Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(in
thousands, except share and per share amounts)
1.
|
NATURE OF BUSINESS AND CONTINUATION OF BUSINESS
|
Corporate
Overview
VBI
Vaccines Inc. (formerly SciVac Therapeutics, Inc.) was incorporated under the laws of British Columbia, Canada on April 9, 1965
and has the following wholly-owned subsidiaries: VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”);
VBI DE’s wholly-owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation
Biotechnologies, Inc. a Canadian company (“VBI Cda”) and the wholly-owned subsidiary of VBI US; SciVac Ltd. an Israeli
company (“SciVac”); and SciVac USA, LLC. a Florida limited liability company (“SciVac US”) and the wholly
owned subsidiary of SciVac. VBI Vaccines Inc. and its subsidiaries are collectively referred to as the “Company,”
“we,” “us,” “our” or “VBI”.
The
Company’s principal office is located at 222 Third Street, Suite 2241, Cambridge, Massachusetts 02142. In addition, the
Company has manufacturing facilities located in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.
The
Company operates in one segment and therefore segment information is not presented.
Principal
Operations
We
are a commercial stage biopharmaceutical company developing next generation vaccines to address unmet needs in infectious disease
and immuno-oncology. VBI’s first marketed product is Sci-B-Vac
®
, a hepatitis B (“HBV”)
vaccine that mimics all three viral surface antigens of the hepatitis B virus. Sci-B-Vac is approved for use in Israel and 14
other countries. Our wholly-owned subsidiary, SciVac Ltd., manufactures Sci-B-Vac in Rehovot, Israel.
Following
our merger with VBI DE on May 6, 2016 (the “VBI-SciVac Merger”), we are also advancing our two platform technologies
– our Enveloped Virus-Like Particle (“eVLP”) platform technology and our Lipid Particle Vaccine (“LPV”)
technology.
|
-
|
Our eVLP platform
technology enables the development of enveloped virus-like particle vaccines that closely mimic the target virus to elicit
a potent immune response. We are advancing a pipeline of eVLP vaccines, with lead programs in both infectious disease, with
our congenital cytomegalovirus (“CMV”) vaccine, and in immuno-oncology, with our therapeutic glioblastoma multiforme
(“GBM” or “glioblastoma”) vaccine candidate.
|
|
-
|
Our LPV thermostability
technology is a proprietary formulation of lipids and process that allows vaccines and biologics to preserve stability, potency,
and safety at temperatures outside of the most common cold chain storage requirements of 2
o
C to 8
o
C.
|
Liquidity
and Going Concern
The
Company has a limited operating history and faces a number of risks, including but not limited to, uncertainties regarding the
success of its development activities, demand and market acceptance of the Company’s products and reliance on major customers.
The Company anticipates that it will continue to incur significant operating costs and losses in connection with the development
of its products.
The
Company has an accumulated deficit of $122,631 as of June 30, 2017, and cash outflows from operating activities of $(16,132) for
the six months ended June 30, 2017.
The
Company will require significant additional funds to conduct clinical and non-clinical studies, achieve regulatory approvals,
and, subject to such approvals, commercially launch its products. The Company plans to finance future operations with a combination
of existing cash reserves, proceeds from the issuance of equity securities, the issuance of additional debt, and revenues from
potential collaborations, if any. There is no assurance the Company will manage to obtain these sources of financing. The above
conditions raise substantial doubt about the Company’s ability to continue as a going concern. The report of our independent
registered public accounting firm on our consolidated financial statements for the year ended December 31, 2016 contains an explanatory
paragraph regarding our ability to continue as a going concern. The condensed consolidated financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications
of liabilities that may result should the Company be unable to continue as a going concern.
On
May 15, 2017, the Company entered into an equity distribution agreement (the “Distribution Agreement”) with a registered
broker-dealer, as sales agent (the “Sales Agent”), pursuant to which the Company may offer and sell, from time to
time, through the Sales Agent its common shares having an aggregate offering price of up to $30 million. The Company is not obligated
to sell any common shares under the Distribution Agreement. Subject to the terms and conditions of the Distribution Agreement,
the Sales Agent will use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state
and federal law, rules and regulations, and the rules of the NASDAQ Capital Market to sell shares from time to time based upon
the Company’s instructions, including any price, time or size limits specified by the Company. The Company will pay the
Sales Agent a commission of 3.0% of the aggregate gross proceeds from each sale of common shares occurring pursuant to the Distribution
Agreement, if any. The Distribution Agreement may be terminated by the Sales Agent or the Company at any time upon ten days’
notice to the other party, or by the Sales Agent at any time in certain circumstances.
