ITEM
1. BUSINESS
Overview
VBI
Vaccines Inc. (“VBI”) is a biopharmaceutical company driven by immunology to deliver powerful prevention and treatment
of disease. Through its innovative approach to virus-like particles (“VLPs”), including a proprietary enveloped VLP
(“eVLP”) platform technology, VBI develops vaccine candidates that mimic the natural presentation of viruses, designed
to elicit the innate power of the human immune system. VBI is committed to targeting and overcoming significant infectious diseases,
including hepatitis B, coronaviruses, and cytomegalovirus (“CMV”), as well as aggressive cancers including
glioblastoma (“GBM”). VBI is headquartered in Cambridge, Massachusetts, with research operations in Ottawa,
Canada, and a research and manufacturing site in Rehovot, Israel.
Product
Pipeline – Lead Program Candidates
VBI’s
pipeline is comprised of vaccine and immunotherapeutic candidates developed by virus-like particle technologies to target two
distinct, but often related, disease areas – infectious disease and oncology. We prioritize the development of candidates
for disease targets that are challenging, underserved, and where the human immune system, when powered and stimulated appropriately,
can be a formidable opponent.
VLP
vaccines are a type of sub-unit vaccine, in which only the portions of viruses critical for eliciting an immune response
are presented to the body. Because of their structural similarity to viruses presented in nature, including their particulate
nature and repetitive structure, virus-like particles (VLPs) can stimulate potent immune responses. VLPs can be customized
to present any protein antigen, including multiple antibody and T cell targets, making them, we believe, ideal technologies for
the development of both prophylactic and therapeutic vaccines. However, only a few antigenic proteins self-assemble
into VLPs, which limit the number of potential targets. Notably, HBV antigens are among those that are able to spontaneously form
orderly VLP structures. VBI’s proprietary enveloped VLP (eVLP) platform technology expands the list of potentially-viable
target indications for VLPs by providing a stable core (Gag Protein) and lipid bilayer (the “envelope”). It is a flexible
platform that enables the synthetic manufacture of an “enveloped” VLP, or “eVLP”, which looks structurally
and morphologically similar to the virus, with no infectious material.
Indication
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Program
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Technology
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Current
Status
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Prophylactic
Candidates
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Hepatitis B (“HBV”)
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3-antigen
Vaccine
(Israel
brand name Sci-B-Vac®)
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VLP
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BLA
and MAA Accepted;
Approved
in Israel
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Cytomegalovirus (“CMV”)
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VBI-1501
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eVLP
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Phase
I Completed
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Pan-coronavirus
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VBI-2901
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eVLP
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Pre-Clinical
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COVID-19
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VBI-2902
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eVLP
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Pre-Clinical
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Therapeutic
Candidates
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Hepatitis B (“HBV”)
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VBI-2601
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VLP
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Ongoing
Phase Ib/IIa
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Glioblastoma (“GBM”) + Other CMV-Associated Cancers
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VBI-1901
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eVLP
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Ongoing
Phase I/IIa
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A
summary of these programs and recent developments follows.
Prophylactic
Pipeline
3-antigen
HBV Vaccine
A
scientifically-differentiated approach to HBV vaccination, our 3-antigen HBV vaccine candidate expresses all three surface
antigens of HBV – pre-S1, pre-S2, and S. Published data demonstrate pre-S1 antigens induce key neutralizing antibodies that
block virus receptor binding, and T cell responses to pre-S1 and pre-S2 antigens can further boost responses to the S antigen.
Our 3-antigen HBV vaccine is further distinguished from other commercially available HBV vaccines because it is produced in mammalian
cells (Chinese hamster ovary “CHO” cells) rather than in yeast.
Our
3-antigen hepatitis B vaccine is approved for use and commercially available in Israel, under the brand name Sci-B-Vac®,
and successfully completed its pivotal Phase III program in the United States, Europe, and Canada in January 2020. This Phase
III program consisted of two Phase III studies – PROTECT and CONSTANT – designed to assess efficacy and safety of
VBI’s 3-antigen HBV vaccines compared with Engerix-B®, a single-antigen HBV vaccine, and lot-to-lot manufacturing
consistency of three consecutive lots of VBI’s vaccine. As announced in June 2019 and January 2020, results from these two
studies showed VBI’s 3-antigen vaccine achieved: (1) non-inferiority of seroprotection rate (SPR) in all adults age 18 and
older (VBI: 91.4% vs. Engerix-B: 76.5%); (2) superiority (as defined in the clinical protocol) of SPR in adults age 45 and older
(VBI: 89.4% vs. Engerix-B: 73.1%); (3) higher SPR and titers at all time points across all subgroup populations, including age,
diabetic status, and obesity; (4) a safety profile consistent with the known safety profile of the vaccine and comparable to that
of Engerix-B; and (5) manufacturing consistency.
The
completed Phase III studies support the regulatory submissions to the United States Food and Drug Administration (“FDA”);
the European Medicines Agency (“EMA”); the United Kingdom Medicines and Healthcare products, Regulatory Agency (“MHRA”);
and Health Canada. We submitted our Marketing Authorization Application (“MAA”) to the EMA on November 23, 2020, which
was accepted for review on December 22, 2020, and the Biologics License Application (“BLA”) to the FDA on November
30, 2020, which was accepted for review on January 29, 2021. As part of the review process, the FDA has set a Prescription Drug
User Fee Act (PDUFA) target action date of November 30, 2021. The submissions to UK and Health Canada are in process
and we expect to complete those regulatory filings in 2021.
On
December 7, 2020, we announced a partnership for the commercialization of our 3-antigen HBV vaccine with Syneos Health (“Syneos”),
who was selected for their robust and innovative commercialization experience and deep vaccine expertise, including successful
partnerships with leading vaccine manufacturers.
VBI-2900:
Coronavirus Vaccine Program (VBI-2901 & VBI-2902)
In
response to the ongoing SARS-CoV-2 (COVID-19) pandemic, VBI initiated development of a prophylactic coronavirus vaccine
program. Coronaviruses are enveloped viruses by nature which make them a prime target for VBI’s flexible eVLP platform technology.
On
March 31, 2020, we announced a collaboration with the National Research Council of Canada (“NRC”), Canada’s
largest federal research and development organization, to develop a coronavirus vaccine candidate. The collaboration combines
VBI’s viral vaccine expertise, eVLP technology platform, and coronavirus antigens with the NRC’s uniquely designed
SARS-CoV-2 antigens and assay development capabilities to select the most immunogenic vaccine candidate for further development.
On
July 3, 2020, we and the NRC as represented by its Industrial Research Assistance Program (“IRAP”) signed a contribution
agreement whereby the NRC agreed to contribute up to CAD $1 million for the transfer and scale-up of the technical production
process for our prophylactic coronavirus vaccine program.
On
August 5, 2020, we announced that VBI Cda had been awarded up to a CAD$56 million contribution from the Strategic Innovation
Fund (“SIF”), established by the Government of Canada, to support the Company’s coronavirus vaccine development
program through Phase II clinical studies. This award is governed by the terms of a Contribution Agreement (the “Contribution
Agreement”), dated September 16, 2020, with Her Majesty The Queen in Right of Canada, as represented by the Minister of
Industry, pursuant to which our subsidiary, Variation Biotechnologies Inc., is obligated to develop a novel, broadly reactive
coronavirus vaccine against COVID-19, SARS, and MERS, and/or a monovalent vaccine targeting only COVID-19 through Phase II studies.
We agreed to complete such project in or before the first quarter of 2022, which will be conducted exclusively in Canada, except
as permitted otherwise under certain circumstances.
On
August 26, 2020, we announced data from three pre-clinical studies conducted to enable selection of optimized clinical candidates
for our coronavirus vaccine program. As a result of these studies, VBI selected two vaccine candidates, with the goal of bringing
forward candidates that add meaningful clinical and medical benefit to those already approved – be it as a one-dose administration
and/or providing broader protection against known and future mutated strains of COVID-19: (1) VBI-2901, a trivalent pan-coronavirus
vaccine candidate expressing the COVID-19, SARS, and MERS spike proteins; and (2) VBI-2902, a monovalent vaccine candidate expressing
an optimized “prefusion” form of the COVID-19 spike protein. The initial clinical study of the first candidate (VBI-2902)
is expected to initiate in March 2021, subject to release of clinical materials and regulatory approval. Work is ongoing
to further optimize and manufacture VBI-2901, with the anticipation that a Phase I/II study will begin later in 2021. On December
21, 2020, we signed an amendment to the collaboration agreement with the NRC to broaden the scope of collaboration to include
certain pre-clinical evaluations, bioprocess optimization, technology transfer, and the performance of additional scale up work.
The amendment also extended the expiry date of the agreement to March 15, 2022.
VBI-1501:
Prophylactic CMV Vaccine Candidate
CMV
may cause severe infections in newborn children (congenital CMV) and may also cause serious infections in people with weakened
immune systems, such as solid organ or bone marrow transplant recipients. Our prophylactic CMV vaccine candidate uses the eVLP
platform to express a modified form of the CMV glycoprotein B (“gB”) antigen and is adjuvanted with alum, an adjuvant
used in FDA-approved products.
Following
the successful completion of the Phase I study in May 2018, and positive discussions with Health Canada, we announced plans for
a Phase II clinical study evaluating VBI-1501 on December 20, 2018. We received similarly positive guidance from the FDA in July
2019. The Phase II study is expected to assess the safety and immunogenicity of dosages of VBI-1501 up to 20µg with alum.
We are currently evaluating the timing of the Phase II study.
Therapeutic
Pipeline
VBI-2601:
HBV Immunotherapeutic Candidate
VBI-2601
(BRII-179) is our novel, recombinant, protein-based immunotherapeutic candidate in development for the treatment of chronic HBV
infection, a disease that affects more than 250 million people worldwide. Chronic HBV infection can lead to cirrhosis of the liver,
hepatocellular cancer, and other liver disease, making it a life-threatening global health problem. VBI-2601 (BRII-179) is formulated
to induce broad immunity against HBV virus, including T-cell immunity which plays an important role in controlling HBV infection.
VBI-2601
(BRII-179) is in an ongoing Phase Ib/IIa study in patients with chronic HBV infection, which initiated enrollment in November
2019, and is being conducted by our partner Brii Biosciences Limited (“Brii Bio”) pursuant to a Collaboration
and License Agreement (“License Agreement”) announced on December 6, 2018. The Phase Ib/IIa study is a randomized,
controlled study designed to assess the safety, tolerability, antiviral and immunological activity of VBI-2601 (BRII-179). The
study is designed as a two-part dose-escalation study assessing different dose levels of VBI-2601 (BRII-179) with and without
an immunomodulatory adjuvant and enrolled 46 patients. The study is being conducted at multiple study sites in New Zealand, Australia,
Thailand, South Korea, Hong Kong SAR, and China.
On
November 18, 2020, we announced interim data from the low-dose cohorts, which achieved human proof-of-concept, demonstrating restoration
of both antibody and T cell responses in chronically-infected HBV patients. The data showed 1) potent re-stimulation of T cell
responses to HBV surface antigens in 67% (n=6/9) and 78% (n=7/9) of evaluable patients in the low-dose VBI-2601 unadjuvanted and
adjuvanted study arms, respectively; and 2) antibody responses against HBV surface antigens in 60% of evaluable patients (n=6/10)
in the unadjuvanted cohort and in 67% (n=6/9) in the adjuvanted cohort. The low-dose, with and without the adjuvant, was well-tolerated
with no safety signals observed. Based on the results of this study, Brii Bio is planning to initiate a Phase II clinical study
in Q1 2021 to assess the safety and efficacy of the combination of VBI-2601 (BRII-179) and BRII-835 (VIR-2218), a novel,
investigational RNA interference therapeutic, in chronically infected HBV patients who are on stable nucleos(t)ide therapies.
VBI-1901:
CMV-Associated Cancer Vaccine Immunotherapeutic Candidate
Our
cancer vaccine immunotherapeutic program, VBI-1901, targets CMV proteins present in tumor cells. CMV is associated with a number
of solid tumors including glioblastoma (“GBM”), breast cancer, and pediatric medulloblastoma.
In
January 2018, we initiated dosing in a two-part, multi-center, open-label Phase I/IIa clinical study of VBI-1901 in 38 patients
with recurrent GBM. Phase I (Part A) of the study was a dose-escalation phase that defined the safety, tolerability, and optimal
dose level of VBI-1901 adjuvanted with granulocyte-macrophage colony-stimulating factor (GM-CSF) in recurrent GBM patients with
any number of prior recurrences. In December 2018, this phase completed enrollment of 18 patients across three dose
cohorts, the highest of which (10 µg) was selected as the optimal dose level to test in the Phase IIa portion (Part B) of
the study. Phase IIa of the study, which initiated enrollment in July 2019, is a subsequent extension of the 10 µg doses
level cohort. This phase is a two-arm study that enrolled 20 first-recurrent GBM patients to receive 10 µg of VBI-1901 in
combination with either GM-CSF or GlaxoSmithKline Biologicals S.A. (“GSK”) proprietary adjuvant system, AS01, as immunomodulatory
adjuvants. AS01 is provided pursuant to a Clinical Collaboration and Support Study Agreement (“Collaboration Agreement”)
we entered into with GSK on September 10, 2019. Enrollment of the 10 patients in the VBI-1901 with GM-CSF arm was completed in
March 2020 and enrollment of the 10 patients in the VBI-1901 with AS01 was completed in October 2020.
Data
from the ongoing Phase IIa portion of the study was announced throughout 2020, with the latest data presented in November 2020
at the Society for Neuro-Oncology (SNO) 2020 Annual Meeting. This data showed two partial responses (“PRs”) and two
stable disease (“SD”) observed in the VBI-1901 plus GM-CSF vaccinated group, resulting in a disease control rate of
40% (n=4/10). A 56% disease control rate was achieved in the group vaccinated with VBI-1901 plus AS01, with 5 stable disease observations
(n=5/9). Presumed pseudoprogression was observed in both vaccinated groups, defined as immune infiltration into the tumor which
appears initially as tumor growth but later subsides resulting in tumor growth stabilization and/or shrinkage. In the VBI-1901
plus GM-CSF study arm, a normal baseline CD4+/CD8+ T cell ratio was identified as a biomarker associated with tumor response.
In the VBI-1901 plus AS01 study arm, however, tumor responses were seen regardless of this biomarker, suggesting that AS01 may
help overcome deficits in immune function.
VBI-1901
continues to be safe and well tolerated at all doses tested, with no safety signals observed.
Based
on the data seen to-date, VBI is exploring a randomized, controlled, clinical study with registration potential for the next phase
of development, which, subject to approval from regulatory bodies, is expected to begin in 2021.
In
addition to the lead program candidates described above, we may also seek to in-license clinical-stage vaccines or vaccine-related
technologies that we believe complement our product and pipeline portfolio, in addition to technologies that may supplement our
therapeutic and preventative vaccination efforts in both immuno-oncology and infectious disease.
Impact
of the COVID-19 Pandemic on Our Business
In
December 2019, SARS-CoV-2 was reported to have surfaced in Wuhan, China, and on March 12, 2020, the WHO declared the global outbreak
of COVID-19, the disease caused by SARS-CoV-2, to be a pandemic. In an effort to contain and mitigate the spread of COVID-19,
many countries, including the United States, Canada, Israel and China, have imposed unprecedented restrictions on travel, quarantines,
and other public health safety measures. According to the WHO situation report, dated as of January 5, 2021, approximately 83.3
million cases were reported globally and 1.8 million of these were deadly, making the development of effective vaccines to prevent
this disease a major global priority. Multiple vaccine candidates against SARS-CoV-2 are under development, and in December 2020,
certain large, multinational pharmaceutical companies were granted authorizations for emergency use by the FDA. In the United
States, widespread distribution of the currently available vaccines has begun pursuant to Operation Warp Speed, a partnership
among components of the U.S. Department of Health and Human Services, the Centers for Disease Control and Prevention, the National
Institutes of Health, the Biomedical Advanced Research and Development Authority, and the Department of Defense, as well as certain
private firms and other federal agencies. The treatments for COVID-19, including symptomatic and supportive therapies, among other
things, continue to be updated on a rolling basis by healthcare authorities and agencies.
Since early in the pandemic
SARS-CoV-2 variants started to emerge and certain of these variants have been identified as having a significant public health
impact. In December 2020 the United Kingdom reported to WHO a variant that contains 23
nucleotide substitutions associated with increased transmissibility. Also, in December 2020, South Africa reported to WHO a new
variant of SARS-CoV-2 named 501Y.V2. The 501Y.V2 variant is associated with a higher viral load and increased transmissibility,
and may be less sensitive to neutralizing antibody responses elicited by currently available COVID-19 vaccines. VBI is closely
following changing SARS-CoV-2 characteristics and plans to study the impact of specific mutations that may impact vaccine
efficacy and vaccine design. Further investigations are required to understand the impact of specific mutations on viral properties
and the effectiveness of vaccines.
The
ultimate impact of the global COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to future developments.
Relevant factors include but are not limited to the duration of the COVID-19 pandemic, the emergence of new variants,
and any additional preventative and protective actions that regulators, or our board of directors or management may determine
are needed. We do not yet know the full extent of potential delays or impacts on our business, our vaccine development efforts,
healthcare systems, or the global economy as a whole. However, the effects may have a material impact on our operations, liquidity,
and capital resources, and we continue to monitor the COVID-19 situation closely.
As
a result of the COVID-19 pandemic, we continue to operate in isolated groups, to reduce exposure risk, and with fewer employees
on site at both our manufacturing facility in Israel, where we manufacture our 3-antigen prophylactic HBV vaccine and VBI-2601,
and at our research and development laboratories in Ottawa, Canada. Our manufacturing facility in Israel and contract development
and manufacturing organizations (“CDMOs”) that we engage to manufacture our eVLP vaccine candidates are dependent
on sourcing raw materials from third party suppliers. The COVID-19 pandemic has impacted lead times and availability of many raw
materials, which may adversely impact our ability to manufacture products in a timely manner. Further, restrictions on our ability
to travel, stay-at-home orders and other similar restrictions on our business have limited our ability to support our operations.
We
have two ongoing clinical studies being conducted at clinical sites worldwide: the ongoing Phase Ib/IIa clinical study of VBI-2601
(BRII-179) at multiple study sites in New Zealand, Australia, Thailand, South Korea, Hong Kong SAR, and China, and the ongoing
Phase I/IIa clinical study of VBI-1901 at various hospitals in the United States. In addition to the active clinical studies,
we have several planned clinical studies expected to begin in 2021, including: a Phase II study of VBI-2601 (BRII-179) to be conducted
by Brii Bio at multiple study sites in Asia Pacific countries; a further clinical study with VBI-1901 to be conducted by
VBI in the United States; and the clinical evaluation of our coronavirus vaccine candidates in Canada. The enrollment of
patients at some of the clinical sites in our studies was suspended due to the COVID-19 pandemic and may again be suspended, and
enrollment of patients at other clinical sites may be suspended or delayed as hospitals and clinics where we are conducting or
planning to conduct clinical trials may reallocate resources and limit access to or close clinical facilities due to the COVID-19
pandemic. Additionally, if our trial participants are unable to travel to or visit to our clinical study sites as a result of
quarantines or other restrictions resulting from the COVID-19 pandemic, we will experience higher drop-out rates or delays in
our clinical studies. Government-imposed quarantines and restrictions may also require us to temporarily close our clinical sites,
research laboratories, or manufacturing facility. Furthermore, if we determine that our trial participants may suffer from exposure
to COVID-19 as a result of their participation in our clinical trials, we may voluntarily close certain clinical sites as a safety
measure until we reasonably believe that the likelihood of exposure has subsided. As a result, our expected development timelines
for VBI-2601 (BRII-179), VBI-1901, our coronavirus vaccine candidates, and possibly our regulatory timelines for our 3-antigen
prophylactic HBV vaccine candidate, may be negatively impacted.
Severe
and/or long-term disruptions in our operations will negatively impact our business, operating results and financial condition
in other ways, as well. Specifically, we anticipate that the stress of COVID-19 on healthcare systems generally around the globe
will negatively impact regulatory authorities and the third parties that we may engage in connection with the development
and testing of our coronavirus vaccine candidates.
In
addition, while the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict,
it has significantly disrupted global financial markets, and may limit our ability to access capital, which could in the future
negatively affect our liquidity. A recession or market correction resulting from the continuation of the COVID-19 pandemic may
occur and could materially affect our business and the value of our common shares.
Finally,
the FDA announced in March 2020 that it is temporarily postponing regulatory inspections of overseas facilities, such as our manufacturing
facility in Rehovot, Israel. This could cause a number of delays and/or issues for our operations, but most importantly, could
delay the review of the BLA we submitted for our 3-antigen prophylactic HBV vaccine candidate, which could delay its approval
beyond the current PDUFA target action date of November 30, 2021 (which such approval is not guaranteed). Any such delays
would have a material adverse impact on our ability to commercialize our HBV vaccine candidate in the United States.
Corporate
History
We
were incorporated under the laws of British Columbia by Memorandum of Association on April 9, 1965 under the name “Alice
Arm Molybendum Co. Ltd.” On October 21, 1965, we changed our name to “Alice Arm Mining Ltd.” and subsequently,
on July 13, 1975, changed our name to “New Congress Resources Ltd.” On January 12, 1983, we changed our name to “Levon
Resources Ltd.”
On
July 9, 2015, we, then known as Levon Resources Ltd. (“Levon”), completed a plan of arrangement (the “Levon
Merger”) pursuant to which SciVac Ltd. (“SciVac”), an Israel based company, completed a reverse takeover of
Levon. Levon changed its name from Levon Resources Ltd. to SciVac Therapeutics Inc. and SciVac became our wholly-owned subsidiary.
On
May 6, 2016, we completed our acquisition of VBI Vaccines (Delaware) Inc. (“VBI DE”), pursuant to which Seniccav Acquisition
Corporation, a Delaware corporation and our wholly-owned subsidiary, merged with and into VBI DE, with VBI DE continuing as the
surviving corporation and as our wholly-owned subsidiary (the “VBI-SciVac Merger”). Upon completion of the VBI-SciVac
Merger, we (then named “SciVac Therapeutics Inc.”) changed our name to “VBI Vaccines Inc.” and received
approval for the listing of our common shares on the NASDAQ Capital Market. Our common shares commenced trading on the NASDAQ
Capital Market at the opening of trading on May 9, 2016 under our new name and the symbol “VBIV.” Following the effective
time of the VBI-SciVac Merger, our common shares began to trade on the Toronto Stock Exchange (“TSX”) under
the new symbol “VBV.” Effective as of March 23, 2018, we voluntarily delisted our common shares from the TSX.
Our
registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver British Columbia V6C 2X8. Our principal
executive offices are located at 222 Third St. Suite 2241, Cambridge, MA 02142. Our manufacturing operations are located at 13
Gad Feinstein Road, POB 580, Rehovot, Israel 7610303 and our research operations are located at 310 Hunt Club Road East, Suite
201, Ottawa, Ontario Canada K1V 1C1.
Background
of VBI DE
VBI
DE was originally established in 1970 as Paulson Capital Corp., an Oregon corporation (“Paulson Oregon”), which began
as a holding company whose operating subsidiary, Paulson Investment Company, Inc., was a full-service brokerage firm. Effective
March 20, 2014, Paulson Oregon changed its state of incorporation from the State of Oregon to the State of Delaware, and as a
result, Paulson Oregon became “Paulson Capital (Delaware) Corp.” and Paulson Oregon ceased to exist.
