Attached hereto and incorporated by reference
herein is the press release issued by Vascular Biogenics Ltd (the “Company”) on August 13, 2020, announcing financial
results for the second quarter ended June 30, 2020, unaudited condensed interim financial statements as of June 30, 2020 and for
the six months ended June 30, 2020 and 2019 and operating and financial review for the second quarter ended June 30, 2020. This
Report of Foreign Private Issuer on Form 6-K shall be incorporated by reference into the Company’s registration statement
on Form F-3 (File No. 333-207250 and 333-222138), filed with the Securities and Exchange Commission (the “SEC”) on
October 2, 2015 and December 18, 2017, to the extent not superseded by information subsequently filed or furnished (to the extent
the Company expressly states that it incorporates such furnished information by reference) by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
NOTES TO CONDENSED
INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL
Vascular Biogenics Ltd. (the “Company”
or VBL) was incorporated on January 27, 2000. The Company is a late-stage clinical biopharmaceutical company focused on the discovery,
development and commercialization of first-in-class treatments for cancer and immune/inflammatory indications. VB-111 (ofranergene
obadenovec), a Phase 3 drug candidate, is the lead product candidate in the Company’s cancer program.
VB-600 series are
preclinical stage antibodies targeting MOSPD2 for inflammatory and oncology indications, which are being advanced towards
IND. VB-601 is the lead mAb candidate for various inflammatory indications and VB-611 is the lead bi-specific mAb for various
solid tumors.
VB-201, a Phase 2-ready drug candidate, is the Company’s lead
Lecinoxoid-based product candidate for chronic immune-related indications.
The Company is engaged in an exclusive license
agreement with NanoCarrier Co., Ltd. for the development, commercialization, and supply of ofranergene obadenovec (“VB-111”)
in Japan for all indications.
In March 2019, the Company entered into an
exclusive option license agreement with an animal health company for the development of VB-201 for veterinary use, see note 7.
On March 26, 2020, the Company announced positive outcome of the
first interim analysis in the OVAL Phase 3 Ovarian Cancer Pivotal Study.
Since its inception, the Company has incurred
significant losses, and it expects to continue to incur significant expenses and losses for at least the next several years. As
of June 30, 2020, the Company had an accumulated deficit of $219.3 million. The Company’s losses may fluctuate significantly
from quarter to quarter and year to year, depending on the timing of its clinical trials, the receipt of payments under any future
collaboration agreements it may enter into, and its expenditures on other research and development activities.
As of June 30, 2020, the Company had cash,
cash equivalents, short-term bank deposits and restricted bank deposits of $41.3 million. The Company may seek to raise more capital
to pursue additional activities. The Company may seek these funds through a combination of private and public equity offerings,
government grants, strategic collaborations and licensing arrangements. Additional financing may not be available when the Company
needs it or may not be available on terms that are favorable to the Company.
NOTE 2 - BASIS OF PREPARATION
The
Company’s condensed interim financial statements as of June 30, 2020 and for the six and three months period
then ended (the “condensed interim financial statements”) have been prepared in accordance with International Accounting
Standard No. 34, “Interim Financial Reporting” (“IAS 34”). These condensed interim financial statements,
which are unaudited, do not include all disclosures necessary for a complete presentation of the Company’s financial position,
results of operations, and cash flows, in conformity with generally accepted accounting principles. In the opinion of management,
all adjustments (of a normal recurring nature) considered necessary for a fair statement of the results for the interim periods
presented have been included. The results of operations for the six months ended June 30, 2020 are not necessarily indicative
of the results that may be expected for the entire fiscal year or for any other interim period.
The
condensed interim financial statements should be read in conjunction with the Company’s annual financial statements as of
December 31, 2019 and for the year then ended, along with the accompanying notes, which have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB)”.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies and calculation
methods applied in the preparation of the interim financial statements are consistent with those applied in the preparation of
the annual financial statements as of December 31, 2019 and for the year then ended.
NOTE
4 - FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
The
Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest
rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The interim financial statements do not
include all financial risk management information and disclosures required in the annual financial statements; therefore, they
should be read in conjunction with the Company’s annual financial statements as of December 31, 2019. There have been no
significant changes in the risk management policies since the year end.
NOTE
5 - CASH AND CASH EQUIVALENTS, SHORT-TERM BANK DEPOSITS AND RESTRICTED BANK DEPOSITS
Cash
and cash equivalents, short-term bank deposits and restricted bank deposits as of June 30, 2020 were $16.7 million, $24.0 million
and $0.5 million.
The
short-term bank deposits as of June 30, 2020 were for terms of three to six months and carried interest at annual rates of 0.95%-1.49%.
NOTE
6 - SHAREHOLDERS’ EQUITY
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a.
