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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

 

Commission file number: 001-37769

 

VBI VACCINES INC.

(Exact name of registrant as specified in its charter)

 

British Columbia, Canada   N/A
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

160 Second Street, Floor 3    
Cambridge, Massachusetts   02142
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: 617-830-3031

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Shares, no par value per share   VBIV   Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
   
Non-accelerated filer Smaller reporting company
   
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Shares, no par value per share   22,872,175
(Class)   Outstanding at August 14, 2023

 

 

 

 

 

 

VBI VACCINES INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

TABLE OF CONTENTS

 

    Page
     
PART I - FINANCIAL INFORMATION 5
     
Item 1. Condensed Consolidated Financial Statements 5
     
  Condensed Consolidated Balance Sheets - June 30, 2023 (unaudited) and December 31, 2022 5
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022 (unaudited) 6
     
  Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (unaudited) 7
     
  Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2023 and 2022 (unaudited) 8
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 44
     
Item 4. Controls and Procedures 44
     
PART II - OTHER INFORMATION 44
     
Item 1. Legal Proceedings 44
     
Item 1A. Risk Factors 45
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 47
     
Item 3. Defaults Upon Senior Securities 47
     
Item 4. Mine Safety Disclosure 47
     
Item 5. Other Information 47
     
Item 6. Exhibits 47
     
Signatures 49

 

2

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION

CONTAINED IN THIS REPORT

 

This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “will,” “may,” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers, and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from our historical experience and our present expectations, or projections described under the sections in this Quarterly Report on Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2023. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

 

the timing of, and our ability to, obtain and maintain regulatory approvals for our clinical trials, products, and pipeline candidates;
   
our ability to achieve and sustain commercial success of PreHevbrio in the United States (“U.S.”) and Canada and PreHevbri in Europe;
   
the timing and results of our ongoing and planned clinical trials for products and pipeline candidates;
   
the amount of funds we require for our prophylactic and therapeutic pipeline candidates;
   
the potential benefits of strategic partnership agreements and our ability to enter into and successfully execute strategic partnership arrangements;
   
our ability to manufacture, or to have manufactured, our 3-antigen hepatitis B vaccine and our pipeline candidates, at commercially viable scales to the standards and requirements of regulatory agencies;
   
the impact and continuing effects of the COVID-19 endemic on our clinical studies, research programs, manufacturing, business plan, regulatory review including site inspections, and the global economy;
   
our ability to effectively execute and deliver our plans related to commercialization, marketing, manufacturing capabilities, and strategy;
   
our ability to retain and maintain a good relationship with our current employees, and our ability to competitively attract new employees with relevant experience and expertise;
   
the suitability and adequacy of our office, manufacturing, and research facilities and our ability to secure term extensions or expansions of leased space;
   
the ability of our vendors and suppliers to manufacture and deliver materials in a timely manner that meet regulatory agency and our standards and requirements to meet planned timelines and milestones;

 

3

 

 

any disruption in the operations of our Rehovot, Israel manufacturing facility where we manufacture all of our clinical and commercial supplies of our 3-antigen hepatitis B vaccine and clinical supplies of our hepatitis B immunotherapeutic, VBI-2601;
   
our compliance with all laws, rules, and regulations applicable to our business and products;
   
our ability to continue as a going concern;
   
our history of losses;
   
our ability to generate revenues and achieve profitability;
   
emerging competition and rapidly advancing technology in our industry that may outpace our technology;
   
customer demand for our 3-antigen hepatitis B vaccine and pipeline candidates;
   
the impact of competitive or alternative products, technologies, and pricing;
   
general economic conditions and events and the impact they may have on us and our potential customers;
   
our ability to obtain adequate financing in the future on reasonable terms, if, as, and when we need it;
   
our ability to implement network systems and controls that are effective at preventing cyber-attacks, malware intrusions, malicious viruses, and ransomware threats;
   
our ability to secure and maintain protection over our intellectual property;
   
our ability to maintain our existing licenses with licensors of intellectual property, or obtain new licenses for intellectual property;
   
changes to legal and regulatory processes for biosimilar approval and marketing that could reduce the duration of market exclusivity for our products;
   
our ability to maintain compliance with the NASDAQ Capital Market’s (“Nasdaq”) listing standards;
   
our success at managing the risks involved in the foregoing items; and
   
other factors discussed in this Form 10-Q.

 

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

Unless otherwise stated or the context otherwise requires, the terms “VBI,” “we,” “us,” “our,” and the “Company” refer to VBI Vaccines Inc. and its subsidiaries.

 

Unless indicated otherwise, all references to the U.S. Dollar, Dollar, or $ are to the United States Dollar, the legal currency of the United States of America and all references to € mean Euros, the legal currency of the European Union. We may also refer to NIS, which is the New Israeli Shekel, the legal currency of Israel, and the Canadian Dollar or CAD, which is the legal currency of Canada.

 

Except for share and per share amounts, or as otherwise specified to be in millions, amounts presented are stated in thousands.

 

4

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

 

   June 30, 2023   December 31, 2022 
         
CURRENT ASSETS          
Cash  $20,840   $62,629 
Accounts receivable, net   79    94 
Inventory, net   6,861    6,599 
Prepaid expenses   1,667    2,309 
Other current assets   2,444    6,059 
Total current assets   31,891    77,690 
           
NON-CURRENT ASSETS          
Other long-term assets   1,110    1,355 
Property and equipment, net   10,104    12,253 
Right of use assets   2,703    3,316 
Intangible assets, net   40,339    58,345 
Goodwill   2,175    2,127 
Total non-current assets   56,431    77,396 
           
TOTAL ASSETS  $

88,322

   $155,086 
           
CURRENT LIABILITIES          
Accounts payable  $7,353   $12,973 
Other current liabilities   16,493    22,588 
Current portion of deferred revenues   845    409 
Current portion of long-term debt, net of debt discount   1,990    - 
Current portion of lease liability   993    972 
Total current liabilities   27,674    36,942 
           
NON-CURRENT LIABILITIES          
Deferred revenues, net of current portion   1,793    2,204 
Long-term debt, net of debt discount   47,839    48,888 
Lease liability, net of current portion   1,732    2,365 
Liabilities for severance pay   546    524 
Total non-current liabilities   

