 31, 2004, we
will adopt FAS No. 123R in 2005. The adoption of
FAS No. 123R’s fair value method will have a
significant impact on our result of operations, although it will
have no impact on our overall financial position. The impact of
adoption of FAS No. 123R cannot be predicted at this
time because we are in the process of reevaluating our
methodology used to determine fair value, including
consideration of an option-pricing model and related
assumptions. In addition, the impact of adoption will depend on
levels of share-based payments granted in the future. However,
we believe that had we adopted FAS No. 123R in prior
periods using the Black-Scholes model, the impact of that
standard could have approximated the impact as described in the
disclosure of pro forma net loss and net loss per share in
Note 1 to the Consolidated Financial Statements.
57
The following is a summary of available-for-sale securities as
of December 31, 2004 and 2003 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortized | |
|
Unrealized | |
|
Unrealized | |
|
Estimated | |
| |
|
Cost | |
|
Gains | |
|
Losses | |
|
Fair Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes and other U.S. government agency
securities
|
|
$ |
3,489 |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
|
$ |
3,489 |
|
|
Certificates of deposit and money market funds
|
|
|
999 |
|
|
|
— |
|
|
|
— |
|
|
|
999 |
|
|
Corporate debt securities
|
|
|
44,868 |
|
|
|
2 |
|
|
|
(104 |
) |
|
|
44,766 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
49,356 |
|
|
$ |
3 |
|
|
$ |
(105 |
) |
|
$ |
49,254 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$ |
5,629 |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
|
$ |
5,629 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
5,629 |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
|
$ |
5,629 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
There were no realized gains from sales of marketable securities
for the years ended December 31, 2004 and 2003. As of
December 31, 2004 and 2003, all of our investments are
classified as short-term, as we have classified our investments
as available-for-sale and may not hold our investments until
maturity. As of December 31, 2004, our marketable
securities had the following maturities (in thousands):
| |
|
|
|
|
|
|
|
|
| Maturities in: |
|
Amortized Cost | |
|
Estimated Fair Value | |
| |
|
| |
|
| |
|
2005
|
|
$ |
45,015 |
|
|
$ |
44,931 |
|
|
2006
|
|
|
4,341 |
|
|
|
4,323 |
|
| |
|
|
|
|
|
|
|
Total
|
|
$ |
49,356 |
|
|
$ |
49,254 |
|
| |
|
|
|
|
|
|
|
|
| 4. |
Property and Equipment |
Property and equipment consist of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Laboratory equipment
|
|
$ |
2,327 |
|
|
$ |
1,937 |
|
|
Computer and equipment
|
|
|
661 |
|
|
|
582 |
|
|
Furniture and fixtures
|
|
|
737 |
|
|
|
370 |
|
|
Leasehold improvements
|
|
|
1,220 |
|
|
|
298 |
|
| |
|
|
|
|
|
|
| |
|
|
4,945 |
|
|
|
3,187 |
|
|
Less accumulated depreciation and amortization
|
|
|
(2,480 |
) |
|
|
(2,359 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
2,465 |
|
|
$ |
828 |
|
| |
|
|
|
|
|
|
Depreciation and amortization expense on property and equipment
was $0.5 million, $0.6 million and $0.7 million
for the years ended December 31, 2004, 2003, and 2002,
respectively.
58
|
|
| 5. |
Current Accrued Liabilities |
Current accrued liabilities consist of the following (in
thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Payroll and related expenses
|
|
$ |
1,093 |
|
|
$ |
761 |
|
|
Legal expenses
|
|
|
422 |
|
|
|
323 |
|
|
Third party scientific research expense
|
|
|
1,607 |
|
|
|
1,587 |
|
|
Other accrued liabilities
|
|
|
1,249 |
|
|
|
318 |
|
| |
|
|
|
|
|
|
| |
|
$ |
4,371 |
|
|
$ |
2,989 |
|
| |
|
|
|
|
|
|
|
|
| 6. |
Commitments and Contingencies |
The Company leases its facility under an operating lease that
expires in September 2014. The lease can be terminated at no
cost to the Company in September 2009 but otherwise extends
automatically until September 2014.
Our facility lease agreement provides for periods of escalating
rent. The total cash payments over the life of the lease were
divided by the total number of months in the lease period and
the average rent is charged to expense each month during the
lease period. In addition, our lease agreement provides a tenant
improvement allowance of $0.4 million, which is considered
a lease incentive and accordingly, has been included in accrued
liabilities and other long-term liabilities in the Consolidated
Balance Sheet as of December 31, 2004. The lease incentive
will be amortized as an offset to rent expense over the
estimated initial lease term, through September 2009. Total net
rent expense related to this operating lease for the years ended
December 31, 2004, 2003 and 2002, was $1.4 million,
$0.6 million and $0.6 million, respectively. Deferred
rent was $0.1 million as of December 31, 2004.
We have entered into a sublease agreement for a certain portion
of the leased space with scheduled payments to the Company of
$104,656 in 2004 and $339,990 annually thereafter through 2007.
This sublease agreement includes an option for early termination
in August 2006 but otherwise extends automatically until August
2007.
Future minimum payments under the non-cancelable portion of our
operating lease at December 31, 2004, excluding payments
from the sublease agreement, are as follows (in thousands):
| |
|
|
|
|
| Year ending December 31, |
|
|
|
2005
|
|
$ |
1,649 |
|
|
2006
|
|
|
1,698 |
|
|
2007
|
|
|
1,749 |
|
|
2008
|
|
|
1,802 |
|
|
2009
|
|
|
1,225 |
|
| |
|
|
|
| |
|
$ |
8,123 |
|
| |
|
|
|
During the fourth quarter of 2004, we established a letter of
credit with Silicon Valley Bank as security for our property
lease in the amount of $0.4 million. The letter of credit
remained outstanding as of December 31, 2004 and is
collateralized by a certificate of deposit which has been
included in restricted cash in the Consolidated Balance Sheets
as of December 31, 2004. Under the terms of the lease
agreement, if the total amount of our cash, cash equivalents and
marketable securities falls below $20.0 million for a
period of more than 30 consecutive days during the lease term,
the amount of the required security deposit will increase to
$1.1 million, until such time as our projected cash and
cash equivalents will exceed $20.0 million for the
remainder of the lease term, or until our actual cash and cash
equivalents remains above $20.0 million for a period of 12
consecutive months.