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On
May 7, 2020 and May 11, 2020, the Company entered into securities purchase agreements
with several institutional investors and existing shareholders to purchase 11,492,065
of the Company's ordinary shares at a purchase price of $1.575 per share in a registered
direct offering. In a concurrent private placement, the Company issued to investors and
existing shareholders in the offering unregistered warrants to purchase up to 11,492,065
ordinary shares. Each warrant is exercisable immediately upon issuance at an exercise
price of $1.45 per share, and will remain exercisable for 18 months following issuance
date. The offering raised a total of $18.1 million, with net proceeds of $16.4 million,
after deducting fees and expenses. The closing of the sale of the ordinary shares and
warrants occurred on May 11, 2020 and May 13, 2020.
The
fair value of the warrants is computed using the Black-Scholes option-pricing model. The underlying data used for computing the
fair value of the warrants are mainly as follows: ordinary share price based on the current price of an ordinary share: $1.27-$1.63;
expected volatility based on Company historical trade: 74%-76%; risk-free interest rate: 0.155%-0.165%; expected dividend: zero;
and expected life to exercise of 1.5 years. The consideration was allocated between ordinary shares and warrants based on the
ratio of the warrants’ fair value and the ordinary share price.
On
June 9, 2020, the Company registered the resale of 11,492,065 ordinary shares underlying the warrants. As of June 30, 2020, none
of the warrants were exercised.
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b.
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During
the six months ended June 30, 2020, the Company sold an aggregate of 521,743 ordinary shares under its at-the-market equity
facility. The total consideration amounted to $549 thousand, net of issuance costs.
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c.
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On
January 6, 2020, 2,952,381 short-term warrants related to June 25, 2018 registered direct offering with a value of $1.8 million
expired.
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d.
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In
March 2020, the board of directors ratified the increase of the free pool available for the issuance under the 2014 ESOP plan
to 1,976,441 ordinary shares.
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NOTE
7 - REVENUE
The
revenues recognized for the period comprise revenues from the exclusive license agreement for the development, commercialization,
and supply of VB-111 in Japan for all indications and from the option to license agreement for the development of VB-201 for animal
healthcare worldwide. The revenues are recognized according to IFRS 15 “Revenue from contract with customers.”
Under
IFRS 15, the consideration that the Company would be entitled to upon the achievement of contractual milestones, which are contingent
upon the occurrence of future events of development progress, are a form of variable consideration.
OPERATING
AND FINANCIAL REVIEW
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
Company’s annual financial statements as of and for the year ended December 31, 2019 (included in our Annual Report of Foreign
Private Issuer on Form 20-F for the year ended December 31, 2019) and their accompanying notes and the related notes and the other
financial information included elsewhere in this Form 6-K. This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements
as a result of various factors. Our audited financial statements as of and for the year ended December 31, 2019 have been prepared
in accordance with IFRS, as issued by the IASB and our unaudited financial statements for the six months ended on June 30, 2020
(the “Period”) have been prepared in accordance with International Accounting Standard No. 34, “Interim Financial
Reporting” (“IAS 34”). Unless stated otherwise, comparisons included herein are made to the six months period
ended on June 30, 2019 (the “Parallel Period”).
Overview
We
are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of first-in-class treatments
for areas of unmet need in cancer and immune/inflammatory indications. We have developed three platform technologies: a gene-therapy
based technology for targeting newly formed blood vessels with focus on cancer, an antibody-based technology targeting MOSPD2
for anti-inflammatory and immuno-oncology applications, and the Lecinoxoids, a family of small-molecules for immune-related
indications.
Our
main program in oncology is based on our proprietary Vascular Targeting System, or VTS, platform technology, which we believe
will allow us to develop product candidates for multiple oncology indications. The VTS technology utilizes genetically targeted
therapy to destroy newly formed, or angiogenic, blood vessels. By utilizing a viral vector as a delivery mechanism, the VTS platform
can also lead to induction or enhancement of a localized anti-tumor immune response, thereby turning immunologically ‘cold’
tumors ‘hot’.
Our
lead product candidate, VB-111 (ofranergene obadenovec), is a gene-based biologic that we are developing for solid tumor indications,
and which we have advanced to programs for recurrent glioblastoma, or rGBM, an aggressive form of brain cancer, ovarian cancer
and thyroid cancer. We have obtained fast track designation for VB-111 in the United States for prolongation of survival in patients
with glioblastoma that has recurred following treatment with standard chemotherapy and radiation. We have also received orphan
drug designation for GBM in both the United States and Europe. VB-111 has also received an orphan designation for the treatment
of ovarian cancer by the European Commission.
In
March 2020, we announced an encouraging outcome of the planned interim analysis in the OVAL study, a double-blind controlled Phase
3 potential-registration study in patients with platinum-resistant ovarian cancer. The OVAL independent Data Safety Monitoring
Committee (DSMC), reviewed unblinded data and assessed CA-125 response, measured according to the GCIG criteria, in the first
60 enrolled subjects evaluable for CA-125 analysis. The DSMC confirmed that the study met the interim pre-specified efficacy criterion,
of an absolute percentage advantage of 10% or higher CA-125 response rate for the VB-111 treatment arm, and recommended the study
continue. The overall response rate in the first 60 randomized evaluable patients was 53%. Assuming a balanced randomization,
the response rate in the treatment arm (VB-111 in addition to weekly paclitaxel) was 58% or higher. In patients who had post-dosing
fever, which is a marker for VB-111 treatment, the response rate was 69%.