On
July 25, 2014, Variation Biotechnologies (US), Inc. (“VBI US”) completed its merger with VBI Acquisition Corp. (“Merger
Sub”), a Delaware corporation and wholly-owned subsidiary of Paulson Capital (Delaware) Corp., whereby Merger Sub merged
with and into VBI US, with VBI US continuing as the surviving corporation. As a result of this merger, VBI US was acquired by,
and became a wholly-owned subsidiary of Paulson Capital (Delaware) Corp., which changed its name to VBI Vaccines Inc. and then
subsequently to VBI Vaccines (Delaware) Inc. on July 19, 2016.
Subsidiaries
SciVac,
located in Rehovot, Israel, is our wholly-owned subsidiary that was incorporated on April 18, 2005 pursuant to the Israeli Companies
Law (1999), as amended.
VBI
DE, a Delaware corporation, is our wholly-owned subsidiary.
VBI
US, a Delaware corporation, is a wholly-owned subsidiary of VBI DE and was incorporated on December 18, 2006 in the State of Delaware.
Variation
Biotechnologies Inc. (“VBI Cda”), located in Ottawa, Ontario, Canada, is a wholly-owned subsidiary of VBI US, was
incorporated on August 24, 2001 under the Canada Business Corporations Act.
SciVac
Hong Kong Limited, is a wholly-owned subsidiary, and was incorporated pursuant to the Companies Ordinance (Chapter 622 of the
Laws of Hong Kong) on January 29, 2019.
VBI
Vaccines B.V., is a wholly-owned subsidiary, and was incorporated on October 21, 2020 in the Netherlands.
Contractual
Arrangements
Collaboration
and License Agreement with Brii Biosciences – VBI-2601 (BRII-179)
On
December 4, 2018, we entered into the License Agreement with Brii Bio, pursuant to which, among other things, subject to terms
and conditions set forth in the License Agreement:
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(i)
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we
and Brii Bio agreed to collaborate on the development of a HBV recombinant protein-based immunotherapeutic in the Licensed
Territory (as defined in the License Agreement), and to conduct a Phase Ib/IIa collaboration clinical trial for the
purpose of comparing VBI-2601 (BRII-179), which is a recombinant protein-based immunotherapeutic developed by VBI for use
in treating chronic HBV, with a novel composition developed jointly with Brii Bio (either being the “Licensed Product”)
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(ii)
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we
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 for the Licensed Product, for the treatment of HBV in the Licensed Territory and
to commercialize and promote the Licensed Product for the diagnosis and treatment of chronic HBV in the Licensed Territory;
and
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(iii)
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Brii
Bio granted us an exclusive royalty-free license under Brii Bio’s technology and Brii Bio’s interest in any joint
technology developed during the collaboration to develop and commercialize the Licensed Product for the diagnosis and treatment
of chronic HBV in the countries of the world other than the Licensed Territory.
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Pursuant
to the License Agreement and the initial development plan, Brii Bio shall fund all clinical trials for the Licensed Territory.
We and Brii Bio will jointly own all right, title and interest in the joint know-how development and the patents claiming joint
inventions made pursuant to the License Agreement.
As
part of the consideration for the collaboration, we received from Brii Bio a total upfront payment of $11 million. We are also
eligible to receive an additional $117.5 million in potential milestone payments, along with potential low double-digit royalties
on commercial sales in the Licensed Territory. In connection with the License Agreement, we and Brii Bio entered into a stock
purchase agreement, dated as of December 4, 2018, pursuant to which we issued to Brii Bio an aggregate of 2,295,082 common shares
in exchange for a gross contractual allocation of $7 million (included in the $11 million upfront payment), or $3.05 per share,
which had a fair value of $3.6 million on the date of issuance.
The
License Agreement will be in effect until the last-to-expire of the latest of the following terms in each region of the Licensed
Territory: (i) expiration, invalidation or lapse of the last of our patent claiming a Licensed Product, (ii) 10 years from the
date of first commercial sale of a Licensed Product in the applicable region, or (iii) termination or expiration of our obligation
to pay third party royalties with respect to sales of a Licensed Product. Upon expiration (but not an earlier termination) of
the License Agreement in each region of the Licensed Territory, we will grant Brii Bio a perpetual, non-exclusive, fully paid-up,
royalty free license under our technology related to the Licensed Compounds (as defined in the License Agreement) or Licensed
Products pursuant to the License Agreement in such region to make and sell Licensed Products for the diagnosis and treatment of
HBV in such region. Each party may terminate the License Agreement upon a material breach of the License Agreement which has not
been cured within 60 days (or 30 days for a breach payment obligations) after notice from the terminating party requesting cure
of the breach, or upon bankruptcy or insolvency, either voluntary or involuntary, dissolution, or liquidation of a party. In addition,
Brii Bio may terminate the License Agreement without cause upon 180 days’ notice or, if the Data and Safety Monitoring Board
or any regulatory authority in the Licensed Territory imposes a clinical hold on any clinical trial for a Licensed Product for
six consecutive months, immediately upon notice. We may terminate the License Agreement immediately upon notice, if Brii Bio or
its affiliates, directly, or indirectly through any third party, commences any interference or opposition proceeding with respect
to, challenges the validity or enforceability of, or opposes any extension of or the grant of a supplementary protection certificate
with respect to, any patents owned or controlled by us related to the composition or the method of making or using Licensed
Compounds or Licensed Products, or are otherwise necessary or useful to research, develop, make, or otherwise commercialize
the licensed compounds or Licensed Products.
Prior
to us entering into the License Agreement, we paid $6 million to terminate a distribution agreement with a third party who previously
held certain distribution rights to certain Asian markets.
Ferring
and SciGen License Agreements
Our
manufactured and marketed product, a 3-antigen prophylactic HBV vaccine, is the subject of a license agreement between
Savient Pharmaceuticals Inc. and SciGen Ltd dated June 2004, as subsequently amended (the “Ferring License Agreement”).
Under the Ferring License Agreement, we are committed to pay Ferring royalties equal to 7% of net sales (as defined therein) of
HBsAg “Product” (as defined therein). Under an Assignment Agreement between FDS Pharma LLP and SciGen Ltd.,
dated February 14, 2012 (the “SciGen Assignment Agreement”), we are required to pay royalties to SciGen Ltd. equal
to 5% of net sales (as defined in the Ferring License Agreement) of Product. Under the Ferring License Agreement and the SciGen
Assignment Agreement, we originally were to pay royalties on a country-by-country basis until the date 10 years after the date
of commencement of the first royalty year in respect of such country. In April 2019, we exercised our option to extend the Ferring
License Agreement in respect of all the countries that still make up the territory for an additional 7 years by making a one-time
payment to Ferring of $100. Royalties under the Ferring License Agreement and SciGen Assignment Agreement will continue to be
payable for the duration of the extended license periods.
Royalty
payments under the Ferring License Agreement of $20 and $38, were recorded in cost of revenues for the year ended December 31,
2020 and 2019, respectively.
Royalty
payments under the SciGen Assignment Agreement of $14 and $27 were recorded in cost of revenues for the year ended December 31,
2020 and 2019, respectively.
In
addition, we are committed to pay 30% of any and all non-royalty consideration, in any form, received by us from sub-licensees
(other than consideration based on net sales for which a royalty is due under the Ferring License Agreement), provided that the
payment of 30% shall not apply to a grant of rights in or relating to: (i) the Territory (as such term was defined in the Ferring
License Agreement prior to an amendment dated January 24, 2005); or (ii) the Berna Territory (as defined in the Ferring
License Agreement).
Government
contribution agreements
On
July 3, 2020, we and the NRC as represented by its Industrial Research Assistance Program (“IRAP”) signed a contribution
agreement whereby the NRC agreed to contribute up to CAD $1 million for the transfer and scale-up of the technical production
process for our prophylactic coronavirus vaccine program.
On
August 5, 2020, we announced that VBI Cda had been awarded up to a CAD$56 million contribution from the Strategic Innovation
Fund (“SIF”), established by the Government of Canada, to support our coronavirus vaccine development program through
Phase II clinical studies (the “Project”). This award is governed by the terms of a Contribution Agreement
(the “Contribution Agreement”), dated September 16, 2020, with Her Majesty The Queen in Right of Canada, as represented
by the Minister of Industry, pursuant to which our subsidiary, Variation Biotechnologies Inc., is obligated to develop a novel,
broadly reactive coronavirus vaccine against COVID-19, SARS, and MERS, and/or a monovalent vaccine targeting only COVID-19 through
Phase II studies. We agreed to complete such project in or before the first quarter of 2022 (“Project Completion Date”),
which will be conducted exclusively in Canada, except as permitted otherwise under certain circumstances.
Pursuant
to the Contribution Agreement, the Minister will contribute an amount not exceeding the lesser of (i) 75% of VBI Cda’s
costs incurred in respect of the Project, subject to certain eligibility limitations as set forth in the Contribution
Agreement and (ii) CAD$55,976. In consideration of such contribution, we agreed to guarantee the complete performance and
fulfillment of VBI Cda’s obligations under the Contribution Agreement. In the event VBI Cda fails to perform
or otherwise satisfy any of its obligations related to the Contribution Agreement, we will become a primary obligor under the
Contribution Agreement.
For
the term of the Contribution Agreement, VBI Cda must have exclusive ownership of all intellectual property developed
in connection with the Project (the “Project Intellectual Property”). Pursuant to the Contribution Agreement,
we are required to obtain a consent of the Minister, not to be unreasonably withheld, prior to granting any right or license to
any of the Project Intellectual Property and certain other intellectual properties that is required for the carrying out
of the Project (the “Background Intellectual Property,”); subject to certain exceptions set forth in the Contribution
Agreement. Furthermore, if we are unable to provide a sufficient Canada-sourced supply of the COVID-19 vaccine, the Minister
may require us to grant a license on commercially reasonable terms to use the Project Intellectual Property and the
Background Intellectual Property, but only to the extent necessary to ensure such supply.
Under
the terms of the Contribution Agreement, we agreed to obtain the Minister’s written consent prior to (i) making significant
changes in the scope, objectives, outcomes or benefits of the Project, (ii) dispose of any assets, which were, in whole or in
part, funded by the Minister under the Agreement, and (iii) effecting a Change in Control (as defined in the Contribution Agreement).
In addition, we will provide a written notice to the Minister of any acquisition of a business, the sale of a business or a merger
or amalgamation.
In an event of default,
subject to a rectification period available in certain circumstances, among other things, the Minister may (i) suspend or terminate
its contribution to the Project and (ii) require repayment of all or part of the contribution paid by the Minster, together with
interest from the day of demand at the interest rate set forth in the Contribution Agreement.
The
Agreement will terminate no earlier than five years following the Project Completion Date unless terminated earlier in accordance
with the terms of the Contribution Agreement. The Contribution Agreement also contains confidentiality and indemnification obligations
of the parties.
In connection with
execution of the Contribution Agreement, we obtained a consent of K2 HealthVentures LLC pursuant to the Loan Agreement defined
below. Pursuant to such consent, certain events of default that result in contributions made under the Contribution Agreement
in excess of $500, becoming due and payable could result in an event of default under the Loan Agreement.
eVLP
Technology
We
are engaged in the inbound licensing of key intellectual property (“IP”). We identified the need for a vaccine antigen
discovery and design platform and, through that certain sale and purchase agreement entered into on July 18, 2011 (the “Sale
and Purchase Agreement”) among VBI Cda and ePixis SA (“ePixis”) and the shareholders of ePixis (collectively,
the “Sellers”), acquired 100% of the outstanding shares of ePixis in order to obtain access to its exclusive rights
to key IP covering its eVLP vaccine platform (the “Technology”),
including patents (the “Acquired Patents”) covering the Technology. We paid a purchase price of €400 (approximately
$450) for the ePixis shares and approximately $75 in related transaction costs. VBI Cda also agreed to make certain contingent
payments to the Sellers as follows:
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Upon
the earlier to occur of (i) first approval by the FDA of a new drug application (an “NDA”) permitting us or any
sublicensee to market and sell any pharmaceutical product or candidate pharmaceutical product that contains or can express
an eVLP (a “eVLP Product”) in the United States or (ii) first approval by the EMA of a Marketing Authorization
Application or equivalent submission permitting us or our sublicensees to market and sell a eVLP Product candidate in one
or more countries in the EU, we must pay to the Sellers €1,000, or, if there are no longer any issued and valid claims
of the Acquired Patents in effect at the date such event occurs, €500.
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If
an eVLP Product is commercialized, we will be required to pay the Sellers the following:
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On
the date that Cumulative Net Sales (as defined in the Sale and Purchase Agreement), of all eVLP Products equals or exceeds
€25,000, we must pay to the Sellers €1,500, or, if there are no longer any issued and valid claims of the Acquired
Patents in effect at the date such event occurs, €750; and
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On
the Date that Cumulative Net Sales of all eVLP Products equals or exceeds €50,000 in the aggregate, we must pay to the
Sellers €2,000 or, if there are no longer any issued and valid claims of the Acquired Patents in effect at the date such
event occurs, €1,000.
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If
any eVLP Product is commercialized by one or more sublicensees, we have agreed to make the following payments to the Sellers:
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On
the date that Cumulative Net Sales by us or any sublicensees of the eVLP Products equal or exceed €25,000 in the aggregate,
we must pay to the Sellers €750, or, if there are no longer any issued and valid claims of the Acquired Patents in effect
at the date such event occurs, €375;
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On
the date that Cumulative Net Sales made by us or any sublicensees of the eVLP Products equal or exceed €50,000 in the
aggregate, we must pay to the Sellers €750, or, if there are no longer any issued and valid claims of the Acquired Patents
in effect at the date such event occurs, €375;
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On
the date that Cumulative Net Sales made by us or any sublicensees of the eVLP Products equal or exceed €75,000 in the
aggregate, we must pay to the Sellers €1,000, or, if there are no longer any issued and valid claims of the Acquired
Patents in effect at the date such event occurs, €500; and
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On
the date that Cumulative Net Sales made by us or any sublicensees of the eVLP Products equal or exceed €100,000 in the
aggregate, we must pay to the Sellers €1,000, or, if there are no longer any issued and valid claims of the Acquired
Patents in effect at the date such event occurs, €500.
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Included
in the eVLP Acquired Patents were patents (the “UPMC Patents”) co-owned by L’Universite Pierre et Marie Curie,
now Sorbonne Université (“UPMC”), and the Institut National de la Santé et de la Recherche Médicale
(“INSERM”), both in Paris, France. In July 2006, ePixis entered into a license agreement (the “ePixis License
Agreement”) with UPMC, INSERM, and L’école Normale Supérieure de Lyon (collectively the “Licensor”)
pursuant to which the Licensor granted to ePixis an exclusive license (with the right to sublicense with written consent from
UPMC) to exploit the UPMC Patents for the purpose of developing, promoting and marketing products within the United States, Japan,
Canada, and Europe until the expiry of the last of the UPMC Patents, including any supplementary protection certificates.
Pursuant to the ePixis License Agreement, ePixis was to pay certain fees to the Licensor based on net sales (as defined in the
ePixis License Agreement) of products developed from the UPMC Patents, sublicensing income based on net sales (“Sublicensing
Payments”) and one-time payments (“Lump Sum Payments”) for each product developed from the UPMC Patents. ePixis
also agreed to reimburse UPMC for fees and costs related to filing and maintaining the patent applications.
On
July 12, 2011, the parties to the ePixis License Agreement entered into the first amendment to the ePixis License Agreement (the
“ePixis Amendment”). The ePixis Amendment authorized the transfer of the ePixis License Agreement to VBI Cda
and laid out new financial terms and conditions for the rights granted under the ePixis License Agreement.
The
ePixis Amendment provides that the fees to be paid to the Licensor by ePixis on net sales of eVLP Products based on the UPMC Patents
will be 1.75% of net sales for annual sales between €0 and €50,000, 1% of net sales for annual sales between €50,000
and €100,000, and 0.75% of net sales for annual sales in excess of €100,000. Pursuant to the ePixis Amendment, Lump
Sum Payments shall be made as follows:
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€50
when the results from pre-clinical studies are sufficient to allow a product to enter a regulatory filing similar to an IND
or a similar entity in a country other than the United States; this milestone was met and paid during the year ended December
31, 2016 for the CMV candidate and during the year ended December 31, 2018 for the GBM candidate. During the year ended December
31, 2020, the milestone was met and has been included in other current liabilities on the consolidated balance sheet, for
the monovalent prophylactic coronavirus vaccine candidate;
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€150
when the results from pre-clinical studies are sufficient to allow a product into a clinical phase, including Phase I-II clinical
studies; this milestone was met and paid during the year ended December 31, 2016 for the CMV candidate and during the year
ended December 31, 2018 for the GBM candidate;
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€250
when a product enters Phase II clinical studies, an event that is defined by the enrollment of the first patient;
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€500
when a product enters Phase III clinical studies; and
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€1,000
when a product is first marketed.
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UPMC is also a co-owner
of the patent family covering our VBI-1501 CMV vaccine and we are currently negotiating extension of our existing license to cover
this patent family.
Fees
on income earned from sublicenses under the ePixis Amendment
were revised as follows: 25% of any amounts received by ePixis for the sublicense if the sublicense is entered into prior to the
start of Phase I clinical studies; 10% of any amounts received by ePixis if the sublicense is entered into during Phase I clinical
studies and prior to the start of Phase II clinical studies; 7% of any amounts received by ePixis if the sublicense is entered
into during Phase II clinical studies and prior to the start of Phase III clinical studies, and 5% of any amounts received by
ePixis if the sublicense is entered into after the start of Phase III clinical studies. There was no change to the requirement
that ePixis reimburse UPMC for fees and costs related to filing and maintaining the patent applications and patents.
The
parties may terminate the ePixis License Agreement, as amended, by mutual agreement. There is also a cancellation right that may
be exercised in the event of breach. UPMC may terminate the ePixis License Agreement if we, among other things, declare bankruptcy;
do not put forth reasonable effort or are unable to develop and market the products, and, in particular, if we suspend the development
of the products for more than six months; our inability to make the payments required by the ePixis License Agreement; lack of
sales of a product, or lack of a signed sub-license agreement within one year from the date of acquiring AMM (Autorisation de
mise sur le marché – Regulation of Therapeutic Goods) authorization, or the necessary equivalent authorization for
the use of the products; and lack of sales of a product for more than two years after the initial marketing has taken place. During
the year-ended December 31, 2016, VBI Cda paid UPMC €200 in milestone payments related to CMV Phase I clinical trial approval
and start. During the year ended December 31, 2018, VBI Cda paid UPMC €200, in milestone payments related to the GBM Phase
I/IIa clinical trial approval and start. No payments have been made in 2020 or 2019, however we are obligated to make a payment
of €50 in 2021 in relation to our prophylactic coronavirus vaccine program and to potentially make additional payments upon
the start of any clinical studies.
Description
of Operations
We
are headquartered in Cambridge, Massachusetts, with our manufacturing facility in Rehovot, Israel and our research facility in
Ottawa, Ontario, Canada. The Cambridge headquarters allows us to leverage our location in a biotechnology hub, and provides us
with access to experienced consultants and executive level talent.
We
operate a proprietary, mammalian cell-derived vaccine manufacturing facility in Rehovot, Israel, which we use to manufacture our
3-antigen prophylactic HBV vaccine, as well as clinical study supply of VBI-2601 (BRII-179). The facility was built in December
2006 and was GMP certified by the IMoH. It has also received IMoH authorization to release vaccine batches to export markets.
In 2013, the EU entered into an agreement with Israel regarding conformity assessment and acceptance of industrial products. This
agreement recognizes Israel’s industrial standards as being equivalent to EU standards. It covers products for human and
veterinary use (medicinal products, active pharmaceutical ingredients and excipients) and procedures related to GMP. The agreement
means that Israel and the EU recognize each other’s GMP inspection conclusions, manufacturing and import authorizations
and certification of conformity of batches; however, our facility will have to pass FDA inspection as part of the BLA application
process for our 3-antigen prophylactic HBV vaccine candidate in the United States. In 2018, we temporarily closed our manufacturing
facility for modernization and capacity increase. We re-commenced operations in May 2019, and we received a certificate of GMP
compliance from the IMoH on January 27, 2020. In addition to the GMP compliance certification, the IMoH will also need to review
and approve the process validation submission and provide approval for us to sell our 3-antigen prophylactic HBV vaccine manufactured
at the modernized facility. We increased the capacity of our manufacturing facility to be able to supply commercial quantities
of our 3-antigen prophylactic HBV vaccine upon marketing authorization and approval in the U.S., Europe, and Canada.
The
Canadian research site benefits from its location in Canada’s National Capital Region, providing us with access to world-class
research facilities. VBI Cda’s active research collaboration with the Canadian federal government’s NRC provides its
staff with on-site access to the NRC’s animal facility for greater control over the testing of our pipeline candidates.
NRC staff manages the general animal husbandry and maintenance requirements for VBI Cda’s animal research activities.
The
three sites collaborate efficiently through the use of a unified information technology infrastructure and web-based video-conferencing
services.
Commercialization
To
date, where approved or available through our active named-patient program, our 3-antigen prophylactic HBV vaccine is distributed
through a network of local distributors, and available under the brand name Sci-B-Vac®.
On
December 7, 2020, we announced our partnership with Syneos Health (“Syneos”) in preparation for the commercialization
of our 3-antigen prophylactic HBV vaccine in the U.S., Europe, and Canada, pending regulatory approvals. VBI and Syneos have been
working together on the pre-launch strategy and activity since 2019, and have expanded the relationship to build the leadership
team and field teams dedicated to VBI, incorporating full-service commercialization solutions. The
Master Commercial Services Agreement (“Commercial Agreement”), dated December 17, 2019, has an initial term of five
(5) years. Details regarding activities, leaderships team, and field teams are covered in various work orders, entered into
pursuant to and governed by the Commercial Agreement.
Customers
Our
customers for our 3-antigen prophylactic HBV vaccine are mainly physicians and pharmacists in markets where the product is approved.
Through
SciVac, services are also made available to the biotechnology industry in Israel pursuant to an agreement with the Israel Innovation
Authority (formerly the Office of the Chief Scientist in Israel) and ancillary to the core vaccine development and manufacturing
focus.
In
addition to direct sales of our 3-antigen prophylactic HBV vaccine in approved territories, we are also engaged in the
development of vaccine platforms and products which may be licensed to major pharmaceutical companies and larger biotechnology
companies.
Competitors
Our
products and pipeline candidates face, and will continue to face, intense competition from large pharmaceutical companies,
specialty pharmaceutical and biotechnology companies as well as academic and research institutions. We compete in an industry
that is characterized by: rapid technological change; evolving industry standards; emerging competition; and new product
introductions. Competitors have existing products and technologies that will compete with our pipeline candidates and
technologies and may develop and commercialize additional products and technologies that will compete with our pipeline
candidates and technologies. Because several competing companies and institutions may have greater financial resources than
us, they may be able to: provide broader services and product lines; make greater investments in research and development
(“R&D”); and carry on larger R&D initiatives. Competitors may also have greater development capabilities
than we do and have substantially greater experience in undertaking nonclinical and clinical testing of products, obtaining
regulatory approvals and manufacturing and marketing pharmaceutical products. They may also have greater name recognition and
better access to customers.
We
face general market competition from several subsectors of the vaccine development field, including: large, multinational pharmaceutical
companies including Sanofi S.A. (“Sanofi”), GSK, Merck & Co (“Merck”), Janssen Pharmaceutical,
Inc (“Janssen”), Mitsubishi Tanabe Pharma Corporation, Takeda Pharmaceutical Company Limited and Pfizer, Inc. (“Pfizer”);
mid-size pharmaceutical companies and emerging biotechnology companies including Dynavax Technologies Corporation (“Dynavax”),
Novavax Inc., Moderna, Inc., BioNTech SE, and Hookipa Biotech AG; and academic and not-for-profit vaccine researchers and developers
including the National Institutes of Health. The industry is typified by extensive collaboration, licensing, and merger and acquisition
activity despite the intense competition.