2.
|
SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation and Consolidation
The
Company’s fiscal year ends on December 31 of each calendar year. The accompanying unaudited condensed consolidated financial
statements have been prepared in U.S. dollars (“USD”) and pursuant to the rules and regulations of the United States
Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and the provisions of Regulation S-X pertaining
to financial statements. Accordingly, certain information and footnote disclosures normally included in the financial statements
prepared in accordance United States of America generally accepted accounting principles (“U.S. GAAP”), have been
condensed or omitted pursuant to such rules and regulations. The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of
revenue and expenses during the reporting periods. Actual results could differ from these estimates and are not necessarily indicative
of the results to be expected for any future period or the entire fiscal year. The December 31, 2016 consolidated balance sheet
in this document was derived from the audited consolidated financial statements and does not include all of the disclosures required
by U.S. GAAP. The condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q (this “Form
10-Q”) should be read in conjunction with the financial statements and notes included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2016 (the “2016 10-K”), as filed with the SEC on March 20, 2017.
The
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: SciVac, SciVac
USA, and from May 6, 2016 the accounts of VBI DE, VBI US and VBI Cda. Intercompany balances and transactions between the Company
and its subsidiaries are eliminated in the condensed consolidated financial statements.
In
the opinion of management, these condensed consolidated financial statements include all adjustments and accruals of a normal
and recurring nature necessary to fairly state the results of the periods presented. The results for the periods presented are
not necessarily indicative of results to be expected for the full year or for any future periods.
Significant
Accounting Policies
The
significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in
the 2016 10-K, and there have been no changes to the Company’s significant accounting policies during the six months ended
June 30, 2017.
Foreign
currency
The
functional and reporting currency of the Company is the USD. Each of the Company’s subsidiaries determines its own respective
functional currency, and this currency is used to separately measure each entity’s financial position and operating results.
Assets
and liabilities of foreign operations with a different functional currency from that of the Company are translated at the closing
rate at the end of each reporting period. Profit or loss items are translated at average exchange rates for all the relevant periods.
All resulting translation differences are recognized as a component of accumulated other comprehensive loss.
Foreign
exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the entity
involved, are included in the condensed consolidated statements of operations.
Use
of Estimates
Preparation
of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from the estimates made. We continually evaluate estimates used in the preparation of the condensed
consolidated financial statements for reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively
based upon such periodic evaluation. The significant areas of estimation include determining the deferred tax valuation allowance,
the estimated lives of property and equipment and intangible assets, the inputs in determining the fair value of equity based
awards and warrants issued as well as the values ascribed to assets acquired and liabilities assumed in a business combination.
Actual results may differ from those estimates.
Goodwill
and In-Process Research and Development
The
Company’s intangibles including in-process research and development (“IPR&D”) and goodwill, are tested for
impairment annually, or more frequently if events or circumstances indicate that the assets might be impaired.
Goodwill
represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired
in a business combination. Goodwill can become impaired in certain circumstances, including but not limited to: (1) a significant
adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment
by a regulator. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely
than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero” approach.
The Company intends to adopt ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment” which has eliminated Step 2 from the goodwill impairment test as part of its annual impairment
test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets
and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities
assumed in a business combination. Under the amendments in this update, an entity should perform its goodwill impairment test
by comparing the fair value of a reporting unit with its carrying amount. The Company has established August 31
st
as
the date for its annual impairment test of goodwill.
The
costs of rights to IPR&D projects acquired in an asset acquisition are expensed in the consolidated statements of operations
unless the project has an alternative future use. These costs include initial payments incurred prior to regulatory approval in
connection with research and development agreements that provide rights to develop, manufacture, market and/or sell pharmaceutical
products.
IPR&D
acquired in a business combination is capitalized as an intangible asset and tested for impairment at least annually until commercialization,
after which time the IPR&D is amortized over its estimated useful life. The impairment test compares the carrying amount of
the IPR&D asset to its fair value. If the carrying amount exceeds the fair value of the asset, such excess is recorded as
an impairment loss.