A
second interim analysis in the OVAL study was conducted on August 11, 2020. The DSMC reviewed unblinded overall survival (OS)
data of the first 100 enrolled subjects with a follow-up of at least 3 months. The committee also looked
at response rate and safety information. The DSMC recommended that the study continue as planned. The primary endpoint
of the OVAL Phase 3 study is OS, which currently approved therapies for platinum-resistant ovarian cancer have thus far
failed to demonstrate. The next DSMC review in the OVAL study is expected in the first
quarter of 2021. Our study is being conducted in collaboration with the GOG Foundation, Inc., a leading organization
for research excellence in the field of gynecologic malignancies.
Final
results from our Phase 1/2 clinical trial of VB-111 for recurrent platinum-resistant ovarian cancer were reported in June 2019
and published online on April 2020 (Arend et al., Gynecologic Oncology 157 (2020) 578–584). Data demonstrated
a median OS of 498 days in the VB-111 therapeutic-dose arm, versus 172.5 days in the low-dose arm (p=0.03). 58% of evaluable
patients treated with the therapeutic dose of VB-111 had a GCIG CA-125 response. VB-111 activity signals were seen despite unfavorable
prognostic characteristics (48% platinum refractory disease and 52% previous treatment with anti-angiogenics). There was a trend
for favorable survival in patients who had CA-125 decrease >50% in the VB-111 therapeutic-dose arm (808 vs. 351 days; p=0.067)
implicating CA-125 as a potentially valuable biomarker for response to VB-111. Post treatment fever was also associated with a
signal for improved survival (808 vs. 479 days; p=0.27).
In
a Phase 2 study for rGBM, patients who were primed with VB-111 monotherapy that was continued after progression with the addition
of bevacizumab (Avastin®) showed significant survival (414 vs 223 days; HR 0.48; p=0.043) and progression free
survival (PFS) advantage (90 vs 60 days; HR 0.36; p=0.032) compared to a cohort of patients that had limited exposure to VB-111
(Brenner et al., Neuro Oncol. 2019). Radiographic responders to VB-111 exhibited specific imaging characteristics
related to its mechanism of action. Survival advantage was also seen in comparison to historic controls, with the percentage of
patients living more than one year doubling from 24% to 57%.
Our
Phase 3 GLOBE study in rGBM compared upfront concomitant administration of VB-111, without priming, and bevacizumab to bevacizumab
monotherapy. The study, which enrolled a total of 256 patients in the US, Canada and Israel was conducted under a special protocol
assessment, or SPA, agreement with the U.S. Food and Drug Administration, or FDA, with full endorsement by the Canadian Brain
Tumor Consortium (CBTC). In this modified regimen, the treatment did not improve OS and PFS outcomes in rGBM.
Study results (Cloughesy et al. Neuro Oncol. 2019) attribute the contradictory outcomes between the Phase 2 and
Phase 3 trials as being related to the lack of VB-111 monotherapy priming in the GLOBE study, providing clinical, mechanistic
and radiographic support for this hypothesis.
Notably,
GLOBE data show improved outcomes associated with a post VB-111 fever reaction, similar to outcomes from previous VB-111 studies,
providing support that fever is a potential biomarker for better survival with VB-111, secondary to the drug’s immunologic
mechanism of action. No new safety concerns associated with VB-111 have been identified in the study. We do not think that results
of the GLOBE study will necessarily have implications on the prospects for VB-111 in other regimens or tumor types.
Based
on the understanding that study regimen may be a key factor for VB-111 efficacy in rGBM, an IND application for an investigator-sponsored
randomized controlled study of VB-111 in rGBM patients has gone into effect with the FDA. The new study, sponsored by Dana-Farber
Cancer Institute in collaboration with a group of top neuro-oncology US medical centers, will investigate neo-adjuvant and adjuvant
treatment with VB-111 in rGBM patients undergoing a second surgery. Launch of the study is dependent on the COVID-19 pandemic
conditions.
In
February 2020, we announced the launch of a Phase 2 clinical trial of VB-111 in combination with nivolumab, an anti-PD1 immune
checkpoint inhibitor, in the treatment of metastatic colorectal cancer. This study is being sponsored by the U.S. National Cancer
Institute under a Cooperative Research and Development Agreement or CRADA. The IND application has gone into effect with the FDA.
The study, which is open label, will investigate if priming with VB-111 can drive immune cells into the tumor and turn the colorectal
tumors from being immunologically “cold” to “hot.” In addition to safety and tolerability, this study
will evaluate efficacy endpoints including Best Overall Response, as well as immunological and histologic readouts from tumor
biopsies. Enrollment into the trial is dependent on the COVID-19 pandemic conditions.