Within
the HBV vaccine space, we have several key competitors currently commercializing single-antigen HBV vaccines, including: GSK,
the manufacturer of Engerix-B and Twinrix, Merck, the manufacturer of Recombivax HB, and Dynavax, the manufacturer of Heplisav-B.
Within
the therapeutic HBV space, we face both competition from and potential collaboration with other developers of innovative HBV therapeutics
designed to achieve a functional cure in combination with other therapeutics. Key large pharmaceutical companies in the space
include: GSK, Janssen, Gilead Sciences, Inc, and F. Hoffmann-La Roche Ltd (“Roche”). Additionally, there are a number
of mid-size companies developing alternative approaches to treat HBV, including: VIR Biotechnology Inc., Arbutus Biopharma Corp,
Dicerna Pharmaceuticals Inc, and Assembly Biosciences, Inc. It is not yet known which modes of action, or combinations thereof,
will lead to a HBV functional cure.
Given
the significant unmet medical need for GBM, there are numerous competitors seeking to develop new immunotherapies or vaccines
to treat GBM. Among these, Immunomic Therapeutics Inc (“Immunomic”), Immatics Biotechnologies GmBH, Stemline Therapeutics
Inc., Mimivax LLC, and Inovio Pharmaceuticals Inc are developing vaccines that are also currently completing clinical studies.
Immunomic’s approach also targets CMV antigens associated with GBM using a dendritic cell vaccine. Additional cell-based
therapies and oncolytic viruses include those under clinical study by DNAtrix Inc, Transgene SA, and Ziopharm Oncology Inc.
Within
the COVID vaccine space, over one hundred vaccine candidates against SARS-CoV-2 are under development, and in December 2020, two
vaccines were granted authorizations for emergency use by the FDA – one from Pfizer, Inc./BioNTech SE and one from Moderna,
Inc. In February 2021, an additional emergency use authorization was granted to Janssen. Additional emergency use authorizations
and approvals are anticipated in 2021 and beyond. Key companies in the space with late-stage clinical or pre-approval vaccine
candidates include, Novavax, Inc., AstraZeneca PLC, CureVac N.V., Medicago Inc., GSK, Sanofi S.A., Dynavax, and Valneva
SE. Dozens of additional companies and institutions are running clinical studies, and we expect the COVID space to evolve rapidly
over the next year.
Within
the CMV vaccine space, we have several key competitors, some of whom are further advanced with their CMV vaccine development.
Among these, Merck’s CMV vaccine entered Phase II testing in 2019 and Moderna Inc’s CMV vaccine is in Phase II. Additionally,
Hookipa Biotech AG is engaged in clinical development of a prophylactic CMV vaccine.
Suppliers,
Contractors and Collaborations
Suppliers
We
rely on a single source for our supply of vials and certain raw materials required for the manufacturing of our 3-antigen prophylactic
HBV vaccine. We have supply agreements with these vendors intended to assure quality and flow of materials.
Alternative sources from which we can obtain our supply of these materials is under assessment. We may not be able to find alternative
suppliers in a timely manner that would provide supplies of these materials at acceptable quantities and prices, if at all. Additionally,
critical supplies and reagents are also required by our Contractors for manufacturing and release testing of our eVLP-based pipeline
candidates. Any interruption in the supply of these materials would disrupt our ability to manufacture our 3-antigen prophylactic
HBV vaccine and our pipeline candidates and could have a material adverse effect on our business.
Contractors
We
enter into contracts in the normal course of business with contract research organizations (“CROs”) for clinical trials
and CDMOs for manufacturing of our eVLP vaccine candidates. We also enter into contracts in the normal course of operations with
vendors for research studies, research supplies and other services and products for operating purposes. These contracts generally
provide for termination on notice.
We
engage CRO’s to conduct our clinical programs including the ongoing GBM Phase I/IIa clinical program and our prophylactic
coronavirus vaccine program. Our reliance on these CRO’s reduces our control over these activities and involves certain
risks. See “Risk Factors” on page 21 for more information regarding the risks associated with our reliance on CROs.
We
engage CDMOs to manufacture our eVLP vaccine candidates and these CDMOs are dependent on sourcing raw materials from third party
suppliers. Our reliance on these CDMOs reduces our control over these activities and involves certain risks. See “Risk Factors”
on page 21 for more information regarding the risks associated with our reliance on CDMOs.
We
rely on a number of contractors to provide services to characterize and release our 3-antigen prophylactic HBV vaccine for Israel
and on a named patient basis where it is not approved. While alternative contractors exist for these services, we may not
be able to transition to alternative contractors in a manner that does not disrupt the normal course of manufacturing operations
and the supply of our 3-antigen prophylactic HBV vaccine.
Our
novel vaccine development efforts depend on a number of key suppliers to continue our research operations. We have identified
the following parties as key suppliers of reagents, technology or expertise which impact our development plans with our eVLP pipeline
candidates:
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UPMC
is the owner of the eVLP vaccine platform IP portfolio to which we have an exclusive license. Under the terms of the ePixis
License Agreement, as amended, we are required to pay royalties for successful products developed using the IP for as long
as patent claims cover the period in a given jurisdiction. This patent portfolio has claims that are expected
to remain in force until 2022 in the United States and 2021 in other countries, after which time we are no longer obligated
to compensate UPMC for development of vaccines based on the UPMC IP portfolio. After that time, the remaining patent protection
of the CMV vaccine candidate will be based on patents and patent applications co-owned with UPMC which, if granted,
would provide patent protection extending until 2032. We are currently negotiating extension of the ePixis License Agreement
to cover the CMV patents and patent applications. There can be no assurance that any pending patent applications
will be granted or, if granted, will be enforceable, and the claims in pending patent applications may be amended
to reduce the scope of patent claims.
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We
have collaborated with NRC on various vaccine projects since 2004 and have a long history of successful partnerships including
several NRC-administered industrial research grants. The NRC developed a proprietary cell line (HEK-293-NRC) that we
are using for production of our eVLP-based vaccine candidates. VBI Cda and the NRC have signed a research agreement
that provides VBI Cda with access to NRC facilities and expertise for the advancement of our vaccine candidate programs.
Supplementary to such research agreement, we negotiated terms for a non-exclusive license to the HEK-293-NRC cell line.
Under these terms, we were required to pay success-based milestone payments until the patents on the cell line expired in
November of 2018. We are collaborating with NRC to develop a coronavirus vaccine candidate. The collaboration combines our
viral vaccine expertise, eVLP technology platform, and coronavirus antigens with the NRC’s uniquely designed SARS-CoV-2
antigens and assay development capabilities to select the most immunogenic vaccine candidate for further development. The
scope of collaboration includes certain pre-clinical evaluations, bioprocess optimization, technology transfer, and the performance
of additional scale up work.
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Key
Reagent Suppliers: Characterization and release assays for our eVLP-based vaccines require specialized reagents. Several key
reagents including reference proteins and growth media are provided by third parties and can impact development timelines.
We have secured sufficient quantities of third-party reference proteins and growth media for ongoing and planned clinical
studies. Supply of these key reagents remains a risk. See “Risk Factors” on page 21 for more information regarding
the risks associated with our reliance on key reagents.
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We,
through our wholly-owned subsidiaries, depend on subcontractor arrangements to facilitate the completion of our research programs.
Catalent Biologics, previously Paragon Bioservices, has manufactured clinical batches of our CMV vaccine candidate and our
GBM immunotherapeutic vaccine candidate pursuant to the terms of a GMP-Manufacturing Services Agreement dated September 26,
2014. Resilience Biotechnologies, previously Therapure Biopharma Inc., is manufacturing clinical batches of our prophylactic
coronavirus vaccine program pursuant to the terms of a Master Service and Supply Agreement dated November 10, 2020. The Company
continues to explore alternative sources of product supply.
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Collaborations
We
also enter into contracts in the normal course of business with vendors for pre-clinical safety and research studies, research
supplies and other services and products for operating purposes. These contracts generally provide for termination on notice and
do not include any minimum purchase commitments, and therefore are cancellable contracts.
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On
December 4, 2018, we entered into the License Agreement with Brii Bio, pursuant to which, among other things, the parties
agreed to collaborate on the development of a protein based immunotherapeutic candidate for treatment of HBV subject to terms
and conditions set forth in the License Agreement as described in “Part I - Item I - Business - Contractual Arrangements”.
On November 14, 2019 we announced initiation of enrollment in a Phase Ib/IIa Study of VBI-2601 (BRII-179) in patients with
chronic HBV infection.
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On
September 10, 2019, we entered into the Collaboration Agreement with GSK pursuant to
which we agreed to investigate the use of GSK’s proprietary AS01 adjuvant in our
ongoing Phase I/IIa study of VBI-1901. As a result of the Collaboration Agreement, we
added a second study arm to Part B of the study and announced enrollment of patients
in the AS01B arm in March 2020, as described in “Part I - Item I - Business
- eVLP Platform - VBI-1901: Cancer Vaccine Immunotherapeutic Candidate”.
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On
March 31, 2020, we announced a collaboration with the NRC, Canada’s largest federal
research and development organization, to develop coronavirus vaccine candidate, targeting
COVID-19, SARS, and MERS. The collaboration combines VBI’s viral vaccine expertise,
eVLP technology platform, and coronavirus antigens with the NRC’s uniquely designed
SARS-CoV-2 antigens and assay development capabilities to select the most immunogenic
vaccine candidate for further development. On December 21, 2020, we signed an amendment
to the collaboration agreement with the NRC to broaden the scope of collaboration to
include certain pre-clinical evaluations, bioprocess optimization, technology transfer,
and the performance of additional scale up work. The amendment also extended the expiry
date of the agreement to March 15, 2022.
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Employees
As
of December 31, 2020, we had a total of 127 full-time and 6 part-time employees. The SciVac manufacturing site in Israel had 83
full-time employees and 3 part-time employees and the VBI Cda research site employed 36 full-time and 3 part-time employees, as
of December 31, 2020. The remaining 9 full-time employees worked out of our headquarters in Cambridge, MA. None of our employees
are represented by unions. Our management considers its relationship with our employees to be good.
Facilities
and Offices
Our
registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with our headquarters located
at 222 Third Street, Suite 2241, Cambridge, MA 02142. Our manufacturing operations are located in Rehovot, Israel and our primary
research facility is located in Ottawa, Ontario, Canada, refer to “Part I – Item 2. Properties.”
We
rent office, manufacturing and research facility space under various operating leases, and we made rent payments of $1,144 during
the fiscal year ended December 31, 2020.
We
believe that our office, manufacturing and research facilities are suitable and adequate for our current operations but will consider
term extensions or expansion of leased space, depending on market conditions and needs.
Research
and Development
We
invest heavily in R&D. R&D expenses were $14.9 million and $26.3 million for the years ended December 31, 2020
and 2019, respectively. All R&D was funded by equity financings, term loan financings, collaboration agreements, or government
grants and contributions. Our most significant R&D expenses to date have been related to the development of our 3-antigen
prophylactic HBV vaccine candidate, followed by the development of our CMV candidate, our GBM vaccine immunotherapeutic candidate,
our prophylactic coronavirus vaccine candidates, and the related eVLP platform. Although we have completed the Phase III clinical
trial for our 3-antigen prophylactic HBV vaccine candidate, our R&D expenses are expected to increase as we plan to continue
to invest in and advance our lead pipeline candidates. In addition, we may bring other pipeline candidates through the clinical
development stage and explore other vaccine opportunities and/or collaborations.
Intellectual
Property
Patents
Our
IP portfolio includes 19 active patent families consisting of 149 fully owned or co-owned or exclusively licensed
patents and patent applications. The highlights of our patent portfolio include:
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eVLP
vaccine related IP: we have an exclusive license to a patent family that protect the eVLP vaccine platform and derivatives
thereof. Among these patents are rights that were originally developed at the UPMC (now Sorbonne Universite), for with
which we hold a world-wide exclusive license to the base technology for the design of an eVLP.
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GBM
vaccine immunotherapeutic candidate related IP: we own or co-own three patent families which directly address our GBM vaccine
immunotherapeutic candidate. These patents and applications include claims to compositions of matter and methods of treating
GBM patients.
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CMV
vaccine candidate related IP: we own or co-own two patent families which directly address our CMV vaccine candidate. These
patents and patent applications include a composition of matter patent describing the CMV vaccine candidate as well
as a proprietary assay used to provide high-throughput screening of anti-CMV vaccine candidate responses.
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HBV
Immunotherapeutic candidate related IP: we own or co-own two patent families which directly address our HBV immunotherapeutic
candidate. These patent applications include claims to compositions of matter and methods of treating HBV patients.
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Coronavirus
vaccine candidate related IP: we own or co-own a patent family which directly addresses our coronavirus vaccine candidates.
These patent applications include claims to compositions of matter and methods of treating a subject at risk of COVID-19 infection.
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Lipid
Particle Vaccines (“LPV”) vaccine related IP: we own six patent families which protect our LPV technology platform.
These patents include the method for manufacturing an LPV so as to confer thermostability, the proprietary ratios of excipients
and antigens that are required to give rise to a thermostable formulation, and specific parameters required to confer thermostability
to several distinct classes of vaccine antigens and biologic proteins.
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We
have a process of continuously monitoring the competitive landscape for infectious disease vaccines to better understand the research,
business, and patent activities of our academic and industrial competitors. This process helps management to understand the competitive
positioning of our pipeline. This knowledge has informed and shaped our patent portfolio, which is designed to protect our proprietary
vaccine technologies and establish a defense against third-party infringement claims. Our licensed patent family relating to virus
like particles (7 of which have now been issued) has a patent term that extends to 2022 and in the United States and 2021 in other
countries. Our most recently filed patent family will have a patent term that extends to 2041.
Trade
Secrets
Some
of our know-how and technology is not patentable. To protect our proprietary rights in unpatentable intellectual property and
trade secrets, we require employees, consultants, advisors and collaborators to enter into agreements regarding intellectual property
and confidential information.
Trademarks
We
use the Sci-B-Vac trademark in connection with our 3-antigen prophylactic HBV vaccine. We have registered these trademarks
in 16 countries. The trademarks are renewable indefinitely, so long as we make the appropriate filings when required. We also
have a registration for the LPV mark in Canada.
Governmental
Regulation and Product Approval
Vaccine
development is a highly regulated field. The manufacturing and marketing of our potential products and our ongoing research and
development activities are subject to extensive regulation by the FDA and comparable regulatory agencies of local, state, and
foreign jurisdictions, such as Health Canada in Canada, and the European Medicines Agency in Europe. New products must go through
extensive pre-clinical and clinical development prior to product launch. This process can take more than ten years from candidate
identification to licensure/marketing approval by health authorities worldwide. Despite efforts to harmonize regulatory requirements
in different jurisdictions, there exists a divergence of legal and regulatory requirements in different countries and territories.
Delays in regulatory approval to move from one stage of development to another can potentially cause us significant delays and
can affect our market capitalization.
United
States, Europe and Canada Regulatory Agencies
Before
any of our products can be marketed and sold in the United States, Europe, or Canada, they must receive approval from the relevant
regulatory agencies, including the U.S. FDA, EMA, UK MHRA or Health Canada. To receive regulatory approvals to market any drug
or vaccine, including those we develop, the products in development must undergo rigorous pre-clinical testing and clinical studies
that demonstrate the product’s safety and effectiveness for each indicated use. This extensive regulatory path includes
process controls in development, testing, manufacturing, safety, efficacy, record keeping, labeling, storage, approval, advertising,
promotion, sale, and distribution of the pharmaceutical products.
In
general, before any new pharmaceutical or biological product can be marketed in the mentioned geographical areas, the process
typically required by the regulatory agencies includes:
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Pre-clinical
toxicology, laboratory, and animal tests;
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submission
of an investigational new drug application (an “IND”) in the United States, which must be reviewed by the FDA
before human clinical trials may begin; submission of a Scientific Advice application to EMA in Europe; or submission
of a Clinical Trial Application to Health Canada;
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adequate
and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use;
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pre-approval
inspection of manufacturing facilities and selected clinical investigator sites;
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submission
of a New Drug Application (“NDA”), or in the case of a biologics, a BLA, to the FDA, a MAA to the EMA,
or a NDS to Health Canada; and
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FDA
approval of an NDA, BLA or a supplement (for subsequent indications or other modifications, including a change
in location of the manufacturing facility), EMA approval of a MAA, or Health Canada approval of a NDS.
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Pre-clinical
Testing
In
the United States, drug candidates are tested in animals until adequate proof of safety and efficacy is established. These pre-clinical
studies generally evaluate the mechanism of action and pharmacology of the product and assess the potential safety and efficacy
of the product. Tested compounds must be produced according to applicable current GMP requirements and pre-clinical safety tests
must be conducted in compliance with FDA and international regulations regarding good laboratory practices. The results of the
pre-clinical tests, together with manufacturing information and analytical data, are generally submitted to the FDA as part of
an IND, which must become effective before human clinical trials may commence. The IND will automatically become effective 30
days after receipt by the FDA, unless before that time the FDA requests an extension or raises concerns about the conduct of the
clinical trials as outlined in the application. If the FDA has any concerns, the sponsor of the application and the FDA must resolve
those concerns before clinical trials may begin. Regulatory authorities may require additional pre-clinical data before allowing
the clinical studies to commence or proceed from one phase to another, and could demand that the studies be discontinued or suspended
at any time if there are significant safety issues.
Clinical
Trials
Clinical
trials for new vaccine drug candidates are typically conducted in three sequential phases that may overlap. In Phase I, the initial
introduction of the vaccine drug candidate into human volunteers, the emphasis is on testing for safety or adverse effects, dosage,
tolerance, metabolism, distribution, excretion, and clinical pharmacology. Phase II involves studies in a limited patient population
to determine the initial efficacy of the vaccine drug candidate for specific targeted indications, to determine dosage tolerance
and optimal dosage, and to identify possible adverse side effects and safety risks. Once a vaccine compound shows evidence of
effectiveness and is found to have an acceptable safety profile in Phase II evaluations, pivotal Phase III trials are undertaken
to more fully evaluate clinical outcomes and to establish the overall risk/benefit profile of the drug, and to provide, if appropriate,
an adequate basis for product labeling. During all clinical trials, physicians will monitor patients to determine the effectiveness
of the drug candidate and to observe and report any reactions or safety risks that may result from use of the vaccine drug candidate.
The FDA, the trial sites internal review board, and/or the sponsor may suspend a clinical trial at any time on various grounds,
including a finding that the subjects are being exposed to an unacceptable health risk.
Assuming
successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product
development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the
product for one or more indications. The submission of a BLA requires payment of a substantial user fee to the FDA, and the sponsor
of an approved BLA is also subject to annual product and establishment user fees. These fees are typically increased annually.
A waiver of user fees may be obtained under certain limited circumstances. Under applicable laws and FDA regulations, each BLA
submitted for FDA approval is usually given an internal administrative review within 60 days following submission of the BLA.
If deemed complete, the FDA will “file” the BLA, thereby triggering substantive review of the application. The FDA
may refuse to file any BLA that it deems incomplete or not properly reviewable. The FDA has established internal substantive review
goals of six months for priority BLAs (for biologics addressing serious or life-threatening conditions for which there is an unmet
medical need) and ten months for regular BLAs. However, these are agency proposed time frames, and so the FDA is not legally required
to complete its review within these periods, and these performance goals may change over time. Moreover, the outcome of the review,
even if generally favorable, is not typically an actual approval, but an “action letter” that describes additional
work that must be done before the BLA can be approved. The FDA’s review of a BLA may involve review and recommendations
by an independent FDA advisory committee. The FDA may deny approval of a BLA or BLA supplement if the applicable regulatory criteria
are not satisfied, or the FDA may require additional clinical data and/or an additional pivotal Phase III clinical study. Even
if such data are submitted, the FDA may ultimately decide the BLA does not satisfy its criteria for approval.
Data
Review and Approval
Substantial
financial resources are necessary to fund the research, clinical trials and related activities necessary to satisfy FDA requirements
or similar requirements of state, local and foreign regulatory agencies. It normally takes many years to satisfy these various
legal and regulatory requirements, assuming they are ever satisfied. Information generated in this process is susceptible to varying
interpretations that could delay, limit, or prevent regulatory approval at any stage of the process. Accordingly, the actual time
and expense required to bring a product to market may vary substantially. We cannot assure you that we will submit applications
for required authorizations to manufacture and/or market potential products or that any such application will be reviewed and
approved by the appropriate regulatory authorities in a timely manner, if at all. Success in early stage clinical trials does
not ensure success in later stage clinical trials. Even if a product candidate receives regulatory approval, the approval may
be significantly limited to specific disease states, patient populations and dosages, or have conditions placed on it that
restrict the commercial applications, advertising, promotion or distribution of these products.
Once
issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the
product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved
products which have been commercialized. The FDA also has the power to prevent or limit further marketing of a product based on
the results of these post-marketing programs. The FDA may also request additional clinical trials after a product is approved.
These so-called Phase IV studies may be made a condition to be satisfied after a drug receives approval. The results of Phase
IV studies can confirm the effectiveness of a product candidate and can provide important safety information via the FDA’s
voluntary adverse drug reaction reporting system. Any products manufactured or distributed by us pursuant to any FDA approvals
would be subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences
with the drug. Drug and biologics manufacturers and their subcontractors are required to register their establishments with the
FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for
compliance with GMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers.
We cannot be certain that we or our present or future manufacturers or suppliers will be able to comply with the GMP regulations
and other FDA regulatory requirements. If our present or future manufacturers or suppliers are not able to comply with
these requirements, the FDA may halt our clinical trials, require us to recall a product from distribution, withdraw approval
of the NDA for that drug, or revoke or suspend a biologics license. Furthermore, even after regulatory approval is obtained, later
discovery of previously unknown negative effects of a product may result in restrictions on the product or even its complete withdrawal
from the market.
The
FDA closely regulates the marketing and promotion of drugs and biologics. Approval is typically subject to post-marketing surveillance
and other record keeping and reporting obligations, and involves ongoing requirements such as post-marketing annual reports and
labeling updates. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems
occur following initial marketing. A company can make only those claims relating to safety and efficacy that are approved by the
FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential
civil and/or criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s
labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties.
Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does
not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers’ communications
on the subject of such off-label use.
Biologics
Price Competition and Innovation Act of 2009 (BPCIA)
Under
the Federal Patient Protection and Affordable Care Act (the “Affordable Care Act”), enacted in 2010, and specifically,
the Biologics Price Competition and Innovation Act of 2009 (BPCIA) included therein, there is an abbreviated path in the United
States for regulatory approval of biosimilar versions of approved biological products. The Affordable Care Act provides a regulatory
mechanism that enables FDA approval of biologic drugs that are similar to (but not exact copies of) innovative drugs on the basis
of less extensive data than is required by a full BLA. Under this regulation, an application for approval of a biosimilar may
not be filed until four years after marketing approval of the innovator product. Pioneer innovative biological products will receive
12 years of regulatory exclusivity, meaning that the FDA will not approve a biosimilar version until 12 years after the innovative
biological product was first approved by the FDA.
Fast
Track Approval
The
Federal Food, Drug, and Cosmetic Act (“FDCA”), as amended, and the related FDA regulations provide certain mechanisms
for the accelerated “Fast Track” approval of potential products intended to treat serious or life-threatening illnesses
which have demonstrated the potential to address unmet medical needs. These procedures permit early consultation and commitment
from the FDA regarding the pre-clinical and clinical studies necessary to gain marketing approval. Provisions of this regulatory
framework also permit, in certain cases, BLAs to be approved on the basis of valid indirect measurements of benefit of product
effectiveness, thus accelerating the normal approval process. In the future, certain potential products employing our technology
might qualify for this accelerated regulatory procedure. Even if the FDA agrees that these potential products qualify for accelerated
approval procedures, FDA may deny approval of our drugs or may require additional studies before approval. The FDA may also require
us to perform post-approval, or Phase IV, studies as a condition of such early approval. In addition, the FDA may impose restrictions
on distribution and/or promotion in connection with any accelerated approval, and may withdraw approval if post-approval studies
do not confirm the intended clinical benefit or safety of the potential product.