59
We rely on research institutions and contract research
organizations that conduct and manage clinical trials on our
behalf. As of December 31, 2004, under the terms of an
agreement with a contract research organization, we are
obligated to make future payments as services are provided up to
$3.0 million in 2005.
The Company, as permitted under Delaware law and in accordance
with its bylaws, indemnifies its officers and directors for
certain events or occurrences, subject to certain limits, while
the officers or directors are or were serving at the
Company’s request in such capacity. The term of the
indemnification period is for each officer or director’s
lifetime. The maximum amount of potential future indemnification
is unlimited; however, the Company has a director and officer
insurance policy that limits its exposure and may enable it to
recover a portion of any future amounts paid. The Company
believes the estimated fair value of these indemnification
agreements is minimal. Accordingly, the Company has no
liabilities recorded for these agreements as of
December 31, 2004.
The Company enters into indemnification provisions under its
agreements with other companies in its ordinary course of
business, typically with business partners, contractors,
clinical sites and customers. Under these provisions, the
Company generally indemnifies and holds harmless the indemnified
party for losses suffered or incurred by the indemnified party
as a result of the Company’s activities. These
indemnification provisions generally survive termination of the
underlying agreement. The maximum potential amount of future
payments the Company could be required to make under these
indemnification provisions is unlimited. The Company has not
incurred material costs to defend lawsuits or settle claims
related to these indemnification agreements. As a result, the
estimated fair value of these agreements is minimal.
Accordingly, the Company has no liabilities recorded for these
agreements as of December 31, 2004.
|
|
| 7. |
Collaborative Research, Development, and License
Agreements |
UCB Farchim, S.A.
In February 2004, the Company entered into an agreement with UCB
Farchim, S.A., a subsidiary of UCB, S.A., or UCB, a publicly
traded multi-national company based in Brussels, Belgium, in
which the Company licensed the technology, know-how and
preclinical and clinical data related to its AIC and grass
allergy programs to UCB on an exclusive, worldwide basis. UCB
was also granted an option to license the Company’s peanut
allergy program. According to terms of the agreement, the
Company received an $8.0 million upfront payment. In
addition, UCB agreed to fund continued research and development
of the licensed programs.
In March 2005, Dynavax and UCB agreed to end their development
and commercialization collaboration in seasonal allergy
products. Under the terms of the agreement, UCB will return all
rights to the allergy program to Dynavax and the current ongoing
Phase II/ III clinical trial of our AIC immunotherapy will
be completed as planned. Dynavax will assume financial
responsibility for all further clinical, regulatory,
manufacturing and commercial activities related to AIC and for
preclinical development programs in grass and in peanut allergy.
The Company expects to recognize all revenues and deferred
revenues associated with UCB through the term of the agreement.
University of California
The Company entered into a series of exclusive license
agreements with the Regents of the University of California in
March 1997 and October 1998. These agreements provide the
Company with certain technology and related patent rights and
materials. Under the terms of the agreements, the Company pays
annual license or maintenance fees and will be required to pay
milestones and royalties on net sales of products originating
from the licensed technologies. The agreements will expire on
either the expiration date of the last-to-expire patent licensed
under the agreements or the date upon which the last patent
application licensed under the agreements is abandoned. The
Company incurred license fees of $20,000 in each of the fiscal
years 2004, 2003 and 2002 and patent expenses of
$0.5 million, $0.2 million, and $0.4 million in
the years ended December 31, 2004, 2003, and 2002,
respectively, in connection with these license agreements, all
of which was recorded as research and development expense. The
Company also incurred a $0.4 million one-time charge to UC
due upon the closing of the Company’s initial public
offering as partial consideration for the
60
technology licenses. The Company recorded this charge as
research and development expense in the first quarter of 2004.
Also as partial consideration for the technology licenses, the
Company incurred a one-time charge of $0.2 million to UC
related to the $8.0 million upfront payment from UCB
Farchim, SA discussed above.
In December 1998, the Company entered into a research agreement
with UC to fund a research project on “Biological Effects
of ISS and IIS-ODN.” The principal investigator of the
research project is one of the Company’s founders and
stockholders. The project commenced in January 1999 and
continued through 2003. The Company agreed to fund and support
future project costs of approximately $1.0 million per
year, to a maximum aggregate amount of $4.9 million. In
connection with this agreement, the Company incurred research
and development expenses associated with the project of
$0.7 million and $1.0 million during the years ended
December 31, 2003 and 2002, respectively.
BioSeek, Inc.
In June 2003, the Company entered into a development
collaboration agreement with BioSeek, Inc. to analyze and
characterize the activity of certain compounds using
BioSeek’s technology with the objective of advancing the
development of such compounds. Under this agreement, the Company
will make various payments to BioSeek for the achievement of a
milestone and based on the success and timing of the
Company’s signing of a third party partnering agreement
where the Company grants to the third party, directly or
indirectly, any right or option to market, sell, distribute or
otherwise commercialize a thiazolopyrimidine (TZP) product
in any geographic territory. The agreement may be terminated by
either party. As of December 31, 2004, we recorded an
accrual of $0.3 million associated with the achievement of
the contractual milestone.
Berna Biotech
In October 2003, the Company entered into an agreement with
Berna Biotech, a publicly traded company based in Bern,
Switzerland, in which Berna agreed to supply the Company with
its proprietary hepatitis B surface antigen for use in the
Company’s Phase III clinical trials for its hepatitis
B vaccine and, if merited, its subsequent commercialization.
According to terms of the agreement, the Company will receive
adequate supplies of hepatitis B surface antigen for clinical
development, and then will pay fixed amounts for use of the
antigen in the potential commercial vaccine. Berna has agreed to
purchase ISS at fixed amounts from the Company for the
potential commercial vaccine, should Berna sell the vaccine
commercially. The Company also agreed to make certain
commercialization and sales milestone payments to Berna
regarding the Company’s hepatitis B vaccine. A
non-refundable, non-creditable license fee of $0.5 million
was made to Berna in November 2003. This amount was recorded as
research and development expense in the fourth quarter of 2003.