51,910

    53,981 
           
COMMITMENTS AND CONTINGENCIES (NOTE 14)   -    - 
           
STOCKHOLDERS’ EQUITY          
Common shares (unlimited authorized; no par value) (June 30, 2023 - issued and outstanding 8,608,539; December 31, 2022 - issued and outstanding 8,608,539)   442,322    442,312 
Additional paid-in capital   93,695    90,020 
Accumulated other comprehensive income   34,709    21,440 
Accumulated deficit   (561,988)   (489,609)
Total stockholders’ equity   8,738    64,163 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $88,322   $155,086 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

5

 

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

 

   2023   2022   2023   2022 
   Three Months Ended June 30   Six Months Ended June 30 
   2023   2022   2023   2022 
                 
Revenues, net  $720   $346   $1,205   $472 
                     
Operating expenses:                    
Cost of revenues   3,483    2,522    7,039    5,276 
Research and development   3,292    5,643    6,446    8,005 
Sales, general and administrative   10,917    15,084    24,201    26,014 
Impairment charges   

20,000

    -    20,000    - 
Total operating expenses   37,692    23,249    57,686    39,295 
                     
Loss from operations   (36,972)   (22,903)   (56,481)   (38,823)
                     
Interest expense, net   (1,708)   (901)   (3,137)   (1,841)
Foreign exchange loss   (5,948)   (21,895)   (12,761)   (26,289)
Loss before income taxes   (44,628)   (45,699)   (72,379)   (66,953)
                     
Income tax expense   -    -    -    - 
                     
NET LOSS  $(44,628)  $(45,699)  $(72,379)  $(66,953)
                     
Other comprehensive income   6,670    19,236    13,269    24,339 
                     
COMPREHENSIVE LOSS  $(37,958)  $(26,463)  $(59,110)  $(42,614)
                     
Net loss per share of common shares, basic and diluted  $(5.18)  $(5.31)  $(8.41)  $(7.78)
                     
Weighted-average number of common shares outstanding, basic and diluted   8,608,539    8,608,539    8,608,539    8,608,526 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

6

 

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

               Accumulated         
   Number of       Additional   Other       Total 
   Common   Share   Paid-in   Comprehensive   Accumulated   Stockholders’ 
   Shares   Capital   Capital   Income (Loss)   Deficit   Equity 
                         
BALANCE AS OF DECEMBER 31, 2022   8,608,539   $442,312   $90,020   $21,440   $(489,609)  $64,163 
                               
Stock-based compensation   -    10    2,001    -    -    2,011 
Net loss   -    -    -    -    (27,751)   (27,751)
Currency translation adjustments   -    -    -    6,599    -    6,599 
BALANCE AS OF MARCH 31, 2023   8,608,539   $442,322   $92,021   $28,039   $(517,360)  $45,022 
                               
BALANCE AS OF APRIL 1, 2023   8,608,539   $442,322   $92,021   $28,039   $(517,360)  $45,022 
                               
Stock-based compensation   -    -    1,674    -    -    1,674 
Net loss   -    -    -    -    (44,628)   (44,628)
Currency translation adjustments   -    -    -    6,670    -    6,670 
BALANCE AS OF JUNE 30, 2023   8,608,539   $442,322   $93,695   $34,709   $(561,988)  $8,738 
                               
BALANCE AS OF DECEMBER 31, 2021   8,608,298   $442,235   $81,583   $(1,565)  $(378,371)  $143,882 
                               
Adjustments for prior periods from adoption of ASU 2020-06   -    -    (2,746)   -    2,065    (681)
Common shares issued upon exercise of options   241    12    -    -    -    12 
Stock-based compensation   -    25    2,477    -    -    2,502 
Net loss   -    -    -    -    (21,254)   (21,254)
Currency translation adjustments   -    -    -    5,103    -    5,103 
BALANCE AS OF MARCH 31, 2022   8,608,539   $442,272   $81,314   $3,538   $(397,560)  $129,564 
                               
BALANCE AS OF APRIL 1, 2022   8,608,539   $442,272   $81,314   $3,538   $(397,560)  $129,564 
                               
Stock-based compensation   -    14    2,443    -    -    2,457 
Net loss   -    -    -    -    (45,699)   (45,699)
Currency translation adjustments   -    -    -    19,236    -    19,236 
BALANCE AS OF JUNE 30, 2022   8,608,539   $442,286   $83,757   $22,774   $(443,259)  $105,558 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

7

 

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

       
   For the Six Months Ended June 30 
   2023   2022 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(72,379)  $(66,953)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   1,018    1,015 
Stock-based compensation   3,685    4,959 
Amortization of debt discount   941    821 
Impairment charges   20,000    - 
Inventory reserve   1,664    353 
Change in operating right of use assets   658    (668)
Unrealized foreign exchange loss   13,415    26,337 
Net change in operating working capital items:          
Change in accounts receivable   13    (134)
Change in inventory   (2,232)   (2,225)
Change in prepaid expenses   636    653 
Change in other current assets   3,666    (917)
Change in other long-term assets   152    (215)
Change in accounts payable   (5,714)   905 
Change in deferred revenues   15    41 
Change in other current liabilities   (5,748)   (2,021)
Change in operating lease liabilities   (656)   674 
Net cash flows used in operating activities   (40,866)   (37,375)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of property and equipment   (584)   (1,592)
Net cash flows used in investing activities   (584)   (1,592)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from issuance of common shares for cash, upon exercise of options   -    12 
Net cash flows provided by financing activities   -    12 
           
Effect of exchange rates on cash   (339)   (325)
           
CHANGE IN CASH FOR THE PERIOD   (41,789)   (39,280)
           
CASH, BEGINNING OF PERIOD   62,629    121,694 
           
CASH, END OF PERIOD   20,840   $82,414 
           
Supplementary information:          
Interest paid  $2,973   $1,248 
Non-cash investing and financing activities:          
Adjustments for prior periods from adoption of ASU 2020-06   -    681 
Capital expenditures included in accounts payable and other current liabilities   51    757 
Share issuance costs included in other current liabilities   67    67 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

8

 

 

VBI Vaccines Inc. and Subsidiaries

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

June 30, 2023 and 2022

(in thousands, except share and per share amounts)

 

1. NATURE OF BUSINESS AND CONTINUATION OF BUSINESS

 

Corporate Overview

 

VBI Vaccines Inc. (the “Company” or “VBI”) was incorporated under the laws of British Columbia, Canada on April 9, 1965.

