Item
1. Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(in
thousands, except share amounts)
See
accompanying Notes to Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in
thousands, except share and per share amounts)
See
accompanying Notes to Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Condensed
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in
thousands, except share amounts)
See
accompanying Notes to Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
(in
thousands)
See
accompanying Notes to Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(in
thousands, except share and per share amounts)
1.
NATURE OF BUSINESS AND CONTINUATION OF BUSINESS
Corporate
Overview
VBI
Vaccines Inc. (the “Company” or “VBI”) was incorporated under the laws of British Columbia, Canada on
April 9, 1965.
The
Company and its wholly-owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s
wholly-owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies,
Inc. a Canadian company and the wholly-owned subsidiary of VBI US (“VBI Cda”); and SciVac Ltd. an Israeli company
(“SciVac”); SciVac Hong Kong Limited (“SciVac HK”) and VBI Vaccines B.V a Netherlands company (“VBI
BV”), are collectively referred to as the “Company”, “we”, “us”, “our”,
or “VBI”.
The
Company’s registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with its principal
office located at 222 Third Street, Suite 2241, Cambridge, MA 02142. In addition, the Company has manufacturing facilities located
in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.
Principal
Operations
VBI
is a biopharmaceutical company driven by immunology in the pursuit of 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.
The
ongoing COVID-19 pandemic has materially negatively affected and continues to affect the global economy, and there is continued
severe uncertainty about the duration and intensity of the impacts of the pandemic. As a result, the Company’s business
and results of operations have also been adversely affected and could continue to be adversely affected by COVID-19 which has
necessitated restricting the number of personnel in the Company’s research laboratories and manufacturing facility at any
given point in time, and has slowed recruitment to clinical trials. The extent to which the COVID-19 pandemic will continue to
impact our business will depend on future developments, which are highly uncertain and cannot be predicted. We do not yet know
the full extent of potential delays or impacts on our business, our clinical studies, our research programs, the recoverability
of our assets, and our manufacturing; however, the COVID-19 pandemic may disrupt or delay our business operations, including with
respect to efforts relating to potential business development transactions, and it could disrupt the marketplace which could have
an adverse effect on our operations.
Liquidity
and Going Concern
The
Company has a limited operating history and faces a number of risks, including but not limited to, uncertainties regarding the
success of the development and commercialization of its products, demand and market acceptance of the Company’s products,
and reliance on major customers. The Company anticipates that it will continue to incur significant operating costs and losses
in connection with the development of its products.
The
Company had an accumulated deficit of $326,265
as of March 31, 2021 and cash outflows
from operating activities of $6,644
for the three months ended March 31, 2021.
The
Company will require significant additional funds to conduct clinical and non-clinical trials, achieve regulatory approvals, and,
subject to such approvals, commercially launch its products. The Company plans to finance future operations with existing cash
and cash equivalent reserves. Additional financing may be obtained from the issuance of equity securities, the issuance of additional
debt, structured asset financings, and/or revenues from potential business development transactions, if any. There is no assurance
the Company will manage to obtain these sources of financing, if required. The above conditions raise substantial doubt about
the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of
liabilities that may result should the Company be unable to continue as a going concern.
On
March 9, 2021, the Company and Coalition for Epidemic Preparedness Innovations (“CEPI”) announced a partnership (“CEPI
Funding Agreement”) to develop eVLP vaccine candidates against SARS-COV-2 variants, including the B.1.351 variant, also
known as 501Y.V2, first identified in South Africa. CEPI will provide up to $33,018 to support the advancement of VBI-2905, a
monovalent eVLP candidate expressing the pre-fusion form of the spike protein from the B.1.351 strain, through Phase I clinical
development. This funding will also support preclinical
expansion of additional multivalent vaccine candidates designed to evaluate the potential breadth of our eVLP technology. The
preclinical expansion is intended to develop clinic-ready vaccine candidates capable of addressing emerging variants. See more
information on the CEPI Funding Agreement in Note 12.
On
July 31, 2020, the Company entered into an Open Market Sale AgreementSM with Jefferies LLC (“Jefferies”),
pursuant to which the Company may offer and sell its common shares having an aggregate price of up to $125 million from time to
time through Jefferies, acting as agent or principal (the “ATM Program”). Common shares are offered pursuant to a
sales agreement prospectus included in the Company’s automatic shelf registration on Form S-3 filed with the United States
Securities and Exchange Commission (“SEC”) on July 31, 2020. During the three months ended March 31, 2021, the Company
issued 5,752,068 common shares under the ATM Program, for total gross proceeds of $22,113 at an average price of $3.84. The Company
incurred $696 of share issuance costs related to the common shares issued resulting in net proceeds of $21,417. As of March 31,
2021, $38,202 of common shares remained available for issuance under the ATM Program.
Financial
instruments recognized in the condensed consolidated balance sheet consist of cash and cash equivalents, short-term investments,
accounts receivable, other current assets, accounts payable, and other current liabilities. The Company believes that the carrying
value of its current financial instruments approximates their fair values due to the short-term nature of these instruments. The
Company does not hold any derivative financial instruments.
The
carrying amounts of the Company’s long-term assets approximate their respective fair values.
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Consolidation
The
Company’s fiscal year ends on December 31 of each calendar year. The accompanying unaudited condensed consolidated financial
statements have been prepared in U.S. dollars (“USD”) and pursuant to the rules and regulations of the SEC, for interim
reporting. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in
accordance with United States of America generally accepted accounting principles (“U.S. GAAP”), have been condensed
or omitted pursuant to such rules and regulations. The December 31, 2020 consolidated balance sheet in this document was derived
from the audited consolidated financial statements. The condensed consolidated financial statements and notes included in this
quarterly report on Form 10-Q (this “Form 10-Q”) does not include all of the disclosures required by U.S. GAAP and
should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2020 (the “2020 10-K”), as filed with the SEC on March 2, 2021.
The
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: SciVac, SciVac HK,
VBI DE, VBI US, VBI Cda, and VBI BV. Intercompany balances and transactions between the Company and its subsidiaries are eliminated in
the condensed consolidated financial statements. Certain items previously reported in specific financial statement captions have been reclassified to
conform to the current presentation.
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 2020 10-K, and there have been no changes to the Company’s significant accounting policies during the three months ended
March 31, 2021, other than the polices discussed below.
CEPI
Funding Agreement
Cash
received in advance from the CEPI Funding Agreement is included in cash and cash equivalents on the condensed consolidated balance
sheet, however, it is restricted as to its use until the relevant expenses are incurred. The cash received is recognized as
deferred funding, included in other current liabilities on the condensed consolidated balance sheet, and recognized as a reduction
in the related expense when incurred. As of March 31, 2021 the amount of cash included in cash and cash equivalents on the
condensed consolidated balance sheets is $8,107. See
more information on CEPI Funding Agreement in Note 12.
3.
NEW ACCOUNTING PRONOUNCEMENTS
Recently
Adopted Accounting Pronouncements
None
Recently
Issued Accounting Standards, not yet Adopted
In
August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity (“ASU 2020-06”), which will simplify the accounting for certain financial instruments
with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own
equity. Specifically, the new standard will remove the separation models required for convertible debt with cash conversion features
and convertible instruments with beneficial conversion features. It will also remove certain settlement conditions that are currently
required for equity contracts to qualify for the derivative scope exception and will simplify the diluted earnings per share calculation
for convertible instruments. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021 and interim periods
within those fiscal years. Early adoption is permitted but no earlier than fiscal periods beginning after December 15, 2020, including
interim periods within those fiscal years. This ASU can be applied either through a modified retrospective method of transition
or a fully retrospective method of transition. The Company is currently evaluating the impact this new guidance will have on its
condensed consolidated financial statements and related disclosures.
4.
INVENTORY, NET
Inventory
consists of the following:
SCHEDULE OF INVENTORY
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Finished goods
|
|
$
|
-
|
|
|
$
|
-
|
|
Work-in-process
|
|
|
505
|
|
|
|
390
|
|
Raw materials
|
|
|
1,660
|
|
|
|
1,762
|
|
Inventory, net
|
|
$
|
2,165
|
|
|
$
|
2,152
|
|
5.
OTHER CURRENT ASSETS
Other
current assets consisted of the following:
SCHEDULE OF OTHER CURRENT ASSETS
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Government receivables
|
|
$
|
6,096
|
|
|
$
|
7,830
|
|
Other current assets
|
|
|
2,481
|
|
|
|
1,312
|
|
Total other current
assets
|
|
$
|
8,577
|
|
|
$
|
9,142
|
|
6.
