Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(in
thousands, except share and per share amounts)
1.
NATURE OF BUSINESS AND CONTINUATION OF BUSINESS
Corporate
Overview
VBI
Vaccines Inc. (the “Company” or “VBI”) was incorporated under the laws of British Columbia, Canada on
April 9, 1965.
The
Company and its wholly-owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s
wholly-owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies
Inc. a Canadian company and the wholly-owned subsidiary of VBI US (“VBI Cda”); SciVac Ltd. an Israeli company (“SciVac”)
and SciVac Hong Kong Limited (“SciVac HK”) are collectively referred to as the “Company”, “we”,
“us”, “our” or “VBI”.
The
Company’s registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with its principal
office located at 222 Third Street, Suite 2241, Cambridge, MA 02142. In addition, the Company has manufacturing facilities located
in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.
Principal
Operations
VBI is a commercial-stage, biopharmaceutical company developing next generation vaccines to address unmet
needs in infectious disease and immuno-oncology. We currently manufacture our product, Sci-B-Vac a third generation prophylactic
Hepatitis B vaccine for adults, children and newborns, which is approved for use in Israel and 10 other countries. Sci-B-Vac has
not yet been approved by the United States Food and Drug Administration (the “FDA”), the European Medicines Agency
(the “EMA”) or Health Canada. VBI is currently conducting a global Phase III clinical program to obtain FDA, EMA and
Health Canada market approvals for commercial sale of Sci-B-Vac in the United States, Europe, and Canada, respectively. Our wholly-owned
subsidiary in Rehovot, Israel, currently manufactures and sells Sci-B-Vac. We are also developing a protein-based immunotherapeutic
for treatment of Hepatitis B in collaboration with Brii Biosciences Limited (“Brii Bio”).
We
are also developing a pipeline of products that target unmet medical needs in infectious disease and oncology. These programs
are developed using VBI’s proprietary technology, the enveloped “Virus Like Particle” or “eVLP”
vaccine platform, that allows for the design of enveloped virus-like particle vaccines that closely mimic the target viruses.
VBI’s lead eVLP programs are targeting human cytomegalovirus (“CMV”), an infection that can lead to serious
complications in; newborns, solid organ transplant recipients, people with weakened immune systems, and is present
in glioblastoma (“GBM”), an aggressive form of adult brain cancer.
Liquidity
and Going Concern
The
Company has a limited operating history and faces a number of risks, including but not limited to, uncertainties regarding the
success of the development and commercialization of its products, demand and market acceptance of the Company’s products
and reliance on major customers. The Company anticipates that it will continue to incur significant operating costs and losses
in connection with the development of its products.
The
Company has an accumulated deficit of $222,181 as of March 31, 2019 and cash outflows from operating activities of $14,020 for
the three months ended March 31, 2019.
The
Company will require significant additional funds to conduct clinical and non-clinical trials, achieve regulatory approvals, and,
subject to such approvals, commercially launch its products. The Company plans to finance future operations with existing cash
reserves. Additional financing, if required, will be a combination of proceeds from the issuance of equity securities, the issuance
of additional debt, structured asset financings, and revenues from potential collaborations, if any. There is no assurance the
Company will manage to obtain these sources of financing, if required. The above conditions raise substantial doubt about the
Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result should the Company be unable to continue as a going concern.
Financial instruments recognized in the
condensed consolidated balance sheet consist of cash, accounts receivable, other current assets, accounts payable and other current
liabilities. The Company believes that the carrying value of its current financial instruments approximates their fair values
due to the short-term nature of these instruments. The Company does not hold any derivative financial instruments.
The carrying amounts of the Company’s
long-term assets approximate their respective fair values.
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Consolidation
The
Company’s fiscal year ends on December 31 of each calendar year. The accompanying unaudited condensed consolidated financial
statements have been prepared in U.S. dollars (“USD”) and pursuant to the rules and regulations of the United States
Securities and Exchange Commission (“SEC”), for interim reporting. Accordingly, certain information and footnote disclosures
normally included in the financial statements prepared in accordance with United States of America generally accepted accounting
principles (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. The December 31,
2018 consolidated balance sheet in this document was derived from the audited consolidated financial statements. The condensed
consolidated financial statements and notes included in this quarterly report on Form 10-Q (this “Form 10-Q”) does
not include all of the disclosures required by U.S. GAAP and should be read in conjunction with the financial statements and
notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 10-K”),
as filed with the SEC on February 25, 2019.