 

The Company and its wholly owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s wholly owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies, Inc. a Canadian company and the wholly owned subsidiary of VBI US (“VBI Cda”); SciVac Ltd. an Israeli company (“SciVac”); 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 160 Second Street, Floor 3, Cambridge, MA 02142. In addition, the Company has manufacturing facilities located in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.

 

Reverse Stock Split

 

The Company effected a 1-for-30 reverse stock split (the “Reverse Stock Split”) of its issued and outstanding common shares effective as of April 12, 2023, pursuant to which every 30 of the Company’s issued and outstanding common shares were automatically converted into one common share without any change in the par value per share. All share and per share amounts, including common shares underlying stock options, restricted stock units, and warrants, and applicable exercise prices, have been retroactively adjusted for all periods presented herein to give effect to the Reverse Stock Split as required in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”). Per the requirements of the Business Corporations Act (British Columbia), under which the Company is regulated, if fractional shares held by registered shareholders were to be converted into whole shares, each fractional share remaining after the completion of the Reverse Stock Split that was less than half of a share was cancelled and each fractional share that was at least half of a share was rounded up to one whole share. No shareholders received cash in lieu of fractional shares.

 

Principal Operations

 

VBI is a commercial-stage biopharmaceutical company driven by immunology in the pursuit of 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”), COVID-19 and 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.

 

Recent Organizational Changes

 

As announced on April 4, 2023, the Company reduced its internal workforce by 30-35%, which began in April and was largely completed by the end of June 2023. As a result of this and other reductions in spend, VBI expects its operating expenses from normal business to be 30-35% lower in the second half of 2023 as compared with the second half of 2022.

 

9

 

 

COVID-19 Endemic

 

In May 2023, the World Health Organization determined that COVID-19 no longer fit the definition of a public health emergency and the U.S. government announced its plan to let the declaration of a public health emergency associated with COVID-19 expire on May 11, 2023. COVID-19 is expected to remain a serious endemic threat for an indefinite future period and may continue to adversely affect the global economy, and we are unable to predict 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. The effects of the COVID-19 endemic, including but not limited to supply chain issues, global shortages of supplies, material and products, volatile market conditions and rising global inflation may continue to disrupt or delay our business operations, including with respect to efforts relating to potential business development transactions, and it could continue to disrupt the marketplace which could have an adverse effect on our operations.

 

Liquidity and Going Concern

 

The Company 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 and commercialization of its products.

 

The Company has an accumulated deficit of $561,988 and cash of $20,840 as of June 30, 2023. As described further below, in early July 2023, the Company received $15,000 from an upfront payment from Brii Biosciences Limited (“Brii Bio”) pursuant to the Brii Collaboration Agreements (as defined below) and the concurrent registered direct offering, and aggregate gross proceeds of $20,500 from an underwritten public offering. Cash outflows from operating activities were $40,866 for the six months ended June 30, 2023.

 

The Company will require significant additional funds to conduct clinical and non-clinical trials, achieve and maintain regulatory approvals, and commercially launch and sell our approved products. Additional financing may be obtained from the issuance of equity securities, the issuance of additional debt, government or non-governmental organization grants or subsidies, 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 condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from this uncertainty.

 

On July 5, 2023, the Company announced the expansion of its hepatitis B partnership with Brii Bio. Through (i) a Collaboration and License Agreement (the “Collaboration Agreement”), dated July 5, 2023, by and between the Company and Brii Bio, and (ii) the Amended and Restated Collaboration and License Agreement (the “A&R Collaboration Agreement, and together with the Collaboration Agreement, the “Brii Collaboration Agreements”), dated July 5, 2023, by and between the Company and Brii Bio, Brii Bio expanded its exclusive license to VBI-2601 to global rights and acquired an exclusive license for PreHevbri in Asia Pacific (“APAC”), excluding Japan. As part of this collaboration, Brii Bio paid the Company an upfront payment of $15,000, pursuant to the Brii Collaboration Agreements and the concurrent registered direct offering consisting of a $3,000 equity investment in a concurrent registered direct offering (discussed below), $5,000 as an advance payment for the clinical and commercial manufacture and supply of VBI-2601 and PreHevbri and any related manufacturing expenditures and $7,000 as a non-refundable upfront payment. In addition, pursuant to the Letter Agreement, dated July 5, 2023, by and among the Company, SciVac, and Brii Bio, the Company also granted to Brii Bio a security interest, subject to a Subordination Agreement between Brii Bio and K2HV, in all of its respective right, title, and interest in and to all intellectual property, know-how, and licenses to the extent related to PreHevbri and VBI-2601, and all proceeds of the foregoing, in order to secure performance of all of the Company’s obligations under the Brii Collaboration Agreements, the Supply Agreement, and the Loan Agreement (each as defined herein).

 

The Company is also eligible to receive up to an additional $422,000 in potential regulatory and commercial milestone payments (combined under the Brii Collaboration Agreements), and royalties in the licensed territories, which is worldwide for VBI-2601 and APAC, excluding Japan, for PreHevbri. Brii Bio will be responsible for all development, regulatory, and commercial activities and costs for the two programs in their respective licensed territories. There is no assurance that Brii Bio will achieve any of the milestones as specified in the Brii Collaboration Agreements and that we will receive any or all of these potential payments pursuant to the Brii Collaboration Agreements.

 

In July 2023, the Company closed (i) an underwritten public offering of 12,445,454 common shares and accompanying common warrants to purchase up to 12,545,454 common shares (which included 1,536,363 common shares and common warrants to purchase up to 1,636,363 common shares issued pursuant to the underwriters’ partial exercise of their option to purchase additional common shares and common warrants) at a combined public offering price of $1.65 per common share and accompanying common warrant, and (ii) a concurrent registered direct offering, pursuant to the expanded hepatitis B partnership with Brii Bio, of 1,818,182 common shares and accompanying common warrants to purchase up to 1,818,182 common shares, at a combined purchase price of $1.65 per share and accompanying common warrant. The accompanying common warrants issued and sold in each of the underwritten public offering and the registered direct offering have an exercise price of $1.65 per share and expire five years from the date of issuance. The aggregate gross proceeds from the underwritten public offering, including aggregate gross proceeds from the underwriters’ exercise of their option to purchase additional securities, were $20,500. The aggregate gross proceeds from the concurrent registered direct offering were $3,000.