Fair
value measurements of financial instruments
Accounting
guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price)
in an orderly transaction between market participants at the measurement date. The accounting guidance outlines a valuation framework
and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related
disclosures. In determining fair value, the Company uses quoted prices and observable inputs. Observable inputs are inputs that
market participants would use in pricing the asset or liability based on market data obtained from independent sources.
The
fair value hierarchy is broken down into three levels based on the source of inputs as follows:
Level
1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level
2 — Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.
Level
3 — Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.
Financial
instruments recognized in the condensed consolidated balance sheet consist of cash, accounts receivable and other current assets,
accounts payable and other current liabilities. The Company believes that the carrying value of the aforementioned financial
instruments approximates their fair values due to the short-term nature of these instruments. The Company does not hold any
derivative financial instruments.
The
carrying amounts of the Company’s deposits and other long-term assets approximate their respective fair values.
At
June 30, 2017 and December 31, 2016, the fair value of the Company’s outstanding debt is estimated to be approximately $15,472
and $15,012, respectively.
In
determining the fair value of the long-term debt as of June 30, 2017 and December 31, 2016 the Company used the following assumptions:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Interest
rate
|
|
|
12.2
|
%
|
|
|
12.0
|
%
|
Discount rate
|
|
|
11.5
|
%
|
|
|
13.5
|
%
|
Expected time to
payment in months
|
|
|
29
|
|
|
|
35
|
|
3.
|
NEW ACCOUNTING PRONOUNCEMENTS
|
Recently
Adopted Accounting Pronouncements
Stock
Compensation
In
March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (the “ASU”)
No. 2016-09, “Compensation - Stock Compensation (Topic 718),” which simplifies several aspects of the accounting for
share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities,
classification on the statement of cash flows and accounting for forfeitures. ASU No. 2016-09 is effective for fiscal years beginning
after December 15, 2016, including periods within those fiscal years. Our adoption of this ASU in the first quarter of 2017 did
not have a material impact on our condensed consolidated financial statements.
Cash
Flow Classification
The
FASB issued ASU 2016-15, an accounting standard that affects the classification of certain cash receipts and cash payments on
the statement of cash flows. The standard provides guidance on eight issues: debt prepayment or extinguishment costs, settlement
of zero-coupon bonds or bonds issued at a discount with insignificant cash coupon, contingent consideration payments made after
a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life
insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions,
separately identifiable cash flows and applying the predominance principle. The standard is effective for public business entities
for fiscal years beginning after December 15, 2017 including periods within those fiscal years.
The
FASB issued ASU 2016-18, an accounting standard that requires companies to include cash and cash equivalents that have restrictions
on withdrawal or use in total cash and cash equivalents on the statement of cash flows. The standard does not define restricted
cash or restricted cash equivalents, but companies will need to disclose the nature of the restrictions. The standard is effective
for public business entities for fiscal years beginning after December 15, 2017 including interim periods within those fiscal
years.
Our
adoption of these ASUs in the first quarter of 2017 did not have an impact on our condensed consolidated financial statements.
Recently
Issued Accounting Standards, not yet Adopted
Revenue
from Contracts with Customers
In
May 2014, the FASB issued Accounting Standards Update No. 2014-09
,
Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”). ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with
customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 also requires
entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand
the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. An entity should
apply the amendments in this ASU using one of the following two methods: (1) retrospectively to each prior reporting period presented
with a possibility to elect certain practical expedients, or, (2) on a modified retrospective basis with the cumulative effect
of initially applying ASU 2014-09 recognized at the date of initial application. If an entity elects the latter transition method,
it also should provide certain additional disclosures. For a public entity, the ASU as amended is effective for annual periods
beginning after December 15, 2017, including interim reporting periods within that reporting period. Given the Company’s
current level of revenue, we do not expect a significant impact from the adoption of this new accounting guidance on our financial
statements and footnote disclosures.
Leases
In
February 2016 the FASB issued ASU 2016-02: Leases. The ASU introduces a lessee model that results in most leases impacting the
balance sheet by requiring reporting entities to recognize lease assets and lease liabilities for substantially all lease arrangements.
The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s
new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). Furthermore, the ASU addresses
other concerns related to the current leases model. For example, the ASU eliminates the requirement in current U.S. GAAP for an
entity to use bright-line tests in determining lease classification. The update is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact this new
guidance will have on its financial statements and related disclosures.