In
February 2017, we reported full data from our exploratory Phase 2 study of VB-111 in recurrent, iodine-resistant differentiated
thyroid cancer. The primary endpoint of the trial, defined as 6-month progression-free-survival (PFS-6) of 25%, was met with a
dose response. Forty-seven percent of patients in the therapeutic-dose cohort reached PFS-6, versus 25% in the sub-therapeutic
cohort, both groups meeting the primary endpoint. An OS benefit was seen, with a tail of more than 40% at 3.7 years for
the therapeutic-dose cohort. Most patients in the VB-111 study had tumors that previously had progressed on pazopanib (Votrient®)
or other kinase inhibitors.
We
are also conducting two parallel drug development programs that are exploring the potential of MOSPD2, a protein which we identified
as a key regulator of cell motility, as a therapeutic target for inflammatory diseases and cancer.
For
oncology applications, we are developing bi-specific antibodies aimed to kill tumor cells, based on MOSPD2 as a target whose expression
is induced in multiple tumors. We found that MOSPD2 was detected in the majority of cancerous organs, including colon, esophagus,
liver and breast. In a peer-review manuscript (Int. J. Cancer: 144, 125–135 (2019)) as well as in scientific conferences,
we showed that MOSPD2 is required for the migration and invasion of breast cancer cells in vitro, and that it promotes breast
cancer cell metastasis in vivo. Given the specificity of MOSPD2 expression and its highly elevated expression in tumors, we believe
MOSPD2 can serve as a novel mechanism for targeting of tumor cells. Based on these findings, our approach is to utilize MOSPD2
as a target for attacking the tumor cells in the treatment of late-stage breast cancer and other tumor types. To this end, we
are developing bi-specific antibodies that aim to induce killing of MOSPD2-positive tumors cells through binding and activation
of T-cells. We have presented proof-of-concept for this approach at the AACR conference in April 2018 using a BiTE antibody. In
June 2020, at the 2020 American Association of Cancer Research (AACR) virtual annual meeting, we presented data showing that our
proprietary MOSPD2 bi-specific full-IgG antibody candidates mediated killing of tumor cells by CD8 T-cells in a dose-dependent
manner, induced T-cell activation in-vivo and extended survival of animals carrying established metastatic cervical and breast
cancer.
For
inflammatory applications, we are developing classical antibodies that bind and block MOSPD2 on immune cells. Our data show that
MOSPD2, which is predominantly expressed on the surface of human monocytes, is essential for their migration. By inhibiting this
protein, we seek to block this migration of monocytes to sites of inflammation, and accordingly to reduce inflammation and tissue
damage. At the ECTRIMS 2018 meeting, we presented the critical role of MOSPD2 in the development of multiple sclerosis, and its
potential as a novel target for treatment of inflammation in the Central Nervous System (CNS) and other organs. Using MOSPD2 knockout
mice, our data show that MOSPD2 was critical for the development of the disease in the experimental autoimmune encephalomyelitis
(EAE) model for Multiple Sclerosis (MS), as knockout mice essentially do not develop the disease. Furthermore, we developed proprietary
monoclonal antibodies against MOSPD2 that successfully prevented development of EAE, and were also effective in treatment of the
animals after the neurological symptoms had already appeared. These data suggest that MOSPD2 is a critical path in MS, as we published
in an editor’s choice peer-review manuscript in 2020 (Clinical and Experimental Immunology, 201: 105–120). In February
2019, we presented additional data implicating the potential of our VB-600 platform of antibodies targeting MOSPD2 for treatment
of Nonalcoholic Steatohepatitis (NASH) and Rheumatoid Arthritis (RA). In May 2020, we presented data at the Digestive Disease
Week® (DDW) 2020 virtual meeting, demonstrating that treatment with anti-MOSPD2 antibody profoundly decreased
inflammation and fibrosis in a NASH model and significantly reduced the disease activity in a colitis model. In June 2020, we
presented data at the European League Against Rheumatism (EULAR) 2020 Congress, demonstrating the potential of anti-MOSPD2 mAbs
for treatment RA with differentiation from anti-TNF treatment. Collectively, these data point to MOSPD2 as a key pathway through
which the body is recruiting monocytes to specific sites of inflammation. We believe that antibodies targeting MOSPD2 have potential
for treatment of various inflammatory indications, and are advancing our lead pre-clinical candidate VB-601 towards IND. In June
2020 we submitted to the FDA a pre-IND application, which is currently under review by the agency. We expect to start toxicology
studies in the second half of 2020. A first-in-human study is expected in 2021.
We
also have been conducting a program targeting anti-inflammatory diseases, based on the use of our Lecinoxoid platform technology.
Lecinoxoids are a novel class of small molecules we developed that are structurally and functionally similar to naturally occurring
molecules known to modulate inflammation. The lead product candidate from this program, VB-201, is a Phase 2-ready molecule that
demonstrated activity in reducing vascular inflammation in a Phase 2 sub-study in psoriatic patients with cardiovascular risk.
Based on recent pre-clinical studies, we believe that VB-201 and some second generation molecules such as VB-703 may have potential
applicability for NASH and renal fibrosis. In March 2019, we announced a strategic exclusive option license agreement with one
of the world-leading European animal health companies for the development of VB-201 for veterinary use. We retain the VB-201 rights
for treatment of humans, worldwide.