 

Financial instruments recognized in the condensed consolidated balance sheet consist of cash, accounts receivable, other current assets, accounts payable, and other current liabilities. The Company believes that the carrying value of its current financial instruments approximates their fair values due to the short-term nature of these instruments. The Company does not hold any derivative financial instruments.

 

10

 

 

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 U.S. GAAP, have been condensed or omitted pursuant to such rules and regulations. The December 31, 2022 condensed 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 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, 2022 (the “2022 10-K”), as filed with the SEC on March 13, 2023.

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: VBI DE, VBI US, VBI Cda, SciVac, SciVac HK, 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 2022 10-K, and there have been no changes to the Company’s significant accounting policies during the six months ended June 30, 2023, other than the polices discussed below.

 

Restructuring charges

 

Restructuring costs include charges associated with exit or disposal activities that meet the definition of restructuring under FASB ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”). The Company’s restructuring plans are typically completed within a one-year period or less. Restructuring costs incurred under these plans may include (i) one-time termination benefits related to employee separations, (ii) contract termination costs, and (iii) other related costs associated with exit or disposal activities including, but not limited to, costs for consolidating or closing facilities.

 

3. NEW ACCOUNTING PRONOUNCEMENTS

 

Recently Adopted Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Our adoption of this ASU, effective January 1, 2023, did not have a material impact on our condensed consolidated financial statements and the related footnote disclosures.

 

11

 

 

4. INVENTORY, NET

 

Inventory consists of the following:

 SCHEDULE OF INVENTORY

   June 30, 2023   December 31, 2022 
Finished goods  $827   $893 
Work-in-process   2,550    1,869 
Raw materials   3,484    3,837 
Inventory, net  $6,861   $6,599 

 

5. OTHER CURRENT ASSETS

 

Other current assets consisted of the following:

 

   June 30, 2023   December 31, 2022 
Government receivables  $1,578   $4,033 
Other current assets   866    2,026 
Total other current assets  $2,444   $6,059 

 

6. IMPAIRMENT CHARGES

 

The drop in market conditions experienced in April 2023 was considered a triggering event for an interim impairment test for property and equipment and In-Process Research and Development (“IPR&D”) and goodwill. The impairment test compares the carrying amount of the assets to their respective fair values. If the carrying amount exceeds the fair value of the assets, such excess is recorded as an impairment charge.

 

Impairment charges consist of the following:

 

   2023   2022   2023   2022 
   Three months ended June 30   Six months ended June 30 
   2023   2022   2023   2022 
Property and equipment (Note 7)  $1,000   $-   $

1,000

   $- 
IPR&D (Note 8)   19,000    -    19,000    - 
Impairment charges  $20,000   $-   $20,000   $- 

 

7. PROPERTY AND EQUIPMENT

 

The fair value of the property and equipment’s assets included in the impairment test was determined using a combination of the market approach and the cost approach and is considered Level 3 in the fair value hierarchy. Some of the more significant estimates and assumptions inherent in the estimate of the fair value the property and equipment include: 1) current market prices; 2) cost to replace the assets; and 3) factors to account for obsolescence. The Company recorded an impairment of property and equipment of $1,000 as a result of its interim impairment test performed as of April 30, 2023.

 

8. INTANGIBLE ASSETS, NET, AND GOODWILL

 

The Company’s intangible assets determined to have indefinite useful lives IPR&D and goodwill, are tested for impairment annually, or more frequently if events or circumstances indicate that the assets might be impaired. As discussed above, in April 2023, the Company performed an interim impairment test. The IPR&D assets, consisting of the CMV and GBM programs acquired in a business combination (the 2016 merger between VBI and SciVac), are capitalized as an intangible asset and are tested for impairment at least annually until commercialization, after which time the IPR&D will be amortized over its estimated useful life. The fair value of the IPR&D assets included in the impairment test was determined using the income approach method and is considered Level 3 in the fair value hierarchy. Some of the more significant estimates and assumptions inherent in the estimate of the fair value of IPR&D assets include: 1) the amount and timing of costs to develop the IPR&D into viable products; 2) the amount and timing of future cash inflows; 3) the discount rate; and 4) the probability of technical and regulatory success. The discount rate used was 15% and the cumulative probability of technical and regulatory success to achieve approval to market the products ranged from approximately 10% to 17%. The Company recorded an impairment of IPR&D of $19,000, as a partial impairment to the congenital CMV asset, as a result of its interim impairment test performed as of April 30, 2023.

 

12

 

 

 

       June 30, 2023 
   Gross       Cumulative   Cumulative     
   Carrying   Accumulated   Impairment   Currency   Net Book 
   Amount   Amortization   Charge   Translation   Value 
License  $669   $(669)  $-   $-   $- 
IPR&D assets   61,500    -    (19,300)   (1,861)   40,339 
   $62,169   $(669)  $(19,300)  $(1,861)  $40,339 

 

       December 31, 2022 
   Gross       Cumulative   Cumulative     
   Carrying   Accumulated   Impairment   Currency   Net Book 
   Amount   Amortization   Charge   Translation   Value 
License  $669   $(669)  $-   $-   $- 
IPR&D assets   61,500    -    (300)   (2,855)   58,345 
   $62,169   $(669)  $(300)  $(2,855)  $58,345 

 

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, 2022, relates to the impairment of $19,000 and currency translation adjustments which increased by $994 for the six months ended June 30, 2023.

 

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero” approach. Subsequently (if necessary, after step zero), if the carrying value of a reporting unit exceeded its fair value an impairment would be recorded. We performed our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. There was no goodwill impairment determined as a result of the Company’s interim impairment test performed as of April 30, 2023. The Company consists of a single reporting unit and used its market capitalization to determine the fair value of the reporting unit. In order to determine the market capitalization, the Company used the trailing 20-day volume weighted average price of its shares as of the testing date.

 

       June 30, 2023 
   Gross   Cumulative   Cumulative     
   Carrying   Impairment   Currency   Net Book 
   Amount   Charge   Translation   Value 
Goodwill  $8,714   $(6,292)  $(247)  $2,175 

 

       December 31, 2022 
   Gross   Cumulative   Cumulative     
   Carrying   Impairment   Currency   Net Book 
   Amount   Charge   Translation   Value 
Goodwill  $8,714   $(6,292)  $(295)  $2,127 

 

The change in carrying value for goodwill from December 31, 2022, relates to currency translation adjustments which increased by $48 for the six months ended June 30, 2023.