INTANGIBLE ASSETS AND GOODWILL
SCHEDULE OF INTANGIBLE ASSETS INCLUDING CUMULATIVE IMPAIRMENT AND CUMULATIVE CURRENCY TRANSLATION
|
|
|
|
|
March 31, 2021
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Cumulative
Impairment
Charge
|
|
|
Cumulative
Currency
Translation
|
|
|
Net Book
Value
|
|
Patents
|
|
$
|
669
|
|
|
$
|
(606
|
)
|
|
$
|
-
|
|
|
$
|
39
|
|
|
$
|
102
|
|
In Process Research & Development (“IPR&D”) assets
|
|
|
61,500
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
1,434
|
|
|
|
62,634
|
|
|
|
$
|
62,169
|
|
|
$
|
(606
|
)
|
|
$
|
(300
|
)
|
|
$
|
1,473
|
|
|
$
|
62,736
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Cumulative
Impairment
Charge
|
|
|
Cumulative
Currency
Translation
|
|
|
Net Book
Value
|
|
Patents
|
|
$
|
669
|
|
|
$
|
(590
|
)
|
|
$
|
-
|
|
|
$
|
44
|
|
|
$
|
123
|
|
IPR&D assets
|
|
|
61,500
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
833
|
|
|
|
62,033
|
|
|
|
$
|
62,169
|
|
|
$
|
(590
|
)
|
|
$
|
(300
|
)
|
|
$
|
877
|
|
|
$
|
62,156
|
|
The
Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives.
The
change in carrying value for IPR&D assets from December 31, 2020 relates to currency translation adjustments which increased
by $601 for the three-month period ended March 31, 2021.
SCHEDULE OF GOODWILL
|
|
|
|
|
March 31, 2021
|
|
|
|
Gross
Carrying
Amount
|
|
|
Cumulative
Impairment
Charge
|
|
|
Cumulative
Currency
Translation
|
|
|
Net Book
Value
|
|
Goodwill
|
|
$
|
8,714
|
|
|
$
|
(6,292
|
)
|
|
$
|
(139
|
)
|
|
$
|
2,283
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Gross
Carrying
Amount
|
|
|
Cumulative
Impairment
Charge
|
|
|
Cumulative
Currency
Translation
|
|
|
Net Book
Value
|
|
Goodwill
|
|
$
|
8,714
|
|
|
$
|
(6,292
|
)
|
|
$
|
(161
|
)
|
|
$
|
2,261
|
|
The
change in carrying value for goodwill from December 31, 2020 relates to currency translation adjustments which increased by $22
for the three-month period ended March 31, 2021.
7.
OTHER CURRENT LIABILITIES
Other
current liabilities consisted of the following:
SCHEDULE OF OTHER CURRENT LIABILITIES
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Accrued research and development expenses (including clinical trial accrued expenses)
|
|
$
|
6,423
|
|
|
$
|
5,842
|
|
Accrued professional fees
|
|
|
2,080
|
|
|
|
1,547
|
|
Payroll and employee-related costs
|
|
|
1,918
|
|
|
|
3,844
|
|
Deferred government grants
|
|
|
1,417
|
|
|
|
825
|
|
Deferred funding
|
|
|
8,107
|
|
|
|
-
|
|
Other current liabilities
|
|
|
445
|
|
|
|
357
|
|
Total other current
liabilities
|
|
$
|
20,390
|
|
|
$
|
12,415
|
|
8.
LOSS PER SHARE OF COMMON SHARES
Basic
loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares
outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion
of securities, such as warrants, and stock options, which would result in the issuance of incremental shares of common shares
unless such effect is anti-dilutive. In computing the basic and diluted net loss per share applicable to common stockholders,
the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive
shares are not included in the calculation as their effect would be anti-dilutive. These potentially dilutive securities are more
fully described in Note 10, Stockholders’ Equity and Additional Paid-in Capital.
The
following potentially dilutive securities outstanding at March 31, 2021 and 2020 have been excluded from the computation of diluted
weighted average shares outstanding, as they would be antidilutive:
SCHEDULE OF ANTIDILUTIVE WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Warrants
|
|
|
3,163,172
|
|
|
|
2,618,824
|
|
Stock options and restricted stock units
|
|
|
18,139,335
|
|
|
|
10,894,792
|
|
K2 conversion feature
|
|
|
1,369,863
|
|
|
|
-
|
|
|
|
|
22,672,370
|
|
|
|
13,513,616
|
|
9.
LONG-TERM DEBT
As
of March 31, 2021, and December 31, 2020, the long-term debt is as follows:
SCHEDULE OF LONG-TERM DEBT
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Long-term debt, net of debt discount of $3,450
($5,061
at December 31, 2020)
|
|
$
|
15,940
|
|
|
$
|
16,329
|
|
Less: current portion, net of debt discount of $0 ($0 at December 31, 2020)
|
|
|
-
|
|
|
|
-
|
|
Long-term debt
|
|
$
|
15,940
|
|
|
$
|
16,329
|
|
On
May 22, 2020, the Company (along with its subsidiary VBI Cda) entered into the Loan Agreement with K2 HealthVentures LLC and any
other lender from time to time party thereto (the “Lenders”) pursuant to which we received the first tranche secured
term loan of $20
million (the “First Tranche Term
Loan”). The
Lenders agreed to make available the following additional tranches subject to the following conditions and upon the submission
of a loan request by the Company: (1) up to $10 million available between January 1, 2021 and April 30, 2021 upon achievement
of certain milestones (the “Second Tranche Term Loan”), (2) $10 million available between the closing date and December
31, 2021, subject to achievement of a certain U.S. Food and Drug Administration approval (the “Third Tranche Term Loan”),
and (3) a final tranche of up to $10
million
that can be made available any time prior to June 30, 2022, subject to the advance of the Third Tranche Term Loan, satisfactory
review by the administrative agent of our financial and operating plan, and approval by the Lenders’ investment committee
(the “Fourth Tranche Term Loan”).
Pursuant to the Loan Agreement, the Lenders originally had the ability to convert, at the Lenders’ option, up to
$4
million of the secured term loan into
common shares of the Company at a conversion price of $1.46
per share (“K2 conversion feature”)
until the maturity date of June 1, 2024. On February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted
$2
million of the secured term loan
into 1,369,863
common shares at a conversion price of
$1.46.
The
Lenders have the ability to convert an additional $2 million at the Lenders’ option.
The Administrative Agent has determined that sufficient
Second Tranche Milestones have been satisfied to enable the Company to request draw down of the Second Tranche Term Loan up to the Second
Tranche Maximum Amount (as such terms are defined in the Loan Agreement). The Company and the Lenders are in the process of amending
the Loan Agreement to extend the Second Tranche Availability Period.
In
connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to 625,000 common
shares (the “K2 Warrant”) at an exercise price of $1.12 (the “Warrant Price”). The number of common shares
issuable pursuant to the K2 Warrant, at any given time, is determined by the aggregate original principal amount of the loans
advanced at that time pursuant to the Loan Agreement multiplied by 3.5% and divided by the Warrant Price. If the full $50 million
available in all K2 tranches is advanced pursuant to the Loan Agreement, up to 1,562,500 common shares will be issuable pursuant
to the K2 Warrant. The K2 Warrant may be exercised either for cash or on a cashless “net exercise” basis and expires
on May 22, 2030.
The
total proceeds attributed to the K2 Warrant was $1,181
based on the relative fair value of the
K2 Warrant as compared to the sum of the fair values of the K2 Warrant, K2 conversion feature and debt. The effective conversion
price of the K2 conversion feature of $1.52
was determined to be less than the fair
value of the underlying common stock at the date of commitment, resulting in a beneficial conversion feature (“BCF”)
at that date. The intrinsic value of the BCF was $2,577
and recorded to additional paid-in capital.
The K2 warrant and the K2 conversion feature resulted in the debt being issued at a discount. The Company also incurred $1,021
of debt issuance costs and is required
to make a final payment equal to 6.95%
of the aggregate original secured term
loan principal on the maturity date of the term loan, or upon earlier prepayment of the term loans in accordance with the Loan
Agreement, resulting in an additional discount of $1,390.
The total initial debt discount is $6,169.
Upon
receipt of additional funds under the Loan Agreement, additional common shares will be issuable pursuant to the K2 Warrant as
determined by the principal amount of the additional funds advanced multiplied by 3.5% and divided by the Warrant Price, and the
final payment will increase by 6.95% of the funds advanced.
The
total principal amount of the loan under the Loan Agreement outstanding at March 31, 2021, including the $1,390 final payment
discussed above, is $19,390.
The principal amount of the loan made under the Loan Agreement accrues interest at an annual rate equal to the greater of (a) 8.25% or
(b) prime rate plus 5.00%.
The interest rate as of March 31, 2021 was 8.25%.