The
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: SciVac, VBI
DE, VBI US, VBI Cda and SciVac HK. Intercompany balances and transactions between the Company and its subsidiaries are eliminated
in the condensed consolidated financial statements.
In
the opinion of management, these condensed consolidated financial statements include all adjustments and accruals of a normal
and recurring nature necessary to fairly state the results of the periods presented. The results for the periods presented are
not necessarily indicative of results to be expected for the full year or for any future periods.
Significant
Accounting Policies
The
significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in
the 2018 10-K, and there have been no changes to the Company’s significant accounting policies during the three months ended
March 31, 2019, other than accounting for leases discussed below.
Leases
The
Company determines if an arrangement is a lease at inception. For the Company’s operating leases, the right-of-use
(“ROU”) assets represents the Company’s right to use an underlying asset for the lease term and operating
lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are
recognized at the lease commencement date based on the present value of lease payments over the lease term. Since the lease agreements
do not provide an implicit rate, the Company estimated an incremental borrowing rate in determining the present value of the
lease payments. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in
the lease or expectations regarding the terms. Variable lease costs such as operating costs and property taxes are expensed as
incurred. See also Note 3.
3.
NEW ACCOUNTING PRONOUNCEMENTS
Recently
Adopted Accounting Pronouncements
Leases
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets
out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. On January
1, 2019, the Company adopted the new lease standard using the optional transition method under which comparative financial information
will not be restated and continue to apply the provisions of the previous lease standard in its annual disclosures for the comparative
periods. In addition, the new lease standard provides a number of optional practical expedients in transition. The Company elected
the package of practical expedients. As such, the Company did not have to reassess whether expired or existing contracts are or
contain a lease; did not have to reasses the lease classifications or reasses the initial direct costs associated with expired
or existing leases.
The
new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease
recognition exemption under which the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing
ROU assets or lease liabilities for existing short-term leases. The Company elected the practical expedient to not separate lease
and non-lease components.
On
January 1, 2019, the Company recognized ROU assets and lease liabilities of $1,653 on its consolidated balance sheet.
Compensation
– Stock Compensation
In
June 2018, the FASB issued ASU 2018-07: Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and
services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially aligned.
ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year,
early adoption is permitted but no earlier than an entity’s adoption date of Topic 606. Our adoption of this ASU, effective
January 1, 2019, did not have a material impact on our condensed consolidated financial statements and footnote disclosures.
Recently
Issued Accounting Standards, not yet Adopted
Intangibles
– Goodwill and Other, Internal-Use Software
In
August 2018, the FASB issued ASU 2018-15: Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):
Customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This
ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract
with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Accordingly,
the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic
350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense.
ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early
adoption is permitted. This ASU can be applied either retrospectively or prospectively to all implementation costs incurred after
the date of adoption. The Company is currently evaluating the impact this new guidance will have on its condensed consolidated
financial statements and related disclosures.
4.
INVENTORY, NET
Inventory
is stated at the lower of cost or market and consists of the following:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
60
|
|
|
$
|
81
|
|
Work-in-process
|
|
|
67
|
|
|
|
64
|
|
Raw materials
|
|
|
956
|
|
|
|
766
|
|
|
|
$
|
1,083
|
|
|
$
|
911
|
|
5. INTANGIBLES AND GOODWILL
|
|
|
|
|
March 31, 2019
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Cumulative Impairment Charge
|
|
|
Cumulative Currency Translation
|
|
|
Net Book
Value
|
|
Patents
|
|
$
|
669
|
|
|
$
|
(472
|
)
|
|
$
|
-
|
|
|
$
|
18
|
|
|
$
|
215
|
|
IPR&D assets
|
|
|
61,500
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
(1,950
|
)
|
|
|
59,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,169
|
|
|
$
|
(472
|
)
|
|
$
|
(300
|
)
|
|
$
|
(1,932
|
)
|
|
$
|
59,465
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Cumulative Impairment Charge
|
|
|
Cumulative Currency Translation
|
|
|
Net Book
Value
|
|
Patents
|
|
$
|
669
|
|
|
$
|
(457
|
)
|
|
$
|
-
|
|
|
$
|
11
|
|
|
$
|
223
|
|
IPR&D assets
|
|
|
61,500
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
(3,174
|
)
|
|
|
58,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,169
|
|
|
$
|
(457
|
)
|
|
$
|
(300
|
)
|
|
$
|
(3,163
|
)
|
|
$
|
58,249
|
|
The
Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives.