 

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9. OTHER CURRENT LIABILITIES

 

Other current liabilities consisted of the following:

 

   June 30, 2023   December 31, 2022 
Accrued research and development expenses (including clinical trial accrued expenses)  $5,564   $6,561 
Accrued professional fees   2,324    3,250 
Payroll and employee-related costs   2,025    4,036 
Deferred funding   4,892    6,966 
Other current liabilities   1,688    1,775 
Total other current liabilities  $16,493   $22,588 

 

Included in payroll and employee-related costs are one time termination benefits as a result of our recent organizational changes to reduce our internal workforce by 30-35%, as discussed in Note 1. The Company did not incur contract termination costs or other related costs.

 

The following table presents changes in the one-time termination benefits for the three and six months ended June 30, 2023:

 

     

Accrued balance at January 1, 2023

   - 
      
Charges   759 
Cash payments   (650)
      

Accrued balance at June 30, 2023

  $109 

 

The restructuring charges are included in cost of revenues, research and development and sales, general and administrative in the condensed consolidated statements of operations and comprehensive loss.

 

10. 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 12, Stockholders’ Equity and Additional Paid-in Capital.

 

The following potentially dilutive securities outstanding at June 30, 2023 and 2022 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

 

   2023   2022 
   Six months ended June 30, 
   2023   2022 
Warrants   103,930    46,136 
Stock options and restricted stock units   784,118    775,809 
K2HV conversion feature   205,396    45,662 
Total   1,093,444    867,607 

 

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11. LONG-TERM DEBT

 

As of June 30, 2023, and December 31, 2022, the Company’s long-term debt is as follows:

 

   June 30, 2023   December 31, 2022 
Long-term debt, net of debt discount of $5,870 ($6,811 at December 31, 2022)  $49,829   $48,888 
Less: current portion, net of debt discount of $234 ($0 at December 31, 2022)   1,990    - 
Long-term debt, net of current portion  $47,839   $48,888 

 

On May 22, 2020, the Company, along with its subsidiary VBI Cda (collectively, the “Borrowers”), entered into the Loan and Guaranty Agreement (the “Loan Agreement”) with K2 HealthVentures LLC (“K2HV”) and any other lender from time-to-time party thereto (the “Lenders”). On May 22, 2020, the Lenders advanced the first tranche of term loans of $20,000. Pursuant to the Loan Agreement, the Lenders originally had the ability to convert, at the Lenders’ option, up to $4,000 of the secured term loan into common shares of the Company at a conversion price of $43.80 per share until the original maturity date of June 1, 2024. On February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted $2,000 of the secured term loan into 45,662 common shares at a conversion price of $43.80 per share.

 

On May 17, 2021, the Company entered into the First Amendment to the Loan and Guaranty Agreement (“First Amendment”) with the Lenders and received additional loan advances of $12,000.

 

On September 14, 2022, the Company entered into the Second Amendment to the Loan Agreement (the “Second Amendment”) with the Lenders to: (i) increase the amount of the term loans available under the Loan Agreement to $100,000 from $50,000, which term loans are available in additional tranches subject to the achievement of milestones and other customary conditions, (ii) add certain minimum net revenue covenants, (iii) extend the final maturity date for the term loans to September 14, 2026, which may be extended to September 14, 2027, under certain circumstances, and (iv) to the extent that the maturity date is extended, the term loans will begin amortizing on a monthly basis on September 14, 2026.

 

On September 15, 2022, the Lenders advanced to the Borrowers the Restatement First Tranche Term Loan (as defined in the Second Amendment) in an aggregate amount of $50,000 which included the refinancing of the $30,000 in term loans that were outstanding under the Loan Agreement as amended by the First Amendment. The next tranche of term loans of up to $10,000 will be available from April 1, 2024, through June 30, 2024, so long as certain milestones are achieved, no events of default under the Loan Agreement have occurred and are continuing, and the Liquidity Requirement is satisfied. The final tranche of term loans of up to $25,000 shall be available at any time from September 14, 2022, until September 14, 2026, subject to the Lender’s review of the Company’s clinical and financial plans and Lender’s investment committee approval.

 

Pursuant to the Second Amendment, the Lenders have the ability to convert $7,000 into common shares, by which $2,000 of the term loans shall be convertible into 45,662 common shares at a conversion price of $43.80 per share and $5,000 of the term loans shall be convertible into 159,734 common shares at a conversion price of $31.302 per share (“K2HV conversion feature”).

 

In connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to 20,833 common shares (the “Original K2HV Warrant”) at an exercise price of $33.60 per share. On May 17, 2021, in connection with the First Amendment, the Company amended and restated the Original K2HV Warrant to purchase an additional 10,417 common shares for a total of 31,250 common shares (the “First Amendment Warrant”) with the same exercise price of $33.60 per share. On September 14, 2022, in connection with the Second Amendment and the advance of the first tranche of term loans of $50,000 by the Lenders, the Company issued the Lenders a warrant to purchase an additional 72,680 common shares (the “Second Amendment Warrant”) with a warrant exercise price of $24.08 per share. If and/or when additional tranches are advanced pursuant to the Second Amendment, the Company will issue additional warrants to purchase up to 72,680 common shares pursuant to the Second Amendment Warrant.

 

15

 

 

The First Amendment Warrant and the Second Amendment Warrant may be exercised either for cash or on a cashless “net exercise” basis. The First Amendment Warrant expires on May 22, 2030 and the Second Amendment Warrant expires on September 14, 2032.

 

The Company is required to make a final payment equal to 6.95% of the aggregate term loan principal on the maturity date of the term loan, or upon earlier prepayment of the term loans in accordance with the Second Amendment (the “Second Amendment Final Payment”). The final payment related to the refinanced $30,000 in term loans that were outstanding under the Loan Agreement as amended by the First Amendment of $2,224 remains and is due the earlier of June 1, 2024 or the earlier prepayment of the term loans in accordance with the Second Amendment (the “Original Final Payment”).

 

Upon receipt of additional funds, issuable pursuant to the various tranches, under the Second Amendment, additional common shares will be issuable pursuant to the Second Amendment Warrant as determined by the principal amount of the applicable tranche actually funded multiplied by 3.5% and divided by the warrant exercise price of $24.08, and the Second Amendment Final Payment will increase by 6.95% of the funds advanced.