Accounting
for Income Taxes on Intercompany Transfers
The
FASB recently issued ASU 2016-16, an accounting standard that requires the seller and buyer to recognize at the transaction date
the current and deferred income tax consequences of intercompany asset transfers. The FASB expects the new standard to cause volatility
in companies’ effective tax rates, particularly for those that transfer intangible assets to subsidiaries. The standard
is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years. While the Company continues to assess the potential impact of this standard, the adoption of this standard
is not expected to have a material impact on our financial statements.
Recognition
and Measurement of Financial Assets and Financial Liabilities
In
January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities”. This update will change the income statement impact of equity investments
held by an entity; disclosures related to fair value of financial instruments and presentation of financial assets and liabilities.
ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
Entities must apply the standard using a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year
of adoption. Except for certain early application guidance, early adoption is not permitted. The Company is currently assessing
the impact that adopting this new ASU will have on our financial statements and footnote disclosures.
Clarifying
the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
In
February 2017, The FASB issued ASU 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial
Assets (Subtopic 610-12): Clarifying the Scope of Assets Derecognition Guidance and Accounting for Partial Sales of Nonfinancial
Assets”. This amendment in this update clarifies the guidance on accounting for derecognition of a nonfinancial asset and
an in-substance nonfinancial asset and applies only when the asset (or asset group) does not meet the definition of a business;
defines in-substance nonfinancial assets; and provides guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective
for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. While the
Company continues to assess the potential impact of this standard, the adoption of this standard is not expected to have a material
impact on its financial statements.
|
|
June
30, 2017
|
|
|
|
Gross
Carrying
amount
|
|
|
Accumulated
Amortization
|
|
|
Cumulative
Currency Translation
|
|
|
Net
Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
669
|
|
|
$
|
(366
|
)
|
|
$
|
31
|
|
|
$
|
334
|
|
IPR&D
assets
|
|
|
61,500
|
|
|
|
-
|
|
|
|
(302
|
)
|
|
|
61,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,169
|
|
|
$
|
(366
|
)
|
|
$
|
(271
|
)
|
|
$
|
61,532
|
|
|
|
December
31, 2016
|
|
|
|
Gross
Carrying
amount
|
|
|
Accumulated
Amortization
|
|
|
Cumulative
Currency Translation
|
|
|
Net
Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
669
|
|
|
$
|
(334
|
)
|
|
$
|
(4
|
)
|
|
$
|
331
|
|
IPR&D
assets
|
|
|
61,500
|
|
|
|
-
|
|
|
|
(2,324
|
)
|
|
|
59,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,169
|
|
|
$
|
(334
|
)
|
|
$
|
(2,328
|
)
|
|
$
|
59,507
|
|
The
Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives. The amortization
expense for the three and six months ended June 30, 2017 was $15 and $30, respectively compared to the three and six months ended
in 2016 of $16 and $31, respectively.
The
IPR&D assets relate to the May 6, 2016 VBI-SciVac Merger and will not begin amortizing until the Company commercializes its
products. Future costs incurred to extend the life of the patents will be expensed.
5.
|
LOSS PER SHARE OF COMMON SHARES
|
Basic
loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares
outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion
of securities, such as warrants, and stock options, which would result in the issuance of incremental common shares unless such
effect is anti-dilutive. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted
average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are
not included in the calculation as their effect would be anti-dilutive. These potentially dilutive securities are more fully described
in Note 8, Stockholders’ Equity and Additional Paid-in Capital.
The
following potentially dilutive securities outstanding at June 30, 2017 and 2016 have been excluded from the computation of diluted
weighted average shares outstanding, as they would be antidilutive:
|
|
As
at June 30,
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
2,069
|
|
|
|
|
364
|
|
Stock options
and equity awards
|
|
|
2,960
|
|
|
|
|
2,757
|
|
|
|
|
5,029
|
|
|
|
|
3,121
|
|
As
at June 30, 2017 and the December 31, 2016, the outstanding debt is as follows:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
Long-term
debt, net of deferred financing costs and unamortized debt discount based on an imputed interest rate of 20.5% of $2,758 and
$3,344 at June 30, 2017 and December 31, 2016, respectively
|
|
$
|
12,542
|
|
|
$
|
11,956
|
|
|
|
|
|
|
|
|
Less:
current portion
|
|
|
(400
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
$
|
12,142
|
|
|
$
|
11,956
|
As
a result of the VBI-SciVac Merger, the Company through VBI DE assumed a term loan facility with Perceptive Credit Holdings, LP
(the “Lender”) in the amount of $6,000 (the “Facility”), with an initial advance of $3,000 drawn down
on prior to the VBI-SciVac Merger. As of the date of the VBI-SciVac Merger, the Company assumed an amount of $2,361 in the Facility.