Orphan
Drug Designation
Under
the Orphan Drug Act, the FDA may grant orphan drug designation to drugs or biologics intended to treat a rare disease or condition,
which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation
must be requested before submitting a BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent
and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten
the duration of the regulatory review and approval process. If a product that has orphan drug designation subsequently receives
FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means
that FDA may not approve any other applications to market the same drug for the same disease, except in very limited circumstances,
for seven years. These very limited circumstances are (i) an inability to supply the drug in sufficient quantities or (ii) a situation
in which a new formulation of the drug has shown superior safety or efficacy. This exclusivity, however, also could block the
approval of our product for seven years if a competitor obtains earlier approval of the same drug for the same indication.
Foreign
Regulation
In
addition to regulations in the United States, we are and will continue to be subject to a variety of laws and regulations governing
clinical trials and commercial sales and distribution of our products in foreign countries. Whether or not we obtain FDA approval
for a product, we must separately obtain approval of a product by the comparable regulatory authorities of those foreign countries
before we may commence clinical trials or marketing of the product in those countries. The approval process varies from country
to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
The
policies of the FDA and foreign regulatory authorities may change and additional government regulations may be enacted which could
prevent or delay regulatory approval of our products and could also increase the cost of regulatory compliance. We cannot predict
the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative
action, either in the United States or abroad.
Under
the applicable EU regulatory regime, we may submit marketing authorization applications (MAAs) either under a centralized or decentralized
procedure (which also includes the mutual recognition procedure available for companies who already hold national licenses). The
decentralized procedures provide for mutual recognition of national approval decisions. These authorizations provide marketing
authorizations. The centralized procedure, which is available for medicines, inter alia, produced by biotechnology, intended to
treat specific illnesses, or which are highly innovative, provides for the grant of a single marketing authorization that is valid
for all EU member states (as well as in Northern Ireland and the European Economic Area (EEA) countries of Iceland, Liechstenstein
and Norway).
The
procedure for obtaining marketing authorizations in the United Kingdom has been affected by Brexit, which took place on January
31, 2020. A transitional period was in place until December 31, 2020, during which time regulation of pharmaceuticals was still
governed by EU law. As of January 1, 2021, the UK MHRA has implemented new procedures for MAAs. Among these new procedures is
a Great Britain marketing authorization that relies on a decision taken by the European Commission (“EC”) in respect
of a marketing authorization for the same product in the centralized procedure. This route – the EC decision reliance procedure
(“ECDRP”) – is currently available to all authorizations approved in the centralized procedure.
Other
Government Regulation
Our
research and development activities use biological and hazardous materials that are dangerous to human health and safety or the
environment. We are subject to a variety of federal, provincial, state and local laws and regulations governing the use, generation,
manufacture, storage, handling and disposal of these materials and wastes resulting from these materials. We are also subject
to regulation by the Occupational Safety and Health Administration and federal, provincial and state environmental protection
agencies and to regulation under the Toxic Substances Control Act.
In
addition, once our products are marketed commercially, we will have to comply with the various laws relating to the Medicare,
Medicaid, and other federal healthcare programs. These federal laws include, by way of example, the following:
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The
anti-kickback statute (Section 1128B(b) of the Social Security Act) which prohibits certain business practices and relationships
that might affect the provision and cost of healthcare services reimbursable under Medicare, Medicaid and other federal healthcare
programs, including the payment or receipt of remuneration for the referral of patients whose care will be paid by Medicare
or other governmental programs;
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The
physician self-referral prohibition (Ethics in Patient Referral Act of 1989, as amended, commonly referred to as the Stark
Law, Section 1877 of the Social Security Act), which prohibits referrals by physicians of Medicare or Medicaid patients to
providers of a broad range of designated healthcare services in which the physicians (or their immediate family members) have
ownership interests or with which they have certain other financial arrangements;
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The
anti-inducement law (Section 1128A(a)(5) of the Social Security Act), which prohibits providers from offering anything to
a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services covered by either program;
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The
False Claims Act (31 U.S.C. § 3729 et seq.), which prohibits any person from knowingly presenting or causing to be presented
false or fraudulent claims for payment to the federal government (including the Medicare and Medicaid programs); and
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The
Civil Monetary Penalties Law (Section 1128A of the Social Security Act), which authorizes the United States Department of
Health and Human Services to impose civil penalties administratively for fraudulent or abusive acts.
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Sanctions
for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments,
money penalties, imprisonment, denial of Medicare and Medicaid payments, or exclusion from the Medicare and Medicaid programs,
or some combination thereof. These laws also impose an affirmative duty on those receiving Medicare or Medicaid funding to ensure
that they do not employ or contract with persons excluded from Medicare and other government programs.
We
are building out our legal and regulatory compliance capabilities through in-house hiring and external consultants who have extensive
experience with the regulatory and commercialization process.
We
also use additional regulatory consultants including several former FDA regulators with experience at the Center for Biologics
Evaluation & Research (“CBER”), which is the division of FDA that regulates vaccines and other drugs.
Available
Information
Our
Internet website can be found at www.vbivaccines.com. The information on, or that can be accessed through, our website is not
part of this report. We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934,
as amended, and, in accordance therewith, we file periodic reports, proxy statements and other information with the SEC. You may
access our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, free of charge at our
website as soon as reasonably practicable after the material is electronically filed with, or furnished to, the SEC.
ITEM
1A: RISK FACTORS
We
are subject to various risks that may materially harm our business, prospects, financial condition and results of operations.
An investment in our common shares is speculative and involves a high degree of risk. In evaluating an investment in our common
shares, you should carefully consider the risks described below, together with the other information included in this Form 10-K,
including the consolidated financial statements and related notes.
The
risks described below are not the only risks we face. If any of the events described in the following risk factors actually occurs,
or if additional risks and uncertainties later materialize, that are not presently known to us or that we currently deem immaterial,
then our business, prospects, results of operations and financial condition could be materially adversely affected. In that event,
the trading price of our common shares could decline, and you may lose all or part of your investment in our shares. The risks
discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these
forward-looking statements.
Summary
of Risk Factors
Below
is a summary of the principal factors that make an investment in our common shares speculative or risky. This summary does not
address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks
that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with
other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common
shares.
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We
have a history of operating losses, and we cannot guarantee that we can ever achieve sustained profitability;
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We
will need additional financing to continue our operations. If we are unable to obtain additional financing on acceptable terms,
we may have to curtail or cease our development plans and operations;
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Our
success is dependent on the successful clinical development, regulatory approval and commercialization of our product candidates,
which will require significant time and resources;
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We may not be able to secure sufficient supplies
of materials, or the services of third parties, which we require to advance the development and commercialization of our products;
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We
face intense competition and rapid technological change, which may make it more difficult to achieve significant market penetration.
If we cannot compete successfully for market share against other drug companies, we may not achieve sufficient product revenues
and our business will suffer;
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We
may be unable to satisfy our contractual obligations or meet expected deadlines;
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We
depend or may depend on third parties to conduct clinical trials, commercialize and/or manufacture our product candidates;
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We
manufacture clinical and commercial supplies of our 3-antigen prophylactic HBV vaccine and VBI-2601 at a single location.
Any disruption in the operations of our manufacturing facility could adversely affect our business and results of operations;
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Our
success depends on our ability to maintain the proprietary nature of our technology.
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Risks
Related to Our Product Development
The
ongoing coronavirus pandemic has caused interruptions or delays of our business plan and may have a significant adverse effect
on our business.
In
December 2019, a strain of coronavirus, SARS-CoV-2, was reported to have surfaced in Wuhan, China, and on March 12, 2020, the
World Health Organization declared COVID-19, disease caused by SARS-CoV-2, to be a pandemic. In an effort to contain and mitigate
the spread of COVID-19, many countries, including the United States, Canada, China, and Israel, have imposed unprecedented restrictions
on travel, quarantines, and other public health safety measures. Such government-imposed precautionary measures may have been
relaxed in certain countries or states, but there is no assurance that more strict measures will not be put in place again due
to a resurgence in COVID-19 cases.
As
a result of the COVID-19 pandemic, we are operating in isolated groups, to reduce exposure risk, and with fewer employees on site
at both our manufacturing facility in Israel, where we manufacture our 3-antigen prophylactic HBV vaccine and VBI-2601, and at
our research and development laboratories in Ottawa, Canada. Our manufacturing facility in Israel and CDMOs that we engage to
manufacture our eVLP vaccine candidates are dependent on sourcing raw materials from third party suppliers. The COVID-19 pandemic
has impacted lead times and availability of many raw materials, which may adversely impact our ability to manufacture products
in a timely manner. For example, unanticipated delays in receipt of release testing materials have impacted the timing of the
initiation of our Phase I/II study of our monovalent coronavirus vaccine candidate, VBI-2902. In addition, the FDA announced
in March 2020 that it is temporarily postponing regulatory inspections of overseas facilities, such as our manufacturing facility
in Rehovot, Israel. This could cause a number of delays and/or issues for our operations, but most importantly, could delay the
review of the BLA we submitted for our 3-antigen HBV vaccine candidate, which could delay its approval beyond the current
PDUFA target action date of November 30, 2021 (which such approval is not guaranteed). Any such delays would have a material
adverse impact on our ability to commercialize our HBV vaccine candidate in the United States.
We
have two ongoing clinical studies being conducted at clinical sites worldwide: the ongoing Phase Ib/IIa clinical study
of VBI-2601 (BRII-179) at multiple study sites in New Zealand, Australia, Thailand, South Korea, Hong Kong SAR, and China, and
the ongoing Phase I/IIa clinical study of VBI-1901 at various hospitals in the United States. In addition to the active clinical
studies, we have several planned clinical studies expected to begin in 2021, including: a Phase II study of VBI-2601 (BRII-179)
conducted by Brii Bio at multiple study sites in Asia Pacific countries; a further clinical study with VBI-1901 conducted
by VBI in the United States; and the clinical evaluation of our coronavirus vaccine candidates in Canada. The enrollment of patients
at some of the clinical sites in our studies was suspended and may again be suspended, and enrollment of patients at other clinical
sites may be suspended or delayed as hospitals and clinics where we are conducting clinical trials reallocate resources and limit
access to or close clinical facilities due to the COVID-19 pandemic. Additionally, if our trial participants are unable to travel
to or visit to our clinical study sites as a result of quarantines or other restrictions resulting from the COVID-19 pandemic,
we will experience higher drop-out rates or delays in our clinical studies. Government-imposed quarantines and restrictions may
also require us to temporarily close our clinical sites, research laboratories, or manufacturing facility. Furthermore, if we
determine that our trial participants may suffer from exposure to COVID-19 as a result of their participation in our clinical
trials, we may voluntarily close certain clinical sites as a safety measure until we reasonably believe that the likelihood of
exposure has subsided. As a result, our expected development timelines for VBI-2601 (BRII-179), VBI-1901, our coronavirus vaccine
candidates, and possibly our regulatory timelines for our 3-antigen prophylactic HBV vaccine candidate, may be negatively impacted.
We cannot predict the ultimate impact of the COVID-19 pandemic as consequences of such an event are highly uncertain and subject
to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical studies, our research
programs, and our manufacturing; however, the ongoing COVID-19 pandemic may disrupt or delay our business operations, further
divert the attention and efforts of the medical community to coping with COVID-19 and disrupt the marketplace in which we operate,
which could have a material adverse effect on our operations.
Moreover,
the various precautionary measures taken by many governmental authorities around the world in order to limit the spread of the
COVID-19 has had, and may continue to have, an adverse effect on the global markets and global economy generally, including on
the availability and cost of employees, resources, materials, manufacturing and delivery efforts, and other aspects of the global
economy. There have been business closures and a substantial reduction in economic activity in countries that have had significant
outbreaks of COVID-19. Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on the global economy
as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic
activity to return to prior levels. The COVID-19 pandemic could disrupt our business and operations, interrupt our sources of
supply, hamper our ability to raise additional funds or sell our securities, and continue to slow down the global economy.
Our
pursuit of coronavirus vaccine candidates is at an early stage. We may be unable to produce a vaccine that successfully treats
the virus in a timely manner, if at all.
In
response to the COVID-19 pandemic, on March 30, 2020, we entered into a Collaborative Research Agreement with the NRC, and subsequently
amended on December 21, 2020, pursuant to which we collaborated on certain activities to advance development of our trivalent
pan-coronavirus vaccine candidate targeting COVID-19, SARS and MERS and our monovalent coronavirus vaccine candidate targeting
COVID-19. Our development of the vaccine candidates is in the pre-clinical stage, and we may be unable to develop a vaccine that
successfully and safely protects against the viruses in a timely manner, if at all. Furthermore, even if we successfully develop
a vaccine, we may encounter difficulties developing and scaling up manufacturing processes suitable for production of sufficient
supply for our clinical trials or for commercialization in a cost-effective manner. Due to the number of COVID-19 vaccine
candidates in clinical trials, we may also encounter difficulty locating clinical sites with capacity to conduct clinical trials,
and therefore, we may experience delays in initiating or enrolling clinical trials of our vaccine candidate. We are also committing
financial resources and personnel to the development of a coronavirus vaccine which may cause delays in or otherwise negatively
impact our other development programs, despite uncertainties surrounding the longevity and extent of coronavirus as a global health
concern. Our business could be negatively impacted by our allocation of significant resources to a global health threat that is
unpredictable and could rapidly dissipate or against which our vaccine, if developed, may not be partially or fully effective.
Given
the global footprint and the widespread media attention on the COVID-19 pandemic, there are efforts by public and private entities
to develop a vaccine against COVID-19 as soon as possible, including large, multinational pharmaceutical companies such as AstraZeneca,
GSK, Johnson & Johnson, Moderna Inc., Pfizer, and Sanofi, with vaccine candidates that are currently at more
advanced stage of development than our coronavirus vaccine candidates. In December 2020, the FDA began to issue emergency
use authorizations for vaccines developed by certain of these large, multinational pharmaceutical companies and it is possible
that additional vaccines developed by such large, multinational pharmaceutical companies may receive further approvals and authorizations
in the near term. Those other entities may develop COVID-19 vaccines that are more effective than any vaccine we may develop,
may develop a COVID-19 vaccine that becomes the standard of care, may develop a COVID-19 vaccine at a lower cost or earlier than
we are able to develop any COVID-19 vaccine, or may be more successful at commercializing a COVID-19 vaccine. Many of these other
organizations are much larger than we are and have access to larger pools of capital, and as such, are able to fund and carry-on
larger research and development initiatives. Such other entities may have greater development capabilities than we do and have
substantially greater experience in undertaking nonclinical and clinical testing of vaccine candidates, obtaining regulatory approvals
and manufacturing and marketing pharmaceutical products. Our competitors may also have greater name recognition and better access
to customers. In addition, based on the competitive landscape, additional COVID-19 vaccines or therapeutics will likely
be approved to be marketed. These products could reduce the commercial opportunity for our coronavirus vaccine candidates
and could have a material adverse effect on our business, financial condition, results of operations and future prospects. Moreover,
if we experience delayed regulatory approvals or disputed clinical claims, we may not have a commercial or clinical advantage
over competitors’ products. The success or failure of other entities, or perceived success or failure, may adversely impact
our ability to obtain any future funding for our vaccine development efforts or for us to ultimately commercialize and market
any vaccine candidate, if approved. In addition, we may not be able to compete effectively if our product candidates do not satisfy
government procurement requirements with respect to biodefense products.
We
rely on government grants or subsidies to contribute to our coronavirus vaccine development program. If we are unable to satisfy
our contractual obligations or meet expected deadlines, the development of the coronavirus vaccine candidates may be extended,
delayed, modified, or terminated and we may be required to repay all or part of the grants or subsidies.
On
September 16, 2020, we signed the Contribution Agreement with Her Majesty the Queen in Right of Canada, as represented by the
Minister of Industry (“ISED”) whereby ISED agrees to contribute up to CAD $56 million from the SIF to support the
development of our coronavirus vaccine program, VBI-2900, though Phase II clinical studies (the “Project”). We agreed
to complete the Project in or before the first quarter of 2022, which will be conducted exclusively in Canada, except as permitted
otherwise under certain circumstances. In an event of default, subject to a rectification period available in certain circumstances,
among other things, the Minister may (i) suspend or terminate its contribution to the Project, or (ii) require repayment
of all or part of the contribution paid by the Minster, together with interest from the day of demand at the interest rate set
forth in the Contribution Agreement. As a result, if we default on our obligations under the Contribution Agreement, we
may not have sufficient funds available to continue the development of our coronavirus vaccine program, and we cannot be certain
that we will be able to obtain additional capital to fund the program. In addition, we may be required to repay the grants made
under the Contribution Agreement, which would harm our business, financial condition and results of operations.
Furthermore,
in connection with execution of the Contribution Agreement, we obtained a consent of K2 HealthVentures LLC, as administrative
agent for the lenders and a lender, pursuant to the Loan Agreement, dated May 22, 2020. Pursuant to such consent, certain events
of default that result in contributions made under the Contribution Agreement in excess of $500 becoming due and payable could
result in an event of default under the Loan Agreement.
Government
involvement may limit the commercial success of our coronavirus vaccine candidates.
The
coronavirus pandemic has been classified as a pandemic by public health authorities, and it is possible that one or more government
entities may take actions that directly or indirectly have the effect of abrogating some of our rights or opportunities. In particular,
the Government of Canada has announced that foreign investments into Canada will be subject to enhanced review under the Investment
Canada Act, particularly foreign direct investments in Canadian businesses that are related to public health or involved in the
supply of critical goods and services to Canadians or to the government. If we were to develop a coronavirus vaccine, the economic
value of such a vaccine to us could be affected by these measures.
Various
government entities, including the U.S., Israeli, and Canadian governments, are offering incentives, grants, and contracts to
encourage additional investment by commercial organizations into preventative and therapeutic agents against coronavirus, which
may have the effect of increasing the number of competitors and/or providing advantages to known competitors. Accordingly, there
can be no assurance that we will be able to successfully establish a competitive market share, if any, for our coronavirus vaccine
even if we succeed in developing one.
Furthermore,
government grants and subsidies may limit our ability to develop and manufacture our coronavirus vaccine candidates in the most
efficient way. For example, under the terms of the Contribution Agreement, we are required to conduct Phase II studies of our
coronavirus vaccine program in Canada, unless permitted otherwise. As a result of such limitations, we may be unable to pursue
the most efficient or profitable path in developing our coronavirus vaccine program.
If
we are successful in producing a vaccine against COVID-19 or more broadly, coronaviruses, we may need to devote significant resources
to its scale-up and development including for use by the Canadian or the U.S. government.
In
the event that the pre-clinical and clinical trials for our coronavirus vaccine candidates are perceived to be successful, we
may need to work toward the large scale technical development, manufacturing scale-up and larger scale deployment of this potential
vaccine through a variety of U.S. government mechanisms such as an Expanded Access Program or an Emergency Use Authorization program
or Canadian government programs. In this case we may need to divert significant resources to this program, which would require
diversion of resources from our other programs. In addition, since the path to licensure of any vaccine against coronavirus is
accelerated, if use of the vaccine is mandated by the Canadian or the U.S. government, we may have a widely used vaccine
in circulation in Canada, the United States or another country prior to our full validation of the overall long-term safety and
efficacy profile of our vaccine platform and technology. Unexpected safety issues in these circumstances could lead to significant
reputational damage for us and our technology platform going forward and other issues, including delays in our other programs,
the need for re-design of our clinical trials and the need for significant additional financial resources. Also, under the Contribution
Agreement, if we are unable to provide a sufficient Canada-sourced supply of the COVID-19 vaccine, the Minster may require us
to grant a license on commercially reasonable terms to use our intellectual property to the extent necessary to ensure such supply.
This provision may inhibit us from pursuing more profitable means of manufacturing and commercializing our coronavirus vaccine
candidates.
Because
our product development efforts depend on new and rapidly evolving technologies, we cannot be certain that our efforts will be
successful.
Our
product development efforts depend on new, rapidly evolving technologies and on the marketability and profitability of our products.
Commercialization of our vaccines could fail for a variety of reasons, and include the possibility that:
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our
3-antigen prophylactic HBV vaccine candidate may not be approved for sale in the United States, Europe, or Canada;
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our
coronavirus vaccine candidates may not be effective or may not be developed in a timely
manner, if at all;
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our
eVLP vaccine technologies, any or all of the products based on such technologies or our manufacturing process will be ineffective
or unsafe, or otherwise fail to receive necessary regulatory clearances or achieve commercial viability;
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we
or Brii Bio may be unable to successfully carry out the development and commercialization plans under the License Agreement;
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we
may be unable to develop a scale-up method for our manufacturing protocols in a cost-effective manner;
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the
products, if safe and effective, will be difficult to manufacture on a large-scale or may be uneconomical to market;
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our
subcontracted third-party manufacturing facilities may fail to continue to pass regulatory inspections;
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proprietary
rights of third parties will prevent us or our collaborators from exploiting technologies, and manufacturing or marketing
products; and
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third-party
competitors will gain greater market share due to superior products or marketing capabilities.
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The
FDA and corresponding foreign regulatory agencies may require additional information or clinical trial data for our 3-antigen
prophylactic HBV vaccine candidate before granting regulatory approval, if regulatory approval is granted at all.
We
submitted the BLA to the FDA and the MAA to the EMA in the fourth quarter of 2020 for our 3-antigen HBV vaccine candidate,
which have subsequently been accepted for review by the regulatory authorities. Our registration and commercial timelines
for such vaccine candidate depend on further discussions with the FDA and corresponding foreign regulatory agencies. They could
have requirements and requests for additional data, beyond what is included in the submissions, or completion of additional clinical
trials, including a request to increase the size of the safety data set. Any such requirements or requests could:
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adversely
affect our ability to timely and successfully commercialize or market our 3-antigen prophylactic HBV vaccine candidate in
the United States, Europe, Canada, and other jurisdictions where our vaccine is not currently approved;
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result
in significant additional costs;
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potentially
diminish any competitive advantages for our 3-antigen prophylactic HBV vaccine candidate;
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potentially
limit the markets for our 3-antigen prophylactic HBV vaccine candidate;
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adversely
affect our ability to enter into collaborations or receive milestone payments or royalties from potential collaborators;
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cause
us to abandon the further development of our 3-antigen prophylactic HBV vaccine candidate or certain of our pipeline candidates
to comply with requests by the FDA or other jurisdictions where it is not currently approved; or
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limit
our ability to obtain additional financing on acceptable terms, if at all.
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Pre-clinical
and clinical trials will be lengthy and expensive. Delays in clinical trials are common for many reasons and any such delays could
result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales as
currently contemplated.