The Company is required to pay only interest until July 1, 2022. If there is no Event of Default (as defined in the Loan
Agreement) and a Third Tranche Term Loan of $10 million
is made upon the achievement of a certain milestone then the interest only period is extended to January
1, 2023. The effective interest
rate on the remaining loan of $18,000, excluding the final payment, is 18.14%.
Upon
the occurrence of an Event of Default, and during the continuance of an Event of Default, the applicable rate of interest, described
above, will be increased by 5.00% per annum. The secured term loan maturity date is June 1, 2024, and the Loan Agreement includes
both financial and non-financial covenants. The Company was in compliance with these covenants as of March 31, 2021.
The
obligations under the Loan Agreement are secured on a senior basis by a lien on substantially all of the assets of the Company
and its subsidiaries other than intellectual property. The subsidiaries of the Company, other than VBI Cda and SciVac HK, are
guarantors of the obligations of the Company and VBI Cda under the Loan Agreement. The Loan Agreement also contains customary
events of default.
The
total initial debt discount related to the Loan Agreement with K2 HealthVentures LLC and the term loan facility with Perceptive
Credit Holdings, LP is $6,169
and $4,018,
respectively. As of March 31, 2021, and December 31, 2020, the unamortized debt discount was $3,450
and $5,061
respectively. The debt discount is being
charged to interest expense, net of interest income in the condensed consolidated statement of operations and comprehensive loss
using the effective interest method over the term of the debt.
During
the three months ended March 31, 2021, as a result of the conversion of term loan to common shares, $1,161
of additional interest accretion
was recognized in interest expense, net of interest income in the condensed consolidated statement of operations and comprehensive
loss.
At
March 31, 2021 and December 31, 2020, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy,
is estimated to be $18,921 and $20,117,
respectively.
Interest
expense, net of interest income recorded in the three months ended March 31, 2021 and 2020 was as follows:
SCHEDULE OF INTEREST EXPENSE
|
|
2021
|
|
|
2020
|
|
|
|
Three months ended
March 31
|
|
|
|
2021
|
|
|
2020
|
|
Interest expense
|
|
$
|
389
|
|
|
$
|
475
|
|
Amortization of debt discount
|
|
|
1,611
|
|
|
|
239
|
|
Interest income
|
|
|
(188
|
)
|
|
|
(132
|
)
|
Total interest expense, net of interest income
|
|
$
|
1,812
|
|
|
$
|
582
|
|
Interest
expense and amortization of debt discount for the three months ended March 31, 2021 does not include any amounts incurred to a
related party. Interest expense and amortization of debt discount for the three months ended March 31, 2020 was fully incurred
to a related party.
The
following table summarizes the future principal payments due under long-term debt:
SCHEDULE OF FUTURE PRINCIPAL OF LONG-TERM DEBT
|
|
Principal
payments on
Loan Agreement
and final payment
|
|
Remaining 2021
|
|
$
|
-
|
|
2022
|
|
|
4,215
|
|
2023
|
|
|
8,980
|
|
2024
|
|
|
6,195
|
|
Total
|
|
$
|
19,390
|
|
10.
STOCKHOLDERS’ EQUITY AND ADDITIONAL PAID-IN CAPITAL
Stock
option plans
The
Company’s stock option plans are approved by and administered by 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
The
2006 VBI US Stock Option Plan (the “2006 Plan”), was approved by and was previously administered by the VBI US board
of directors which designated eligible participants to be included under the 2006 Plan, and designated the number of options,
exercise price and vesting period of the new options. The 2006 Plan was not approved by the stockholders of VBI US. The 2006 Plan
was superseded by the 2014 Plan (as defined below) following the PLCC Merger and no further options will be issued under the 2006
Plan. As of December 31, 2020, there were 989,813 options outstanding under the 2006 Plan.
2014
Equity Incentive Plan
On
May 1, 2014, the VBI DE board of directors adopted the VBI Vaccines Inc. 2014 Equity Incentive Plan (the “2014 Plan”).
The 2014 Plan was approved by the VBI DE’s shareholders on July 14, 2014. No further options will be issued under the 2014
Plan. As of March 31, 2021, there were 521,242 options outstanding under the 2014 Plan.
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 2016 Plan is an omnibus equity incentive plan pursuant
to which the Company may grant equity and equity-linked awards to eligible participants in order to promote the success of the
Company by providing a means to offer incentives and to attract, motivate, retain and reward persons eligible to participate in
the 2016 Plan. Grants under the 2016 Plan include a grant or right consisting of one or more options, stock appreciation rights
(“SARs”), restricted share units (“RSUs”), performance share units (“PSUs”), shares of restricted
stock or other such award as may be permitted under the 2016 Plan. As of March 31, 2021, there were 16,523,250 options outstanding
and 105,030 RSUs unvested under the 2016 Plan.
The
aggregate number of common shares remaining available for issuance for awards under the 2016 Plan totaled 5,920,455 at March 31,
2021.
Activity
related to stock options is as follows:
SCHEDULE OF STOCK OPTIONS
ACTIVITY
|
|
Number of
Stock
Options
|
|
|
Weighted
Average
Exercise Price
|
|
Balance outstanding at December 31, 2020
|
|
|
12,507,541
|
|
|
$
|
2.38
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
5,540,000
|
|
|
$
|
3.15
|
|
Forfeited
|
|
|
(13,236
|
)
|
|
$
|
2.25
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at March 31, 2021
|
|
|
18,034,305
|
|
|
$
|
2.62
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021
|
|
|
7,028,418
|
|
|
$
|
2.66
|
|
Information
relating to RSUs is as follow:
SCHEDULE OF RESTRICTED
STOCK UNITS
|
|
Number of
Stock Awards
|
|
|
Weighted
Avg Fair Value
at Grant Date
|
|
Unvested shares outstanding at December 31, 2020
|
|
|
129,356
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(24,326
|
)
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
|
|
Unvested shares outstanding at March 31, 2021
|
|
|
105,030
|
|
|
$
|
1.52
|
|
In
determining the amount of stock-based compensation the Company used the Black-Scholes option pricing model to establish the fair value
of options granted by applying the following weighted average assumptions:
SCHEDULE OF FAIR VALUE
OF OPTIONS GRANTED BY USING BLACK-SCHOLES OPTION PRICING ASSUMPTIONS
|
|
2021
|
|
|
2020
|
|
Volatility
|
|
|
97.13
|
%
|
|
|
90.12
|
%
|
Risk free interest rate
|
|
|
0.54
|
%
|
|
|
1.54
|
%
|
Expected term in years
|
|
|
5.85
|
|
|
|
5.77
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Weighted average fair value per option
|
|
$
|
2.40
|
|
|
$
|
1.04
|
|
The
fair value of the options is recognized as an expense on a straight-line basis over the vesting period and forfeitures are accounted
for when they occur. The total stock-based compensation expense recorded in the three months ended March 31, 2021 and 2020 was
as follows:
SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE
|
|
Three months ended
March 31
|
|
|
|
2021
|
|
|
2020
|
|
Research and development
|
|
$
|
428
|
|
|
$
|
244
|
|
General and administrative
|
|
|
1,690
|
|
|
|
933
|
|
Cost of revenues
|
|
|
21
|
|
|
|
10
|
|
Total stock-based compensation expense
|
|
$
|
2,139
|
|
|
$
|
1,187
|
|
Warrants
Activity
related to the warrants is as follows:
SCHEDULE OF WARRANT ACTIVITY
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
Balance outstanding at December 31, 2020
|
|
|
3,197,666
|
|
|
$
|
2.23
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(34,494
|
)
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at March 31, 2021
|
|
|
3,163,172
|
|
|
$
|
2.24
|
|
11.