On December 6, 2016, the Company amended the Facility (the “Amended Facility”) and raised an additional $13,200 which
was combined with the remaining balance from the Facility of $1,800. The total principal outstanding at June 30, 2017, including
the $300 exit fee discussed below, is $15,300 before the net deferred financing costs and unamortized debt discount of $2,758.
The principal on the Amended Facility accrues interest at an annual rate equal to the greater of (a) one-month LIBOR (subject
to a 5.00% cap) or (b) 1.00%, plus the applicable margin. The applicable margin will be 11.00%. The first eighteen months are
interest only. The interest rate as of June 30, 2017 was 12.2%. Upon the occurrence of an event of default, and during
the continuance, of an event of default, the applicable margin will be increased by 4.00% per annum. The Amended Facility matures
December 6, 2019 and includes both financial and non-financial covenants, including a minimum cash balance requirement of $2,500.
The Company was in compliance with these covenants as of June 30, 2017. Pursuant to the Amended Facility, the Company agreed to
appoint a representative of the Lender to the Board who is also a portfolio manager of the Company’s largest shareholder.
The
Company’s obligations under the Amended Facility are secured on a senior basis by a lien on substantially all of the assets
of the Company, including the Company’s interest in its subsidiaries, and its U.S. and Canadian subsidiaries and
guaranteed by the Company and its subsidiaries. The Amended Facility also contains customary events of default.
In
connection with the Amended Facility, on December 6, 2016, the Company issued to the Lender two tranches of warrants. The first
tranche was a warrant to purchase 363,771 common shares at an exercise price of $4.13 per share and the second tranche was a warrant
to purchase 1,341,282 common shares at an exercise price of $3.355 per share. The total proceeds from the Amended Facility attributed
to the warrants was $2,793, based on the relative fair value of the warrants as compared to the sum of the fair values of the
warrants and debt. This attribution resulted in the debt being issued at a discount. The Company incurred $360 of debt issuance
costs and is required to pay an exit fee of $300 upon full repayment of the debt resulting in additional debt discount. The total
debt discount of $3,453 is being charged to interest expense using the effective interest method over the term of the debt. As
of June 30, 2017, the unamortized debt discount is $2,758. The Company recorded $586 of interest expense related to the amortization
of the debt discount during the six months ended June 30, 2017.
The
following table summarizes the future principal payments that the Company expects to make for long-term debt:
Period
ending
June 30,
|
|
|
Principal
payments on
Amended Facility
and exit fee
|
|
2017
|
|
|
$
|
-
|
|
2018
|
|
|
|
400
|
|
2019
|
|
|
|
14,900
|
|
|
|
|
$
|
15,300
|
|
7.
|
DEFERRED REVENUE AND RELATED PARTY TRANSACTIONS
|
Prior
to the VBI-SciVac Merger, one of the Company’s directors was also the chairman of the board of Kevelt AS (“Kevelt”),
a wholly owned subsidiary of OAO Pharmsynthez (“Pharmsynthez”), a shareholder of the Company and was also the chairman
of the board of Pharmsynthez. Following the VBI-SciVac Merger, in accordance with the merger agreement, this director resigned.
On
April 26, 2013, SciVac entered into a Development and Manufacturing Agreement (“DMA”) with Kevelt, pursuant to which
SciVac agreed to develop the manufacturing process for the production of clinical and commercial quantities of certain materials
in drug substance form. On July 30, 2016, the Company received a letter of termination from Kevelt, in part containing a request
for refund of $2.5 million it had previously transferred to the Company. Such amount is included in other current liabilities
in the accompanying condensed consolidated financial statements.
SciVac
entered into a services agreement with OPKO Biologics Ltd. (“OPKO Bio”), a wholly-owned subsidiary of OPKO Health,
Inc., a related party shareholder of the Company, dated as of March 15, 2015, as amended on January 25, 2016, pursuant
to which SciVac agreed to provide certain aseptic process filling services to OPKO Bio. The terms of the services agreement are
based on market rates and comparable to other non-related party service agreements.