Amortization
related to the IPR&D assets will not begin amortizing until the Company commercializes its products.
The change in carrying value for IPR&D
assets from December 31, 2018 relates to currency translation adjustments which decreased by $1,217 for the three-month period
ended March 31, 2019.
The goodwill is in VBI Cda and the change
in carrying value from December 31, 2018 relates to currency translation adjustments which decreased goodwill by $173 for the
three-month period ended March 31, 2019.
6.
OTHER CURRENT LIABILITIES
Other
current liabilities consisted of the following:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Accrued research and development expenses (including clinical trial accrued expenses)
|
|
$
|
10,122
|
|
|
$
|
9,763
|
|
Payroll and employee-related costs
|
|
|
1,179
|
|
|
|
2,294
|
|
Other current liabilities
|
|
|
1,251
|
|
|
|
1,790
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,552
|
|
|
$
|
13,847
|
|
7.
LOSS PER SHARE OF COMMON SHARES
Basic
loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares
outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion
of securities, such as warrants, and stock options, which would result in the issuance of incremental shares of common shares
unless such effect is anti-dilutive. In computing the basic and diluted net loss per share applicable to common stockholders,
the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive
shares are not included in the calculation as their effect would be anti-dilutive. These potentially dilutive securities are more
fully described in Note 9, Stockholders’ Equity and Additional Paid-in Capital.
The
following potentially dilutive securities outstanding at March 31, 2019 and 2018 have been excluded from the computation of diluted
weighted average shares outstanding, as they would be antidilutive:
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
2,618,824
|
|
|
|
2,618,824
|
|
Stock options and equity awards
|
|
|
7,377,995
|
|
|
|
3,960,549
|
|
|
|
|
9,996,819
|
|
|
|
6,579,373
|
|
8.
LONG-TERM DEBT – RELATED PARTY
As
at March 31, 2019 and the December 31, 2018, the long-term debt is as follows:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Long-term debt, net of debt discount of $1,198
|
|
$
|
14,102
|
|
|
$
|
14,027
|
|
|
|
|
|
|
|
|
|
|
Less: current portion, net of debt discount of $141
|
|
|
(1,659
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,443
|
|
|
$
|
12,927
|
|
On
May 6, 2016, the Company through VBI US assumed a term loan facility with Perceptive Credit Holdings, LP, a related party, (the
“Lender”) in the amount of $6,000 (the “Facility”). On December 6, 2016, the Company amended the Facility
(the “Amended Credit Facility”) and raised the Lender’s commitment amount to $13,200, which was combined with
the remaining balance from the Facility of $1,800. On July 17, 2018, the Company amended the Amended Credit Facility (the “Second
Amendment”) to extend the period the Company is required to pay only the interest on the loan from May 31, 2018 to December
31, 2018 and to extend the expiration date of certain warrants to purchase 363,771 common shares issued to the Lender with an
original expiration date of July 25, 2019 to December 6, 2021. The Company accounted for this as a debt modification, and as a
result of the extension of the warrant expiration date in connection with the Second Amended Facility, the debt discount was increased
by $386. This amount represents the incremental fair value of the modified warrants.
On
January 31, 2019, the Company further amended the Amended Credit Facility (the “Third Amendment”) to i) extend the
period the Company is required to pay only the interest on the loan from December 31, 2018 to the Amortization Commencement Date
(which is defined as the later of July 31, 2019 and, if Sci-B-Vac Phase III clinical trial endpoints are achieved by June 30,
2019, January 31, 2020), ii) extend the maturity of the term loan to June 30, 2020 and iii) reduce the exercise price on certain
warrants to purchase common shares issued to the Lender to $2.75 from $4.13 for 363,771 warrants issued on July 25, 2014 and for
363,771 warrants issued on December 6, 2016 and from $3.355 for 1,341,282 warrants issued on December 6, 2016. The Company has
accounted for this as a debt modification, and as result of the amendment to the exercise price in connection with the Third Amendment,
the debt discount was increased by $179. This amount represents the incremental fair value of the modified warrants.