Under the terms of the agreement, Berna has an exclusive right
to commercialize the hepatitis B vaccine under terms to be
negotiated, but may choose to opt out of that right. Berna also
agreed to supply its hepatitis B surface antigen for the
Company’s use in further developing the product candidate
for hepatitis B therapy. Berna also received an option to
collaborate with the Company in the development and
commercialization of the Company’s hepatitis B therapy
product candidate. The agreement remains in effect for
15 years from the date of first commercial sale of the
Company’s hepatitis B vaccine, unless terminated sooner
according to its terms.
Other Agreements
In December 1999, the Company entered into a two-year
collaboration agreement with Aventis Pasteur S.A.
(“Aventis”) to develop new vaccines and therapeutic
drugs for a variety of infectious diseases. Under this
agreement, Aventis paid the Company for certain research to be
completed pursuant to the terms of the agreement at a rate of
cost plus 10%, with a maximum total cost of $1.5 million
for the first product and an additional $0.6 million for
the second product being developed. The Company received an
upfront payment of $1.1 million, which was earned and
recognized as revenue through December 31, 2001. During
2002, $1.0 million of revenue was recognized for completed
collaboration work. The agreement was mutually terminated in
September 2002.
61
In March 2000, the Company entered into an 18-month
collaboration and license agreement with Triangle
Pharmaceuticals Inc. (“Triangle Pharmaceuticals”) to
develop therapies for the treatment and prevention of hepatitis
and HIV. Under this agreement, the Company licensed certain
technology to Triangle Pharmaceuticals for its use in research
and development activities. Additionally, Triangle
Pharmaceuticals paid the Company to perform certain research and
development activities and for the achievement of certain
mutually agreed-upon milestones. During 2000, the Company
recognized revenue of $0.3 million based on achievement of
a milestone. During 2002, the Company recognized revenue of
$0.2 million in relation to the collaboration and license
agreement. The agreement was mutually terminated on
November 25, 2002.
In the third quarter of 2003, the Company was awarded government
grants totaling $8.4 million to be received over as long as
three and one-half years, assuming annual review criteria are
met, to fund research and development of certain biodefense
programs. Revenue associated with these grants is recognized as
the related expenses are incurred. For the years ended
December 31, 2004 and 2003, we recognized revenues of
$1.0 million and $0.8 million, respectively. In the
fourth quarter of 2004, the Company was awarded
$0.5 million from the Alliance for Lupus Research to be
received during 2005 and 2006 to fund research and development
of new treatment approaches for lupus.
Basic net loss per share attributable to common stockholders is
calculated by dividing the net loss by the weighted-average
number of common shares outstanding during the period, without
consideration for dilutive potential common shares. Diluted net
loss per share attributable to common stockholders is computed
by dividing the net loss by the weighted-average number of
common shares outstanding during the period and dilutive
potential common shares using the treasury-stock method. For
purposes of this calculation, common stock subject to repurchase
by the Company, preferred stock, options and warrants are
considered to be dilutive potential common shares and are only
included in the calculation of diluted net loss per share
attributable to common stockholders when their effect is
dilutive.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Historical (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss attributable to common stockholders
|
|
$ |
(15,971 |
) |
|
$ |
(17,985 |
) |
|
$ |
(18,038 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted-average common shares outstanding
|
|
|
21,200 |
|
|
|
1,849 |
|
|
|
1,886 |
|
| |
Less: Weighted-average unvested common shares subject to
repurchase
|
|
|
(13 |
) |
|
|
(58 |
) |
|
|
(192 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per share
attributable to common stockholders
|
|
|
21,187 |
|
|
|
1,791 |
|
|
|
1,694 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share attributable to common
stockholders
|
|
$ |
(0.75 |
) |
|
$ |
(10.04 |
) |
|
$ |
(10.65 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Historical outstanding dilutive securities not included in
diluted net loss per share attributable to common stockholders
calculation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
— |
|
|
|
15,823 |
|
|
|
13,612 |
|
|
Options to purchase common stock
|
|
|
1,828 |
|
|
|
1,334 |
|
|
|
691 |
|
|
Warrants
|
|
|
84 |
|
|
|
84 |
|
|
|
90 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
1,912 |
|
|
|
17,241 |
|
|
|
14,393 |
|
| |
|
|
|
|
|
|
|
|
|
62
In January 2004, the Board of Directors and Stockholders
approved the filing of an amended and restated certificate of
incorporation upon completion of the Company’s initial
public offering. The amendment increased the Company’s
authorized common stock to 100,000,000 shares, decreased
authorized preferred stock to 5,000,000 shares, provided
for a temporary waiver of the Company’s Series D
convertible preferred stock IPO anti-dilution provisions, and
required a vote of
662/3%
of the then outstanding shares to amend the annual meeting and
the special meeting provisions, to nominate directors, and to
stagger the board structure.
In February 2004, the Company sold a total of
6,900,000 shares of its common stock, after adjusting for a
one-for-three reverse stock split, in an underwritten initial
public offering, raising net proceeds of approximately
$46.5 million. As a result of the initial public offering,
all outstanding shares of convertible preferred stock converted
to 13,712,128 shares of common stock. Also in connection
with the initial public offering, the ordinary shares in Dynavax
Asia were converted to 2,111,111 shares of common stock and
Dynavax Asia became a wholly owned subsidiary.
Convertible Preferred Stock
As of December 31, 2003, the Company had authorized
61,767,098 shares of convertible preferred stock, designated in
various series. The convertible preferred stock defined as
Series A, Series B, Series C, Series D,
Series E-1, Series E-2, Series S-1,
Series R, and Series T are summarized as follows (in
thousands, except per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Minimum Liquidation | |
|
Shares Issued and Outstanding at | |
| |
|
Shares Designated | |
|
Preference Per Share | |
|
December 31, 2003 | |
| |
|
| |
|
| |
|
| |
|
Series A
|
|
|
6,700 |
|
|
$ |
1.00 |
|
|
|
6,700 |
|
|
Series B
|
|
|
9,033 |
|
|
$ |
1.83 |
|
|
|
9,033 |
|
|
Series C
|
|
|
5,669 |
|
|
$ |
4.00 |
|
|
|
5,669 |
|
|
Series D
|
|
|
17,135 |
|
|
$ |
2.06 |
|
|
|
16,882 |
|
|
Series E-1
|
|
|
22,000 |
|
|
$ |
2.40 |
|
|
|
— |
|
|
Series S-1
|
|
|
400 |
|
|
$ |
5.00 |
|
|
|
400 |
|
|
Series R
|
|
|
430 |
|
|
$ |
4.65 |
|
|
|
430 |
|
|
Series T
|
|
|
400 |
|
|
$ |
5.00 |
|
|
|
400 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
61,767 |
|
|
|
|
|
|
|
39,514 |
|
| |
|
|
|
|
|
|
|
|
|
Voting
The holders of convertible preferred stock have various rights
and preferences. Each share of Series A, Series B,
Series C, Series D, Series E-1, Series S-1,
Series R, and Series T convertible preferred stock has
voting rights equal to the number of shares of common stock into
which it is convertible and votes together as one class with the
common stock.