See
Note 6, Long-term Debt, for the Facility from a lender that is also affiliated with the Company’s largest shareholder.
|
|
|
Six
months ended
June
30
|
|
|
|
|
2017
|
|
|
2016
|
|
Services revenues from
related parties:
|
|
|
|
|
|
|
|
|
|
OPKO Bio
|
|
|
$
|
3
|
|
|
$
|
7
|
|
Subsequent to the VBI-SciVac
Merger on May 6, 2016, Kevelt and Pharmsynthez are no longer considered related parties due to the common shareholder no longer
having significant influence.
8.
|
STOCKHOLDERS’ EQUITY AND ADDITIONAL
PAID-IN CAPITAL
|
Stock
option plans
The
Company’s stock option plans are approved by and administered by the Company’s board of directors (the “Board”)
and its Compensation Committee. The Board designates, in connection with recommendations from the Compensation Committee,
eligible participants to be included under the plan, and designates the number of options, exercise price and vesting period of
the new options.
2006
VBI US Stock Option Plan
No
further options will be issued under the 2006 VBI US Stock Option Plan (the “2006 Plan”). As at June 30, 2017, there
were 1,311 options outstanding under the 2006 Plan.
2013
Stock Incentive Plan
No
further options will be issued under the 2013 Equity Incentive Plan (the “2013 Plan”). As at June 30, 2017, there
were 5 options outstanding under the 2013 Plan.
2014
Equity Incentive Plan
No
further options will be issued under the 2014 Equity Incentive Plan (the “2014 Plan”). As at June 30, 2017, there
were 735 options outstanding under the 2014 Plan.
2016
VBI Equity Incentive Plan
The
2016 VBI Equity Incentive Plan (the “2016 Plan”) is a rolling incentive plan that sets the number of common shares
issuable under the 2016 Plan, together with any other security-based compensation arrangement of the Company, at a maximum of
10% of the aggregate common shares issued and outstanding on a non-diluted basis at the time of any grant under the 2016 Plan.
The 10% maximum is inclusive of options granted under all equity incentive plans. The 2016 Plan is an omnibus equity incentive
plan pursuant to which the Company may grant equity and equity-linked awards to eligible participants in order to promote the
success of the Company following the VBI-SciVac Merger by providing a means to offer incentives and to attract, motivate, retain
and reward persons eligible to participate in the 2016 Plan. Grants under the 2016 Plan include a grant or right consisting of
one or more options, stock appreciation rights (“SARs”), restricted share units (“RSUs”), performance
share units (“PSUs”), shares of restricted stock or other such award as may be permitted under the 2016 Plan. As at
June 30, 2017, there were 411 options and 498 stock awards outstanding under the 2016 Plan.
The
aggregate number of common shares remaining available for issuance for awards under this plan was 579 at June 30, 2017.
Activity
related to stock options is as follows (in thousands, except for weighted average exercise price):
|
|
Number
of Stock Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
|
Balance
outstanding at December 31, 2016
|
|
|
2,168
|
|
|
$
|
4.45
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
302
|
|
|
$
|
3.60
|
|
Exercised
|
|
|
(6
|
)
|
|
$
|
2.50
|
|
Forfeited
|
|
|
(2
|
)
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding
at June 30, 2017
|
|
|
2,462
|
|
|
$
|
4.34
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
June 30, 2017
|
|
|
1,534
|
|
|
$
|
4.39
|
|
|
|
|
|
|
|
|
|
|
Options expected
to vest at June 30, 2017
|
|
|
928
|
|
|
$
|
4.26
|
|
Information
relating to restricted stock units is as follow (in thousands, except for weighted average fair value at grant date):
|
|
Number
of Stock Awards
|
|
|
Weighted
Average
Fair
Value
at Grant
Date
|
|
|
|
|
|
|
|
|
Unvested
shares outstanding at December 31, 2016
|
|
|
639
|
|
|
$
|
3.88
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
57
|
|
|
$
|
4.72
|
|
Vested
|
|
|
(165
|
)
|
|
$
|
3.94
|
|
Forfeited
|
|
|
(33
|
)
|
|
$
|
3.90
|
|
|
|
|
|
|
|
|
|
|
Unvested shares
outstanding at June 30, 2017
|
|
|
498
|
|
|
$
|
3.95
|
|
The
fair value of the options expected to vest will be recognized as an expense on a straight-line basis over the vesting period.