REVENUES AND DEFERRED REVENUE
Revenue
is comprised of the following:
SCHEDULE OF REVENUE COMPRISED
|
|
Three months ended
March 31
|
|
|
|
2021
|
|
|
2020
|
|
Product revenues
|
|
$
|
167
|
|
|
$
|
180
|
|
R&D service revenues
|
|
|
134
|
|
|
|
235
|
|
Total revenue
|
|
$
|
301
|
|
|
$
|
415
|
|
The
following table presents revenues expected to be recognized in the future related to performance obligations, based on current
estimates, that are unsatisfied at March 31, 2021:
SUMMARY OF REVENUE EXPECTED TO BE RECOGNIZED IN FUTURE RELATED TO PERFORMANCE OBLIGATIONS
|
|
Total
|
|
|
Current
portion to
March 31,
2022
|
|
|
Remaining
portion
thereafter
|
|
Product revenues
|
|
$
|
469
|
|
|
$
|
-
|
|
|
$
|
469
|
|
R&D service revenues
|
|
|
2,531
|
|
|
|
882
|
|
|
|
1,649
|
|
Total
|
|
$
|
3,000
|
|
|
$
|
882
|
|
|
$
|
2,118
|
|
The
following table presents changes in the deferred revenue balance for the three months ended March 31, 2021:
SUMMARY OF CHANGES IN DEFERRED REVENUE
Balance at December 31, 2020
|
|
$
|
3,104
|
|
|
|
|
|
|
Recognition of deferred revenue
|
|
|
(128
|
)
|
Currency translation
|
|
|
24
|
|
|
|
|
|
|
Balance at March 31, 2021
|
|
$
|
3,000
|
|
|
|
|
|
|
Short Term
|
|
$
|
882
|
|
Long Term
|
|
$
|
2,118
|
|
Collaboration
and License Agreement – Brii Bio
On
December 4, 2018, we entered into a Collaboration and License Agreement with Brii Biosciences Limited (“Brii Bio”) (the “Collaboration
and License Agreement”), amended on April 8, 2021, whereby:
|
●
|
The
Company and Brii Bio agreed to collaborate on the development of a hepatitis B recombinant protein-based immunotherapeutic
in the licensed territory, which consists of China, Hong Kong, Taiwan, and Macau (collectively, the “Licensed Territory”),
and to conduct a Phase 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 hepatitis B, with a novel composition developed
jointly with Brii Bio (either being the “Licensed Product”); and,
|
|
|
|
|
●
|
The
Company granted Brii Bio an exclusive royalty-bearing license to perform studies, regulatory and other activities, as may
be required to obtain and maintain marketing approval of the Licensed Product in the Licensed Territory and to commercialize
the Licensed Product for the diagnosis and treatment of hepatitis B in the Licensed Territory.
|
Pursuant
to the Collaboration and License Agreement, the Company is responsible for the R&D services and Brii Bio is responsible for
costs relating to the clinical trials for the Licensed Territory.
The
initial consideration of the Collaboration and License Agreement consisted of a $11,000 non-refundable upfront payment. As part
of the Collaboration and License Agreement, the Company and Brii Bio entered into a stock purchase agreement. Under the terms
of the stock purchase agreement, the Company issued to Brii Bio 2,295,082 shares of its common stock valued at $3,626 (based on
the Company’s common stock price on December 4, 2018). The remaining $7,374, deemed to be the initial transaction price,
was allocated to two performance obligations: i) the VBI-2601 (BRII-179) license, and ii) R&D services. The R&D services
were allocated $4,737 of the transaction price using an estimated selling price based on an expected cost plus a margin approach
and the remaining transaction price of $2,637 was allocated to the VBI-2601 (BRII-179) license using the residual method.
In
addition, the Company is also eligible to receive an additional $117,500 in potential regulatory and sales milestone payments,
along with royalties on commercial sales in the Licensed Territory. Milestone payments that are not within the control of the
Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are
received. Therefore, no variable consideration was included in the initial transaction price and no such amounts have been recognized
to date.
The
R&D Services will be satisfied over time as services are rendered using the “cost-to-cost” input method as this
method represents the most accurate depiction of the transfer of services based on the types of costs expected to be incurred.
As of March 31, 2021, R&D services related to Brii Bio that remain unsatisfied are $2,331, out of the $3,000 total deferred
revenue.
Upon
termination of the Collaboration and License Agreement prior to the end of the term, there is no obligation for refund and any
amounts in deferred revenue related to unsatisfied performance obligations will be immediately recognized.
12.
COLLABORATION ARRANGEMENTS
GlaxoSmithKline
Biologicals S.A. (“GSK”)
On
September 10, 2019, the Company entered into a Clinical Collaboration Agreement (“Collaboration Agreement”) pursuant
to which we will investigate the use of GSK’s proprietary AS01B adjuvant system in our ongoing study of VBI-1901.
As a result of the Collaboration Agreement, a second study arm was added to Part B of the ongoing Phase Ib/IIa clinical study
to accommodate the AS01B adjuvant.
This
relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside
the scope of ASC Topic 606. Costs associated with the second study arm will be expensed as incurred in Research and Development
expenses; costs for the three months ended March 31, 2021 are $256. Costs for the three months ended March 31, 2020 were de-minimis.
National
Research Council of Canada (“NRC”)
On
March 31, 2020, the Company announced a collaboration with the NRC, Canada’s largest federal research and development organization,
to develop a pan-coronavirus vaccine candidate, targeting COVID-19, SARS, and MERS. The NRC and the Company are collaborating
to evaluate and select promising coronavirus vaccine candidates. The collaboration combines the Company’s viral vaccine
expertise, eVLP technology platform, and modified coronavirus antigens with the NRC’s proprietary 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.
This
relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside
the scope of ASC Topic 606. Costs associated with the collaboration will be expensed as incurred in Research and Development expenses;
costs for the three months ended March 31, 2021 are $158. Costs for the three months ended March 31, 2020 were $0.
CEPI
On
March 9, 2021, the Company and CEPI announced the CEPI Funding Agreement, to develop eVLP vaccine candidates
against SARS-COV-2 variants, including the B.1.351 variant, also known as 501Y.V2, first identified in South Africa. CEPI
will provide up to $33,018 to support the advancement of VBI-2905, a monovalent eVLP candidate expressing the pre-fusion form
of the spike protein from the B.1.351 strain, through Phase I clinical development. This funding will also support preclinical
expansion of additional multivalent vaccine candidates designed to evaluate the potential breadth of our eVLP technology.
The preclinical expansion is intended to develop clinic-ready
vaccine candidates capable of addressing emerging variants.
Under
the terms of the CEPI Funding Agreement, among other things, the Company and CEPI agreed on the importance of global equitable
access to any vaccines produced pursuant to the CEPI Funding Agreement. Any such vaccines, if approved, are expected to be procured
and allocated through global mechanisms under discussion as part of the Access to COVID-19 Tools (ACT) Accelerator, an international
initiative launched by the World Health Organization (“WHO”), Gavi the Vaccine Alliance, CEPI, and other global
non-governmental organizations and governmental leaders in 2021.
This
relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside
the scope of ASC Topic 606. Costs associated with the collaboration will be expensed as incurred in Research and Development expenses;
costs for the three months ended March 31, 2021 are $157.
As of March 31, 2021 the Company received cash of $8,285
and recognized $157
as a reduction in expenses. As of
March 31, 2021, the Company had $8,107
recorded as deferred funding, recorded
in other current liabilities on the condensed consolidated balance sheet.
Brii
Biosciences Limited
On
December 4, 2018, we entered into a License Agreement with Brii Bio, as described in Note 11.
13.
GOVERNMENT GRANTS
Grants
recognized in research and development expenses in the consolidated statement of operations and comprehensive loss are as follows:
Industrial
Research Assistance Program (“IRAP”)
On
July 3, 2020, the Company and the NRC signed a contribution agreement as represented by its IRAP whereby the NRC agrees to contribute
up to CAD $1,000 for the transfer and scale-up of the technical production process for our prophylactic coronavirus vaccine program.
For
the three months ended March 31, 2021 the Company recognized $0 as a reduction in expenses. As of March 31, 2021, the Company
had $396
recorded as deferred government grants,
recorded in other current liabilities on the condensed consolidated balance sheet.
Strategic
Innovation Fund (“SIF”)
On
September 16, 2020, the Company and Her Majesty the Queen in Right of Canada as represented by the Minister of Industry (“ISED”)
signed a contribution agreement (the “Contribution Agreement”) for a contribution from SIF whereby ISED agrees to
contribute up to CAD $55,976 to support the development of the Company’s coronavirus vaccine program, through Phase II clinical
studies, for a period commencing on April 15, 2020 and ending in or before the first quarter of 2022.
For
the three months ended March 31, 2021 the Company recognized $2,688 as a reduction in expenses. As of March 31, 2021, the
Company had $1,021
recorded as deferred government grants,
recorded in other current liabilities on the condensed consolidated balance sheet.
14.
COMMITMENTS AND CONTINGENCIES
Legal
Proceedings
From
time to time, the Company may be involved in certain claims and litigation arising out of the ordinary course and conduct of business.
Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been
incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment
of the most likely outcome.
On
September 13, 2018, two civil claims were brought in the District Court of the central district in Israel naming our subsidiary
SciVac as a defendant. In one claim, two minors, through their parents, allege, among other things: defects in certain batches
of 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 from April 2011 and seeking damages in a total amount of NIS 1,879,500,000 (not in
thousands) ($563,737). The second claim is a civil action brought by two minors and their parents against SciVac and the Israel
Ministry of Health alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine;
that our 3-antigen prophylactic HBV vaccine was marketed in Israel without sufficient evidence 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.
SciVac
believes these matters to be without merit and intends to defend these claims vigorously.
The
District Court has accepted SciVac’s motion to suspend reaching a decision on the approval of the class action pending the
determination of liability under the civil action. 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 September 13, 2021.