 

The total principal amount of the loan under the Loan Agreement as amended by the Second Amendment, outstanding at June 30, 2023, including the Original Final Payment of $2,224 and the Second Amendment Final Payment of $3,475 in connection with the Second Amendment, is $55,699. The principal amount of the loan made under the Loan Agreement as amended by the Second Amendment accrues interest at an annual rate equal to the greater of (a) 8.00%, or (b) prime rate plus 4.00%. The interest rate as of June 30, 2023 was 12.25%. The Company is required to pay only interest until September 14, 2026. The effective interest rate on the loan of $50,000, excluding the Original Final Payment and Second Amendment Final Payment, is 15.88%.

 

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 September 14, 2026, or if the milestone for the next tranche of the term loans has been achieved, September 14, 2027, and the Loan Agreement as amended by the Second Amendment includes both financial and non-financial covenants. The Company was in compliance with these covenants as of June 30, 2023.

 

The obligations under the Loan Agreement as amended by the Third Amendment (as defined below) are secured on a senior basis by a lien on substantially all of the assets of the Company and its subsidiaries. The subsidiaries of the Company, other than VBI Cda, SciVac HK, and VBI BV, are guarantors of the obligations of the Company and VBI Cda under the Loan Agreement. The Loan Agreement also contains customary events of default.

 

On July 5, 2023, the Borrowers and K2HV entered into (i) an amendment (the “Third Amendment”) to the Loan Agreement, and (ii) an amendment to the Pledge and Security Agreement, dated May 22, 2020, by and among the Company, VBI DE, VBI Cda, K2HV, and Ankura Trust Company, LLC, as collateral trustee for the lenders, pursuant to which the parties have agreed to permit the Brii Collaboration Agreements, the Supply Agreement (the “Supply Agreement”), dated July 5, 2023 by and between the Company and Brii Bio, and the Letter Agreement, dated July 5, 2023, by and among the Company, SciVac and Brii Bio. The Company granted to K2VH a security interest in, all of its respective right, title, and interest in and to substantially all of the Company’s intellectual property. In addition, among others, any breach, default or other triggering event by the Company occurring under the Brii Collaboration Agreements resulting in Brii Bio exercising a right to terminate the Brii Collaboration Agreements, will cross default the Third Amendment.

 

The total initial debt discount related to the Second Amendment is $7,359. As of June 30, 2023, and December 31, 2022, the unamortized debt discount was $5,870 and $6,811 respectively. The debt discount is being charged to interest expense, net in the condensed consolidated statement of operations and comprehensive loss using the effective interest method over the term of the debt.

 

At June 30, 2023 and December 31, 2022, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy, is estimated to be $54,598 and $56,510, respectively.

 

Interest expense, net recorded in the three and six months ended June 30, 2023 and 2022 was as follows:

 

   2023   2022   2023   2022 
   Three months ended June 30   Six months ended June 30 
   2023   2022   2023   2022 
Interest expense  $1,537   $669   $2,998   $1,276 
Amortization of debt discount   471    411    941    821 
Interest income   (300)   (179)   (802)   (256)
Total interest expense, net of interest income  $1,708   $901   $3,137   $1,841 

 

16

 

 

The following table summarizes the future principal payments due under long-term debt:

 

 

   Principal 
   payments on 
   Loan Agreement 
   and final payment 
Remaining 2023  $- 
2024   2,224 
2025   - 
2026   53,475 
Total  $55,699 

 

12. 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 June 30, 2023, there were 28,090 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. The 2014 Plan was superseded by the 2016 Plan (as defined below) and no further options will be issued under the 2014 Plan. As of June 30, 2023, there were 17,368 options outstanding under the 2014 Plan.

 

2016 VBI Equity Incentive Plan

 

The 2016 VBI Equity Incentive Plan (the “2016 Plan”) is a rolling incentive plan that sets the number of common shares issuable under the 2016 Plan, together with any other security-based compensation arrangement of the Company, at a maximum of 10% of the aggregate common shares issued and outstanding on a non-diluted basis at the time of any grant under the 2016 Plan. The 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 June 30, 2023, there were 738,660 options outstanding and no RSUs unvested under the 2016 Plan.

 

The aggregate number of common shares remaining available for issuance for awards under the 2016 Plan totalled 27,945 at June 30, 2023.

 

17

 

 

Activity related to stock options is as follows:

 

   Number of   Weighted 
   Stock   Average 
   Options   Exercise Price 
Balance outstanding at December 31, 2022   761,243   $71.26 
           
Granted   53,643    14.58 
Forfeited   (30,768)   55.47 
           
Balance outstanding at June 30, 2023   784,118   $68.06 
           
Exercisable at June 30, 2023   625,860   $73.19 

 

Information relating to RSUs is as follow:

 

       Weighted 
       Average 
   Number of   Fair Value 
   Stock Awards   at Grant Date 
Unvested shares outstanding at December 31, 2022   82   $43.80 
           
Vested   (82)   43.80 
Unvested shares outstanding at June 30, 2023   -   $- 

 

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:

 

   Six months ended June 30 
   2023   2022 
Volatility   96.38%   93.17%
Risk free interest rate   3.57%   1.71%
Expected term in years   5.76    5.83 
Expected dividend yield   0.00%   0.00%
Weighted average fair value per option  $11.24   $34.50 

 

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 and six months ended June 30, 2023 and 2022 was as follows:

 

   Three months ended June 30   Six months ended June 30 
   2023   2022   2023   2022 
Research and development  $227   $510   $493   $1,020 
Sales, general, and administrative   1,432    1,917    3,150    3,883 
Cost of revenues   15    30    42    56 
Total stock-based compensation expense  $1,674   $2,457   $3,685   $4,959 

 

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13. REVENUES, NET AND DEFERRED REVENUE

 

Revenues, net comprises the following:

 

   2023   2022   2023   2022 
   Three months ended
June 30
   Six months ended
June 30
 
   2023   2022   2023   2022 
Product revenues, net  $708   $331   $1,186   $422 
R&D service revenues   12    15    19    50 
Revenues  $720   $346   $1,205   $472 

 

The following table presents revenues expected to be recognized in the future related to performance obligations, based on current estimates, that are unsatisfied at June 30, 2023:

 

   Total   Current
portion to
June 30, 2024
   Remaining
portion
thereafter
 
Product revenues, net  $469   $-   $469 
R&D service revenues   2,169    845    1,324 
   $2,638   $845   $1,793 