The
total principal amount of the loan under the Amended Credit Facility outstanding at March 31, 2019, including the $300 exit fee
discussed below, is $15,300. The principal amount of the loan made under the Amended Credit Facility accrues interest at an annual
rate equal to the greater of (a) one-month LIBOR (subject to a 5.00% cap) or (b) 1.00%, plus the Applicable Margin. The Applicable
Margin will be 11.00%. The Company was required to only pay interest initially until May 31, 2018, which date was extended to
December 31, 2018, pursuant to the Second Amendment and further extended to the Amortization Commencement Date pursuant to the
Third Amendment. The interest rate as of March 31, 2019 was 13.50%. Upon the occurrence of an Event of Default (as defined in
the Amended Credit Facility), and during the continuance of an event of default, the Applicable Margin, defined above, will be
increased by 4.00% per annum. This term loan facility maturity date has been extended from December 6, 2019 to June 30, 2020 and
includes both financial and non-financial covenants, including a minimum cash balance requirement. The Company was in compliance
with these covenants as of March 31, 2019. Pursuant to the Amended Credit Facility, the Company agreed that the Lender shall designate
an individual who would be appointed to the Company’s board of directors (the “Board”). The Lender’s designee
was also a portfolio manager of the Company’s largest shareholder. Effective January 2018, the Lender’s designee resigned
from our Board.
The
Company’s obligations under the Amended Credit Facility are secured on a senior basis by a lien on substantially all of
the assets of the Company and its subsidiaries and are guaranteed by the Company and its subsidiaries. The Amended Credit Facility
also contains customary events of default.
The
total debt discount of $4,018 is being charged to interest expense using the effective interest method over the term of the debt.
As of March 31, 2019, and December 31, 2018, the unamortized debt discount is $1,198 and $1,274, respectively.
At
March 31, 2019 and December 31, 2018, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy,
is estimated to be approximately $15,354 and $14,975, respectively.
Interest
expense, net of interest income recorded in the three months ended March 31, 2019 and 2018 was as follows:
|
|
Three months ended
March 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Interest expense – related party
|
|
$
|
518
|
|
|
$
|
474
|
|
Amortization of debt discount – related party
|
|
|
255
|
|
|
|
299
|
|
Interest income
|
|
|
(293
|
)
|
|
|
(234
|
)
|
Total interest expense, net of interest income
|
|
$
|
480
|
|
|
$
|
539
|
|
The
following table summarizes the future principal payments due under long-term debt:
|
|
Principal
payments on
Third Amendment
and exit fee
|
|
Remaining 2019
|
|
$
|
1,200
|
|
2020
|
|
|
14,100
|
|
|
|
$
|
15,300
|
|
9.
STOCKHOLDERS’ EQUITY AND ADDITIONAL PAID-IN CAPITAL
Stock
option plans
The
Company’s stock option plans are approved by and administered by the Company’s Board and its Compensation Committee.
The Board designates, in connection with recommendations from the Compensation Committee, eligible participants to be included
under the plan, and designates the number of options, exercise price and vesting period of the new options.
2006
VBI US Stock Option Plan
No
further options will be issued under the 2006 VBI US Stock Option Plan (the “2006 Plan”). As at March 31, 2019, there
were 1,112,696 options outstanding under the 2006 Plan.
2013
Equity Incentive Plan
No
further options will be issued under the 2013 Equity Incentive Plan (the “2013 Plan”). As at March 31, 2019, there
were 3,460 options outstanding under the 2013 Plan.
2014
Equity Incentive Plan
No
further options will be issued under the 2014 Equity Incentive Plan (the “2014 Plan”). As at March 31, 2019, there
were 604,474 options outstanding under the 2014 Plan.
2016
VBI Incentive Plan
The
2016 VBI Equity Incentive Plan (the “2016 Plan”) is a rolling incentive plan that sets the number of common shares
issuable under the 2016 Plan, together with any other security-based compensation arrangement of the Company, at a maximum of
10% of the aggregate common shares issued and outstanding on a non-diluted basis at the time of any grant under the 2016 Plan.