Operating
leases
The
Company has entered into various non-cancelable lease agreements for its office, lab, and manufacturing facilities, which are
classified as operating leases. The office facility lease agreement in the United States expires on April 30, 2023, with no option
to extend. Our manufacturing facility lease agreement expires on January 31, 2022, which includes one five-year option to extend
until January 31, 2027. The lease agreement for our research facility in Canada, which comprises office and laboratory space,
has a term ending on December 31, 2022 with the option to extend the term for one additional period of three years and a term
ending April 30, 2023 for the additional space leased during 2020.
Options
to extend are not recognized as part of the lease liabilities or recognized as right to use assets. There are no residual value
guarantees, no variable lease payments, and no restrictions or covenants imposed by leases. The discount rate used in measuring
the lease liabilities and right of use assets was determined by reviewing our incremental borrowing rate at the initial measurement
date.
SUMMARY
OF LEASE COST AND OTHER INFORMATION
Lease cost:
|
|
|
|
|
Operating lease costs:
|
|
|
|
|
Three months ended March 31, 2021
|
|
$
|
343
|
|
Three months ended March 31, 2020
|
|
|
288
|
|
Other information:
|
|
|
|
|
Weighted average remaining lease term
|
|
|
1.88
years
|
|
Weighted average discount rate
|
|
|
12
|
%
|
Operating
lease costs are included in general and administrative (“G&A”) expenses in the statement of operation and comprehensive
loss.
The
following table summarizes future undiscounted cash payments reconciled to the lease liabilities:
SCHEDULE
OF FUTURE UNDISCOUNTED CASH PAYMENTS RECONCILED TO LEASE LIABILITIES
Year ending
December 31:
|
|
2021
|
|
Remaining
2021
|
|
$
|
802
|
|
2022
|
|
|
523
|
|
2023
|
|
|
125
|
|
Total
|
|
$
|
1,450
|
|
Effect
of discounting
|
|
|
(103
|
)
|
Total
lease liability
|
|
$
|
1,347
|
|
Less:
current portion
|
|
|
(885
|
)
|
Long
term lease liability
|
|
$
|
462
|
|
15.
SEGMENT INFORMATION
The
Company’s Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker. The CEO
evaluates the performance of the Company and allocates resources based on the information provided by the Company’s internal
management system at a consolidated level. The Company has determined that it has only one operating segment.
Revenues
from external customers are attributed to geographic areas based on location of the contracting customers:
SCHEDULE
OF REVENUES FROM EXTERNAL CUSTOMERS
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Israel
|
|
$
|
169
|
|
|
$
|
132
|
|
China / Hong Kong
|
|
|
128
|
|
|
|
231
|
|
Europe
|
|
|
4
|
|
|
|
52
|
|
|
|
$
|
301
|
|
|
$
|
415
|
|
There
was no revenue attributed to our country of domicile, Canada, for the three months ended March 31, 2021 and 2020.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You
should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated
financial statements and the related notes included elsewhere in this Form 10-Q and with our audited consolidated financial statements
included in our 2020 10-K as filed with the SEC.
Except
for share and per share amounts or as otherwise specified to be in millions, amounts presented are stated in thousands.
Overview
VBI
Vaccines Inc. (“VBI”) is a biopharmaceutical company driven by immunology in the pursuit of 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 (“HBV”), 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, 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 antigens self-assemble into VLPs, which limit the number of potential targets. Notably, the HBV envelope antigens
are among those that are able to spontaneously form orderly VLP structures. VBI’s proprietary 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
|
|
Program
|
|
Technology
|
|
Current
Status
|
Prophylactic
Candidates
|
|
|
|
|
|
|
●
Hepatitis B (“HBV”)
|
|
3-antigen
Vaccine
(Israel
brand name Sci-B-Vac®)
|
|
VLP
|
|
BLA
and MAA Accepted;
Approved
in Israel
|
●
Cytomegalovirus (“CMV”)
|
|
VBI-1501
|
|
eVLP
|
|
Phase
I Completed
|
●
COVID-19
|
|
VBI-2902
|
|
eVLP
|
|
Ongoing Phase
I
|
●
COVID-19 (B.1.351 Variant)
|
|
VBI-2905
|
|
eVLP
|
|
Pre-Clinical
|
●
Pan-coronavirus
|
|
VBI-2901
|
|
eVLP
|
|
Pre-Clinical
|
Therapeutic
Candidates
|
|
|
|
|
|
|
●
Hepatitis B (“HBV”)
|
|
VBI-2601
|
|
VLP
|
|
Ongoing
Phase II
|
●
Glioblastoma (“GBM”)
|
|
VBI-1901
|
|
eVLP
|
|
Ongoing
Phase I/IIa
|
A
summary of these programs and recent developments follows.
Prophylactic
Pipeline
3-antigen
HBV Vaccine Candidate
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 HBV vaccine is approved for use and commercially available in Israel, under the brand name Sci-B-Vac®,
and successfully completed its pivotal Phase III studies in the United States, Europe, and Canada in January 2020 but is still
an investigational candidate in such countries and has not yet been approved for commercialization by the applicable regulatory
authorities (e.g., FDA, EMA, MHRA, and Health Canada, each defined below). 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 vaccine candidate compared
with Engerix-B®, a single-antigen HBV vaccine, and lot-to-lot manufacturing consistency of three consecutive lots
of VBI’s vaccine candidate. As announced in June 2019 and January 2020, results from these two studies showed VBI’s
3-antigen vaccine candidate 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 anti-HBs titers at all time points across all subgroup populations, regardless of
age, diabetic status, and BMI; (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. However, there is no guarantee that FDA will be able to meet these
deadlines or that our BLA will be approved in a timely manner, if at all. 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, VBI-2905)
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 we believe make them a prime target for VBI’s flexible enveloped virus-like
particle (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 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.
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 $1,000 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$55,976 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 multivalent 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. A Phase I/II study of the first of the two candidates
(VBI-2902) initiated in March 2021, with initial data from Phase I of the study expected by the end of the second quarter of
2021. 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.
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, South Africa reported to WHO a new variant of SARS-CoV-2 named B.1.351, also known as 501Y.V2. The B.1.351
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. On March 9, 2021, the Company and CEPI announced a partnership (“CEPI
Funding Agreement”) to develop eVLP vaccine candidates against SARS-COV-2 variants, including the B.1.351 variant.
CEPI will provide up to $33,018 to support the advancement of VBI-2905, a monovalent eVLP candidate expressing the pre-fusion
form of the spike protein from the B.1.351 strain, through Phase I clinical development. This funding will also support preclinical
expansion of additional multivalent vaccine candidates designed to evaluate the potential breadth of our eVLP technology. The
preclinical expansion is intended to develop clinic-ready vaccine candidates capable of addressing emerging variants.
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.
On
April 12, 2021, we announced additional data from Phase Ib/IIa clinical study for 33 evaluable patients across all study
arms that suggest: 1) VBI-2601 (BRII-179) is well tolerated at all dose levels with and without the adjuvant with no significant
adverse events identified; 2) restimulation of T cell responses to HBV surface antigens, including S, Pre-S1 and Pre-S2,
in greater than 50% of the evaluable patients from all VBI-2601 (BRII-179) cohorts compared to no detectable response in the
control arm; 3) the T cell responses and antibody responses were comparable across the 20µg and 40µg unadjuvanted
study arms; and 4) T cell response rates between the adjuvanted and unadjuvanted cohorts were also comparable.
Based on
the acceptable safety profile and vaccine-induced adaptive immune responses observed to-date, the high dose (40 µg) of VBI-2601
(BRII-179), both with and without IFN-α, was selected to progress into a Phase II combination study of VBI-2601 (BRII-179)
and BRII-835 (VIR-2218), a novel small interfering ribonucleic acid (siRNA) therapeutic candidate designed to inhibit expression
of HBV proteins. Patient dosing for the study initiated in April 2021. Brii Bio has led the design and implementation of this
functional cure proof-of-concept study with the support of VBI and Vir Biotechnology (“VIR”), and is the sponsor of
the Phase II study. This study will be conducted at sites in Australia, China, Taiwan, Hong Kong Special Administrative Region
of China, South Korean, New Zealand, Singapore, and Thailand.
VBI-1901:
Glioblastoma
Our
cancer vaccine immunotherapeutic program, VBI-1901, targets CMV proteins present in tumor cells. CMV is associated with a number
of solid tumors including 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 10µg dose level cohort.
This phase is a two-arm study that enrolled 20 first-recurrent GBM patients to receive 10µg 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.
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 the fourth quarter of 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.