The vote of a majority of the holders of the Series A,
Series B, Series C, Series D, Series E-1,
Series S-1, Series R, and Series T convertible
preferred stock is required for certain issuances of common
stock, any redemption, repurchase, dividend, or other
distribution with respect to the common stock, any agreement by
the Company or its stockholders regarding certain mergers or
consolidations of the Company and a sale of all or substantially
all the assets of the Company, and any redemption, repurchase,
dividend, or other distribution with respect to any shares of
convertible preferred stock.
Liquidation
In the event of any liquidation, dissolution, or winding up of
the Company, including a merger, acquisition, or sale of assets
where the holders of the Company’s common stock and
convertible preferred stock own less than 51% of the resulting
voting power of the surviving entity, the holders of the
Series E-1
63
convertible preferred stock will receive, in preference to all
other holders of equity securities, an amount per share equal to
the original purchase price for the Series E-1, plus any
accrued but unpaid dividends if such event occurs thereafter.
After payment of the liquidation preference to the holders of
Series E-1 convertible preferred stock, the holders of the
Series D convertible preferred stock will receive, in
preference to all other holders of equity securities, an amount
per share equal to 2.0 times the original purchase price of
$2.06 per share plus any accrued but unpaid dividends if such
event occurs thereafter. After payment of the liquidation
preference to the holders of Series D convertible preferred
stock, the holders of all other convertible preferred stock are
entitled to receive, prior and in preference to the holders of
common stock, an amount equal to the original issue price
($1.00, $1.83, $4.00, $5.00, $4.65, and $5.00 for Series A,
Series B, Series C, Series S-1, Series R,
and Series T convertible preferred stock, respectively)
plus any accrued but unpaid dividends. After payment of the
liquidation preference to holders of all series of convertible
preferred stock, the remaining assets of the Company are
available for distribution on a pro rata (as-converted into
common stock) basis to the holders of common stock and holders
of Series A, Series B, Series D Preferred and
Series E-1 convertible preferred stock. To the extent that
holders of Series A, Series B, Series D, and
Series E-1 have received an aggregate of $3.00, $5.49,
$6.18 and three times the original purchase price for the
Series E-1 convertible preferred stock, per share,
respectively, any remaining assets will be additionally
available for distribution solely to the holders of common stock.
Conversion
Each share of Series A, Series B, Series C,
Series D, Series E-1, Series S-1, Series R,
and Series T convertible preferred stock automatically
converts at an initial rate of one share of common stock for one
share of convertible preferred stock, adjusted for stock splits
and certain other transactions, either i) at the affirmative
election of the holders of at least
662/3%
of the outstanding shares of convertible preferred stock voting
as a single class (except for Series C, Series D, and
Series E-1 which each shall convert on a vote of holders of
at least
662/3%,
662/3%,
and 51% of the outstanding shares of the respective series), or
ii) at the closing of a public offering of common stock in which
the price per share is equal to or greater than $4.12 per share
and gross proceeds to the Company are at least $30 million.
All of the shares of convertible preferred stock were converted
into common shares upon the closing of the Company’s
initial public offering.
Redemption Rights
Neither the Company nor the holders of the convertible preferred
stock have the right to call or redeem or cause to have called
or redeemed any shares of convertible preferred stock, except
that the Series E-2 convertible preferred stock is
automatically redeemed and canceled by the Company upon the
occurrence of certain events.
Warrants
In August 2002, in connection with the closing of the
Series D Preferred Stock financing, the Company issued a
warrant to its placement agent valued at approximately
$0.3 million using the Black-Scholes option-pricing model.
This amount was initially recorded in convertible preferred
stock as an issuance cost and subsequently converted to
84,411 shares of common stock upon the closing of our
initial public offering. The warrant is exercisable from the
date of the grant for five years and remained outstanding at
December 31, 2004.
Stock Option Plans
In January 1997, the Company adopted the 1997 Equity Incentive
Plan (the “1997 Plan”). The 1997 Plan provides for the
granting of stock options to employees and non-employees of the
Company. Options granted under the 1997 Plan may be either
incentive stock options (“ISOs”) or nonqualified stock
options (“NSOs”). ISOs may be granted to Company
employees, including directors who are also considered
employees. NSOs may be granted to employees and non-employees.
64
Options under the 1997 Plan may be granted for periods of up to
ten years and at prices no less than 85% of the estimated fair
value of the shares on the date of grant as determined by the
Board of Directors, provided, however, that (i) the
exercise price of an ISO shall not be less than 100% of the
estimated fair value of the shares on the date of grant, and
(ii) the exercise price of an ISO granted to a 10%
stockholder shall not be less than 110% of the estimated fair
value of the shares on the date of grant. The options are
exercisable immediately and generally vest over a four-year
period (generally 25% after one year and in monthly ratable
increments thereafter) for stock options issued to employees,
directors and scientific advisors, and quarterly vesting over a
four-year period or immediate vesting for stock options issued
to all other non-employees. All unvested shares issued under the
1997 Plan are subject to repurchase rights held by the Company
under such conditions as agreed to by the Company and the
optionee.
In January 2004, the Board of Directors and Stockholders adopted
the 2004 Stock Incentive Plan (the “2004 Plan”) under
which 3,500,000 shares have been reserved and approved for
issuance, subject to adjustment for a stock split, or any future
stock dividend or other similar change in the Company’s
common stock or capital structure. In addition, as part of the
2004 Plan, the Board of Directors and Stockholders adopted the
2004 Non-employee Director Option Program. The 2004 Plan became
effective on February 11, 2004.