The 10% maximum is inclusive of options granted under all equity incentive plans. The 2016 Plan is an omnibus equity incentive
plan pursuant to which the Company may grant equity and equity-linked awards to eligible participants in order to promote the
success of the Company by providing a means to offer incentives and to attract, motivate, retain and reward persons eligible to
participate in the 2016 Plan. Grants under the 2016 Plan include a grant or right consisting of one or more options, stock appreciation
rights (“SARs”), restricted share units (“RSUs”), performance share units (“PSUs”), shares
of restricted stock or other such award as may be permitted under the 2016 Plan. As at March 31, 2019, there were 5,277,962 options
and 379,403 stock awards outstanding under the 2016 Plan.
The
aggregate number of common shares remaining available for issuance for awards under the 2016 Plan total 1,396,061 at March 31,
2019.
Activity
related to stock options is as follows:
|
|
Number of
Stock
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2018
|
|
|
3,479,676
|
|
|
$
|
4.14
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,570,000
|
|
|
$
|
1.66
|
|
Forfeited
|
|
|
(51,084
|
)
|
|
|
4.62
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at March 31, 2019
|
|
|
6,998,592
|
|
|
$
|
2.88
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019
|
|
|
2,575,244
|
|
|
$
|
4.16
|
|
Information
relating to RSUs is as follow:
|
|
Number of
Stock
Awards
|
|
|
Weighted Average Fair Value at Grant Date
|
|
|
|
|
|
|
|
|
Unvested shares outstanding at December 31, 2018
|
|
|
268,570
|
|
|
$
|
4.13
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
330,000
|
|
|
$
|
1.65
|
|
Vested
|
|
|
(219,167
|
)
|
|
$
|
1.97
|
|
|
|
|
|
|
|
|
|
|
Unvested shares outstanding at March 31, 2019
|
|
|
379,403
|
|
|
$
|
3.22
|
|
In
determining the amount of stock-based compensation the Company used the Black-Scholes option pricing model to establish the fair
value of options granted by applying the following weighted average assumptions:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
118.12
|
%
|
|
|
114.53
|
%
|
Risk free interest rate
|
|
|
2.46
|
%
|
|
|
2.48
|
%
|
Expected term in years
|
|
|
5.77
|
|
|
|
5.77
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Weighted average fair value per option
|
|
$
|
1.43
|
|
|
$
|
3.53
|
|
The
fair value of the options is recognized as an expense on a straight-line basis over the vesting period and forfeitures are accounted
for when they occur. The total stock-based compensation expense recorded in the three months ended March 31, 2019 and 2018 was
as follows:
|
|
Three months ended
March 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
228
|
|
|
$
|
191
|
|
General and administrative
|
|
|
1,017
|
|
|
|
618
|
|
Cost of revenues
|
|
|
17
|
|
|
|
13
|
|
Total stock-based compensation expense
|
|
$
|
1,262
|
|
|
$
|
822
|
|
10.
REVENUES AND DEFERRED REVENUE
Revenue
is comprised of the following:
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Product revenues
|
|
$
|
93
|
|
|
$
|
164
|
|
R&D service revenues
|
|
|
267
|
|
|
|
14
|
|
|
|
$
|
360
|
|
|
$
|
178
|
|
The
following table presents revenues expected to be recognized in the future related to performance obligations, based on
current estimates, that are unsatisfied at March 31, 2019:
|
|
Total
|
|
|
Remaining
2019
|
|
|
2020 and thereafter
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
469
|
|
|
$
|
-
|
|
|
$
|
469
|
|
R&D service revenues
|
|
|
4,623
|
|
|
|
2,333
|
|
|
|
2,290
|
|
Total
|
|
$
|
5,092
|
|
|
$
|
2,333
|
|
|
$
|
2,759
|
|
The
following table presents changes in the deferred revenue balance for the year ended December 31, 2018:
Balance at December 31, 2018
|
|
$
|
5,172
|
|
|
|
|
|
|
Recognition of deferred revenue
|
|
|
(261
|
)
|
Currency translation
|
|
|
181
|
|
|
|
|
|
|
Balance at March 31, 2019
|
|
$
|
5,092
|
|
|
|
|
|
|
Short Term
|
|
$
|
2,333
|
|
Long Term
|
|
$
|
2,759
|
|
Collaboration
and License Agreement – Brii Bio
On
December 4, 2018, we entered into a License Agreement with Brii Bio, whereby:
|
●
|
the
Company and Brii Bio agreed to collaborate on the development of a hepatitis B recombinant protein-based immunotherapeutic
in the licensed territory, which consists of China, Hong Kong, Taiwan and Macau (collectively, the “Licensed Territory”),
and to conduct a Phase II collaboration clinical trial for the purpose of comparing VBI-2601, which is a recombinant protein-based
immunotherapeutic developed by VBI for use in treating chronic hepatitis B, with a novel composition developed jointly with
Brii Bio (either being the “Licensed Product”); and
|
|
|
|
|
●
|
The
Company granted Brii Bio an exclusive royalty-bearing license to perform studies, and regulatory and other activities, as
may be required to obtain and maintain marketing approval of the Licensed Product, for the treatment of hepatitis B in the
Licensed Territory and to commercialize the Licensed Product for the diagnosis and treatment of chronic hepatitis B in
the Licensed Territory
|
Pursuant
to the Collaboration and License Agreement, the Company is responsible for the R&D services and Brii Bio is responsible for
costs relating to the clinical trials for the Licensed Territory.