In
October 2017, we announced the opening of our new gene therapy manufacturing plant in Modiin, Israel. This plant can be the commercial
facility for production of VB-111, if approved. The Modiin facility is the first commercial-scale gene therapy manufacturing facility
in Israel and currently one of the largest gene-therapy designated manufacturing facilities in the world (20,000 sq. ft.). In
July 2019, the facility was certified by a European Union (EU) Qualified Person (QP) as being in compliance with EU Good Manufacturing
Practices (GMP).
In
November 2017, we signed an exclusive license agreement with NanoCarrier Co., Ltd. (TSE Mothers:4571) for the development, commercialization
and supply of VB-111 in Japan. We retain rights to VB-111 in the rest of the world. Under terms of the agreement, we have granted
NanoCarrier an exclusive license to develop and commercialize VB-111 in Japan for all indications. We will supply NanoCarrier
with VB-111, and NanoCarrier will be responsible for all regulatory and other clinical activities necessary for commercialization
in Japan. In exchange, we received an up-front payment of $15 million, and are entitled to receive greater than $100 million in
development and commercial milestone payments if certain development and commercial milestones are achieved. We will also receive
tiered royalties on net sales in the high-teens.
In
March 2019, we executed an exclusive option license agreement with an animal health company for the development of our proprietary
anti-inflammatory molecule, VB-201, for veterinary use. We retain VB-201 rights for treatment of humans worldwide. Under the terms
of the agreement, we have granted an exclusive option license to explore the potential of VB-201 for animal health indications.
In consideration, we received an undisclosed up-front payment, and are entitled to receive additional development milestone payments.
In April 2020, another milestone event under this agreement was reached, following which we received an undisclosed payment. Upon
exercising the option to license, we will receive additional milestones and royalties on net sales.
The
Impact of COVID-19 on Business Operations and Clinical Trials
The
Company has implemented safety measures designed to comply with applicable guidelines in Israel in response to the COVID-19 pandemic.
Our key operations were uninterrupted by this pandemic. According to Israeli regulations, VBL, as a pharmaceutical company producing
potential therapies for cancer patients, is considered an essential facility and is therefore exempt from many labor work
restrictions even under emergency conditions such as the COVID-19 pandemic. Accordingly, our gene therapy pharmaceutical grade
manufacturing plant in Modiin, Israel continues to operate as normal. At this time, all preclinical programs and research activities
remain on track, and the Company does not anticipate any material impact on our regulatory activities.
With
regards to clinical trials, the Company continues to advance the ongoing OVAL study of VB-111 for platinum resistant ovarian cancer
and the study is continuing to recruit patients in the U.S. and Israel. Despite the COVID-19 pandemic, patient enrollment is so
far in line with our projections. As the trial population includes cancer patients with advanced disease and limited alternatives,
we believe it is less susceptible to impact by COVID-19 compared to other non-life-threatening indications. We continue to advance
our plans to extend the OVAL study to additional geographies, particularly in Europe. The study may also expand to Japan, in
collaboration with our Japanese licensee for VB-111, NanoCarrier. The VB-111 investigator-sponsored study in rGBM is open
for enrollment and is expected to start recruitment soon. The NCI-sponsored study in metastatic colorectal cancer is also open;
recruitment of patients is expected to start in the near future, as soon as NCI’s COVID-19 precautions allow.
We
commenced operations in 2000, and our operations to date have been limited to organizing and staffing our company, business planning,
raising capital, developing our VTS and Lecinoxoid platform technologies and developing our product candidates, including conducting
pre-clinical studies and clinical trials of VB-111 and VB-201. To date, we have funded our operations through private sales of
preferred shares, a convertible loan, public offering and grants from the Israeli Office of Chief Scientist, or OCS, which has
later transformed to the Israeli Innovation Authority, or IIA, under the Israel Encouragement of Research and Development in Industry,
or the Research Law. We have no products that have received regulatory approval and accordingly have never generated regular revenue
streams. Since our inception and through June 30, 2020, we had raised an aggregate of $273.7 million to fund our operations,
of which $113.4 million was from sales of our equity securities, $40.5 from our initial public offering, or IPO, $15.0
million from a November 3, 2015 underwritten offering, approximately $24.0 million from a June 7, 2016 registered direct offering,
$17.9 million from a November 16, 2017 underwritten offering, $15.5 million from a June 27, 2018 registered direct offering, $18.1
million from both a May 11, 2020 and May 13, 2020 registered direct offerings, $27.2 million from IIA grants and $2.1 million
from at-the-market equity facility.
Since
inception, we have incurred significant losses. Our loss for the Period was $11.2 million. For the years ended December 31, 2019
and 2018, our loss was $19.5 million and $20.4 million, respectively. We expect to continue to incur significant expenses and
losses for at least the next several years. As of June 2020, we had an accumulated deficit of $219.3 million. Our losses may fluctuate
significantly from quarter to quarter and year to year, depending on the timing of our clinical trials, the receipt of payments
under any future collaborations we may enter into, and our expenditures on other research and development activities.