The exercise price of all incentive stock options granted under
the 2004 Plan must be at least equal to 100% of the fair market
value of the common stock on the date of grant. If, however,
incentive stock options are granted to an employee who owns
stock possessing more than 10% of the voting power of all
classes of the Company’s stock or the stock of any parent
or subsidiary of the Company, the exercise price of any
incentive stock option granted must equal at least 110% of the
fair market value on the grant date and the maximum term of
these incentive stock options must not exceed five years. The
maximum term of an incentive stock option granted to any other
participant must not exceed ten years.
Activity under our stock option plans is set forth below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options | |
|
|
|
|
| |
|
Available | |
|
Number of Options | |
|
Weighted-Average | |
| |
|
for Grant | |
|
Outstanding | |
|
Price Per Share | |
| |
|
| |
|
| |
|
| |
|
Balance at December 31, 2001
|
|
|
381,388 |
|
|
|
278,944 |
|
|
$ |
3.06 |
|
| |
Options granted
|
|
|
(458,933 |
) |
|
|
458,933 |
|
|
$ |
2.16 |
|
| |
Options exercised
|
|
|
— |
|
|
|
(3,820 |
) |
|
$ |
0.84 |
|
| |
Options canceled
|
|
|
42,850 |
|
|
|
(42,850 |
) |
|
$ |
3.00 |
|
| |
Shares repurchased
|
|
|
57,476 |
|
|
|
— |
|
|
$ |
1.14 |
|
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
22,781 |
|
|
|
691,207 |
|
|
$ |
2.48 |
|
| |
Options authorized
|
|
|
1,000,000 |
|
|
|
— |
|
|
|
— |
|
| |
Options granted
|
|
|
(828,500 |
) |
|
|
828,500 |
|
|
$ |
2.34 |
|
| |
Options exercised
|
|
|
— |
|
|
|
(54,708 |
) |
|
$ |
1.34 |
|
| |
Options canceled
|
|
|
131,000 |
|
|
|
(131,000 |
) |
|
$ |
2.38 |
|
| |
Shares repurchased
|
|
|
19,715 |
|
|
|
— |
|
|
$ |
2.21 |
|
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
344,996 |
|
|
|
1,333,999 |
|
|
$ |
2.45 |
|
| |
Options authorized
|
|
|
3,500,064 |
|
|
|
— |
|
|
|
— |
|
| |
Options granted
|
|
|
(513,847 |
) |
|
|
513,847 |
|
|
$ |
5.06 |
|
| |
Options exercised
|
|
|
— |
|
|
|
(7,769 |
) |
|
$ |
2.34 |
|
| |
Options canceled
|
|
|
12,081 |
|
|
|
(12,081 |
) |
|
$ |
3.81 |
|
| |
Shares repurchased
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
3,343,294 |
|
|
|
1,827,996 |
|
|
$ |
3.17 |
|
| |
|
|
|
|
|
|
|
|
|
65
The following summarizes options outstanding and exercisable
under our stock option plans as of December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options Outstanding | |
|
Options Exercisable | |
| | |
|
| |
| |
|
Weighted-Average | |
|
|
| |
|
Remaining | |
|
|
| |
|
Range of | |
|
Number | |
|
Contractual Life | |
|
Weighted-Average | |
|
Number | |
|
Weighted-Average | |
| |
|
Exercise Prices | |
|
Outstanding | |
|
(years) | |
|
Exercise Price | |
|
Exercisable | |
|
Exercise Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
$0.60-1.20 |
|
|
|
29,586 |
|
|
|
4.8 |
|
|
$ |
1.02 |
|
|
|
29,586 |
|
|
$ |
1.02 |
|
| |
|
|
$1.50 |
|
|
|
511,547 |
|
|
|
8.1 |
|
|
$ |
1.50 |
|
|
|
511,547 |
|
|
$ |
1.50 |
|
| |
|
|
$3.00 |
|
|
|
965,699 |
|
|
|
8.3 |
|
|
$ |
3.00 |
|
|
|
965,699 |
|
|
$ |
3.00 |
|
| |
|
|
$4.58-5.65 |
|
|
|
98,982 |
|
|
|
9.7 |
|
|
$ |
4.69 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
$5.90 |
|
|
|
10,000 |
|
|
|
9.8 |
|
|
$ |
5.90 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
$6.45 |
|
|
|
112,950 |
|
|
|
9.7 |
|
|
$ |
6.45 |
|
|
|
5,290 |
|
|
$ |
6.45 |
|
| |
|
|
$6.65 |
|
|
|
15,000 |
|
|
|
9.9 |
|
|
$ |
6.65 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
$7.99 |
|
|
|
37,550 |
|
|
|
9.2 |
|
|
$ |
7.99 |
|
|
|
4,535 |
|
|
$ |
7.99 |
|
| |
|
|
$9.05 |
|
|
|
35,350 |
|
|
|
9.4 |
|
|
$ |
9.05 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
$12.00 |
|
|
|
11,332 |
|
|
|
6.3 |
|
|
$ |
12.00 |
|
|
|
11,332 |
|
|
$ |
12.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
$0.60-12.00 |
|
|
|
1,827,996 |
|
|
|
8.4 |
|
|
$ |
3.17 |
|
|
|
1,527,989 |
|
|
$ |
2.55 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes options outstanding and exercisable
under our stock option plans as of December 31, 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options Outstanding | |
|
Options Exercisable | |
| | |
|
| |
| |
|
Weighted-Average | |
|
|
| |
|
Remaining | |
|
|
| |
|
Range of | |
|
Number | |
|
Contractual Life | |
|
Weighted-Average | |
|
Number | |
|
Weighted-Average | |
| |
|
Exercise Prices | |
|
Outstanding | |
|
(years) | |
|
Exercise Price | |
|
Exercisable | |
|
Exercise Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
$0.60 |
|
|
|
10,020 |
|
|
|
5.0 |
|
|
$ |
0.60 |
|
|
|
10,020 |
|
|
$ |
0.60 |
|
| |
|
|
$1.20 |
|
|
|
20,972 |
|
|
|
6.2 |
|
|
$ |
1.20 |
|
|
|
20,972 |
|
|
$ |
1.20 |
|
| |
|
|
$1.50 |
|
|
|
516,872 |
|
|
|
9.1 |
|
|
$ |
1.50 |
|
|
|
516,872 |
|
|
$ |
1.50 |
|
| |
|
|
$3.00 |
|
|
|
774,802 |
|
|
|
9.1 |
|
|
$ |
3.00 |
|
|
|
774,802 |
|
|
$ |
3.00 |
|
| |
|
|
$12.00 |
|
|
|
11,333 |
|
|
|
7.3 |
|
|
$ |
12.00 |
|
|
|
11,333 |
|
|
$ |
12.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
$0.60-12.00 |
|
|
|
1,333,999 |
|
|
|
9.0 |
|
|
$ |
2.45 |
|
|
|
1,333,999 |
|
|
$ |
2.45 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Stock Compensation
As of December 31, 2004, there was $3.4 million of