As
part of the regulatory process, we must conduct clinical trials for each vaccine candidate to demonstrate safety and efficacy
to the satisfaction of the regulatory authorities, including the FDA for the United States, the EMA for the European Union, the
MHRA for UK, and Health Canada for Canada. Clinical trials are subject to current Good Clinical Practice regulations (“cGCP”).
cGCPs are rigorous practices that are incorporated into the FDA’s clinical trial regulatory requirements and are expensive
and time-consuming to design and implement. We may experience delays in clinical trials for any of our pipeline candidates, and
the projected timelines for continued development of the technologies and related pipeline candidates by us may otherwise be subject
to delay or suspension. Our planned clinical trials might not begin on time; may be interrupted, delayed, suspended, or terminated
once commenced; might need to be redesigned; might not enroll a sufficient number of patients; or might not be completed on schedule,
if at all. Clinical trials can be delayed for a variety of reasons, including the following:
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delays
in obtaining regulatory approval to commence a trial;
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imposition
of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory
authorities;
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imposition
of a clinical hold because of safety or efficacy concerns by the FDA, or other regulatory authorities, a data safety monitoring
board or committee, a clinical trial site’s institutional review board, or us;
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delays
in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
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delays
in obtaining required institutional review board approval at each site for clinical trial protocols;
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delays
in identifying, recruiting and training suitable clinical investigators;
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delays
in recruiting suitable patients to participate in a trial;
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delays
in having patients complete participation in a trial or return for post-treatment follow-up;
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clinical
sites dropping out of a trial to the detriment of enrollment;
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time
required to add new sites;
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delays
in obtaining sufficient supplies of clinical trial materials, including comparator drugs;
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delays
resulting from negative or equivocal findings of a data safety monitoring board for a trial; or
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adverse
or inconclusive results from pre-clinical testing or clinical trials.
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Patient
enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature
of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of
the clinical trial, competing clinical trials, and clinicians’ and patients’ perceptions as to the potential advantages
of the investigational drug being studied in relation to other available therapies, including any new drugs that
may be approved for the indications we are investigating. Any of these delays in completing our clinical trials could increase
costs, slow down the product development and approval process, and jeopardize our ability to commence product sales and generate
revenue.
Development
of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required, and we may not adequately develop
such protocols to support approval.
In
addition to FDA requirements and those of other regulatory authorities, an independent institutional review board or an independent
ethics committee at each medical institution proposing to participate in the conduct of the clinical trial generally must review
and approve the clinical trial design and patient informed consent form before commencement of the study at the respective medical
institution. The institutional review boards approve the clinical trial protocols and conduct periodic reviews of the clinical
trials. The clinical trial protocols describe the type of people who may participate in the clinical trial, the schedule of tests
and procedures, the medications and dosages to be studied, the length of the study, the study’s objectives, and other details.
In general, the institutional review board will consider, among other matters, ethical factors, the safety of human subjects and
the possibility of liability of the institution conducting the trial. Our pre-clinical studies may not be adequate proof of safety
and efficacy, and as a result, we may not be successful in developing clinical trial protocols necessary to support institutional
review board approval. Any delay or failure to obtain institutional review board approval to conduct a clinical trial at a prospective
site could materially impact the costs, timing, or successful completion of a clinical trial.
We
rely on CROs, third-party investigators, and independent sites to conduct our clinical trials. If these third parties do not fulfill
their contractual obligations or meet expected deadlines, our planned clinical trials may be extended, delayed, modified, or terminated
and we may fail to obtain the regulatory approvals necessary to commercialize our pipeline candidates.
We
rely on third-party CROs to conduct our clinical trials. CROs, third-party investigators, and independent sites are subject to
cGCPs that include conducting, recording, and reporting the results of clinical trials and to assure that data and reported results
are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA enforces
cGCPs through periodic inspections. If these CROs do not perform their obligations, comply with laws or cGCPs, or meet expected
deadlines, our planned clinical trials may be extended, delayed, modified, or terminated. We rely on the processes of our CROs
to ensure that accurate records are maintained to support the results of the clinical trials. While we or our CROs conduct regular
monitoring of clinical sites, we are dependent on the processes and quality control efforts of our third-party contractors to
ensure that detailed, quality records are maintained to support the results of the clinical trials that they are conducting on
our behalf. Any extension, delay, modification, or termination of our clinical trials or failure to ensure adequate documentation
and the quality of the results in the clinical trials could delay or otherwise adversely affect our ability to commercialize our
products and pipeline candidates and could have a material adverse effect on our business and operations.
We
rely upon independent sites and investigators, such as universities and medical institutions and their faculty or staff, to conduct
our clinical trials. These sites and investigators are not our employees and we cannot control the amount or timing of resources
that they devote to our programs. If these investigators or collaborators fail to devote sufficient time and resources to our
product development programs, do not conduct their activities in compliance with the law, or if their performance is substandard,
the approval of our regulatory submissions and our introductions of new products will be delayed or prevented.
Our
potential collaborators may also have relationships with other commercial entities, some of which may compete with us. If outside
collaborators assist our competitors to our detriment, the approval of our regulatory submissions will be delayed and the sales
from our products, if and when commercialized, will be less than expected. Even if clinical trials are completed as planned, their
results may not support expectations or intended marketing claims. The clinical trials process may fail to demonstrate that our
pipeline candidates are safe and effective for indicated uses. Such failure could cause us to abandon one or more pipeline candidates
and could delay development of other pipeline candidates.
Additional
delays to the completion of clinical studies may result from modifications being made to the protocol during the clinical trial,
if such modifications are warranted and/or required by the occurrences in the given trial.
Each
modification to a protocol for a clinical trial must be submitted to the FDA or foreign regulatory authorities and the institutional
review boards. This submission could result in the delay or suspension of a clinical trial while the modification is evaluated.
In addition, depending on the magnitude and nature of the changes made, the FDA and other regulatory authorities could take the
position that the data generated by the clinical trial prior to the protocol modification cannot be pooled with the data collected
after the modification because the same protocol was not used throughout the trial. This prohibition might require the enrollment
of additional subjects, which could result in the extension of the clinical trial and the FDA and other regulatory authorities
delaying approval of one or more pipeline candidates.
We
may be required to suspend or discontinue clinical trials because of adverse side effects or other safety risks that could preclude
approval of our biologic candidates.
Our
clinical trials may be suspended or terminated at any time for a number of reasons. A clinical trial may be suspended or terminated
by us, our collaborators, the FDA, or other regulatory authorities because of a failure to conduct the clinical trial in accordance
with regulatory requirements or our clinical protocols, presentation of unforeseen safety issues or adverse side effects, failure
to demonstrate a benefit from using the investigational biologic, changes in governmental regulations or administrative actions,
lack of adequate funding to continue the clinical trial, or negative or equivocal findings of the data safety monitoring board
or the institutional review board for a clinical trial. An institutional review board may also suspend or terminate our clinical
trials for failure to protect patient safety or patient rights. We may voluntarily suspend or terminate our clinical trials if
at any time we believe that they present an unacceptable risk to participants. If we elect or are forced to suspend or terminate
any clinical trial of any proposed product that we develop, the commercial prospects of such proposed product will be harmed and
our ability to generate product revenue from such proposed product will be delayed or eliminated. Any of these occurrences may
harm our business, financial condition, results of operations, and prospects significantly.
The
future results of our current or future clinical trials may not support our pipeline candidates claims or may result in the discovery
of unexpected adverse side effects.
Even
if our clinical trials are completed as planned, we cannot be certain that the results will support our pipeline candidates claims
or that the FDA or foreign regulatory authorities will agree with our conclusions regarding them. Success in pre-clinical studies
and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later
trials will replicate the results of prior trials and pre-clinical studies. The clinical trial process may fail to demonstrate
that our pipeline candidates are safe and effective for the proposed indicated uses. If the FDA or foreign regulatory authorities
conclude that the clinical trials for any of our pipeline candidates for which we might seek approval have failed to demonstrate
safety and effectiveness, we would not receive regulatory approval to market that product in the United States or in other jurisdictions
for the indications sought. In addition, such an outcome could cause us to abandon the pipeline candidates and might delay development
of others. Any delay or termination of our clinical trials will delay the filing of any product submissions with the FDA or foreign
regulatory authorities and, ultimately, our ability to commercialize our pipeline candidates and generate revenues. It is also
possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product
candidate’s profile. Adverse clinical trial results, such as death or injury due to side effects, could jeopardize regulatory
approval, and if approval is granted, such results may also lead to marketing restrictions or prohibitions. In addition, the clinical
trials performed for programs other than for our 3-antigen prophylactic HBV vaccine candidate involve a relatively small patient
population. Because of the small sample size, their results may not be indicative of future results.
International
commercialization of our 3-antigen prophylactic HBV vaccine and our pipeline candidates faces significant obstacles, including
obtaining regulatory approvals. Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing
or selling our products in such jurisdictions.
Our
3-antigen prophylactic HBV vaccine is approved for sale in Israel, under the brand name Sci-B-Vac®. In countries
where we do not currently have the required approvals (including the United States, EU member states, UK, and Canada), we will
need to obtain separate approvals from the relevant regulatory, pricing, and reimbursement authorities to market or sell our 3-antigen
prophylactic HBV vaccine or any of our pipeline candidates. Pursuing regulatory approvals will be time-consuming and expensive,
and we may not obtain United States or foreign regulatory approvals on a timely basis, if at all. The regulations vary among countries,
and regulatory authorities in one market may require different or additional clinical trials than those required to obtain approval
in another market, and the time required to obtain approval may differ in one market from that required to obtain approval in
another market. Obtaining approval in one country does not ensure approval by regulatory authorities in other countries.
In
addition, we have limited international regulatory, clinical, and commercial resources. We entered into a collaborative relationship
with Brii Bio for development of a HBV recombinant protein-based immunotherapeutic in China, Hong Kong, Taiwan, and Macau, and
may plan to do so with other pipeline candidates in the future, and, as such, current and future partners are critical to our
international success. We may not be able to maintain current, or enter into future, collaboration agreements with appropriate
partners for important foreign markets on acceptable terms, if at all. Current and future collaborations with foreign partners
may not be effective or profitable.
Future
legislation, or regulations and policies adopted by the FDA or other regulatory authorities, may increase the time and costs required
for us to conduct and complete clinical trials for our pipeline candidates.
The
FDA has established regulations, guidelines, and policies to govern the pharmaceutical and biologic development and approval processes,
as have foreign regulatory authorities. We expect there will continue to be federal and state laws and/or regulations, proposed
and implemented, that could impact our operations and business. Any change in regulatory requirements resulting from the adoption
of new legislation, regulations or policies may require us to amend existing clinical trial protocols or add new clinical trials
to comply with these changes. Such amendments to existing protocols or clinical trial applications or the need for new ones, may
significantly and adversely affect the cost, timing, and completion of the clinical trials for our candidates.
In
addition, the FDA’s policies and those of other regulatory authorities may change and additional government regulations
may be issued that could prevent, limit, or delay regulatory approval of our pipeline candidates, or impose more stringent product
labeling and post-marketing testing and other requirements.
Developments
by competitors may establish standards of care that affect our ability to conduct our clinical trials as planned.
Changes
in standards related to clinical trial design could affect our ability to design and conduct clinical trials as planned. For example,
regulatory authorities may not allow us to compare one or more of our pipeline candidates to a placebo, or may require a change
of standard-of-care used as a comparator in a particular clinical indication where approved products are available. In that case,
both the cost and the amount of time required to conduct a clinical trial could increase.
We
face product liability exposure, which, if not covered by insurance, could result in significant financial liability.
The
risk of product liability is inherent in the research, development, manufacturing, marketing, and use of pharmaceutical products.
Our 3-antigen prophylactic HBV vaccine is currently approved for sale in Israel, under the brand name Sci-B-Vac®;
our pipeline candidates currently in clinical trials; and any products that we may commercially market in the future may cause,
or may appear to have caused, injury or dangerous drug reactions, and expose us to product liability claims. These claims might
be made by patients who use the product, their families, healthcare providers, pharmaceutical companies, our corporate
collaborators, or others selling such products. If our current products or any of our pipeline candidates during clinical trials
were to cause adverse side effects, we may be exposed to substantial liabilities.
In
September 2018, two civil claims were brought in the District of Court of the central district in Israel which named our subsidiary
SciVac as a defendant. In one claim, two minors, through their parents, allege, among other things: defects in certain batches
of our 3-antigen prophylactic HBV vaccine discovered in July 2015; that our 3-antigen prophylactic HBV vaccine was approved for
use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac failed to provide accurate
information about our 3-antigen prophylactic HBV vaccine 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 our
3-antigen prophylactic HBV vaccine in Israel since April 2011 and seeking damages in a total amount of NIS 1,879,500,000 (not
in thousands) ($584.6 million). The second claim is a civil action brought by two minors and their parents against SciVac and IMoH alleging, among other things, that SciVac marketed an experimental, defective, hazardous, or harmful vaccine; that
our 3-antigen prophylactic HBV vaccine was marketed in Israel without establishing its safety; and that our 3-antigen prophylactic
HBV vaccine 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. The motion seeking approval of a class action has been suspended until
a ruling is given on the question of liability in the civil action. The preliminary hearings for the trial of the civil action
began on January 15, 2020, with subsequent preliminary hearings held on May 13, 2020 and December 3, 2020 to discuss document
disclosure. The next preliminary hearing is scheduled to be held on March 24, 2021.
Regardless
of the merits or eventual outcome, product liability claims or other claims related to our products or pipeline candidates may
result in:
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decreased
demand for our products due to negative public perception;
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injury
to our reputation;
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withdrawal
of clinical trial participants or difficulties in recruiting new trial participants;
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initiation
of investigations by regulators;
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costs
to defend or settle the related litigation;
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a
diversion of management’s time and our resources;
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substantial
monetary awards to trial participants or patients;
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product
recalls, withdrawals or labeling, marketing, or promotional restrictions;
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loss
of revenues from product sales; and
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the
inability to commercialize any of our pipeline candidates, if approved.
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We
currently maintain product liability insurance, and we generally obtain clinical trial insurance once a clinical trial is initiated.
However, the insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Insurance coverage
is becoming increasingly expensive, and, in the future, we, or any of our collaborators, may not be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts or at all to protect us against losses due to liability. Even if our agreements
with any current or future collaborators entitle us to indemnification against product liability losses, such indemnification
may not be available or adequate should any claim arise. Our inability to obtain sufficient product liability insurance at an
acceptable cost to protect against product liability claims could prevent or inhibit the commercialization of our pipeline candidates.
If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured
liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.
Should
any of the events described above occur, this could have a material adverse effect on our business, financial condition and results
of operations.
Even
if we obtain regulatory approval for one or more of our pipeline candidates, we will still face extensive, ongoing regulatory
requirements and review, and our products may face future development and regulatory difficulties.
Even
if we obtain regulatory approval for one or more of our pipeline candidates in the United States or other regions, which we cannot
guarantee, the FDA or other regulatory bodies may still impose significant restrictions on a product’s indicated uses or
marketing, or impose conditions for approval, or impose ongoing requirements for potentially costly post-approval studies, including
Phase IV clinical trials or post-marketing surveillance. As a condition to granting marketing approval of a product, the FDA or
other regulatory bodies may require us to conduct additional clinical trials. The results generated in these post-approval clinical
trials could result in loss of marketing approval, changes in product labeling, or new or increased concerns about side effects
or efficacy of a product. For example, the labeling for our pipeline candidates, if approved, may include restrictions on use
or warnings. The Food and Drug Administration Amendments Act of 2007 gives the FDA enhanced post-market authority, including the
explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information and compliance
with FDA-approved Risk Evaluation and Mitigation Strategies (“REMS programs”). If approved, our pipeline candidates
will also be subject to ongoing FDA requirements governing the manufacturing, labeling, packaging, storage, distribution, safety
surveillance, advertising, promotion, record keeping, and reporting of safety and other post-market information. The FDA’s
exercise of its authority could result in delays or increased costs during product development, clinical trials, and regulatory
review, increased costs to comply with additional post-approval regulatory requirements, and potential restrictions on sales of
approved products. Foreign regulatory agencies often have similar authority and may impose comparable costs. Post-marketing studies,
whether conducted by us or by others and whether mandated by regulatory agencies or voluntary, and other emerging data about marketed
products, such as adverse event reports, may also adversely affect sales of our pipeline candidates once approved, and potentially
our other marketed products. Further, the discovery of significant problems with a product similar to one of our products that
implicate (or are perceived to implicate) an entire class of products could have an adverse effect on sales of our approved products.
Accordingly, new data about our products could negatively affect demand because of real or perceived side effects or uncertainty
regarding efficacy and, in some cases, could result in product withdrawal or recall. Furthermore, new data and information, including
information about product misuse, may lead government agencies, professional societies, and practice management groups or organizations
involved with various diseases to publish guidelines or recommendations related to the use of our products or the use of related
therapies or place restrictions on sales. Such guidelines or recommendations may lead to lower sales of our products.
The
holder of a BLA that has been approved also is subject to obligations to monitor and report adverse events and instances of the
failure of a product to meet the specifications in the BLA. License holders must submit new or supplemental applications and obtain
FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Application holders must
also submit advertising and other promotional material to the FDA. Advertising and promotional materials must comply with FDA
rules in addition to other potentially applicable federal and state laws, including, by way of example, the Federal Trade Commission
Act. Any sales and promotional activities are also potentially subject to federal and state consumer protection and unfair competition
laws. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products.
In particular, a product may not be promoted for uses that are not approved by the FDA, or such other regulatory agencies as reflected
in the product’s approved labeling. In particular, any labeling approved by such regulatory agencies for our pipeline candidates
may also include restrictions on use. Such regulatory agencies may impose further requirements or restrictions on the distribution
or use of our pipeline candidates as part of a mandatory plan, such as limiting prescribing to certain physicians or medical centers
that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated
patients to enroll in a registry. If we receive marketing approval for one or more of our pipeline candidates, physicians may
nevertheless prescribe such products to their patients in a manner that is inconsistent with the approved label. If we are found
to have promoted such off-label uses, we may become subject to significant liability. In particular, the United States federal
government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several
companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent
injunctions under which specified promotional conduct is changed or curtailed.
Depending
on the circumstances, failure to meet post-approval requirements by us or our third-party collaborators can result in criminal
prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production,
denial or withdrawal of pre-marketing product approvals, FDA issuance of Form 483, untitled letters, and/or warning letters, suspension
or termination of any ongoing clinical trials, or refusal to allow us to enter into supply contracts, including government contracts.
Any government investigation of alleged violations of law could require us to expend significant amounts of time and resources
in response, and could generate negative publicity and significantly inhibit our ability to bring to market or continue to market
our products and generate revenue.
We
may seek to in-license pipeline candidates or technologies to expand our product pipeline and may not succeed.
If
and when we deem it to be our strategic priority, we may seek to in-license pipeline candidates or technologies to expand our
product pipeline and may not succeed. The number of such candidates and technologies is limited. Competition among large pharmaceutical
companies and biopharmaceutical companies for promising pipeline candidates and technologies is intense because such companies
generally desire to expand their product pipelines through in-licensing. If we fail to carry out such in-licensing and expand
our product pipeline, our potential future revenues may suffer especially if our current products or pipeline candidates fail
to generate material revenue.
The
failure by us or our current or future manufacturers to obtain FDA or other regulatory agencies’ approval for manufacturing
facilities could have a material adverse impact on our business, results of operations, financial condition, and prospects.
Our
manufacturing facilities and any of our current and future contract manufacturers, whether the facilities are ours or third-party
manufacturer facilities, must be inspected by the FDA, after we submit a BLA and before approval, and/or by the regulators in
other jurisdictions for our pipeline candidates to be manufactured for commercial production. In the event that we are approved
to market a drug product in the United States, we or our third-party manufacturers must register the manufacturing facilities
with the FDA and are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance
with the FDA’s current Good Manufacturing Practices regulations. Similar rules apply in the event we are approved to market
a medicinal product in the European Union. Other than for our 3-antigen prophylactic HBV vaccine candidate and VBI-2601,
which are currently manufactured by us at our manufacturing site in Israel, we are completely dependent on third-party manufacturers
for compliance with the requirements of United States and ex-United States regulators for the manufacture of our finished products.
If
we or our third-party manufacturers cannot successfully produce material that conforms to our specifications and current good
manufacturing practice requirements of any applicable regulatory agency, we will not be able to secure approval for our manufacturing
facilities. If the FDA or another regulatory agency does not approve these facilities for commercial production, we will need
to find alternative suppliers, which would result in significant delays in obtaining required regulatory approvals. In addition,
if we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity
or frequency or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that
product, the manufacturing facility, or us, including requiring recall or withdrawal of the product from the market or suspension
of manufacturing, requiring new warnings or other labeling changes to limit use of the drug, requiring that we conduct additional
clinical trials, imposing new monitoring requirements or requiring that we establish a REMS program. These challenges may have
a material adverse impact on our business, results of operations, financial condition and prospects.
We
manufacture clinical and commercial supplies of our 3-antigen prophylactic HBV vaccine and VBI-2601 at a single location. Any
disruption in the operations of our manufacturing facility could adversely affect our business and results of operations.
We
rely on our manufacturing facility in Rehovot, Israel, for the manufacture of all clinical and commercial supplies of our 3-antigen
prophylactic HBV vaccine and clinical supplies of VBI-2601. Our current manufacturing facility contains highly specialized equipment
and materials and utilizes complicated production processes developed over a number of years, which would be difficult, time-consuming,
and costly to duplicate or, though a remote risk, may be impossible to duplicate. If our facility were damaged or destroyed, or
otherwise subject to disruption, including contamination, it would require substantial lead-time to replace our manufacturing
capabilities and could cause costly delays. In such event, we would be forced to identify and rely entirely on third-party contract
manufacturers for an indefinite period of time, which we may not be able to do in a timely manner and would further increase our
production costs. Any disruptions or delays at our facility or its failure to meet regulatory compliance would significantly impair
our ability to manufacture our 3-antigen prophylactic HBV vaccine for sale in the jurisdictions where it is approved for sale,
for future potential clinical studies of our 3-antigen HBV vaccine, and for our ongoing and future clinical studies of VBI-2601,
which would result in increased costs and losses and adversely affect our business and results of operations.
We
incurred significant costs to modernize and increase the capacity of our manufacturing facility in Rehovot, Israel. Any delays
in validating the modernization and capacity increase of our facility could adversely affect our ability to supply our vaccines
for commercial sale and clinical development.
We
invested substantial funds to modernize and increase the capacity of our manufacturing facility in Rehovot, Israel, where we manufacture
all clinical and commercial supplies of our 3-antigen prophylactic HBV vaccine and clinical materials of VBI-2601. During the
modernization and capacity increase, which started in April 2018, we ceased manufacturing operations at our manufacturing facility.
Although the modernization and the capacity increase of our manufacturing facility has been completed and we obtained a certificate
of GMP compliance from the IMoH on January 27, 2020, the IMoH will also need to review and approve the process validation submission
and provide approval for us to sell our 3-antigen prophylactic HBV vaccine manufactured at the modernized facility. If we are
unable to promptly obtain IMoH approval, our ability to commercially sell our 3-antigen prophylactic HBV vaccine could be interrupted,
the costs associated with our modernization project would increase, and our sales of our 3-antigen prophylactic HBV vaccine and
the timing of our clinical studies related to VBI-2601 could be adversely affected.
If
a supplier of our raw materials and certain reagents fails to provide sufficient quantities to us, we may not be able to obtain
an alternative supply on a timely or acceptable basis.
We
rely on a single source for our supply of some of our raw materials and certain reagents required for the manufacture of our 3-antigen
prophylactic HBV vaccine and VBI-2601. We do not have a written or oral agreement with these single sources of supply, as all
orders are handled through individual purchase orders or on an order-by-order basis. Alternative sources from which we can obtain
our supply of most of these materials exist. However, we may not be able to find alternative suppliers in a timely manner that
would provide supplies of these raw materials or reagents at acceptable quantities and prices, if at all. Any interruption in
the supply of these materials would disrupt our ability to manufacture our 3-antigen prophylactic HBV vaccine or VBI-2601 for
further development, current and future clinical trials, and commercial manufacturing, and could have a material adverse effect
on our business, commercialization of our 3-antigen prophylactic HBV vaccine and VBI-2601 and future profit margins, if any.