At
present, our operations are focused on:
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preparing
for commercialization of our 3-antigen prophylactic HBV vaccine candidate in the United States, Europe, and Canada, where
we may obtain regulatory approval;
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conducting
the Phase I/IIa clinical study of our GBM vaccine immunotherapeutic candidate, VBI-1901;
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|
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conducting
the Phase I clinical study of our prophylactic COVID-19 vaccine candidate, VBI-2902;
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continuing
our development and scaling-up production processes for our three prophylactic coronavirus vaccine candidates VBI-2901, VBI-2902
and VBI-2905 using a Contract Development and Manufacturing Organization (“CDMO”) located in Canada;
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●
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seeking
regulatory approval to conduct clinical trials of VBI-2905;
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developing
VBI-2601 (BRII-179), our protein-based immunotherapeutic candidate for treatment of chronic HBV, in collaboration with Brii
Bio;
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ensuring
our recently modernized manufacturing facility in Rehovot, Israel obtains all required regulatory approvals;
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preparing
marketing authorization applications for our 3-antigen prophylactic HBV vaccine candidate in the United Kingdom and Canada;
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preparation
for further development of VBI-1501, our preventative CMV vaccine candidate;
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continuing
the research and development (“R&D”) of our pipeline candidates, including the exploration and development
of new pipeline candidates;
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implementing
operational, financial, and management information systems, including through third party partners, to support our commercialization
activities;
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maintaining,
expanding, and protecting our intellectual property portfolio; and
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developing
our internal systems and processes for regulatory affairs and compliance.
|
VBI’s
revenue generating activities have been the sale of our 3-antigen prophylactic HBV vaccine in markets where it is approved or
available on a named patient basis where it is not approved, though those markets have generated a limited number of sales to-date,
various business development transactions, and R&D services generating fees. VBI has incurred significant net losses and negative
operating cash flows since inception and expects to continue incurring losses and negative cash flows from operations as we carry
out planned clinical, regulatory, R&D, sales, and manufacturing activities with respect to the advancement of our 3-antigen
prophylactic HBV vaccine and new pipeline candidates. As of March 31, 2021, VBI had an accumulated deficit of approximately $326.3
million and stockholders’ equity of approximately $180.0 million. Our ability to maintain our status as an operating
company and to realize our investment in our In Process Research & Development (“IPR&D”) assets, which consist
of our CMV and GBM programs, is dependent upon obtaining adequate cash and cash equivalents to finance our clinical development,
manufacturing, our administrative overhead and our research and development activities, and ultimately to profitably monetize
our IPR&D. We plan to finance near term future operations with existing cash and cash equivalents reserves. We expect that
we will need to secure additional financing to finance our business plans, which may be a combination of proceeds from the issuance
of equity securities, the issuance of additional debt, structured asset financings, government or non-governments organization
grants or subsidies, and revenues from potential business development transactions, if any. There is no assurance we will manage
to obtain these sources of financing, if required. These factors raise substantial doubt about our ability to continue as a going
concern. The accompanying financial statements have been prepared assuming that we will continue as a going concern. The 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 we be unable to continue as a going concern.
We
have incurred operating losses since inception, have not generated significant product sales revenue and have not achieved profitable
operations. We incurred net losses of $17,647 for the three months ended March 31, 2021, and we expect to continue to incur
substantial losses in future periods. We anticipate that we will continue to incur substantial operating expenses as we continue
our research and development, clinical studies, and as we take steps to commercialize our products. These include expenses
related to the focus of our operations highlighted above.
In
addition, we have incurred and will continue to incur significant expenses as a public company, which subjects us to the reporting
requirements of the Exchange Act, the Sarbanes-Oxley Act, the rules and regulations of the NASDAQ Capital Market, and the Canadian
securities regulators.
Long
Term Debt
On May 22, 2020,
we (along with our subsidiary VBI Cda) entered into a Loan and Guaranty Agreement (the “Loan Agreement”) with K2 HealthVentures
LLC and any other lender from time-to-time party thereto (the “Lenders”) pursuant to which we received the first tranche
secured term loan of $20 million (the “First Tranche Term Loan”). The Lenders agreed to make available the following
additional tranches subject to the following conditions and upon the submission of a loan request by us: (1) up to $10 million
available between January 1, 2021 and April 30, 2021 upon achievement of certain milestones ( the “Second Tranche Term Loan”),
(2) $10 million available between the closing date and December 31, 2021, subject to achievement of a certain U.S. FDA approval,
(the “Third Tranche Term Loan”), and (3) a final tranche of up to $10 million that can be made available any time
prior to June 30, 2022, subject to the advance of the Third Tranche Term Loan, satisfactory review by the administrative agent
of our financial and operating plan, and approval by the Lenders’ investment committee (the “Fourth Tranche Term Loan”).
Pursuant to the Loan Agreement, the Lenders originally had the ability to convert, at the Lenders’ option, up to
$4 million of the secured term loan into common shares of the Company at a conversion price of $1.46 per share (“K2 conversion
feature”). On February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted $2 million of the secured term
loan into 1,369,863 common shares at a conversion price of $1.46. The Lenders have the ability to convert an additional $2 million
at the Lenders’ option.
The Administrative Agent has determined that sufficient
Second Tranche Milestones have been satisfied to enable the Company to request draw down of the Second Tranche Term Loan up to the Second
Tranche Maximum Amount (as such terms are defined in the Loan Agreement). The Company and the Lenders are in the process of amending
the Loan Agreement to extend the Second Tranche Availability Period.
In
connection with the Loan Agreement, on May 22, 2020, we issued the Lenders a warrant to purchase up to 625,000 common shares (the
“K2 Warrant”) at an exercise price of $1.12 (the “Warrant Price”). The number of common shares issuable
pursuant to the K2 Warrant, at any given time, is determined by the aggregate original principal amount of the loans advanced
at that time pursuant to the Loan Agreement multiplied by 3.5% and divided by the Warrant Price. If the full $50 million available
in all K2 tranches is advanced pursuant to the Loan Agreement, up to 1,562,500 common shares will be issuable pursuant to the
K2 Warrant. The K2 Warrant may be exercised either for cash or on a cashless “net exercise” basis and expires on May
22, 2030.
As
a result of the K2 Warrant and K2 conversion feature, the debt was issued at a discount of $3,758. We also incurred $1,021 of
debt issuance costs and are required to make a final payment equal to 6.95% of the aggregate original secured term loan principal
on the maturity date of the term loan, or upon earlier prepayment of the term loans in accordance with the Loan Agreement, resulting
in an additional discount of $1,390. The total initial debt discount is $6,169.
The
total principal amount of the loan under the Loan Agreement outstanding at March 31, 2021, including the $1,390 final payment
discussed above, is $19,390. The principal amount of the loan made under the Loan Agreement accrues interest at an annual rate
equal to the greater of (a) 8.25% or (b) prime rate plus 5.00%. The interest rate as of March 31, 2021 was 8.25%. We are required
to pay only interest until July 1, 2022. If there is no Event of Default (as defined in the Loan Agreement), and a Third Tranche
Term Loan of $10 million is made upon the achievement of a certain milestone, then the interest only period is extended to January
1, 2023.
Upon
receipt of additional funds under the Loan Agreement, additional common shares will be issuable pursuant to the K2 Warrant as
determined by the principal amount of the additional funds advanced multiplied by 3.5% and divided by the Warrant Price, and the
final payment will increase by 6.95% of the funds advanced.
Research
and Development Services
Pursuant
to an agreement with the Israel Innovation Authority (formerly the Office of the Chief Scientist of Israel), we are required to
make services available for the biotechnology industry in Israel. These services include relevant activities for development and
manufacturing of therapeutic proteins according to international standards and Good Manufacturing Practice (“GMP”)
quality level suitable for toxicological studies in animals. Service activities include analytics/bio analytics methods for development
and process development of therapeutic proteins starting with a candidate clone through manufacturing.
These
R&D services are primarily marketed to the Israeli research community in academia and Israeli biotechnology companies in the
life sciences industry lacking the infrastructure or experience in the development and production of therapeutic proteins to the
standards and quality required for clinical trials for human use. During the three months ended March 31, 2021, we provided services
to biotechnology companies including analytical development.
In
addition, pursuant to the License Agreement with Brii Bio we provide R&D services to Brii Bio as part of the development of
VBI-2601 (BRII-179).
Modernization and Capacity Increases of Our Manufacturing Facility
In
2018, we temporarily closed our manufacturing facility in Rehovot, Israel, for modernization and capacity increase. We re-commenced
operations in May 2019 and the review of the modernization and the capacity increase by the Israeli Ministry of Health (“IMoH”)
occurred in December of 2019. We received our 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 candidate upon
FDA, and/or EMA, and/or MHRA, and/or Health Canada approval, and to supply clinical supplies of VBI-2601 (BRII-179).