deferred stock-based compensation remaining to be amortized in
future periods in connection with the grant of stock options to
employees and non-employees. Deferred stock compensation is
amortized as a charge to operations using the straight-line
method over the option vesting period, ranging up to
4 years. Employee and director stock-based compensation
expense and non-employee stock-based compensation expense were
as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Employees and directors stock-based compensation expense
|
|
$ |
2,170 |
|
|
$ |
1,752 |
|
|
$ |
1,821 |
|
|
Non-employees stock-based compensation expense
|
|
|
567 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,737 |
|
|
$ |
1,752 |
|
|
$ |
1,821 |
|
| |
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
In January 2004, the Board of Directors and Stockholders adopted
the 2004 Employee Stock Purchase Plan (the “Purchase
Plan”) under which 250,000 shares were reserved and
approved for issuance, subject to
66
adjustment for a stock split, or any future stock dividend or
other similar change in the Company’s common stock or
capital structure. The Purchase Plan provides for the purchase
of common stock by eligible employees and became effective on
February 11, 2004. The purchase price per share is the
lesser of (i) 85% of the fair market value of the common
stock on the commencement of the offer period (generally, the
fifteenth day in February or August) or (ii) 85% of the
fair market value of the common stock on the exercise date,
which is the last day of a purchase period (generally, the
fourteenth day in February or August). In 2004, employees
acquired 12,697 shares of our common stock under the
Purchase Plan. At December 31, 2004, 237,303 shares of
our common stock remained available for future purchases under
the Purchase Plan.
|
|
| 10. |
Employee Benefit Plan |
Effective September 1997, the Company adopted the Dynavax
Technologies Corporation 401(k) Plan (the “401(k)
Plan”), which qualifies as a deferred salary arrangement
under Section 401(k) of the Internal Revenue Code. Under
the 401(k) Plan, participating employees may defer a portion of
their pretax earnings. The Company may, at its discretion,
contribute for the benefit of eligible employees. To date, the
Company has not contributed to the 401(k) Plan.
|
|
| 11. |
Related Party Transactions |
From September 2000 through June 2001, the Company loaned
$0.8 million to certain key employees and officers for the
exercise of incentive stock options. These are full recourse
notes, which accrue interest at rates ranging from 5.02% to
6.22% and are due from September 2000 through June 2006. The
shares of common stock held by the employees collateralize these
notes. At December 31, 2004 and 2003, $0.4 million and
$0.7 million, respectively, remained outstanding.
In December 1998, the Company entered into a research agreement
with the Regents of the University of California, or UC, on
behalf of the University of California, San Diego, under
which the Company agreed to fund a research project aimed at
uncovering novel applications for ISS. The university-nominated
representative on the evaluation committee created to oversee
aspects of this agreement is Dr. Dennis Carson, a member of
the Company’s Board of Directors and a holder of
460,119 shares of the Company’s common stock as of
December 31, 2004. Dr. Carson also received payments
of $35,000 in 2004 and 2003 for consulting services provided to
the Company .
Deferred tax assets and liabilities consist of the following (in
thousands):
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Net operating loss carry forwards
|
|
$ |
17,339 |
|
|
$ |
14,385 |
|
| |
Research tax credit carry forwards
|
|
|
1,587 |
|
|
|
1,436 |
|
| |
Accruals and reserves
|
|
|
4,695 |
|
|
|
1,315 |
|
| |
Capitalized research costs
|
|
|
11,020 |
|
|
|
12,365 |
|
| |
Other
|
|
|
232 |
|
|
|
187 |
|
| |
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
34,873 |
|
|
|
29,688 |
|
|
Less valuation allowance
|
|
|
(34,873 |
) |
|
|
(29,688 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
Management believes that, based on a number of factors, it is
more likely than not that the deferred tax assets will not be
realized. Accordingly, a full valuation allowance has been
recorded for all deferred tax assets at December 31, 2004
and 2003. The valuation allowance increased $5.2 million
and $6.5 million during the years ended December 31,
2004 and 2003, respectively.
67
As of December 31, 2004, the Company had federal net
operating loss carryforwards of approximately
$45.0 million, which expire at various dates from 2011
through 2024, and federal research and development tax credits
of approximately $1.0 million, which expire at various
dates from 2018 through 2024 if not utilized.
As of December 31, 2004, the Company had California state
net operating loss carryforwards of approximately
$32.0 million, which expire at various dates from 2006
through 2014, and California state research and development tax
credits of approximately $1.0 million, which do not expire.
The Tax Reform Act of 1986 limits the annual use of net
operating loss and tax credit carryforwards in certain
situations where changes occur in stock ownership of a company.