We
do not manufacture any of our raw materials nor do we plan to develop any capacity to do so. Instead, we rely on multiple sources
to supply our raw materials so that we can manufacture sufficient quantities of our 3-antigen prophylactic HBV vaccine and VBI-2601
at our manufacturing facility in Israel and sufficient quantities of our eVLP vaccine candidates at CDMOs. The COVID-19 pandemic
has impacted lead times and availability of many raw materials, which may adversely impact our ability to manufacture products
in a timely manner. Some of the countries of origin of our raw materials are not the same as our drug manufacturing location.
Any disruption in supply of raw materials from a qualified supplier could result in significant delays with our manufacturing,
clinical trials, BLA filing, BLA approval or commercial sale of the finished product due to contract delays, the need to manufacture
new raw materials, out of specification raw materials, the need for import and export permits, and the failure of the newly sourced
raw materials to perform to the standards of the previously sourced raw materials. These delays could have a material adverse
effect on our business and future profit margins, if any.
We
expect the healthcare industry to face increased limitations on reimbursement, rebates, and other payments as a result of continued
healthcare reform changes, which could adversely affect third-party coverage of our products and how much or under what circumstances
healthcare providers will prescribe or administer our products.
In
both the United States and other countries, sales of our products will depend in part upon the availability of reimbursement from
third-party payers, which include governmental authorities, managed care organizations and other private health insurers. Third-party
payers are increasingly challenging the price and examining the cost effectiveness of medical products and services.
Increasing
expenditures for healthcare have been the subject of considerable public attention in the United States. Both private and government
entities are seeking ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the United States
healthcare system have been introduced or proposed in Congress and in some state legislatures, including reducing reimbursement
for prescription products and reducing the levels at which consumers and healthcare providers are reimbursed for purchases of
pharmaceutical products.
Cost
reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and
reimbursement for any approved products, which in turn would affect the price we can receive for those products. Any reduction
in reimbursement that results from federal legislation or regulation may also result in a similar reduction in payments from payers.
New laws may also result in additional reductions in healthcare funding, which could have a material adverse effect on our customers,
which may affect our financial operations. Legislative and regulatory proposals may expand post-approval requirements and restrict
sales and promotional activities for pharmaceutical products. We cannot be certain whether additional legislative changes will
be enacted, or whether relevant regulations, guidance, or interpretations will be changed, or what the impact of such changes
on our products may be.
Although
we cannot predict the full effect on our business of the implementation of existing legislation or the enactment of additional
legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that would reduce
reimbursement for, or restrict coverage of, our products could adversely affect how much or under what circumstances healthcare
providers will prescribe or administer our products. This could materially and adversely affect our business by reducing our ability
to generate revenue, raise capital, obtain additional collaborators and market our products. In addition, we believe the increasing
emphasis on managed care in the United States has and will continue to put pressure on the price and usage of pharmaceutical products,
which may adversely impact product sales.
Governments
outside the United States tend to impose strict price controls, which may adversely affect our future revenues.
In
some countries, particularly countries in Europe, the pricing and/or reimbursement of prescription pharmaceuticals is subject
to governmental control. In Canada, the prices of patented medicines are subject to price controls. In these countries, pricing
negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To
obtain reimbursement or pricing approval in some countries, we may be required to conduct a study that compares the cost-effectiveness
of our products to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or
if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
We
face intense competition and rapid technological change, which may make it more difficult to achieve significant market penetration.
If we cannot compete successfully for market share against other companies, we may not achieve sufficient product revenues and
our business will suffer.
The
market for our pipeline candidates is characterized by intense competition and rapid technological advances. For example, if it
is approved in the future, our 3-antigen prophylactic HBV vaccine will compete in the United States with approved HBV vaccines
marketed by GSK, Dynavax, and Merck and will compete outside the United States with vaccines from GSK, Merck, and several additional
established pharmaceutical companies. If competitors’ existing products or new products are more effective than or considered
superior to our current or future products, the commercial opportunity for our products will be reduced or eliminated. Existing
or future competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication
than our products or may offer comparable performance at a lower cost. We face competition from fully integrated pharmaceutical
companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government
agencies and other public and private research organizations. Many of our competitors have products or pipeline candidates already
approved or in development. In addition, many of these competitors, either alone or together with their collaborative partners,
are larger than us and have substantially greater financial, technical, research, marketing, sales, distribution, and other resources.
Existing and potential competitors may develop or market products that are more effective or commercially attractive than any
that we are developing or marketing. Competitors may obtain regulatory approvals and introduce and commercialize products before
we do. These developments could have a significant negative effect on our financial condition. Even if we are able to compete
successfully, we may not be able to do so in a profitable manner.
We
may be exposed to liability claims associated with the use of hazardous materials and chemicals.
Our
research and development activities involve the controlled use of hazardous materials and chemicals. Although we believe that
our safety procedures for using, storing, handling and disposing of these materials comply with federal, state, provincial and
local laws and regulations, we cannot completely eliminate the risk of accidental injury or contamination from these materials.
In the event of such an accident, we could be held liable for any resulting damages and any liability could materially adversely
affect our business, financial condition and results of operations. In addition, the federal, provincial, state, and local laws
and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and waste
products may require us to incur substantial compliance costs that could materially adversely affect our business and financial
condition.
Our
pipeline candidates may never achieve market acceptance, even if we obtain regulatory approvals.
Even
if we receive regulatory approvals for the commercial sale of our pipeline candidates, the commercial success of these pipeline
candidates will depend on, among other things, their acceptance by physicians, patients, third-party payers such as health insurance
companies and other members of the medical community as a prophylaxis or therapeutic and a cost-effective alternative to competing
products. If our pipeline candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our
business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors,
including:
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our
ability to provide acceptable evidence of safety and efficacy;
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the
prevalence and severity of adverse side effects;
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whether
our vaccines are differentiated from other vaccines based on immunogenicity;
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availability,
relative cost, and relative efficacy of alternative and competing treatments;
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the
effectiveness of our marketing and distribution strategy;
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publicity
concerning our products or competing products and treatments; and
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our
ability to obtain sufficient third-party insurance coverage or reimbursement.
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If
our pipeline candidates do not become widely accepted by physicians, patients, third-party payers and other members of the medical
community, our business, financial condition and results of operations would be materially and adversely affected.
If
we are unable to manufacture our eVLP pipeline candidates in sufficient quantities, at sufficient yields or are unable to obtain
regulatory approvals for a manufacturing facility for our vaccines, we may experience delays in product development, clinical
trials, regulatory approval, commercial distribution, and the In Process Research & Development (“IPR&D”)
assets may become impaired and be written off at some time in the future.
Completion
of our clinical trials and commercialization of our eVLP pipeline candidates require access to, or development of, facilities
to manufacture our eVLP pipeline candidates at sufficient yields and at commercial-scale. We have limited experience manufacturing
any of our eVLP pipeline candidates in the volumes that will be necessary to support large-scale clinical trials or commercial
sales. Efforts to establish these capabilities may not meet initial expectations as to scheduling, scale-up, reproducibility,
yield, purity, cost, potency, or quality.
If
we are unable to manufacture our eVLP pipeline candidates in clinical or commercial quantities, as the case may be, in sufficient
yields, with sufficient purity, potency, quality, and identity, then we must find, qualify, and rely on third parties. Any new
third-party manufacturers must also receive FDA approval before we may use product manufactured by them as our commercial products
and pipeline candidates. Our products may be in competition with other products for access to these facilities and may be subject
to delays in manufacture if our third-party manufacturers give other products greater priority. Any delays experienced by third-party
manufacturers, whether directly or by its raw material suppliers in relation to our project, may result in delays in clinical
development of our eVLP pipeline candidates.
As
a result, any delay or interruption, could have a material adverse effect on our business, financial condition, results of operations
and cash flows. In addition, the IPR&D assets may become impaired and be written off at some time in the future,
which could also have a material adverse effect on the financial statements.
In
light of our current resources and limited commercial experience, we have and may need to continue to establish third-party relationships
to successfully commercialize our pipeline candidates.
The
near and long-term commercial viability of our pipeline candidates may depend, in part, on our ability to successfully execute
current strategic collaborations and establish new strategic collaborations with contract commercial organizations, pharmaceutical
and biotechnology companies, non-profit organizations, and government agencies. Establishing and maintaining strategic collaborations
and obtaining government funding is difficult and time-consuming. Potential collaborators may reject collaborations based upon
their assessment of our financial, regulatory or intellectual property position or based on their internal pipeline or available
resources; government agencies may reject contract or grant applications based on their assessment of public need, the public
interest, the ability of our products to address these areas, or other reasons beyond our expectations or control. If we fail
to establish or maintain collaborations or government relationships necessary for successful commercialization on acceptable terms,
we may not be able to commercialize our pipeline candidates or generate sufficient revenue to fund further research and development
efforts.
New
or existing collaborations, including our collaborations with Syneos Health and with Brii Bio, and/or government funding may never
result in the successful development or commercialization of any pipeline candidates for several reasons, including the fact that:
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we
may not have the ability to control the activities of our partners and cannot provide assurance that they will fulfill their
obligations to us, including with respect to the license, development, and commercialization of pipeline candidates, in a
timely manner or at all;
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such
partners may not devote sufficient resources to our pipeline candidates or properly maintain or defend our intellectual property
rights (if required);
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relationships
with our collaborators could also be subject to certain fraud and abuse laws if not structured properly to comply with such
laws;
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any
failure on the part of our partners to perform or satisfy their obligations to us could lead to delays in the development
or commercialization of our pipeline candidates and affect our ability to realize product revenue; and
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disagreements,
including disputes over the ownership of technology developed with such collaborators, could result in litigation, which would
be time-consuming and expensive, and may delay or terminate research and development efforts, regulatory approvals, and commercialization
activities.
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If
we or our collaborators fail to maintain our existing agreements or in the event we fail to establish agreements as necessary,
we could be required to undertake research, development, manufacturing, and commercialization activities solely at our own expense.
These activities would significantly increase our capital requirements and, given our lack of sales, marketing and distribution
capabilities, significantly delay the commercialization of our pipeline candidates.
Our
marketing, promotional, and business practices, including those that occur prior to the FDA’s or another regulatory authority’s
approval of a product candidate, are subject to extensive regulation and any material failure to comply could result in significant
sanctions against us.
The
marketing, promotional, and business practices of pharmaceutical and biologics companies are subject to extensive regulation,
the enforcement of which may result in the imposition of civil and/or criminal penalties, injunctions, and/or limitations on marketing
practices for some of our products.
There
is no official FDA definition of “promotion,” but FDA regulations, guidance documents, and enforcement actions make
clear that the FDA takes a broad view of the term. Promotional materials include any written, oral, graphic, or broadcast material
made and distributed to consumers by a company or its agents with the intent to proactively communicate certain attributes (e.g.,
use/indication, safety, effectiveness, etc.) of a given drug or biologic product. Examples include presentations, posters, brochures,
notes, e-mail messages (external), blog postings, corporate websites, social media posts, videos, oral representations made by
company representatives, product samples, reprints of scientific, and medical articles, among others. To be lawful, promotions,
at a minimum, must:
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be
consistent with, and not contrary to, labeling;
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present
“fair balance” between risks and benefits;
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be
truthful and not false or misleading;
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be
adequately substantiated (when required); and
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include
adequate directions for use.
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Aside
from off-label promotion, a lack of fair balance between risk information and benefit information has become the highest enforcement
priority for the FDA in this context. We may also be subject to enforcement action in connection with any promotion of an investigational
product. Under the Food, Drug, and Cosmetic Act, a sponsor or investigator, or any person acting on behalf of a sponsor or investigator,
shall not represent in a promotional context that an investigational new drug is safe or effective for the purposes for which
it is under investigation or otherwise promote the product candidate. The most common factors that trigger FDA enforcement actions
for unauthorized promotion of an investigational drug include:
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Absence
of clear and prominent statement on investigational status;
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Use
of trade name pre-approval (without adequate clarification as to status);
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Lack
of separation between information on investigational and approved products;
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Characterizations
and descriptions of a promotional nature that are phrased as established facts (e.g., “long actions,” “tamper-resistant,”
“next generation”); and
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Presentation
of information in a manner that visually suggests it is an approved product (e.g., under a heading titled “Products”).
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Any
enforcement action or lawsuit brought against us in connection with alleged violations of applicable promotion requirements, or
prohibitions, could harm our business and our reputation, as well as the reputation of any then approved products we may promote
or commercialize.
We
may be subject to additional risks due to the involvement of third-party drugs, devices, or other products in clinical studies
evaluating the safety and/or efficacy of our pipeline candidates and/or in connection with the commercial use of any such candidates
approved by the FDA for marketing in the United States in the future.
One
or more existing FDA-approved therapies may be involved in the clinical testing of a given product candidate, as such product
candidate may be tested in combination with a therapy developed by another company or administered using a third-party medical
device.
For
example, our cancer vaccine immunotherapeutic candidate, VBI-1901, is in a two-arm Phase I/IIa clinical study where it is administered
in combination with two separate adjuvants via intradermal injection. Accordingly, our clinical studies for VBI-1901, and any
other study involving a third-party product, may subject us to additional risks that we may not otherwise face in connection with
studies conducted without third-party products.
Among
other potential risks, a third-party product we utilize could be defective, removed from the market, or otherwise rendered unavailable
for the applicable use. Additionally, the safety and/or efficacy of such products may be called into question for reasons beyond
our control, including, but not limited to, serious adverse events associated with the product; regulatory enforcement action
against the product’s manufacturer, developer, or other responsible party, as applicable; or any other circumstance or finding
that negatively impacts the perceived utility or reliability of the product. The occurrence of any such events in connection with
a third-party drug, device, or other product used in our clinical studies could cause the FDA and/or industry to question the
validity of our clinical trial data or improperly attribute safety or efficacy issues to our pipeline candidates, either of which
could have a material adverse effect on our ability to successfully develop and commercialize such candidates. We cannot predict
the ultimate impact that any third-party product used in our clinical studies may have on our business, as such is dependent upon
a number of factors outside of our reasonable control.
Risks
Related to Our Capital Requirements and Financings
We
will need additional financing to continue our operations. If we are unable to obtain additional financing on acceptable terms,
we may have to curtail or cease our development plans and operations.
Our
revenue generating activities include product sales and research and development services pursuant to fee for service agreements,
collaboration agreements, and certain governmental research and development grants. However, our revenues have not been significant
to date. Our long-term success and ability to continue as a going concern is dependent upon obtaining sufficient capital to fund
the research and development of our products, to bring about their successful commercial release, if approved, to generate revenue,
and, ultimately, to attain profitable operations or alternatively advance the products and technology to such a point that an
acquirer would find attractive. We face substantial demand on our cash resources to fund operations and our growth plans in the
future.
To
date, we have been able to obtain financing; however, there is no assurance that financing will be available in the future, or
if it is, that it will be available at terms acceptable to us. Additional financings may be effected through debt financing and/or
the issuance of equity securities, there being no assurance that any type of financing on terms acceptable to us will be available
or otherwise occur. Debt financing must be repaid regardless of whether we generate revenues or cash flows from operations and
may be secured by substantially all of our assets. Any equity financing or debt financing that requires the issuance of equity
securities or securities convertible into equity securities would cause the percentage ownership of our shareholders to be diluted,
which dilution may be substantial. Also, any additional equity securities issued may have rights, preferences, or privileges senior
to those of existing shareholders. Furthermore, if we issue additional securities, whether equity or debt, or if investors believe
we may issue additional securities, the market price of our common shares could decline. If such financing is not available when
required or is not available on acceptable terms, we may be required to reduce or eliminate certain pipeline candidates and development
activities, and it may ultimately require us to suspend or cease operations, which could cause investors to lose the entire amount
of their investment.
We
have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future.
We
have incurred significant net losses and negative operating cash flows since inception. We incurred net losses of approximately
$46.2 million and $54.8 million in 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $308.6
million. Our income generating activities have been from sales of our 3-antigen prophylactic HBV vaccine in Israeli markets that
have generated a limited number of sales to-date, fees from research and development services, and revenue from partnership collaborations.
We expect to incur significant operating losses for the next several years as we support our 3-antigen prophylactic HBV vaccine
regulatory submissions and pre-commercialization activities, expand our research and development, advance other pipeline candidates
into and through clinical development, including our immunotherapeutic HBV candidate, GBM vaccine immunotherapeutic candidate,
prophylactic coronavirus vaccine program candidates, and CMV candidate, complete clinical trials and seek regulatory approval.
Because of the numerous risks and uncertainties associated with developing and commercializing pharmaceutical products, as well
as those related to our expectations for the License Agreement, we are unable to predict the extent of any future losses or guarantee
when, or if, our company will become profitable or cash flow positive. If we never achieve profitability or positive cash flows,
or achieve either later than we anticipate, you may lose some or all of your investment in us.
Our
financial statements have been prepared on a going concern basis; we must raise additional capital to fund our operations in order
to continue as a going concern.
In
its report dated March 2, 2021, EisnerAmper LLP, our independent registered public accounting firm, expressed substantial
doubt about our ability to continue as a going concern as we have suffered recurring losses from operations and have insufficient
liquidity to fund our future operations. If we are unable to improve our liquidity position, we may not be able to continue as
a going concern. The accompanying consolidated financial statements do not include any adjustments that might result if we are
unable to continue as a going concern and, therefore, be required to realize our assets and discharge out liabilities other than
in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment.
As of December 31, 2020, we had $93.8 million of cash and cash equivalents. In order to have sufficient cash and cash equivalents
to fund our operations in the future, we will need to raise additional equity or debt capital and cannot provide any assurance
that we will be successful in doing so.
Risks
Related to Our Business
Adverse
effects resulting from vaccines or immunotherapies or therapies could also negatively affect the perceptions by members of the
health care community, including physicians, about the safety and effectiveness of our pipeline candidates.
There
are many other companies that have developed or are currently trying to develop vaccines or immuno-oncology products for the treatment
or prevention of diseases that overlap with our pipeline candidates. If adverse effects were to result from vaccines or immunotherapy
drugs or therapies being developed, manufactured and marketed by others that overlap with our pipeline candidates, it could be
attributed to our pipeline candidates or immunotherapy protocols as a whole. In fact, in the past biologics have been associated
with certain safety risks and other companies developing biologics have had patients in trials suffer from serious adverse events,
including death. Any such attribution could negatively affect the perceptions by members of the health care community, including
physicians, about the safety and effectiveness of our pipeline candidates. Our industry is susceptible to rapid technological
changes and there can be no assurance that we will be able to overcome any new technological challenges presented by the adverse
effects resulting from vaccines or immunotherapy drugs or therapies developed, manufactured or marketed by others.
We
have international operations, which subject us to risks inherent with operations outside of Canada.
We
have international operations and we may seek to obtain market approvals in foreign markets that we deem to generate significant
opportunities. However, even with the cooperation of a commercialization partner, conducting drug development in foreign countries
involves inherent risks, including, but not limited to: difficulties in staffing, funding, and managing foreign operations; different
and unexpected changes in regulatory requirements; export restrictions; tariffs and other trade barriers; different reimbursement
systems; economic weaknesses or political instability in particular foreign economies and markets; compliance with tax, employment,
immigration, and labor laws for employees living or travelling abroad; supply chain and raw materials management; difficulties
in protecting, acquiring, enforcing, and litigating intellectual property rights; fluctuations in currency exchange rates; and
potentially adverse tax consequences.
If
we were to experience any of the difficulties listed above, or any other difficulties, our international development activities
and our overall financial condition may suffer and cause us to reduce or discontinue our international development and market
approval efforts.
Our
employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to:
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comply
with FDA regulations or similar regulations of comparable foreign regulatory authorities;
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provide
accurate information to the FDA or comparable foreign regulatory authorities;
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comply
with manufacturing standards that we have established;
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comply
with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced
by comparable foreign regulatory authorities;
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properly
protect patient information which is subject to federal and state privacy and security laws or similar laws in foreign countries;
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report
financial information or data accurately; or
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disclose
unauthorized activities to us.
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In
particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit
a wide range of pricing, discounting, marketing and promotion, sales commissions, customer incentive programs, and other business
arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials,
which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter
employee misconduct, and the precautions that we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming
from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us and we are not
successful in defending or asserting our rights, those actions could have a significant impact on our business and results of
operations, including the imposition of significant fines or other sanctions.
We
may be subject to federal, provincial and state healthcare laws, regulations, and policies in connection with our current and/or
future activities and our failure to comply with those laws could have a material adverse effect on our results of operations
and financial conditions.
In
addition to FDA restrictions on marketing and other applicable regulations, if we obtain FDA approval to commercialize any of
our current or future product candidates in the United States, our operations may be directly, or indirectly, through our relationships
with healthcare providers, customers, and third-party payors, subject to various federal and state fraud and abuse laws, including,
without limitation the following:
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the
federal Anti-Kickback Statute (and state equivalents), which prohibits, among other things, persons from knowingly and willfully
soliciting, receiving, offering, or paying remuneration, directly or indirectly, in exchange for or to induce either the referral
of an individual, or the furnishing, arranging for, or the purchase, order or recommendation of, any item or service that
is reimbursable, in whole or in part, by a federal healthcare program such as the Medicare and Medicaid programs;
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the
federal physician self-referral law, commonly known as the “Stark Law” (and state equivalents), which prohibits
a physician from making a referral for certain designated health services covered by the Medicare program if the physician
or an immediate family member has a financial relationship with the entity providing the designated health services, unless
the financial relationship falls within an applicable exception to the prohibition;
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the
federal False Claims Act and related laws (and state equivalents) that prohibit and impose liability on any person or entity
that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal
government;
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the
so-called qui tam provisions of the federal and state False Claims Act, which permit whistleblowers to sue in the name of
the federal or state governments’ healthcare providers and others for alleged violations of those laws and which permit
whistleblowers to obtain a reward for bringing the case. These qui tam cases have been on the rise in recent years;
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federal
criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating
to healthcare matters;
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the
federal transparency requirements under the Affordable Care Act, including the provisions commonly referred to as the Physician
Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable
under Medicare, Medicaid or Children’s Health Insurance Program to report annually to the Centers for Medicare &
Medicaid Services information related to payments and other transfers of value to physicians and teaching hospitals, and ownership
and investment interests held by physicians and their immediate family members;
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the
federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare
or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s
selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program,
unless an exception applies;
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the
Prescription Drug Marketing Act, as amended, which governs the distribution of prescription drug samples to healthcare practitioners;
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the
fraud and abuse provisions of the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health
Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations (collectively
“HIPAA”), which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit
program or making false statements relating to healthcare matters and established comprehensive federal standards with respect
to the privacy and security of protected health information and requirements for the use of certain standardized electronic
transactions, and amendments made in 2013 to HIPAA under the Health Information Technology for Economic and Clinical Health
Act, which strengthens and expands HIPAA privacy and security compliance requirements, increases penalties for violators,
extends enforcement authority to state attorneys general, and imposes requirements for breach notification;
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analogous
state laws and regulations, including (among others) state anti-kickback, self-referral, and false claims laws, which may
apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and
claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws
that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and
the relevant compliance guidance promulgated by the United States federal government, or otherwise restrict payments that
may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers
to file reports relating to pricing and marketing information and that require tracking gifts and other remuneration and items
of value provided to healthcare professionals and entities; state and local laws that require the registration of pharmaceutical
sales representatives; and
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state
and local law equivalents of HIPAA related to the privacy and security of patient information in certain circumstances, which
are typically not preempted by HIPAA and may apply more broadly, and/or contain different, potentially more stringent, restrictions
and obligations, than HIPAA thus complicating compliance efforts.