Third
Party License and Assignment Agreements
We
currently are dependent on licenses from third parties for certain of our key technologies, including the license granted pursuant
to an agreement between Savient Pharmaceuticals Inc. and SciGen Ltd dated June 2004, as subsequently amended (the “Ferring
License Agreement”) and a license from L’Universite Pierre et Marie Curie, now Sorbonne Université (“UPMC”),
Institut National de la Santé et de la Recherche Médicale (“INSERM”) and L’école Normale
Supérieure de Lyon. 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 Pharm 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. 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. During the three months ended March 31,
2021, we made a milestone payment of €50 and as of March 31, 2021, we are obligated to make another milestone payment of
€150; both related to our prophylactic coronavirus vaccine program.
Financial
Overview
Overall
Performance
The Company had net losses of $17,647
and $8,358 for the three months ended March 31, 2021 and 2020, respectively. We had an accumulated deficit of $326,265
at March 31, 2021. We had $108,226 of cash and cash equivalents and $25,333 of short-term investments and net working capital
of $121,734 as of March 31, 2021.
Revenues
Revenues
consist of R&D services revenue recognized as part of the License Agreement with Brii Bio and revenues related to the sale
of products and other R&D services.
Cost
of revenues
Cost
of revenues consist primarily of costs incurred for manufacturing our 3-antigen prophylactic HBV vaccine, which includes cost
of materials, consumables, supplies, contractors, and manufacturing salaries.
Research
and Development Expenses
R&D
expenses, net of government grants and funding arrangements consist primarily of costs incurred for the development of our 3-antigen
prophylactic HBV vaccine; VBI-1901, our GBM vaccine immunotherapeutic candidate; VBI-1501, our CMV vaccine candidate; VBI-2601
(BRII-179), our hepatitis B immunotherapeutic candidate; and VBI-2900, our coronavirus vaccine program, which include:
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the
cost of acquiring, developing, and manufacturing clinical study materials, and other consumables and lab supplies used in
our pre-clinical studies;
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expenses
incurred under agreements with contractors or CDMOs or Contract Research Organizations to advance the vaccines into
and through completion of clinical studies; and
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employee-related
expenses, including salaries, benefits, travel, and stock-based compensation expense.
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We
expense R&D costs when we incur them.
General
and Administrative (“G&A”) Expenses
G&A
expenses consist principally of salaries and related costs for executive and other administrative personnel and consultants, including
stock-based compensation, impairment charges, and travel expenses. Other general and administrative expenses include professional
fees for legal, patent protection, consulting and accounting services, commercialization costs, travel and conference fees, board
of directors meeting costs, scientific and commercial advisory board meeting costs, rent, maintenance of facilities, depreciation,
office supplies, information technology costs and expenses, insurance, and other general expenses. G&A expenses are expensed
when incurred.
We
expect that our general and administrative expenses will increase in the future as a result of adding employees and scaling our
operations commensurate with advancing clinical candidates, commercializing products, and continuing to support a public company
infrastructure. These increases will likely include increased costs for insurance, hiring of additional personnel, board committees,
outside consultants, investor relations, lawyers, and accountants, among other expenses.
Interest
Expense, net of interest income
Interest
expense is associated with our long-term debt as discussed in Note 9 of the Notes to the Condensed Consolidated Financial Statements.
Results
of Operations
Three
Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
All
dollar amounts stated below are in thousands, unless otherwise indicated.
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|
Three
months ending
March 31
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
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Change
$
|
|
|
Change
%
|
|
Revenues
|
|
$
|
301
|
|
|
$
|
415
|
|
|
$
|
(114
|
)
|
|
|
(27
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
2,412
|
|
|
|
2,577
|
|
|
|
(165
|
)
|
|
|
(6
|
)%
|
Research
and development
|
|
|
6,839
|
|
|
|
3,193
|
|
|
|
3,646
|
|
|
|
114
|
%
|
General
and administration
|
|
|
6,747
|
|
|
|
4,058
|
|
|
|
2,689
|
|
|
|
66
|
%
|
Total
operating expenses
|
|
|
15,998
|
|
|
|
9,828
|
|
|
|
6,170
|
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(15,697
|
)
|
|
|
(9,413
|
)
|
|
|
(6,284
|
)
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income
|
|
|
(1,812
|
)
|
|
|
(582
|
)
|
|
|
(1,230
|
)
|
|
|
211
|
%
|
Foreign
exchange (loss) gain
|
|
|
(138
|
)
|
|
|
1,637
|
|
|
|
(1,775
|
)
|
|
|
(108
|
)%
|
Loss
before income taxes
|
|
|
(17,647
|
)
|
|
|
(8,358
|
)
|
|
|
(9,289
|
)
|
|
|
111
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(17,647
|
)
|
|
$
|
(8,358
|
)
|
|
$
|
(9,289
|
)
|
|
|
111
|
%
|
Revenues
Revenues
for the three months ended March 31, 2021 decreased by $114 or 27% due to a decrease in R&D services revenue for VBI-2601,
our hepatitis B immunotherapeutic candidate, being developed in collaboration with Brii Bio, as fewer manufacturing and non-clinical
research services were required in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.
Revenues
by Geographic Region
|
|
Three months ending
March 31
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ Change
|
|
|
% Change
|
|
Revenue in Israel
|
|
$
|
169
|
|
|
$
|
132
|
|
|
$
|
37
|
|
|
|
28
|
%
|
Revenues in China / Hong Kong
|
|
|
128
|
|
|
|
231
|
|
|
|
(103
|
)
|
|
|
(45
|
)%
|
Revenue in Europe
|
|
|
4
|
|
|
|
52
|
|
|
|
(48
|
)
|
|
|
(92
|
)%
|
Total Revenues
|
|
$
|
301
|
|
|
$
|
415
|
|
|
$
|
(114
|
)
|
|
|
(27
|
)%
|
Cost
of Revenues
Cost
of revenues for the three months ended March 31, 2021 was $2,412 as compared to $2,577 for the three months ended March 31, 2020.
The decrease in the cost of revenues of $165 or 6% is due to a decrease in R&D services as discussed above.
Research
and Development Expenses
R&D expenses for the three months ended
March 31, 2021 were $6,839 as compared to $3,193 for the three months ended March 31, 2020. The increase in R&D expenses of
$3,646 or 114%, is a result of an increase in R&D expenses related to: 1) our prophylactic coronavirus vaccine candidates,
as during the three months period ended March 31, 2020, we were in the very early stages of development for these candidates;
and 2) regulatory costs related to the BLA submission for the 3-antigen prophylactic HBV vaccine candidate.
General
and Administrative Expenses
G&A expenses for the three months ended
March 31, 2021 were $6,747 as compared to $4,058 for the three months ended March 31, 2020. The G&A expense increase of $2,689
or 66%, is a result of the increase in pre-commercial activities as potential regulatory approval approaches, increased insurance
costs, and increased labor costs.
Loss
from Operations
The
net loss from operations for the three months ended March 31, 2021 was $15,697 as compared to $9,413 for the three months
ended March 31, 2020. The $6,284 increase in the net loss from operations resulted from the items discussed above.
Interest
Expense, net of interest income
The interest
expense, net of interest income increased by $1,230 for the three months ended March 31, 2021, compared to the three months ended
March 31, 2020, largely resulting from the conversion of $2,000 of the secured term loan to common shares, which resulted in $1,161
of additional interest accretion being recognized in interest expense, net of interest income in the condensed consolidated statement
of operations and comprehensive loss.
Foreign
Exchange Gain (Loss)
The
foreign exchange loss of $138 for the three months ended March 31, 2021 and the foreign exchange gain of $1,637 for the three
months ended March 31, 2020 are a result of the changes in the foreign currency exchange rates (NIS and CAD) in which the foreign
currency transactions were denominated for each of those periods.
Net
Loss
Net
loss of $17,647 for the three months ended March 31, 2021 compared to $8,358 for the three months ended March 31, 2020
is a result of the items discussed above.
Liquidity
and Capital Resources
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
108,226
|
|
|
$
|
93,825
|
|
|
$
|
14,401
|
|
|
|
15
|
%
|
Current Assets
|
|
|
145,559
|
|
|
|
132,041
|
|
|
|
13,518
|
|
|
|
10
|
%
|
Current Liabilities
|
|
|
23,825
|
|
|
|
17,348
|
|
|
|
6,477
|
|
|
|
37
|
%
|
Working Capital
|
|
|
121,734
|
|
|
|
114,693
|
|
|
|
7,041
|
|
|
|
6
|
%
|
Accumulated Deficit
|
|
$
|
(326,265
|
)
|
|
$
|
(308,618
|
)
|
|
$
|
(17,647
|
)
|
|
|
6
|
%
|
As
of March 31, 2021, we had cash and cash equivalents of $108,226 as compared to $93,825 as of December 31, 2020. As of March 31,
2021, we had working capital of $121,734 as compared to working capital of $114,693 at December 31, 2020. Working capital
is calculated by subtracting current liabilities from current assets.