As
of June 30, 2020, we had cash and cash equivalents, short-term bank deposits and restricted bank deposits of $41.3 million. On
May 7, 2020 and on May 11, 2020, we entered into definitive agreements with several institutional investors and existing shareholders
for the purchase and sale of 11,492,065 ordinary shares of the Company, at a purchase price of $1.575 per share, the net proceeds
from which were approximately $16.4 million after deducting the placement agent fees and commissions and offering expenses
payable by the Company. To fund further operations, we will need to raise additional capital. We may seek to raise more capital
to pursue additional activities, which may be through a combination of private and public equity offerings, government grants,
strategic collaborations and licensing arrangements. Additional financing may not be available when we specifically need it or
may not be available on terms that are favorable to us. As of June 30, 2020, we had 39 employees. Our operations are located in
a single facility in Modiin, Israel.
Various
statements in this release concerning our future expectations constitute “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements include words such as “may,” “expects,”
“anticipates,” “believes,” and “intends,” and describe opinions about future events. These
forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or
achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking
statements. Some of these risks are incurred losses; dependence on the success of our lead product candidate, VB-111, its clinical
development, regulatory approval and commercialization; the novelty of our technologies, which makes it difficult to predict the
time and cost of product candidate development and potential regulatory approval; as well as potential delays in our clinical
trials.
These
and other factors are more fully discussed in the “Risk Factors” section of our Annual Report on Form 20-F for the
year ended December 31, 2019. In addition, any forward-looking statements represent our views only as of the date of this release
and should not be relied upon as representing our views as of any subsequent date. We do not assume any obligation to update any
forward-looking statements unless required by law.
Financial
Overview
Revenue
As
of June 30, 2020, we have generated cumulative revenues of approximately $15.5 million under an exclusive license agreement for
the development, commercialization, and supply of VB-111 in Japan for all indications and an option to license agreement for the
development of VB-201 for animal healthcare worldwide. The generated revenues comprises upfront and milestone payments.
The
cost of revenues associated with these revenues were approximately $0.9 million.
We
do not expect to receive any other revenue from any product candidates that we develop unless and until we obtain regulatory approval
and commercialize our products or enter into collaborative agreements with third parties.
Research
and Development Expenses
Research
and development expenses consist of costs incurred for the development of both of our platform technologies and our product candidates.
Those expenses include:
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employee-related
expenses, including salaries and share-based compensation expenses for employees in research and development functions;
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expenses
incurred in operating our laboratories and small-scale manufacturing facility;
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expenses
incurred under agreements with CROs and investigative sites that conduct our clinical trials;
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expenses
relating to outsourced and contracted services, such as external laboratories, consulting and advisory services;
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supply,
development and manufacturing costs relating to clinical trial materials;
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maintenance
of facilities, depreciation and other expenses, which include direct and allocated expenses for rent and insurance; and
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costs
associated with pre-clinical and clinical activities.
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Research
expenses are recognized as incurred. An intangible asset arising from the development of our product candidates is recognized
if certain capitalization conditions are met. As of June 30, 2020, we did not have any capitalized development costs.
Costs
for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using
information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to
be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts
are then expensed as the related goods are delivered and the services are performed.
We
have received grants from the IIA as part of the research and development programs for our VTS and Lecinoxoid platform technologies.
The requirements and restrictions for such grants are found in the Research Law. These grants are subject to repayment through
future royalty payments on any products resulting from these research and development programs, including VB-111 and VB-201. The
cumulative total gross amount of grants actually received by us from the IIA, including accrued LIBOR interest as of June 30,
2020 totaled $34.0 million.
Information
on our liabilities and the restrictions that we are subject to under the Research Law in connection with the IIA grants that we
have received is detailed in the Annual Report on Form 20-F as of and for the year ended December 31, 2019.
Under
applicable accounting rules, the grants from the IIA have been accounted for as an off-set against the related research and development
expenses in our financial statements. As a result, our research and development expenses are shown on our financial statements
net of the IIA grants.
General
and Administrative Expenses
General
and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions
such as salaries, benefits and share-based compensation. Other general and administrative expenses include facility costs not
otherwise included in research and development expenses, communication expenses, and professional fees for legal services, patent
counseling and portfolio maintenance, consulting, auditing and accounting services.
Financial
Expenses (Income), Net
Financial
income is comprised of interest income generated from interest earned on our cash, cash equivalents and short-term bank deposits
and gains and losses due to fluctuations in foreign currency exchange rates, mainly in the appreciation and depreciation of the
NIS exchange rate against the U.S. dollar.
Financial
expenses primarily consist of calculated interest expenses from our lease liabilities and gains and losses due to fluctuations
in foreign currency exchange rates.
Taxes
on Income
We
have not generated taxable income since our inception, and had carry forward tax losses as of December 31, 2019 of $181.1 million.
We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years. Accordingly, we do not
expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses.
We
recognize deferred tax assets on losses for tax purposes carried forward to subsequent years if utilization of the related tax
benefit against a future taxable income is expected. We have not created deferred taxes on our tax loss carry forward since their
utilization is not expected in the foreseeable future.