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Further,
the Affordable Care Act, among other things, amended the intent requirement of the federal anti-kickback and criminal healthcare
fraud statutes. A person or entity can be found guilty of fraud or false claims under the Affordable Care Act without actual knowledge
of the statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert
that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the false claims statutes. Ensuring that our future business arrangements with third parties
comply with applicable healthcare laws and regulations could involve substantial costs. Possible sanctions for violation of the
applicable fraud-and-abuse laws may include monetary fines, civil, and criminal penalties, exclusion from Medicare, Medicaid,
and other government programs, forfeiture of amounts collected in violation of such prohibitions, individual imprisonment, additional
reporting obligations, and oversight (if we become subject to a corporate integrity agreement or other agreement to resolve allegations
of non-compliance with these laws), and the curtailment or restructuring of our operations. Any violations of these laws, or any
action against us for violation of these laws, even if we successfully defend against such claims, could result in a material
adverse effect on our reputation, business, results of operations, and financial condition. In addition, there has been a recent
trend of increased federal and state regulation of payments made to physicians and teaching hospitals for marketing, medical directorships,
and other purposes. Some states impose a legal obligation on companies to adhere to voluntary industry codes of behavior (e.g.,
the PhRMA Code and the AdvaMed Code of Ethics), which apply to pharmaceutical and medical device companies’ interactions
with healthcare providers; some mandate implementation of corporate compliance programs, along with the tracking and reporting
of gifts, compensation and other remuneration to physicians, and some states limit or prohibit such gifts.
Most
recently, there has been a trend in federal and state legislation aimed at requiring pharmaceutical companies to disclose information
about their production and marketing costs, and ultimately lowering costs for drug products. Several states have passed or introduced
bills that would require disclosure of certain pricing information for prescription drugs that have no threshold amount or are
above a certain annual wholesale acquisition cost. In June 2016, Vermont became the first state to pass legislation requiring
certain drug companies to disclose information relating to justification of certain price increases and various others have since-followed.
The United States Congress has also introduced bills targeting prescription drug price transparency, and two such bills—the
Patient Right to Know Drug Prices Act (for private plans) and the Know the Lowest Price Act (for Medicare Parts C and D)—were
signed into law on October 10, 2018. These laws and any other such implementation of legislation requiring publication of drug
costs could materially and adversely impact our business, financial condition and results of operations by promoting a reduction
in drug prices.
The
scope and enforcement of these laws is uncertain and subject to change in the current environment of healthcare reform, especially
in light of the lack of applicable precedent and regulations. We are not able to predict the impact on our business of any changes
in these laws. Federal or state regulatory authorities may challenge our future activities under these laws. Any such challenge
could have a material adverse effect on our reputation, business, results of operations and financial condition. Any state or
federal regulatory review of the Company, regardless of the outcome, would be costly and time-consuming.
Our
business, and our current and future activities, product candidates, or any future approved products, if any, may also be subject
to equivalent healthcare-related laws and regulations of any or all of the other countries, provinces, or other applicable jurisdictions
in which we currently operate or may operate in the future. There can be no assurance that the potential compliance obligations
of any such foreign laws, and any corresponding consequences of noncompliance, will be similar to those of United States fraud
and abuse laws.
Healthcare
legislative reform measures or other changes may have a material adverse effect on our business and results of operations.
In
the United States, there have been a number of legislative and regulatory initiatives focused on containing the cost of healthcare.
The Affordable Care Act, for example, substantially changed the way healthcare is financed by both governmental and private insurers.
The Affordable Care Act contains a number of provisions that could impact our business and operations, primarily, once we obtain
FDA approval to commercialize one of our product candidates in the United States, if ever, and may also affect our operations
in ways we cannot currently predict. ACA provisions that may affect our business include those governing enrollment in federal
healthcare programs, reimbursement changes, rules regarding prescription drug benefits under health insurance exchanges, expansion
of the 340B program, expansion of state Medicaid programs, and fraud and abuse enforcement. Such changes may impact existing government
healthcare programs, industry competition, formulary composition, and may result in the development of new programs, including
Medicare payment for performance initiatives, health technology assessments, and improvements to the physician quality reporting
system and feedback program.
During
his time in office, former President Trump supported
the repeal of all or portions of the Affordable Care Act. However, the Trump administration’s relevant repeal
and/or reform efforts were met with substantial opposition from various federal and state legislators and agencies and
other industry stakeholders, which has contributed to the current state of uncertainty as to the validity and application of healthcare
reform measures initiated thus far, the fate of the Affordable Care Act, and the current and future implications for applicable
participants within the United States healthcare industry, including providers, patients, manufacturers, developers, and other
relevant individuals and institutions.
In
January 2017, Congress passed a budget resolution that authorizes congressional committees to draft legislation to repeal all
or portions of the Affordable Care Act and permits such legislation to pass with a majority vote in the Senate. President Trump
also issued an executive order in which he stated that it is his administration’s policy to seek the prompt repeal of the
Affordable Care Act and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the
implementation of the provisions of the Affordable Care Act to the maximum extent permitted by law.
Additionally,
the Tax Cuts and Jobs Act of 2017 eliminated the Affordable Care Act provision requiring individuals to purchase and maintain
health coverage, or the “individual mandate,” by reducing the associated penalty to zero, beginning in 2019. In December
2018, a district court in Texas held that the individual mandate is unconstitutional and that the rest of the Affordable Care
Act is, therefore, invalid. On appeal, the Fifth Circuit Court of Appeals affirmed the holding on the individual mandate but remanded
the case back to the lower court to reassess whether and how such holding affects the validity of the rest of the Affordable Care
Act. Substantial uncertainty remains as to the future of the Affordable Care Act after the United States Supreme Court declined
to expedite its review of the Fifth Circuit’s holding on January 21, 2020. Accordingly, these issues were not
resolved before the election of President Biden in November 2020. There is no way to predict whether, and to what extent,
if any, the Affordable Care Act will remain in-effect in the future, and it is unclear how these decisions, subsequent appeals,
or other efforts to repeal and replace the Affordable Care Act will impact the United States healthcare industry or our business.
Furthermore,
we cannot predict what actions the Biden administration will implement in connection with the Affordable Care Act. The adoption
or implementation of new or amended legislation at the federal or state level could affect our ability to obtain regulatory approval
for any of our vaccine candidates and the commercial viability of our future approved products, if any. We cannot predict the
ultimate nature, timing, or effect of any changes to the Affordable Care Act or other federal and state reform efforts, and there
is no assurance that such efforts will not adversely affect our future business and financial results.
Our
internal computer systems, or those of our third-party vendors, collaborators, or other contractors may be subject to various
federal and state confidentiality and privacy laws in the United States and abroad and could sustain system failures, security
breaches, or other disruptions, any of which could have a material adverse effect on our business.
Numerous
international, national, federal, provincial and state laws, including state privacy laws (such as the California Consumer Privacy
Act, or “CCPA”), state security breach notification and information security laws, and federal and state consumer
protection laws govern the collection, use, and disclosure of personal information. In addition, most healthcare providers who
may, in future, prescribe and dispense our products in the United States and research institutions in the United States with whom
we collaborate for our sponsored clinical trials are “covered entities” subject to privacy and security requirements
under Health Care Insurance and Accountability Act of 1996 (“HIPAA”). Among other things, the Health Information Technology
for Economic and Clinical Health Act (“HITECH”) makes HIPAA’s privacy and security standards directly applicable
to business associates, independent contractors, or agents of covered entities that receive or obtain protected health information
in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties,
amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general
new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’
fees and costs associated with pursuing federal civil actions. Certain of our clinical sites or collaborators could be subject
to a wide range of penalties and sanctions under HIPAA, including criminal penalties if they knowingly obtain or disclose individually
identifiable health information maintained by a covered entity in a manner that is not authorized or permitted by HIPAA. Failure
to comply with current and future privacy laws and regulations could result in governmental enforcement actions (including the
imposition of significant penalties), criminal and civil liability, and/or adverse publicity that negatively affects our business.
Moreover,
we rely on our internal and third-party provided information technology systems and applications to support our operations and
to maintain and process company information including personal information, confidential business information and proprietary
information. Furthermore, we generate intellectual property that is central to the future success of the business and transmit
certain amounts of confidential information. Additionally, we collect, store and transmit confidential information of collaborators,
employees or other third-party contractors. We have experienced in the past, and may experience in the future, cybersecurity incidents,
threats, and intrusions. Incidents, threats, and intrusions may require remediation to protect sensitive information, including
our intellectual property and personal information, and our overall business. The continually changing threat landscape of cybersecurity
today makes our systems potentially vulnerable to service interruptions, system errors or to security breaches from inadvertent
or intentional actions by our employees, partners, and vendors, and from attacks by malicious third parties, including supply
chain attacks originating at our third-party partners. Such attacks are of ever-increasing levels of sophistication. Attacks may
be made by individuals or groups that have varying levels of expertise, some of which are technologically advanced and well-funded
including, without limitation, nation states, organized criminal groups, and hacktivists organizations. A breach of cybersecurity,
a disruption in availability, or the unauthorized alteration of systems or data could adversely affect our business, results of
operations and financial condition, or lead to the loss, theft, destruction, corruption, or compromise of our information or that
of our collaborators, or third-party contractors, as applicable.
While
we have invested in cybersecurity and have implemented processes and procedural controls to maintain the confidentiality and integrity
of such information, there can be no guarantee that our efforts will prevent all service interruptions or security breaches. Any
such interruption or breach of our systems could adversely affect our business operations and result in the loss of critical or
sensitive confidential information or intellectual property, and could result in financial, legal, and reputational harm to our
business, including legal claims and proceedings, liability under laws that protect the privacy of personal information, government
enforcement actions, and regulatory penalties, as well as remediation costs. While we seek to protect our information technology
systems from these types of incidents, the healthcare sector continues to see a high frequency of cyberattacks and increasingly
sophisticated threat actors, and our systems and the information maintained within those systems remain potentially vulnerable
to data security incidents. Moreover, losses from such events may not be completely covered by insurance coverage (or may not
be covered at all by any of our insurance policies depending on the circumstances). Furthermore, this insurance may not be sufficient
to cover the financial, legal, or reputational losses that may result from an interruption or breach of our systems.
Any
of the above-described cyber or other security-related incidents may trigger notification obligations to affected individuals
and government agencies, legal claims or proceedings, and liability under foreign, federal, provincial, and state laws that protect
the privacy and security of personal information. Our proprietary and confidential information may also be accessed. Any one of
these events could cause our business to be materially harmed and our results of operations may be adversely impacted. Finally,
as cyber threats continue to evolve, and privacy and cybersecurity laws and regulations continue to develop, we may need to invest
additional resources to implement new compliance measures, strengthen our information security posture, or respond to cyber threats
and incidents.
We
may expand our business through the acquisition of rights to new pipeline candidates that could disrupt our business and harm
our financial condition.
We
may expand our product offerings, and we may seek acquisitions of pipeline candidates or technologies to do so. We may also seek
to expand our business through the acquisition of businesses or companies having rights to new pipeline candidates. Acquisitions
involve numerous risks, including substantial cash expenditures; potentially dilutive issuances of equity securities; incurrence
of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of the acquisition; difficulties
in assimilating the acquired technologies or the operations of the acquired companies; diversion of management’s attention
away from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential
loss of key employees or key employees of the acquired companies.
There
can be no assurance that any acquisition by us will result in short-term or long-term benefits to us. We may incorrectly judge
the value or worth of an acquired product, company or business. In addition, future success of the combined company will depend
in part on our ability to manage the rapid growth associated with some of these acquisitions. There can be no assurance that we
will be able to make the combination of our business with that of any acquired products, businesses, or companies work or be successful.
Furthermore, the development or expansion of our business or any acquired products, businesses, or companies may require a substantial
capital investment by us. We may not have these necessary funds, or such funds might not be available on acceptable terms or at
all. We may also seek to raise funds by selling capital stock or instruments convertible into or exercisable for capital stock,
which could dilute each shareholder’s ownership interest.
Under
current United States, Canadian, and Israeli law, we may not be able to enforce covenants not to compete or to prevent the breach
of confidentiality agreements, and therefore, may be unable to prevent our competitors from benefiting from the expertise of some
of our former employees.
We
generally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our
employees and certain key consultants, if they cease working for us, from competing directly with us or working for our competitors
or clients for a limited period of time. However, under current United States, Canadian, and Israeli law, we may be unable to
enforce these agreements, in whole or in part, and therefore, we cannot be sure that these employees and key consultants will
not compete with us. For example, in the past, Israeli courts have required employers seeking to enforce non-compete undertakings
of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of
material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential
commercial information or the protection of its intellectual property. If we are unable to demonstrate that harm would be caused
to us or otherwise enforce these non-competition agreements, in whole or in part, we may be unable to prevent our competitors
from benefitting from the expertise our former employees or consultants developed while working for us and our ability to remain
competitive may be diminished.
We
rely on confidential information that we seek to protect through confidentiality agreements with our employees and other parties.
If these agreements are breached, competitors may obtain and use our confidential information to gain a competitive advantage
over us or could substantially delay product development or harm our commercialization activities. We may not have any remedies
against our competitors and any remedies that may be available to us may not be adequate to protect our business or compensate
us for the damaging disclosure. In addition, we may have to expend resources to protect our interests from possible infringement
by others, which may divert our available funds away from our business activities.
We
have significant operations located in Israel and, therefore, our results may be adversely affected by political, economic, and
military instability in Israel.
Our
subsidiary’s operations are located in Rehovot, Israel. Accordingly, political, economic, and military conditions in Israel
may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken
place between Israel and its neighboring countries. Any hostilities involving Israel or the interruption or curtailment of trade
between Israel and its trading partners could adversely affect our business and results of operations.
Any
armed conflicts, terrorist activities, or political instability in the region could adversely affect business conditions and could
harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business have
sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements
when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel
may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform
their commitments under those agreements pursuant to force majeure provisions in such agreements.
Since
the Gaza Strip’s 2007 coup, by which the terrorist organization Hamas seized control, there have been a number of armed
conflicts between Hamas and Israel – in December-January 2008-9, November 2012, July-August 2014 and as recently as May
2019 – in all of which conflicts, rockets were fired from Gaza into Israeli civilian population centers. During the summer
of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party
backed by Iran and controlling large swathes of Lebanon. These conflicts involved missile strikes against civilian targets in
various parts of Israel, including areas in which our Rehovot facilities, employees and some of our consultants are located, and
negatively affected business conditions in Israel. Civil unrest and political turbulence has occurred in other countries in the
region, including Syria which shares a common border with Israel, and is affecting the political stability of those countries.
Since April 2011, a civil war that has been ongoing in Syria has escalated, and evidence indicates that chemical weapons have
been used in the region. This instability and any intervention may lead to additional conflicts in the region. In addition, Iran
has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran also has a strong influence among
extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and both the Allawite regime and various rebel militia
groups in Syria. These situations may potentially escalate in the future to more violent events which may affect Israel and us.
Any armed conflicts, terrorist activities, or political instability in the region could adversely affect business conditions and
could harm our results of operations and could make it more difficult for us to raise capital.
Commercial
insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East.
Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by
terrorist attacks or acts of war, we cannot assure that this government coverage will be maintained, or if maintained, will be
sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect
on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions
generally and could harm our results of operations.
Political
relations could limit our ability to sell or buy internationally.
We
could be adversely affected by the interruption or reduction of trade between Israel and its trading partners. To date the State
of Israel and Israeli companies have been repeatedly subjected to economic boycotts. Several countries, companies and organizations
continue to participate in a boycott of Israeli firms and others doing business with Israel or with Israeli companies. Also, over
the past several years there have been calls in Europe and elsewhere to reduce trade with Israel. These restrictive laws and policies
may have an adverse impact on our operating results, financial condition or the expansion of our business.
The
operations of our subsidiary in Israel may be disrupted as a result of the obligation of Israeli citizens to perform military
service.
Many
Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty until they reach
the age of 40 (or older, for reservists who are officers or who have certain special training) and, in the event of a military
conflict, may be called to active duty. In response to increases in terrorist activity and recent armed conflicts, there have
been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups
in the future. The operations of our subsidiary in Israel could be disrupted by such call-ups, which may include the call-up of
our employees or the employees of our Israeli business partners. Such disruption could materially adversely affect our business,
financial condition and results of operations.
Exchange
rate fluctuations between the United States dollar, Canadian dollar and the New Israeli Shekel currencies may negatively affect
our earnings cash flows.
Our
functional currency is the United States dollar. We incur expenses in New Israeli Shekel, which we refer to as NIS, Canadian Dollars
and United States dollars. As a result, we are exposed to the risks that the United States dollar may devalue relative to the
Canadian Dollar or NIS, or, if the United States dollar appreciates relative to the Canadian Dollar or NIS, that the inflation
rate in the United States may exceed such rate of devaluation of the United States dollar, or that the timing of such devaluation
may lag behind inflation in the United States. The average exchange rate for the year ended December 31, 2020, was US$1.00 = NIS
3.4370 and US$1.00 = CAD $1.3399. We cannot predict any future trends in the rate of inflation in the United States or the rate
of devaluation, if any, of the United States dollar against the Canadian Dollar or NIS.
Risks
Related to Our Intellectual Property
Our
success depends on our ability to maintain the proprietary nature of our technology. We may become subject to third parties’
claims alleging infringement of patents and proprietary rights or seeking to invalidate our patents or proprietary rights, which
would be costly, time-consuming, and, if successfully asserted against us, delay or prevent the development of our current or
future pipeline candidates or commercialization of our products.
Our
success in large part depends on our ability to maintain the proprietary nature of our technology. To do so, we must, at significant
cost, prosecute patent applications and maintain existing patents, obtain new patents, and pursue trade secret and other
intellectual property protection. We also must operate without infringing the proprietary rights of third parties or allowing
third parties to infringe our rights. We currently have rights to over 149 fully owned, co-owned, or exclusively licensed
patents and patent applications. However, patent issues relating to pharmaceuticals and biologics involve complex legal, scientific,
and factual questions.
To
date, no consistent policy has emerged regarding the breadth of biotechnology patent claims that are granted by the United States
Patent and Trademark Office or enforced by the federal courts. Therefore, we do not know whether our patent applications will
result in the issuance of patents, or that any patents issued to us will provide us with any competitive advantage. We also cannot
be sure that we will develop additional proprietary products that are patentable. Furthermore, there is a risk that others will
independently develop similar technology or products or circumvent the patents issued to us.
Even
if we are issued patents for our technologies, there is always a risk that third parties will initiate post grant review or inter
parties review proceedings to challenge the validity of one or more of our patents. These proceedings can result in the loss of
patent claims. Even if we are successful in defending our patents during post grant review or inter parties review proceedings,
these procedures are time consuming and expensive and may have a negative impact on our results.
There
is also a risk that third parties may challenge our existing patents in court or claim that we are infringing their patents or
proprietary rights. We cannot assure you that the manufacture, use, sale, offer for sale, or importation of any of our products
or current or future pipeline candidates will not infringe existing or future patents. Because we have not conducted a formal
freedom to operate analysis for patents related to our products or pipeline candidates, we may not be aware of patents that have
already been issued that a third-party might assert are infringed by one of our products or current or future pipeline candidates.
Because patent applications can take many years to issue and may be confidential for eighteen months or more after filing, there
also may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe
by commercializing any of our products or current or future pipeline candidates. We could incur substantial costs in defending
patent infringement suits or in filing suits against others to have their patents declared invalid or to claim infringement of
our patents. It is also possible that we may be required to obtain licenses from third parties to avoid infringing third-party
patents or other proprietary rights. We cannot be sure that such third-party licenses would be available to us on acceptable terms,
if at all. If we are unable to obtain required third-party licenses, we may be delayed in or prohibited from developing, manufacturing
or selling products requiring such licenses.
Although
our patent filings include claims covering various features of our pipeline candidates, including composition, methods of manufacture
and use, our patents do not provide us with complete protection against the development of competing products. Furthermore, follow-on
versions of patented biologic products (i.e., biosimilars) may have structural differences that cause them to fall outside the
scope of patent claims. Some of our know-how and technology is not patentable. To protect our proprietary rights in unpatentable
intellectual property and trade secrets, we require employees, consultants, advisors, and collaborators to enter into confidentiality
agreements. These agreements may not provide meaningful protection for our trade secrets, know-how, or other proprietary information.
Our
3-antigen prophylactic HBV vaccine is not currently protected by any pending patent application nor any unexpired patent. Accordingly,
our 3-antigen prophylactic HBV vaccine may be subject to competition from the sale of generic products that could adversely affect
our business and operations.
Our
3-antigen prophylactic HBV vaccine has no patent protection, and therefore, we will seek to rely on non-patent data exclusivity
in the BCPIA and similar legislation in other countries, which is described further under “—Risks Related
to our Intellectual Property —We may not be able to obtain marketing exclusivity in the United States under the BPCIA
or equivalent regulatory data exclusivity protection in other jurisdictions for our products.”
Our
3-antigen prophylactic HBV vaccine is the only product we currently market (outside of the U.S., Europe, and Canada). Failure
to obtain and retain marketing exclusivity or expiration of the market exclusivity could seriously adversely affect the revenue
potential for our 3-antigen prophylactic HBV vaccine in the jurisdictions where it is approved for sale.
Our
ability to protect and enforce our patents does not guarantee that we will secure the right to commercialize the patents.
A
patent is a limited monopoly right conferred upon an inventor, and any successors in title, in return for the making and disclosing
of a useful, new, and non-obvious invention. This monopoly is of limited duration but, while in force, allows the patent holder
to prevent others from making and/or using his invention. While a patent gives the holder this right to exclude others, it is
not a license to commercialize the invention, where other permissions may be required for permissible commercialization to occur.
For example, a drug cannot be marketed in the United States without the appropriate authorization from the FDA, regardless of
the existence of a patent covering the product. Further, the invention, even if patented itself, may be prohibited from commercialization
if it infringes the valid patent rights of another party.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements
imposed by governmental patent offices, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
The
United States Patent and Trademark Office and various foreign governmental patent offices require compliance with a number of
procedural, documentary, fee payment, and other provisions during the patent process. There are situations in which noncompliance
can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in
the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been
the case, which could result in a material adverse effect on our business or results of operations.
We
are dependent on technologies we have licensed, and we may need to license in the future, and if we fail to obtain licenses we
need, or fail to comply with our payment obligations in the agreements under which we in-license intellectual property and other
rights from third parties, we could lose our ability to develop our pipeline candidates.
We
currently are dependent on licenses from third parties for certain of our key technologies, including the license under the Ferring
License Agreement and the license from UPMC. Under the Ferring License Agreement, we are committed to pay Ferring royalties equal
to 7% of net sales (as defined therein) of HbsAg “Product” (as defined therein). Under the SciGen Assignment Agreement,
we are required to pay royalties to SciGen Ltd. equal to 5% of net sales (as defined in the Ferring License Agreement) of Product.
Under the Ferring License Agreement and the SciGen Assignment Agreement, we originally were to pay royalties on a country-by-country
basis until the date 10 years after the date of commencement of the first royalty year in respect of such country. In April 2019,
we exercised our option to extend the Ferring License Agreement in respect of all the countries that still make up the territory
for an additional 7 years by making a one-time payment to Ferring of $100. Royalties under the Ferring License Agreement and SciGen
Assignment Agreement will continue to be payable for the duration of the extended license periods. Under our license agreement
with UPMC and other licensors relating to eVLP technology, we have an exclusive license to a family of patents that is expected to expire in the United States in 2022 and 2021 in other countries. Under this agreement, we are required to
pay UPMC between 0.75% to 1.75% of net sales and certain lump-sum milestone payments. UPMC is also a co-owner of the patent family
covering our VBI-1501 CMV vaccine and we are currently negotiating extension of our existing license to cover this patent family.