In the event the Company has a change in ownership, as defined,
the annual utilization of such carryforwards could be limited.
|
|
| 13. |
Selected Quarterly Financial Data (Unaudited, in thousands,
except per share amounts) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2004 | |
|
Year Ended December 31, 2003 | |
| |
|
| |
|
| |
| |
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
Q4 | |
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
Q4 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Revenues
|
|
$ |
3,205 |
|
|
$ |
5,492 |
|
|
$ |
3,660 |
|
|
$ |
2,455 |
|
|
$ |
— |
|
|
$ |
96 |
|
|
$ |
23 |
|
|
$ |
707 |
|
|
Net loss attributable to common stockholders
|
|
$ |
(3,866 |
) |
|
$ |
(2,909 |
) |
|
$ |
(4,033 |
) |
|
$ |
(5,163 |
) |
|
$ |
(4,718 |
) |
|
$ |
(3,955 |
) |
|
$ |
(4,139 |
) |
|
$ |
(5,173 |
) |
|
Basic and diluted net loss per share attributable to common
stockholders
|
|
$ |
(0.36 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.21 |
) |
|
$ |
(2.68 |
) |
|
$ |
(2.23 |
) |
|
$ |
(2.30 |
) |
|
$ |
(2.83 |
) |
|
Weighted-average shares used in computing basic and diluted net
loss per share attributable to common stockholders(1)
|
|
|
10,847 |
|
|
|
24,594 |
|
|
|
24,609 |
|
|
|
24,622 |
|
|
|
1,759 |
|
|
|
1,776 |
|
|
|
1,803 |
|
|
|
1,827 |
|
|
|
| (1) |
The weighted-average shares increased from the fourth quarter
2003 to the first quarter 2004 due to the issuance of common
stock, conversion of preferred stock, and conversion of ordinary
shares in Dynavax Asia resulting from our initial public
offering in February 2004. The weighted-average shares increased
from the first to the second quarter of 2004 due to the increase
in the number of days that the common stock was outstanding. |
68
|
|
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES |
Not applicable.
|
|
| ITEM 9A. |
CONTROLS AND PROCEDURES |
|
|
| (a) |
Evaluation of disclosure controls and procedures |
The Company’s management, under the supervision and with
the participation of the Company’s Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), performed an
evaluation of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures as of the
end of the period covered by this report. Based on that
evaluation, the CEO and CFO concluded that the Company’s
disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (the “Exchange Act”)) as of the end of
period covered by this report have been designed and are
functioning effectively to provide reasonable assurance that the
information required to be disclosed by us in reports filed
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and
Exchange Commission rules and forms. We believe that a control
system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are
met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if
any, within a company have been detected.
|
|
| (b) |
Changes in internal controls |
William J. Dawson, the former Vice President, Finance &
Operations and Chief Financial Officer, resigned in June 2004
and remained a consultant to the Company through the date of his
replacement. Timothy G. Henn was appointed Vice President,
Finance and Administration in August 2004 and Chief Accounting
Officer in January 2005. Also during the third quarter 2004,
Dino Dina, President and Chief Executive Officer, assumed the
role of Acting Chief Financial Officer. Deborah A. Smeltzer was
appointed Vice President, Operations and Chief Financial Officer
in January 2005. No other changes in the Company’s internal
control over financial reporting occurred during the
Company’s last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
|
|
| ITEM 9B. |
OTHER INFORMATION |
On January 20, 2005 the Compensation Committee of the Board
of Directors of the Company took action with respect to the
compensation of the Company’s named executive officers
(determined by reference to the Company’s proxy statement
dated May 14, 2004), including the establishment of base
salaries for 2005, approval for payment of bonus amounts in 2005
based primarily on the achievement of specified 2004 corporate
and individual goals, and approval of annual stock option
awards. The base salaries, bonus amounts and stock option
awards, including a summary of the terms of the compensation
arrangements under which they are or were to be paid, are set
forth in Exhibit 10.18 to this Form 10-K.
69
PART III
|
|
| ITEM 10. |
DIRECTORS AND OFFICERS OF THE REGISTRANT |
Information required by this Item is incorporated by reference
to the sections entitled “Proposal One —
Elections of Directors,” “Executive
Compensation,” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Company’s
Definitive Proxy Statement in connection with the 2005 Annual
Meeting of Stockholders (the “Proxy Statement”), which
will be filed with the Securities and Exchange Commission within
120 days after the fiscal year ended December 31, 2004.
We have adopted the Dynavax Code of Business Conduct and Ethics,
a code of ethics that applies to our employees, including our
Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer, and to our non-employee directors. We will
provide a written copy of the Dynavax Code of Business Conduct
and Ethics to anyone without charge, upon request written to
Dynavax, Attention: Jane M. Green, Ph.D., Vice President,
Corporate Communications, 2929 Seventh Street, Suite 100,
Berkeley, CA 94710-2753, (510) 848-5100.
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION |
Information required by this Item is incorporated by reference
to the section entitled “Executive Compensation” in
the Proxy Statement.
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT |
Information regarding security ownership of certain beneficial
owners and management is incorporated by reference to the
section entitled “Security Ownership of Certain Beneficial
Owners and Management” in the Proxy Statement. Information
regarding the Company’s stockholder approved and
non-approved equity compensation plans is incorporated by
reference to the section entitled “Equity Compensation
Plans” in the Proxy Statement.
|
|
| ITEM 13. |
CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS |
Information required by this Item is incorporated by reference
to the sections entitled “Certain Relationships and Related
Transactions” and “Compensation Committee Interlocks
and Insider Participation” in the Proxy Statement.
|
|
| ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
Information required by this Item is incorporated by reference
to the section entitled “Audit Fees” in the Proxy
Statement.