 

The following table presents changes in the deferred revenue balance for the six months ended June 30, 2023:

 

Balance at January 1, 2022  $2,803 
    - 
    - 
      
Balance at December 31, 2022   2,613 
      
Recognition of deferred revenue   (19)
Currency translation   44 
      
Balance at June 30, 2023  $2,638 
      
Short Term  $845 
Long Term  $1,793 

 

Collaboration and License Agreement – Brii Bio

 

On December 4, 2018, the Company entered into a Collaboration and License Agreement (the “Collaboration and License Agreement”) with Brii Bio, amended on April 8, 2021, whereby:

 

  the Company and Brii Bio agreed to collaborate on the development of a HBV recombinant protein-based immunotherapeutic in the licensed territory, which consists of China, Hong Kong, Taiwan, and Macau (collectively, the “Licensed Territory”), and to conduct a Phase II collaboration clinical trial for the purpose of comparing VBI-2601, which is a recombinant protein-based immunotherapeutic developed by VBI for use in treating chronic HBV, with a novel composition developed jointly with Brii Bio (either being the “Licensed Product”);
     
  the Company granted Brii Bio an exclusive royalty-bearing license to perform studies, and regulatory and other activities, as may be required to obtain and maintain marketing approval of the Licensed Product, for the treatment of HBV in the Licensed Territory and to commercialize and the Licensed Product for the diagnosis and treatment of chronic HBV in the Licensed Territory; and
     
  Brii Bio granted the Company an exclusive royalty-free license under Brii Bio’s technology and Brii Bio’s interest in any joint technology developed during the collaboration to develop and commercialize the Licensed Product for the diagnosis and treatment of chronic HBV in the countries of the world other than the Licensed Territory.

 

19

 

 

On December 20, 2021, the Company and Brii Bio further amended the Collaboration and License Agreement (the “Second Amendment Collaboration and License Agreement”) whereby:

 

  the Company and Brii Bio agreed to conduct an additional Phase II combination clinical trial of VBI-2601, both with and without IFN-α, and BRII-835 (VIR-2218) (“Combo Clinical Trial”); and
     
  Brii Bio granted the Company a non-exclusive royalty free license under the Brii Bio technology arising from the data generated in the Combo Clinical Trial solely for use in the development, manufacture, or commercialization of the Licensed Product in combination with an siRNA in the countries of the world other than the Licensed Territory.

 

Pursuant to the Collaboration and License Agreement, as amended, the Company was responsible for the R&D Services and Brii Bio was responsible for costs relating to the clinical trials for the Licensed Territory.

 

The Company and Brii Bio will jointly own all right, title, and interest in the joint know-how development and the patents claiming joint inventions made pursuant to the Second Amendment Collaboration and License Agreement.

 

The initial consideration of the Collaboration and License Agreement consisted of an $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 76,502 of its common shares valued at $3,626 (based on the Company’s common share 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 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 license using the residual method.

 

There was no additional consideration contemplated in the Second Amendment Collaboration and License Agreement.

 

On July 5, 2023, the Company and Brii Bio entered into the A&R Collaboration Agreement, to, among other things, and subject to the terms and conditions set forth in the A&R Collaboration Agreement, expand the Licensed Territory to the entire world (the “New Licensed Territory”) for Brii Bio’s exclusive rights and licenses to make, have made, use, sell, offer for sale, and import VBI-2601 (“VBI-2601 Licensed Product”). Pursuant to the A&R Collaboration Agreement, the Company granted Brii Bio an exclusive royalty-bearing license, with the right to grant sublicenses through multiple tiers, to (i) perform studies, regulatory and other activities, as may be required to obtain and maintain marketing approval of the VBI-2601 Licensed Products in the New Licensed Territory; and (ii) research, develop, make, have made, distribute, use, sell, offer for sale, have sold, import, export or otherwise commercialize the VBI-2601 Licensed Products for the field of the diagnosis and treatment of hepatitis B in the New Licensed Territory. Except for the rights and licenses expressly granted in the A&R Collaboration Agreement, the Company and Brii Bio retained all rights under their respective intellectual property. Additionally, the A&R Collaboration Agreement constitutes the entire agreement between the VBI and Brii Bio relating to VBI-2601 and supersedes all previous agreements, including the Collaboration and License Agreement and the Second Amendment Collaboration and License Agreement.

 

The initial consideration of the A&R Collaboration Agreement consisted of a $5,000 non-refundable upfront payment. In addition, the Company is also eligible to receive up to an additional $227,000 in potential regulatory and net sales milestone payments, along with up to double-digit royalties on commercial sales in the New 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 were recognized under the A&R Collaboration Agreement or have been recognized under the A&R Collaboration Agreement.

 

The A&R Collaboration Agreement will be in effect on a region-by-region basis until the last-to-expire of the latest of the following terms in each region of the New Licensed Territory: (i) expiration, invalidation or lapse of the last Company patent claiming such VBI-2601 Licensed Product, (ii) 10 years from the date of first commercial sale of such VBI-2601 Licensed Product in the applicable region, or (iii) termination or expiration of the Company’s obligation to pay third party royalties with respect to sales of such VBI-2601 Licensed Product in such region. Upon expiration (but not an earlier termination) of the A&R Collaboration Agreement in each region of the New Licensed Territory, the Company will grant Brii Bio a perpetual, non-exclusive, fully paid-up, royalty free license under the Company’s technology related to the VBI-2601 Licensed Products in such region to make and sell VBI-2601 Licensed Products for the field of the diagnosis and treatment of hepatitis B in such region.

 

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 June 30, 2023, R&D services related to Brii Bio that remain unsatisfied are $1,969, out of the $2,638 total deferred revenue.

 

Upon termination of the A&R Collaboration 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.

 

14. COLLABORATION ARRANGEMENTS

 

The Company has entered into, and expects to enter into from time to time in the future, license agreements, funding agreements, collaboration agreements, and similar agreements related to the advancement of its product candidates and research and development efforts. Significant agreements (collectively, the “Collaboration Agreements”) are described in detail in the Company’s 2022 Form 10-K. While specific amounts will fluctuate from quarter to quarter based on clinical trials progress, advancement and completion of research studies and manufacturing projects, and other factors, the Company believes its overall activities regarding Collaboration Agreements are materially consistent with those described in the 2022 Form 10-K, other than described below.