No
assurance can be given that our existing license will be extended on reasonable terms or at all. In addition, we expect we will
need to license intellectual property from other third parties in the future and that these licenses will be material to our business.
No assurance can be given that we will generate sufficient revenue or raise additional financing to meet our payment obligations
in the license agreements with Ferring, UPMC, or other license agreements we enter into with third parties in the future. Any
failure to make the payments required by the license agreements may permit the licensor to terminate the license. If we were to
lose or otherwise be unable to maintain these licenses for any reason, it would halt our ability to develop our pipeline candidates.
Furthermore, such loss of these licenses may enable development of new products that may compete with our pipeline candidates,
and our competitors may gain proprietary position. Any of the foregoing could result in a material adverse effect on our business
or results of operations.
In
addition, we do not own the patents or patent applications that we license, and as such, we may need to rely upon our licensors
to properly prosecute and maintain those patent applications and prevent infringement of those patents. If our licensors are unable
to adequately protect their proprietary intellectual property we license from legal challenges, or the Company is unable to enforce
such licensed intellectual property against infringement or alternative technologies, we will not be able to compete effectively
in the drug discovery and development business.
If
patent laws or the interpretation of patent laws change, our competitors may be able to develop and commercialize our discoveries.
Important
legal issues remain to be resolved as to the extent and scope of available patent protection for biopharmaceutical products and
processes in the United States and other important markets outside the United States, such as Europe, China and Japan. As such,
litigation or administrative proceedings may be necessary to determine the validity, scope and ownership of certain of our and
others’ proprietary rights. Any such litigation or proceeding may result in a significant commitment of resources in the
future and could force us to do one or more of the following: cease selling or using any of our products that incorporate the
challenged intellectual property, which would adversely affect our revenue; obtain a license or other rights from the holder of
the intellectual property right alleged to have been infringed or otherwise violated, which license may not be available on reasonable
terms, if at all; and redesign our products to avoid infringing or violating the intellectual property rights of third parties,
which may be time-consuming or impossible to do. In addition, changes in patent laws in the United States and other countries
may result in allowing others to use our discoveries or develop and commercialize our products. We cannot provide assurance that
the patents we obtain or the unpatented technology we hold will afford us significant commercial protection.
We
may not be able to enforce our intellectual property rights throughout the world. This risk is exacerbated for us because we expect
that one or more of our pipeline candidates will be manufactured and used in a number of foreign countries.
The
laws of foreign countries may not protect intellectual property rights to the same extent as the laws of the United States. Many
companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions.
This risk is exacerbated for us as a result of our existing and planned manufacturing operations, clinical study sites, and marketing
authorizations in a number of foreign countries.
The
legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual
property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement
or other misappropriation of our intellectual property rights. For example, several foreign countries have compulsory licensing
laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of
patents against third parties, including government agencies or government contractors. In these countries, patents and trade
secrets may provide limited or no benefit.
Most
jurisdictions in which we have applied for, intend to apply for or have been issued patents have patent protection laws similar
to those of the United States, but some of them do not. For example, in addition to the collaboration with Brii Bio, we may do
business in China, Indonesia, and India in the future, these countries may not provide the same or similar
protection as that provided in the United States. Additionally, due to uncertainty in patent protection law, we have not filed
applications in many countries where significant markets exist.
Proceedings
to enforce patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from
other aspects of our business. Accordingly, efforts to protect our intellectual property rights in such countries may be inadequate.
In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability
to obtain adequate protection for our technology and the enforcement of our intellectual property.
We
may not be able to monetize intangible assets, including IPR&D and goodwill,
which may result in the need to record an impairment charge.
Our
consolidated balance sheet contains approximately $62.2 million of intangible assets. For IPR&D assets, which consist of
the CMV and GBM programs, the risk of failure is significant, and there can be no certainty that these assets ultimately will
yield successful products. The nature of our business is high-risk and requires that we invest in a large number of projects in
an effort to achieve a successful portfolio of approved products. Our ability to realize value on these significant investments
is often contingent upon, among other things, regulatory approvals and market acceptance. These IPR&D and goodwill assets
may become impaired and be written off at some time in the future, which can have a material adverse effect on the financial
statements. An example of an event that is indicative of impairment is a projection or forecast that indicates losses or reduced
profits associated with an asset or the market capitalization of a company falling below the net equity value. For IPR&D projects,
this could result from, among other things, a change in outlook based on clinical trial data, a delay in the projected launch
date or additional expenditures to commercialize the product.
While
all intangible assets can face events and circumstances that can lead to impairment, in general, intangible assets that are most
at risk of impairment include IPR&D assets. IPR&D assets are high-risk, as research and development is an inherently risky
activity.
We
may not be able to obtain marketing exclusivity in the United States under the BPCIA or equivalent regulatory data exclusivity
protection in other jurisdictions for our products.
The
BPCIA, which is included in the Affordable Care Act, provides the manufacturer of innovator biologic to seek a twelve-year
period of marketing exclusivity. Similar data exclusivity regimes exist in the European Union and in Canada, although the term
of market exclusivity is shorter than in the United States. We intend to seek the maximum period of market exclusivity for our
3-antigen prophylactic HBV vaccine candidate and our other pipeline candidates in each jurisdiction, but there is no guarantee
that any of our products will receive any marketing exclusivity under the BPCIA, or under analogous legislation in other
jurisdictions. Furthermore, changes in applicable law could alter any period of market exclusivity or limit its availability.
Our failure to obtain exclusivity for any product that is ultimately approved by the FDA, the EMA or Health Canada may expose
us to substantial competition, which could have significant adverse financial consequences.
Risks
Related to Our Indebtedness
Our
obligations under our credit facility are secured by substantially all of our assets, so if we default on those obligations, the
lender could foreclose on our assets. As a result of these security interests, such assets would only be available to satisfy
claims of our general creditors or to holders of our equity securities if we were to become insolvent at a time when the value
of such assets exceeded the amount of our indebtedness and other obligations.
K2
HealthVentures LLC (“K2” or the “Lender”), pursuant to the Loan and Guaranty Agreement (the “Loan
Agreement”), dated May 22, 2020, has a security interest in substantially all of our assets other than intellectual property.
As a result, if we default under our obligations to the lender, the lender could foreclose on its security interests and liquidate
some or all of these assets, which would harm our business, financial condition and results of operations. The principal amount
of the term loan as of December 31, 2020, was $20 million ($21.4 million including the exit fee).
In
the event of a default the Lender would have a prior right to substantially all of our assets to the exclusion of our general
creditors. In that event, our assets would first be used to repay in full all indebtedness and other obligations secured by the
Lender, resulting in all or a portion of our assets being unavailable to satisfy the claims of any unsecured indebtedness.
Only after satisfying the claims of any unsecured creditors would any amount be available for our equity holders. These events
of default include, among other things, our failure to pay any amounts due under the Loan Agreement or any of the other loan documents,
a breach of covenants under the Loan Agreement, our insolvency, a material adverse effect occurring, the occurrence of certain
defaults under certain other indebtedness or certain final judgments against us.
The
pledge of these assets and other restrictions may limit our flexibility in raising capital for other purposes. Because substantially
all of our assets are pledged under the term loan, our ability to incur additional secured indebtedness or to sell or dispose
of assets to raise capital may be impaired, which could have an adverse effect on our financial flexibility.
If
we are unable to comply with certain financial and operating restrictions in our existing credit facility, we may be limited in
our business activities and access to credit or may default under our credit facility.
Provisions
in the Loan Agreement impose restrictions or require prior approval on our ability, and the ability of certain of our subsidiaries
to, among other things:
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additional debt;
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pay
dividends and make distributions;
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make
certain investments and acquisitions;
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guarantee
the indebtedness of others or our subsidiaries;
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redeem
or repurchase capital shares;
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create
liens or encumbrances;
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enter
into transactions with affiliates;
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engage
in new lines of business;
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sell,
lease or transfer certain parts of our business or property;
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incur
obligations for capital expenditures;
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issue
additional capital shares; and
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acquire
new companies and merge or consolidate.
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The
Loan Agreement also contains other customary covenants. We may not be able to comply with these covenants in the future. Our failure
to comply with these covenants may result in the declaration of an event of default, which, if not cured or waived, may result
in the acceleration of the maturity of indebtedness outstanding under this agreement and would require us to pay all amounts outstanding.
If the maturity of our indebtedness is accelerated, we may not have sufficient funds available for repayment or we may not have
the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us or at all.
Our failure to repay our indebtedness would result in our lender foreclosing on all or a portion of our assets and force us to
curtail or cease our operations.
Our
outstanding term loan obligations may adversely affect our cash flow and our ability to operate our business.
Pursuant
to the terms of Loan Agreement, the Lender made a term loan to us in aggregate amount of $20 million. In 2020, we made
average monthly payments of interest in the amount of approximately $146. We are required to pay interest only until July 1, 2022,
and starting July 1, 2022 monthly principal and interest payments $907 until June 2024, when the entire amount is due.
The
terms of our term loan could have negative consequences to us, such as:
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we
may be unable to obtain additional financing to fund working capital, operating losses, capital expenditures or acquisitions
on terms acceptable to us, or at all;
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the
amount of our interest expense may increase because our term loan has a variable rate of interest at any time dependent on
one-month London Interbank Offered Rate greater than 1%; and
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we
may be more vulnerable to economic downturns and adverse developments in our industry or the economy in general.
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Our
ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by financial,
business, economic, regulatory and other factors. We will be unable to control many of these factors, such as economic conditions.
We cannot be certain that we will continue to have sufficient capital to allow us to pay the principal and interest on our debt
and meet any other obligations. If we do not have enough money to service our debt, we may be required, but unable to refinance
all or part of our existing debt, sell assets, borrow money or raise equity on terms acceptable to us, if at all, and the lender
could foreclose on its security interests and liquidate some or all of our assets.
Risks
Related to Our Common Shares
The
price of our common shares has been, and may continue to be, volatile. The COVID-19 pandemic has resulted in significant financial
market volatility, and its impact on the global economy remains uncertain. A continuation or worsening of the pandemic could have
a material adverse impact on the market price of our common shares. This may affect the ability of our investors to sell their
shares, and the value of an investment in our common shares may decline.
During
the 12-month period ended February 26, 2021, our common shares traded as high as $6.93 per share and as low as $0.69
per share. The market prices of our common shares may continue to be volatile and could fluctuate widely in response to various
factors, many of which are beyond our control, including the following:
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future
announcements about us, our collaborators or competitors, including the results of testing, technological innovations, or
new products and services;
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clinical
trial results;
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depletion
of cash and cash equivalents reserves;
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additions
or departures of key personnel;
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operating
results that fall below expectations;
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announcements
by us relating to any strategic relationship;
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sales
of equity securities or issuance of additional debt;
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industry
developments;
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changes
in state, provincial, or federal regulations affecting us and our industry;
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the
continued large fluctuations in major stock market indexes which causes investors to sell our common shares;
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economic,
political, and other external factors; and
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period-to-period
fluctuations in our financial results.
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Furthermore,
the stock market in general and the market for biotechnology companies, in particular, have from time to time experienced extreme
price and volume fluctuations that are unrelated or disproportionate to the operating performance of the affected companies. The
COVID-19 pandemic has resulted in significant financial market volatility and uncertainty in recent months. A continuation or
worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability
to access capital, on our business, results of operations and financial condition, and on the market price of our common shares.
We
may not meet the continued listing requirements of The NASDAQ Capital Market, which could result in a delisting of our common
shares.
Our
common shares are listed on The Nasdaq Capital Market. We have in the past, and may in the future, be unable to comply with certain
of the listing standards that we are required to meet to maintain the listing of our common shares on The Nasdaq Capital Market.
For instance, on August 14, 2019, we received a letter from the Listing Qualifications Department of Nasdaq indicating that, based
upon the closing bid price of our common shares for the 30 consecutive business day period between July 2, 2019 through August
13, 2019, we did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market
pursuant to Nasdaq Listing Rule 5550(a)(2). On January 9, 2020 we received notice from The Nasdaq indicating that the Company
has regained compliance with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2), and the matter is now closed.
If
The Nasdaq Capital Market delists our common shares from trading on its exchange for failure to meet the listing standards, an
investor would likely find it significantly more difficult to dispose of or obtain our shares, and our ability raise future capital
through the sale of our shares could be severely limited. Delisting could also have other negative results, including the potential
loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.
We
have no immediate plans to pay dividends.
We
plan to reinvest all of our earnings, to the extent we have earnings, in order to market our products and to cover operating costs
and to otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities in the
foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash and cash equivalents that
would be available for distribution to the holders of our common shares as a dividend. In addition, our Loan Agreement with K2
prohibits us from declaring or paying dividends or making distributions on any class of our capital stock. We currently intend
to retain earnings, if any, for reinvestment in our business. Therefore, holders of our common shares should not expect to receive
dividends on our common shares.
Common
shares eligible for future sale may cause the price of our common shares to decline.
From
time to time, certain of our shareholders may be eligible to sell all or some of their restricted common shares by means of ordinary
brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended, subject
to certain limitations. In general, pursuant to Rule 144, non-affiliate shareholders may sell freely after six months, subject
only to the current public information requirement (which disappears after one year). Of the 247,039,010 common shares outstanding
as of December 31, 2020, approximately 177,413,200 common shares are held by “non-affiliates,” all of which are currently
freely tradable either because those were issued in a registered offering or pursuant to Rule 144.
Any
substantial sale of our common shares pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect
on the market price of our common shares.
In
addition, as of December 31, 2020, we had outstanding options, awards, and warrants for the purchase of 15,834,563 common shares.
Of this amount, options, awards and warrants for the purchase of 4,515,553 common shares are held by non-affiliates, who may sell
these shares in the public markets from time to time, without limitations on the timing, amount or method of sale. If our share
price rises, the holders may exercise their options and sell a large number of shares. This could cause the market price of our
common shares to decline.
We
are an “emerging growth company” and a “smaller reporting company” and may elect to comply with reduced
public company reporting requirements, which could make our common shares less attractive to investors.
We
are currently an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, and will remain
so until December 31, 2021, and a “smaller reporting company” as defined under the rules promulgated under the Securities
Act. For as long as we continue to be an “emerging growth company” and a “smaller reporting company”,
we may take advantage of exemptions from various reporting requirements that are applicable to other public reporting companies
that are not emerging growth companies or smaller reporting companies, including not being required to comply with the auditor
attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation
in our periodic reports.
We
will remain a smaller reporting company, until the value of our common shares held by non-affiliates is more than $250 million
as measured on the last business day of our second fiscal quarter, and our annual revenues are less than $100 million during the
most recently completed fiscal year and the value of our common shares held by non-affiliates is no longer less than $700 million
measured on the last business day of our second fiscal quarter.
We
cannot predict if investors will find our securities less attractive because we may rely on these exemptions. If some investors
find our securities less attractive as a result, there may be a less active trading market for our securities and the price of
our securities may be more volatile.
United
States civil liabilities may not be enforceable against us or certain of our officers.
We
are governed by the Business Corporations Act (British Columbia) (“BCBCA”) and a substantial portion of our
assets, including our manufacturing facility in Rehovot, Israel, and our research facility in Ottawa, Canada, are located outside
the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us
or to enforce judgments obtained against us in U.S. courts, in any action, including actions predicated upon the civil liability
provisions of U.S. federal securities laws or any other laws of the United States. Additionally, rights predicated solely upon
civil liability provisions of U.S. federal securities laws or any other laws of the United States may not be enforceable in original
actions, or actions to enforce judgments obtained in U.S. courts, brought in Canadian or Israeli courts. In addition, two of our
officers reside outside of the United States, and all or a substantial portion of their assets may be located outside the United
States, which may make effecting service of process within the United States or enforcing judgments obtained against such persons
in U.S. courts difficult.
We
are governed by the corporate laws of British Columbia which in some cases have a different effect on shareholders than the corporate
laws of Delaware, United States.
We
are governed by the BCBCA and other relevant laws, which may affect the rights of shareholders differently than those of a company
governed by the laws of a U.S. jurisdiction, and may, together with our charter documents, including the advance notice provisions
in our articles for the nomination of directors, have the effect of delaying, deferring, or discouraging another party from acquiring
control of our company by means of a tender offer, a proxy contest, or otherwise, or may affect the price an acquiring party would
be willing to offer in such an instance. The material differences between the BCBCA and Delaware General Corporation Law, or DGCL,
that may have the greatest such effect include, but are not limited to, the following: (i) for material corporate transactions
(such as mergers and amalgamations, other extraordinary corporate transactions or amendments to our articles) the BCBCA generally
requires a two-thirds majority vote by shareholders, whereas DGCL generally only requires a majority vote; and (ii) under the
BCBCA a holder of 5% or more of our common shares can requisition a special meeting of shareholders, whereas such right does not
exist under the DGCL.
The
concentration of the capital stock ownership with our insiders may limit the ability of other shareholders to influence corporate
matters.
As
of December 31, 2020, approximately 28.2% of our outstanding common shares was controlled by our officers, directors, beneficial
owners of 10% or more of our securities and their respective affiliates. As a result, these shareholders, if they acted together,
may be able to determine or influence matters that require approval by our shareholders, including the election of directors and
approval of significant corporate transactions. Corporate actions might be taken even if other shareholders oppose them. This
concentration of ownership might also have the effect of delaying or preventing a corporate transaction that other shareholders
may view as beneficial.
General
Risk Factors
We
may not be successful in hiring and retaining key employees, in which case our business may be harmed.
Our
business is highly dependent upon the continued services of our senior management and key scientific and technical personnel.
As such, our future success depends on our ability to identify, attract, hire or engage, retain and motivate well-qualified managerial,
technical, clinical, and regulatory personnel. Our operations require qualified personnel with expertise in nonclinical pharmacology
and toxicology, pharmaceutical development, clinical research, regulatory affairs, manufacturing, sales, and marketing. We must
compete for qualified individuals with numerous biopharmaceutical companies, universities, and other research institutions. Competition
for such individuals is intense, and, when the need arises, we may not be able to hire the personnel necessary to support our
efforts. There can be no assurance that these professionals will be available in the market, or that we will be able to retain
existing professionals or to meet or to continue to meet their compensation requirements. Furthermore, the cost base in relation
to such compensation, which may include equity compensation, may increase significantly, which could have a material adverse effect
on us. Failure to establish and maintain an effective management team and work force could adversely affect our ability to operate,
grow, and manage our business.
We
could be adversely affected by violations of the United States Foreign Corrupt Practices Act and similar anti-bribery laws.
We
are subject to the United States Foreign Corrupt Practices Act and similar anti-corruption laws in other jurisdictions. These
laws generally prohibit companies and their intermediaries from engaging in bribery or making other prohibited payments to government
officials for the purpose of obtaining or retaining business, and some have record keeping requirements. The failure to comply
with these laws could result in substantial criminal and/or monetary penalties. We operate in jurisdictions that have experienced
corruption, bribery, pay-offs, and other similar practices from time-to-time and, in certain circumstances, such practices may
be local custom. Our Code of Business Conduct and Ethics mandates compliance with these anti-corruption laws. However, we cannot
be certain that these policies and procedures will protect us against liability. There can be no assurance that our employees,
other agents, or third-party manufacturers or other organizations will not engage in such conduct for which we might be held responsible.
If our employees, other agents, or third-party manufacturers or other organizations are found to have engaged in such practices,
we could suffer severe criminal or civil penalties and other consequences that could have a material adverse effect on our business,
financial condition, results of operations, cash flows, and/ or share price.
Business
interruptions could limit our ability to operate our business.
Our
operations, as well as those of any collaborators on which we depend, are vulnerable to damage or interruption from computer viruses,
human error, natural disasters, extreme weather, electrical and telecommunication failures, international acts of terror, public
health crises, such as pandemics and epidemics, and similar events. Our formal disaster recovery plan and back-up operations and
business interruption insurance may not be adequate to compensate us for losses we may suffer. A significant business interruption
could result in losses or damages incurred by us and require us to cease or curtail our operations.
Since
December 2019, the COVID-19 pandemic has resulted in
government-imposed quarantines, travel restrictions and other public health safety measures worldwide. For additional discussion
of the impact of the COVID-19 pandemic on our business, please see the risk factor titled “The ongoing coronavirus pandemic
has caused interruptions or delays of our business plan and may have a significant adverse effect on our business.”
Our
business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
In
the ordinary course of our business, we collect and store sensitive data, including intellectual property, research data, our
proprietary business information and that of our suppliers, technical information about our products, clinical trial plans and
employee records. Similarly, our third-party providers possess certain of our sensitive data and confidential information. The
secure maintenance of this information is critical to our operations and business strategy. Despite the implementation of security
measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses,
malware, ransomware, cyber fraud, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks
or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems
inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including
by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication
of attempted attacks and intrusions from around the world have increased. Any such breach could compromise our networks and the
information stored there could be accessed, publicly disclosed, encrypted, lost, or stolen. Any such access, inappropriate disclosure
of confidential or proprietary information, or other loss of information, including our data being breached at third-party providers,
could result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information,
disruption of our operations or our product development programs, and damage to our reputation, which could adversely affect our
business. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays
in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
We
are required to comply with the domestic reporting regime under the Securities Exchange Act of 1934, as amended, and incur significant
legal, accounting, and other expenses, and our management are required to devote substantial time to compliance initiatives and
corporate governance practices.
We
are required to comply with all of the periodic disclosure and current reporting requirements of the Securities Exchange Act of
1934, as amended, applicable to a publicly traded United States domestic issuer. The obligations of being a public reporting company
require significant expenditures, including costs resulting from public company reporting obligations under the Securities Exchange
Act of 1934, as amended, and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley
Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the listing requirements of The Nasdaq Capital Market.
These rules require the establishment and maintenance of effective disclosure and financial controls and procedures, internal
control over financial reporting and corporate governance practices, among many other complex rules that are often difficult and
time consuming to implement, monitor, and maintain compliance with. Moreover, despite recent reforms made possible by the JOBS
Act, the reporting requirements, rules, and regulations will make some activities more time-consuming and costly, particularly
after we are no longer an “emerging growth company.” In addition, these rules and regulations make it more difficult
and more expensive for us to obtain director and officer liability insurance. Compliance with such requirements also places significant
demands on our management, administrative, operational, internal audit, and accounting resources. As a result, we incur, and we
expect to continue to incur, legal and financial compliance costs and some activities are highly time consuming and costly.
There
are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.
The
ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act require us to identify material weaknesses in internal
control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting
for external purposes in accordance with accounting principles generally accepted in the United States. Our management, including
our chief executive officer and chief financial officer, does not expect that our internal controls and disclosure controls will
prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect
the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls can be circumvented by individual
acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system
of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving our stated goals under all potential future conditions. Over time, a control may be
inadequate because of changes in conditions, such as growth of the company or increased transaction volume, or the degree of compliance
with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
In
addition, discovery and disclosure of a material weakness, by definition, could have a material adverse impact on our financial
statements. Such an occurrence could discourage certain customers or suppliers from doing business with us, cause downgrades in
our future debt ratings leading to higher borrowing costs and affect how our common shares trade. This could, in turn, negatively
affect our ability to access public debt or equity markets for capital.
We
may be subject to securities litigation, which is expensive and could divert management attention.
In
the past, companies that have experienced volatility in the market price of their securities have been subject to securities class
action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial
costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination
in litigation could also subject us to significant liabilities.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the
price of our common shares and trading volume could decline.
The
trading market for our common shares will depend in part on the research and reports that securities or industry analysts publish
about us or our business. Multiple securities and industry analysts currently cover us. If one or more of the analysts downgrade
our common shares or publish inaccurate or unfavorable research about our business, the price of our common shares would likely
decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common
shares could decrease, which could cause the price of our common shares and trading volume to decline.