|
|
| ITEM 15. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K |
(a) Documents filed as part of this report:
1. Financial Statements
|
|
| |
Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm |
| |
| |
Consolidated Balance Sheets |
| |
| |
Consolidated Statements of Operations |
| |
| |
Consolidated Statement of Convertible Preferred Stock and
Stockholders’ |
| |
| |
Equity (Net Capital Deficiency) |
| |
| |
Consolidated Statements of Cash Flows |
| |
| |
Notes to Consolidated Financial Statements |
70
2. Financial Statement Schedule
|
|
| |
None, as all required disclosures have been made in the
Consolidated Financial Statements and notes thereto. |
(b) Reports on Form 8-K
| |
|
|
| Date |
|
Item Reported |
| |
|
|
|
November 8, 2004
|
|
We filed a Current Report on Form 8-K on November 8, 2004,
furnishing under Item 12, our press release announcing our
financial results for the third quarter ended September 30,
2004. |
(c) Exhibits
| |
|
|
| Exhibit |
|
|
| Number |
|
Document |
| |
|
|
|
3.1*
|
|
Restated Certificate of Incorporation |
|
3.2*
|
|
Amended and Restated Bylaws |
| |
|
4.1*
|
|
Specimen Stock Certificate |
| |
|
10.1*
|
|
Form of Indemnification Agreement between Dynavax Technologies
Corporation and each of its executive officers and directors |
| |
|
10.2*
|
|
1997 Equity Incentive Plan, as amended |
| |
|
10.3*
|
|
2004 Stock Incentive Plan |
| |
|
10.4*
|
|
2004 Employee Stock Purchase Plan |
| |
|
10.5*†
|
|
Development Collaboration Agreement, dated June 10, 2003,
between Dynavax Technologies Corporation and BioSeek, Inc. |
| |
|
10.6*†
|
|
License and Supply Agreement, dated October 28, 2003,
between Dynavax Technologies Corporation and Berna Biotech AG |
| |
|
10.7*†
|
|
Exclusive License Agreement, dated March 26, 1997, between
Dynavax Technologies Corporation and the Regents of the
University of California, for Method, Composition and Devices
for Administration of Naked Nucleotides which Express
Biologically Active Peptides and Immunostimulatory
Oligonucleotide Conjugates, including three amendments thereof. |
| |
|
10.8*†
|
|
Exclusive License Agreement, dated October 2, 1998, between
Dynavax Technologies Corporation and the Regents of the
University of California, for Compounds for Inhibition of
Ceramide-Mediated Signal Transduction and New Anti-Inflammatory
Inhibitors: Inhibitors of Stress Activated Protein Kinase
Pathways, including one amendment thereof. |
| |
|
10.9*
|
|
Management Continuity Agreement, dated as of October 15,
2003, between Dynavax Technologies Corporation and Dino Dina |
| |
|
10.10*
|
|
Management Continuity Agreement, dated as of September 2,
2003, between Dynavax Technologies Corporation and Daniel Levitt |
| |
|
10.11*
|
|
Management Continuity and Severance Agreement, dated as of
August 1, 2003, between Dynavax Technologies Corporation
and William J. Dawson |
| |
|
10.12*
|
|
Management Continuity and Severance Agreement, dated as of
August 1, 2003, between Dynavax Technologies Corporation
and Stephen Tuck |
| |
|
10.13*
|
|
Management Continuity and Severance Agreement, dated as of
August 1, 2003, between Dynavax Technologies Corporation
and Robert Lee Coffman |
| |
|
10.14*
|
|
Management Continuity and Severance Agreement, dated as of
August 1, 2003, between Dynavax Technologies Corporation
and Gary Van Nest |
| |
|
10.15*
|
|
Lease, dated as of January 7, 2004, between Dynavax
Technologies Corporation and 2929 Seventh Street, L.L.C. |
| |
|
10.16*
|
|
License and Development Agreement, dated February 5, 2004,
between Dynavax Technologies Corporation and UCB Farchim, SA |
71
| |
|
|
| Exhibit |
|
|
| Number |
|
Document |
| |
|
|
| |
|
10.17**
|
|
Management Continuity and Severance Agreement, dated as of
August 27, 2004, between Dynavax Technologies Corporation
and Timothy Henn |
|
10.18***
|
|
Compensation Arrangements with Named Executive Officers |
| |
|
21.1***
|
|
Subsidiaries of Dynavax Technologies Corporation |
| |
|
23.1***
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm |
| |
|
31.1***
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
31.2***
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
32.1***
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
| |
|
32.2***
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
* Incorporated by reference to our Registration
Statement on Form S-1 (File No. 333-109965) and
amendments thereto
** Incorporated by reference to our Report of
Form 8-K, dated August 23, 2004
*** Filed herewith
† We have been granted confidential
treatment with respect to certain portions of this agreement.
Omitted portions have been filed separately with the Securities
and Exchange Commission
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this
report to be signed on its behalf by the undersigned, thereunto
due authorized, in the City of Berkeley, State of California.
|
|
| |
DYNAVAX TECHNOLOGIES
CORPORATION
|
|
|
| |
|
| |
Dino Dina, M.D. |
| |
President, Chief Executive Officer and Director |
| |
(Principal Executive Officer) |
Date: March 18, 2005
|
|
|
| |
By: |
/s/ Deborah A. Smeltzer
|
|
|
| |
|
| |
Deborah A. Smeltzer |
| |
Vice President, Operations and |
| |
Chief Financial Officer |
| |
(Principal Financial Officer) |
Date: March 18, 2005
|
|
| |
|
| |
Timothy G. Henn |
| |
Vice President, Finance and Administration and |
| |
Chief Accounting Officer |
| |
(Principal Accounting Officer) |
Date: March 18, 2005
POWER OF ATTORNEY
Each person whose signature appears below constitutes Dino
Dina, M.D. and Deborah A. Smeltzer his or her true and
lawful attorney-in-fact and agent, each acting alone, with full
power of substitution and re-substitution, for him or her and in
his or her name, place and stead, in any and all capacities, to
sign any or all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, each acting alone, or his
or her substitutes, may lawfully do or cause to be done by
virtue hereof.
73
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates
indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Dino
Dina, M.D.
Dino
Dina, M.D. |
|
President, Chief Executive Officer and Director
(Principal Executive Officer) |
|
March 18, 2005 |
| |
/s/ Deborah A. Smeltzer
Deborah
A. Smeltzer |
|
Vice President, Operations and Chief Financial Officer
(Principal Financial Officer) |
|
March 18, 2005 |
| |
/s/ Timothy G. Henn
Timothy
G. Henn |
|
Vice President, Finance & Administration and Chief
Accounting Officer
(Principal Accounting Officer) |
|
March 18, 2005 |
| |
/s/ Daniel S. Janney
Daniel
S. Janney |
|
Chairman of the Board |
|
March 18, 2005 |
| |
/s/ Louis C. Bock
Louis
C. Bock |
|
Director |
|
March 18, 2005 |
| |
/s/ Dennis
Carson, M.D.
Dennis
Carson, M.D. |
|
Director |
|
March 18, 2005 |
| |
/s/ Jan Leschly
Jan
Leschly |
|
Director |
|
March 18, 2005 |
| |
/s/ Arnold
Oronsky, Ph.D.
Arnold
Oronsky, Ph.D. |
|
Director |
|
March 18, 2005 |
| |
/s/ Denise M.
Gilbert, Ph.D.
Denise
M. Gilbert, Ph.D. |
|
Director |
|
March 18, 2005 |
74