The
initial consideration of the Collaboration and License Agreement consisted of a $11 million non-refundable upfront payment. As
part of Collaboration and Licences Agreement, the Company and Brii Bio entered into a stock purchase agreement. Under the terms
of the stock purchase agreement, the Company issued to Brii Bio 2,295,082 shares of its common stock valued at $3.6 million (based
on the Company’s common stock price on December 4, 2018). The remaining $7.4 million, deemed to be the initial transaction
price, was allocated to two performance obligations: i) the VBI-2601 license and ii) R&D services. The R&D services were
allocated $4.8 million of the transaction price using an estimated selling price based on a expected cost plus a margin approach
and the remaining transaction price of $2.6 million was allocated to the VBI-2601 license using the residual method.
In
addition, the Company is also eligible to receive an additional $117.5 million in potential regulatory and sales milestone payments,
along with royalties on commercial sales in the licensed territory. Milestone payments that are not within the control of the
Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are
received. Therefore, no variable consideration was included in the initial transaction price and no such amounts have been recognized
to date.
On
December 4, 2018, the Company recognized the VBI-2601 license when it was transferred and Brii Bio is able to use and benefit
from the license, as it was determined to be distinct. The R&D Services will be satisfied over time as services are rendered
using the “cost-to-cost” input method as this method represents the most accurate depiction of the transfer of services
based on the types of costs expected to be incurred. As at March 31, 2019, R&D services that remain unsatisfied are $4.4 million.
Upon
termination of the License Agreement prior to the end of the term, there is no obligation for refund and any amounts in deferred
revenue related to unsatisfied performance obligations will be immediately recognized.
11.
INCOME TAXES
The
Company operates in U.S., Israel and Canadian tax jurisdictions. Its income is subject to varying rates of tax, and losses incurred
in one jurisdiction cannot be used to offset income taxes payable in another.
The
Company determines its annual effective tax rate at the end of each interim period based on the year to date period results. Since
the Company is incorporated in Canada, it is required to use Canada’s statutory tax rate of 26.50% in the determination
of the estimated annual effective tax rate.
The
Company’s effective tax rate on loss before tax for the three months ended March 31, 2019 of 0.00% (0.00% for the three
months ended March 31, 2018) differs from the Canadian statutory rate of 26.50% primarily due to recording a valuation allowance
on the Canadian deferred tax assets in excess of the remaining Canadian deferred tax liability and the effect of recording a valuation
allowance against deferred tax assets in all other jurisdictions.
The
Company maintains a valuation allowance on all of its deferred tax assets. A valuation allowance is required when, based upon
an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable
tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.
12.
COMMITMENTS AND CONTINGENCIES
Legal
Proceedings
From
time to time, the Company may be involved in certain claims and litigation arising out of the ordinary course and conduct of business.
Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been
incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment
of the most likely outcome.
On
September 13, 2018, two actions were brought in the District Court of the central district in Israel naming our subsidiary SciVac
as a defendant. In one claim, two minors, through their parents, allege among other things, defects in certain batches of Sci-B-Vac
discovered in July 2015; that Sci-B-Vac was approved for use in children and infants in Israel without sufficient evidence establishing
its safety; that SciVac failed to provide accurate information about Sci-B-Vac to consumers and that each child suffered side
effects from the vaccine. The claim was filed together with a motion seeking approval of a class action on behalf of 428,000 children
vaccinated with Sci-B-Vac in Israel from April, 2011 and seeking damages in a total amount of NIS 1,879,500,000 (not in thousands)
($517,483). The second claim is a civil action brought by two minors and their parents against SciVac and the Israel Ministry
of Health alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine; that Sci-B-Vac
was marketed in Israel without sufficient evidence establishing its safety; and that Sci-B-Vac was produced and marketed in Israel
without approval of a western regulatory body. The claim seeks damages for past and future losses and expenses as well as punitive
damages.