Critical
Accounting Policies and Significant Judgments and Estimates
This
management’s discussion and analysis of our financial condition and results of operations is based on our financial statements,
which have been prepared in accordance with IFRS. The preparation of these financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Estimates and
judgments are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
We
make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below.
Revenue
With
respect to the License Agreement, the Company used its judgement in the following main issues:
Identifying
the performance obligations in the agreement and determining whether the license provided is distinct - based on the Company’s
analysis, the license is distinct as the licensee is able to benefit from the license on its own at its current stage (inter alia,
due to sublicensing rights, rights and responsibility for development in the territory, etc.).
Allocation
of the transaction price - the Company estimated the standalone selling prices of the services to be provided based on expected
cost plus a margin and used the residual approach to estimate the standalone selling price of the license as the Company has not
yet established a price for the license, and it has not previously been sold on a standalone basis.
Variable
consideration consists of potential future milestone payments. The Company determined that all such variable consideration shall
be allocated to the license (the satisfied performance obligation).
Share-Based
Compensation
With
respect to grants to employees, the value of the labor services received from them in return is measured on the date of grant
based on the fair value of the equity instruments granted to the employees.
The
Company’s management estimates the fair value of the options granted to consultants based on the value of services receivable
over the vesting period of the applicable options.
The
value of the transactions, measured as aforesaid, is expensed over the period during which the right of the employees and non-employees
to exercise or receive the underlying equity instruments vests; commensurate with every periodic recognition of the expense, a
corresponding increase is recorded to additional paid in capital, included under the Company’s equity.
Clinical
trial accruals
Clinical
trial expenses are charged to research and development expense as incurred. We accrue for expenses resulting from obligations
under contracts with clinical research organizations (CROs). The financial terms of these contracts are subject to negotiations,
which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services
are provided. Our objective is to reflect the appropriate trial expense in the financial statements by matching the appropriate
expenses with the period in which services and efforts are expended. As of June 30, 2020, we had clinical accruals in the amount
of approximately $1.6 million.
Lease
In
determining the lease term, we consider all facts and circumstances that create an economic incentive to exercise an extension
option, or not exercise a termination option. Extension options are only included in the lease term if the lease is reasonably
certain to be extended. At initial recognition of lease liability, we used incremental borrowing rate, which is the rate that
the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment
with similar terms and conditions.
Results
of Operations
Comparison
of six month periods ended June 30, 2020 and 2019:
|
|
Six Months Ended
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase (decrease)
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
(in thousands)
|
|
|
|
(unaudited)
|
|
Revenues
|
|
$
|
524
|
|
|
$
|
357
|
|
|
|
167
|
|
|
|
47
|
%
|
Cost of revenues
|
|
|
(113
|
)
|
|
|
(88
|
)
|
|
|
(25
|
)
|
|
|
28
|
%
|
Gross profit
|
|
|
411
|
|
|
|
269
|
|
|
|
142
|
|
|
|
53
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, gross
|
|
|
10,225
|
|
|
|
8,867
|
|
|
$
|
1,358
|
|
|
|
15
|
%
|
Government grants
|
|
|
(609
|
)
|
|
|
(1,830
|
)
|
|
|
1,221
|
|
|
|
(67
|
)%
|
Research and development, net
|
|
|
9,616
|
|
|
|
7,037
|
|
|
|
2,579
|
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,242
|
|
|
|
2,437
|
|
|
|
(195
|
)
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
11,447
|
|
|
|
9,205
|
|
|
|
2,242
|
|
|
|
24
|
%
|
Financial income, net
|
|
|
(256
|
)
|
|
|
(333
|
)
|
|
|
77
|
|
|
|
(23
|
)%
|
Loss
|
|
$
|
11,191
|
|
|
$
|
8,872
|
|
|
$
|
2,319
|
|
|
|
26
|
%
|
Revenues.
Revenues
for the period ended June 30, 2020 were $524 thousand, compared to $357 thousand for the Parallel Period in 2019, an increase
of 47%.
The
Cost of revenues for the period ended June 30, 2020 were $113 thousand, compared to $88 thousand for the parallel period. The
cost of revenues is attributed to the labor costs and other expenses related to the performance obligations that were delivered
during the period.
Research
and development expenses, net.
Research
and development expenses are shown net of IIA grants. Research and development expenses, net were approximately $9.6 million for
the Period, compared to approximately $7.0 million in the Parallel Period, an increase of approximately $2.6 million or 37%. The
increase in research and development expenses, net, in the Period was mainly related to the increase in the MOSPD2 activity for
approximately $1.8 million and a decrease in the IIA grant of $1.2 million, offset mainly by payroll related costs for share-based
compensation expense of approximately $0.3 million.
General
and administrative expenses.
General
and administrative expenses for the Period were $2.2 million, compared to $2.4 million for the Parallel Period, a decrease of
$0.2 million or 8%.
This
decrease is mainly attributed to payroll related costs for management and directors share-based compensation expense and financial
advisory costs.
Financial
expenses (income), net.
Financial
income, net for the Period were approximately $256 thousand, compared to approximately $333 thousand for the Parallel Period,
a decrease of $77 thousand or 23%. The decrease was primarily attributable to interest income on short-term deposits offset by
favorable exchange rates.