The
report of our independent registered public accounting firm on our consolidated financial statements for the year ended December
31, 2020 contains an explanatory paragraph regarding our ability to continue as a going concern. VBI has incurred significant
net losses and negative operating cash flows since inception and expects to continue incurring losses and negative cash flows
from operations as we carry out our planned clinical, regulatory, R&D, sales, and manufacturing activities with respect to
the advancement of our 3-antigen prophylactic HBV vaccine candidate and new pipeline candidates. As of March 31, 2021, VBI had
an accumulated deficit of approximately $326.3 million and stockholders’ equity of approximately $180.0 million.
During
the first quarter of 2021, the Company issued 5,752,068 common shares under the ATM Program, for total gross proceeds of $22,113
at an average price of $3.84. The Company incurred $696 of shares issuance costs related to the common shares issued resulting
in net proceeds of $21,417.
On
February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted $2,000 of the secured term loan into 1,369,863
common shares at a conversion price of $1.46.
On March 9, 2021, the Company and CEPI announced
a partnership, the CEPI Funding Agreement, to develop eVLP vaccine candidates against SARS-COV-2 variants, including the B.1.351
variant, also known as 501Y.V2, first identified in South Africa. CEPI will provide up to $33,018 to support the advancement of
VBI-2905, a monovalent eVLP candidate expressing the pre-fusion form of the spike protein from the B.1.351 strain,
through Phase I clinical development. This funding will also support preclinical expansion of additional multivalent vaccine candidates
designed to evaluate the potential breadth of our eVLP technology. The preclinical expansion is intended to develop clinic-ready
vaccine candidates capable of addressing emerging variants.
Our
ability to maintain our status as an operating company and to realize our investment in our IPR&D assets is dependent upon
obtaining adequate cash and cash equivalents to finance our clinical development, manufacturing, our administrative overhead and
our research and development activities. We plan to finance near term future operations with existing cash and cash equivalents
reserves. We expect that we will need to secure additional financing to finance our business plans, which may be a combination
of proceeds from the issuance of equity securities, the issuance of additional debt, structured asset financings, government grants
or subsidies, and revenues from potential business development transactions, if any. There is no assurance we will manage to obtain
these sources of financing. The accompanying financial statements have been prepared assuming that we will continue as a going
concern; however, the above conditions raise substantial doubt about our ability to do so. The 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 we be unable to continue as a going concern. 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, to generate revenue, and, ultimately, to attain profitable operations, or, alternatively,
to advance our products and technology to such a point that they would be attractive candidates for acquisition by others in the
industry.
We
will require additional funds to conduct clinical and non-clinical trials, achieve regulatory approvals, and, subject to such
approvals, commercially launch our products, and will need to secure additional financing in the future to support our operations
and to realize our investment in our IPR&D assets. We base this belief on assumptions that are subject to change, and we may
be required to use our available cash and cash equivalent resources sooner than we currently expect. Our actual future capital
requirements will depend on many factors, including the progress and results of our ongoing clinical trials, the duration and
cost of discovery and preclinical development, laboratory testing and clinical trials for our pipeline candidates, the timing
and outcome of regulatory review of our products, obtaining regulatory approvals for our recently modernized manufacturing facility
in Rehovot, Israel, product sales outside of Israel, the costs involved in preparing, filing, prosecuting, maintaining, defending,
and enforcing patent claims and other intellectual property rights, the number and development requirements of other pipeline
candidates that we pursue, and the costs of commercialization activities, including product marketing, sales, and distribution.
We
expect to finance our future cash needs through public or private equity offerings, potential additional proceeds from the long-term
debt from the Lenders pursuant to the Loan Agreement, debt financings, government grants or subsidies, structured asset financings,
or business development transactions. In addition to the First Tranche Term Loan, the Lenders agreed to make available subject
to the conditions discussed above and upon the submission of a loan request by the Company, the Second Tranche Term Loan, the
Third Tranche Term Loan, and the Fourth Tranche Term Loan. Pursuant to the Contribution Agreement, we will receive up to CAD $55,976
as a government grant to support the development of the Company’s coronavirus vaccine program, though Phase II clinical
studies, and pursuant to the CEPI Funding Agreement, we will receive up to $33,018 in funding to support the development
of the Company’s coronavirus vaccine program, specifically SARS-COV-2 variants. We may need to raise additional funds more
quickly if one or more of our assumptions prove to be incorrect or if we choose to expand our product development efforts more
rapidly than we presently anticipate. We may also decide to raise additional funds even before we need them if the conditions
for raising capital are favorable. Additional equity, debt, structured asset financing, government grants or subsidies, or business
development transactions may not be available on acceptable terms, if at all. If adequate funds are not available, we may be required
to delay, reduce the scope of or eliminate our R&D programs, reduce our planned commercialization efforts or obtain funds
through arrangements with collaborators or others that may require us to relinquish rights to certain pipeline candidates that
we might otherwise seek to develop or commercialize independently.
To
the extent we raise additional capital by issuing equity securities or obtaining borrowings convertible into equity, ownership
dilution to existing stockholders will result and future investors may be granted rights superior to those of existing stockholders.
The incurrence of indebtedness or debt financing would result in increased fixed obligations and could also result in covenants
that would restrict our operations. Our ability to obtain additional capital may depend on prevailing economic conditions and
financial, business, and other factors beyond our control. The ongoing COVID-19 pandemic has caused an unstable economic environment
globally. Disruptions in the global financial markets may adversely impact the availability and cost of credit, as well as our
ability to raise money in the capital markets. Current economic conditions have been, and continue to be, volatile. Continued
instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business.
The
Company’s long-term success and ability to continue as a going concern is dependent upon obtaining sufficient capital to
fund the research and development of its products, to bring about their successful commercial release, to generate revenue and,
ultimately, to attain profitable operations or, alternatively, to advance its products and technology to such a point that they
would be attractive candidates for acquisition by others in the industry.
To
date, the Company has been able to obtain financing as and when it was needed; however, there is no assurance that financing
will be available in the future, or if it is, that it will be available at acceptable terms.
Net
cash used in Operating Activities
The
Company incurred net losses of $17,647 and $8,358 in the three months ended March 31, 2021 and 2020, respectively. The Company
used $6,644 and $7,648 in cash for operating activities during the three months ended March 31, 2021 and 2020, respectively. The decrease
in cash outflows is largely a result of the change in operating working capital, notably the cash received in advance from the CEPI
Funding Agreement, offset by an increase in net loss.
Net
cash used in Investing Activities
Cash
flows used in investing activities increased from $133 for the three months ended March 31, 2020 to $556 for the three months
ended March 31, 2021. The investing activities for the three months ended March 31, 2021 and March 31, 2020 were for routine purchases
of property and equipment.
Net
cash provided by Financing Activities
Net
cash flows in financing activities increased from cash used of $600 for the three months ended March 31, 2020 to cash provided
of $21,624 during the three months ended March 31, 2021. This increase is due to the common shares issued as part of the ATM Program.
Off-Balance
Sheet Arrangements
As
of March 31, 2021, we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or
other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical
Accounting Policies and Estimates
There
have been no changes to our critical accounting policies during the three months ended March 31, 2021. Critical accounting policies
and the significant accounting estimates made in accordance with such policies are regularly discussed with the Audit Committee
of the Company’s board of directors. Those policies are discussed under “Critical Accounting Policies”
in our “Management’s Discussion and Analysis of the Financial Condition and Results of Operations” included
in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, as well as in our consolidated financial statements
and the footnotes thereto, included in the Annual Report on Form 10-K.
Trends,
Events and Uncertainties
As
with other companies that are in the process of commercializing novel pharmaceutical products, we will need to successfully manage
normal business and scientific risks. Research and development of new technologies is, by its nature, unpredictable. We cannot
assure you that our technology will be adopted, that we will ever earn revenues sufficient to support our operations, or that
we will ever be profitable. In addition, the impact of the ongoing COVID-19 pandemic and its resurgence is currently indeterminable
and rapidly evolving, and has adversely affected and may continue to adversely affect our operations and the global economy. Furthermore,
other than as discussed in this report, we have no committed source of financing and may not be able to raise money as and when
we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to severely curtail,
or even to cease, our operations.
Other
than as discussed above and elsewhere in this Form 10-Q, we are not aware of any trends, events or uncertainties that are likely
to have a material effect on our financial condition.
Recent
Accounting Pronouncements
See
Note 3 of Notes to the Condensed Consolidated Financial Statements.