SciVac
believes these matters to be without merit and intends to defend these claims vigorously.
The
District Court has accepted SciVac’s motion to suspend reaching a decision on the approval of the class action pending the
determination of liability under the civil action. The trial of the civil action has been scheduled to begin on September 19,
2019.
Operating leases
The
Company has entered into various non-cancelable lease agreements for its office, lab and manufacturing facilities, which are classified
as operating leases. The office facility lease agreement in the United States expires on April 30, 2020, with no option to extend.
Our manufacturing facility lease agreement expires on January 31, 2022, which includes one five-year option to extend until January
31, 2027. The lease agreement for our research facility in Canada, which comprises of office and laboratory space, expires on
December 31, 2019 with the option to extend the term for two periods of three years.
Options
to extend are not recognized as part of the lease liabilities or recognized as right to use assets. There are no residual
value guarantees, no variable lease payments, and no restrictions or covenants imposed by leases. The discount rate used in measuring
the lease liabilities and right of use assets was determined by reviewing our incremental borrowing rate at the initial
measurement date.
Three months ended March 31, 2019
|
|
|
|
|
|
Lease cost:
|
|
|
|
Operating lease costs
|
$
|
280
|
|
|
|
|
|
Other information:
|
|
|
|
Weighted average remaining lease term
|
|
2.21
years
|
|
Weighted average discount rate
|
|
12
|
%
|
Operating lease costs are included in general
and administrative (“G&A”) expenses in the statement of operation and comprehensive loss.
Operating cash flow supplemental information
as of March 31, 2019:
On January 1, 2019, initial right of use
("ROU") assets of $1,653 was recognized as a non-cash asset addition with the adoption of the new lease standard. During
the three months ended March 31, 2019, the Company entered into a new lease agreement and recognized a ROU asset of $222.
The
following table summarizes future undiscounted cash payments reconciled to the lease liabilities:
Year ending December 31
|
|
|
|
|
|
|
|
Remaining 2019
|
|
$
|
760
|
|
2020
|
|
|
617
|
|
2021
|
|
|
541
|
|
2022
|
|
|
45
|
|
|
|
|
|
|
Total
|
|
$
|
1,963
|
|
|
|
|
|
|
Effect of discounting
|
|
|
(244
|
)
|
|
|
|
|
|
Total lease liability
|
|
$
|
1,719
|
|
|
|
|
|
|
Less: current portion
|
|
|
(795
|
)
|
|
|
|
|
|
Long term lease liability
|
|
$
|
924
|
|
ASC
840 comparative period disclosure
The
future annual minimum payments under these leases is as follows:
Year ending December 31
|
Remaining 2019
|
|
$
|
760
|
|
2020
|
|
|
617
|
|
2021
|
|
|
541
|
|
2022
|
|
|
45
|
|
|
|
|
|
|
Total
|
|
$
|
1,963
|
|
13.
SEGMENT INFORMATION
The
Company’s Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker. The CEO
evaluates the performance of the Company and allocates resources based on the information provided by the Company’s internal
management system at a consolidated level. The Company has determined that it has only one operating segment.
Revenues
from external customers are attributed to geographic areas based on location of the contracting customers:
|
|
Three Months Ended
March 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Israel
|
|
$
|
99
|
|
|
$
|
106
|
|
China / Hong Kong
|
|
|
261
|
|
|
|
30
|
|
Europe
|
|
|
-
|
|
|
|
42
|
|
Total
|
|
$
|
360
|
|
|
$
|
178
|
|
There
was no revenue attributed to our country of domicile, Canada, for the three months ended March 31, 2019 and 2018.
14.
SUBSEQUENT EVENTS
Subsequent
to March 31, 2019, the Company granted 300,000 stock options to new directors and employees pursuant to the 2016 Plan. 200,000
stock options vest on a monthly basis over 36 months and 100,000 stock options vest 25% on the first anniversary of the grant
date and the remainder will vest on a monthly basis over 36 months thereafter. The options automatically expire 10 years from
grant date.