Liquidity
and Capital Resources
Since
inception, we have incurred significant losses. Our loss for the period was $11.2 million. For the years ended December 31, 2019
and 2018, our loss was $19.5 million and $20.4 million, respectively. We expect to continue to incur significant expenses and
losses for at least the next several years. As of June 30, 2020, we had an accumulated deficit of $219.3 million. Our losses may
fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials, the receipt
of payments under any future collaborations we may enter into, and our expenditures on other research and development activities.
Funding
Requirements
At
June 30, 2020, we had cash, cash equivalents, short-term bank deposits and restricted bank deposit totaling $41.3 million and
working capital of $36.1 million. VBL expects that its cash and cash equivalents and short-term bank deposits will be sufficient
to fund operating expenses and capital expenditure requirements into the third quarter of 2022. We are unable to estimate the
amounts of increased capital outlays and operating expenses associated with completing the development of VB-111 and our other
product candidates. Our future capital requirements will depend on many factors, including:
●
|
the
costs, timing and outcome of regulatory review of VB-111 and any other product candidates we may pursue;
|
|
|
●
|
the
costs of future development activities, including clinical trials, for VB-111 and any other product candidates we may pursue;
|
|
|
●
|
the
costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights
and defending intellectual property-related claims;
|
|
|
●
|
the
extent to which we acquire or in-license other products and technologies; and
|
|
|
●
|
our
ability to establish any future collaboration arrangements on favorable terms, if at all.
|
Until
such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination
of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed
external source of funds.
Cash
Flows
The
following table sets forth the primary sources and uses of cash for each of the periods set forth below:
|
|
Six
Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in
thousands)
|
|
|
|
(unaudited)
|
|
Cash used in operating activities
|
|
$
|
(12,562
|
)
|
|
$
|
(5,260
|
)
|
Cash provided by (used in) investing activities
|
|
|
2,996
|
|
|
|
(15,553
|
)
|
Cash provided by (used in) financing activities
|
|
|
16,705
|
|
|
|
(356
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
7,139
|
|
|
$
|
(21,169
|
)
|
Operating
Activities
Cash
used in operating activities for the Period was $12.6 million and consisted primarily of net loss of $11.2 million arising primarily
from research and development activities and a net increase in working capital of $3.0 million, partially offset by a net aggregate
non-cash charges of $1.4 million.
Cash
used in operating activities for the Parallel Period was $5.3 million and consisted primarily of net loss of $8.9 million arising
primarily from research and development activities, partially offset by a net decrease in working capital of $1.6 million and
net aggregate non-cash charges of $1.7 million.
Investing
Activities
Net
cash provided by investing activities was $3.0 million for the Period. This was primarily due to maturation of short-term bank
deposits of $27.0 million, offset by the investment of short-term bank deposits of $24.0 million.
Net
cash used in investing activities was for the Parallel Period $15.6 million. This was primarily due to investment in short-term
bank deposits and the purchases of property and equipment.
Financing
Activities
Net
cash provided by financing activities was $16.7 million for the Period compared to net cash used in financing activities of $356
thousand for the Parallel Period. The increase was mainly due to the issuance of ordinary shares and warrants per the closing
of the May 11, 2020 and May 13, 2020 securities offerings.
Contractual
Obligations and Commitments
During
the six months ended June 30, 2020, there have been no material changes to our contractual obligations and commitments
outside the ordinary course of business.
Off-Balance
Sheet Arrangements
Since
our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC,
such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance
or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected
on our statement of financial positions.
Quantitative
and Qualitative Disclosures about Market Risk
We
are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our
financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result
of foreign currency exchange rates. Approximately 30% of our expenses in the six months ended June 30, 2020 were denominated
in New Israeli Shekels. Changes of 5% in the US$/NIS exchange rate will increase or decrease the operation expenses by up to 1%.
Foreign
Currency Exchange Risk
Fluctuations
in exchange rates, especially the NIS against the U.S. dollar, may affect our results, as some of our assets are linked to NIS,
as are some of our liabilities. In addition, the fluctuation in the NIS exchange rate against the U.S. dollar may impact our results,
as a portion of our operating cost is NIS denominated.
Inflation
Risk
We
do not believe that inflation had a material effect on our business, financial condition or results of operations in the last
two fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset
such higher costs through hedging transactions. Our inability or failure to do so could harm our business, financial condition
and results of operations.
Exhibits
Exhibit
No.
|
|
Description
|
101.INS
XBRL
|
|
Instance
Document
|
101.SCH
XBRL
|
|
Taxonomy
Extension Schema Document
|
101.CAL
XBRL
|
|
Taxonomy
Extension Calculation Linkbase Document
|
101.DEF
XBRL
|
|
Taxonomy
Extension Definition Linkbase Document
|
101.LAB
XBRL
|
|
Taxonomy
Extension Label Linkbase Document
|
101.PRE
XBRL
|
|
Taxonomy
Extension Presentation Linkbase Document
|