The total stock-based compensation expense recorded in the three and six months ended June 30, 2017 and 2016 was as follows:
|
|
Three
months ended June 30
|
|
|
Six
months ended June 30
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
202
|
|
|
$
|
760
|
|
|
$
|
387
|
|
|
$
|
760
|
|
General and administrative
|
|
|
408
|
|
|
|
282
|
|
|
|
831
|
|
|
|
282
|
|
Cost of revenues
|
|
|
17
|
|
|
|
-
|
|
|
|
33
|
|
|
|
-
|
|
Total stock
based compensation
|
|
$
|
627
|
|
|
$
|
1,042
|
|
|
$
|
1,251
|
|
|
$
|
1,042
|
|
The
Company operates in U.S., Israel and Canadian tax jurisdictions. Its income is subject to varying rates of tax, and losses incurred
in one jurisdiction cannot be used to offset income taxes payable in another.
The
Company’s effective tax rate on loss before tax for the three and six months ended June 30, 2017 of 0% and 2.38%,
respectively (0% - 2016) differs from the Canadian statutory rate of 26% primarily due to the recognition of a valuation allowance
on the Canadian deferred tax assets as well as on the other deferred tax assets in all other jurisdictions.
The
Company maintains a valuation allowance on its net deferred tax assets. A valuation allowance is required when, based upon an
assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable
tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.
10.
|
COMMITMENTS
AND CONTINGENCIES
|
Licensing
(a)
|
The
Company’s manufactured and marketed product, Sci-B-Vac™, is a recombinant third generation hepatitis B vaccine
whose sales and territories are governed by the Ferring License Agreement (“License Agreement”). Under the License
Agreement, the Company is committed to pay Ferring royalties equal to 7% of net sales (as defined therein). Royalty payments
have been de minimis for the three and six months ended June 30, 2017 and 2016, respectively.
|
(b)
|
Under
an Assignment and Assumption Agreement, the Company is required to pay royalties to SciGen Singapore equal to 5% of net sales
of Sci-B-Vac. Royalty payments have been de minimis for the three and six months ended June 30, 2017 and 2016.
|
Legal
Proceedings
From
time to time, the Company may be involved in certain claims and litigation arising out of the ordinary course of business. Management
assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred
and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the
most likely outcome. The Company believes that it maintains adequate insurance coverage for any such litigation matters arising
in the normal course of business.
Operating
Leases
The
Company has entered into various non-cancelable lease agreements for its office, lab and manufacturing facilities. These arrangements
expire at various times through 2022. Rent expense for the three months ended June 30, 2017 and 2016 was $239 and $92, respectively
and for the six months ended June 30, 2017 and 2016 was $456 and $187, respectively.
The
future annual minimum payments under these leases is as follows:
Year ending December
31
|
|
|
|
|
|
Remaining
2017
|
|
$
|
455
|
|
2018
|
|
|
734
|
|
2019
|
|
|
681
|
|
2020
|
|
|
453
|
|
2021
|
|
|
453
|
|
Thereafter
|
|
|
38
|
|
Total
|
|
$
|
2,814
|
|
11.
|
REVENUE BY GEOGRAPHIC
REGION
|
|
|
Three
months ended June 30
|
|
|
Six
months ended June 30
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israel
|
|
$
|
136
|
|
|
$
|
50
|
|
|
$
|
247
|
|
|
$
|
90
|
|
Asia
|
|
|
47
|
|
|
|
-
|
|
|
|
61
|
|
|
|
4
|
|
North America
|
|
|
150
|
|
|
|
-
|
|
|
|
150
|
|
|
|
-
|
|
South America
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
Europe
|
|
|
11
|
|
|
|
32
|
|
|
|
11
|
|
|
|
36
|
|
Total
|
|
$
|
344
|
|
|
$
|
82
|
|
|
$
|
471
|
|
|
$
|
130
|
|
12.
|
PROPERTY AND
EQUIPMENT, NET BY GEOGRAPHIC REGION
|
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Property and equipment
in Israel
|
|
$
|
2,114
|
|
|
$
|
1,850
|
|
Property and
equipment in North America
|
|
|
140
|
|
|
|
-
|
|
Total
|
|
$
|
2,254
|
|
|
$
|
1,850
|
|