 

20

 

 

Set forth below are the approximate amounts expensed for Collaboration Agreements during the three and six months ended June 30, 2023 and 2022, respectively. These expensed amounts are included under Research and Development expenses in the accompanying condensed consolidated statements of operations.

  

   2023   2022   2023   2022 
   Three months ended   Six months ended 
   June 30   June 30 
   2023   2022   2023   2022 
GlaxoSmithKline Biologicals S.A  $10   $4   $113   $139 
National Research Council of Canada (“NRC”)   -    304    35    584 
Coalition for Epidemic Preparedness Innovations (“CEPI”)   1,365    713    2,194    2,406 
Brii Bio   51    111    120    135 
Agenus Inc.     308    -    364    - 
Research and Development expenses  $1,734   $1,132   $2,826   $3,264 

 

NRC

 

On February 28, 2023, the Company signed a seventh amendment to the collaboration agreement with the NRC to extend the expiration date of the collaboration agreement to December 31, 2023.

 

On April 17, 2023, the Company signed an eighth amendment to the collaboration agreement with the NRC to further broaden the scope to include the development of stable cell lines for our multivalent vaccine candidate against coronaviruses.

 

CEPI

 

The Company has $4,892 recorded as deferred funding, recorded in other current liabilities on the condensed consolidated balance sheet.

 

15. GOVERNMENT GRANTS

 

Industrial Research Assistance Program (“IRAP”)

 

On July 3, 2020, the Company and the NRC as represented by its 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.

 

Costs associated with the contribution agreement are expensed as incurred in Research and Development expenses. For the three and six months ended June 30, 2023, Company recognized $0 and $41, respectively, as a reduction in expenses. As of June 30, 2023, the Company had $0 recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance sheet.

 

For the three and six months ended June 30, 2022, Company recognized $0 and $0, respectively, as a reduction in expenses. As of June 30, 2022, the Company had $43 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 signed the Contribution Agreement (as amended, the “Contribution Agreement”) with Her Majesty the Queen in Right of Canada, as represented by the Minister of Industry (the “Minister”), whereby the Minister agreed to contribute an amount not exceeding the lesser of (i) 75% of VBI Cda’s costs incurred in respect of the Project, subject to certain eligibility limitations as set forth in the Contribution Agreement and (ii) CAD $55,976 from the SIF to support the development of our coronavirus vaccine program, VBI-2900, though Phase II clinical studies (the “Project”). The Company initially agreed to complete such project, to be conducted exclusively in Canada except as permitted otherwise under certain circumstances, in or before the first quarter of 2022 (“Project Completion Date”). On March 28, 2022, the Company and the Minister signed an amendment to the Contribution Agreement, the main purpose of which was to extend the collaboration and move the Project Completion Date from March 31, 2022 to December 31, 2023. In consideration of such contribution, the Company agreed to guarantee the complete performance and fulfillment of VBI Cda’s obligations under the Contribution Agreement. In the event VBI Cda fails to perform or otherwise satisfy any of its obligations related to the Contribution Agreement, the Company will become a primary obligor under the Contribution Agreement.

 

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Costs associated with the Contribution Agreement are expensed as incurred in Research and Development expenses and overhead charges are included in Sales, General and Administrative. For the three and six months ended June 30, 2023, the Company recognized $1,168 and $2,875 respectively, as a reduction in expenses. As of June 30, 2023, the Company had $231 recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance sheet.

 

For the three and six months ended June 30, 2022, the Company recognized $499 and $1,952, respectively, as a reduction in expenses. As of June 30, 2022, the Company had $760, respectively, recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance sheet.

 

16. 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 Sci-B-Vac discovered in July 2015; that Sci-B-Vac was approved for use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac failed to provide accurate information about Sci-B-Vac to consumers; and that each child suffered side effects from the vaccine. The claim was filed together with a motion seeking approval of a class action on behalf of 428,000 children vaccinated with Sci-B-Vac in Israel from April 2011 and seeking damages in a total amount of NIS 1,879,500 ($507,973). The second claim is a civil action brought by two minors and their parents against SciVac and the Ministry of Health of the State of Israel (“IMoH”) alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine; that Sci-B-Vac was marketed in Israel without sufficient evidence establishing its safety; and that Sci-B-Vac was produced and marketed in Israel without approval of a western regulatory body. The claim seeks damages for past and future losses and expenses as well as punitive damages.

 

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, December 3, 2020, September 30, 2021, June 9, 2022, January 12, 2023 and July 13, 2023. The next preliminary hearing is scheduled to be held on November 16, 2023.

 

On December 5, 2022, another tort claim was filed in the District Court of the central district in Israel naming our subsidiary, SciVac, as a defendant. The claim was filed by a minor and his parents against SciVac, the IMoH, and Prof. Arieh Raziel, requesting compensation due to bodily injury of the minor, who was diagnosed as suffering from an Autism Spectrum Disorder. The plaintiffs allege that the minor’s disabilities and the syndrome from which he suffers were caused due to a combination of several factors, including negligent pregnancy monitoring, negligent labor and delivery procedure, and administration of the alleged defective vaccine (Sci-B-Vac vaccine). Preliminary hearings will begin on September 10, 2023.

 

SciVac believes these matters to be without merit and intends to defend these claims vigorously.

 

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17. 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 U.S. expires on October 31, 2024 with no option to extend. Our manufacturing facility lease agreement in Israel has been extended for 5 years with a term now ending January 31, 2027. A lease for additional office space in Israel has a term ending November 30, 2025 with an option to extend for two additional years and June 30, 2027 with an option to extend the term for five additional years. In September 2022, the Company extended the term of our lease for our research facility in Canada, which comprises office and laboratory space, for three additional years, which now has a term ending on December 31, 2025.

 

There are no residual value guarantees, no variable lease payments, and no restrictions or covenants imposed by leases. The discount rate used in measuring the lease liabilities and right of use assets was determined by reviewing our incremental borrowing rate at the initial measurement date.

 

   Three months ended   Six months ended 
   June 30   June 30 
   2023   2022   2023   2022 
Operating lease cost  $483   $451   $974   $895 

 

Weighted average discount rate    13%
Weighted average remaining lease term    2.56 years 

 

Operating lease costs are included G&A expenses in the statement of operations and comprehensive loss.

 

The following table summarizes future undiscounted cash payments reconciled to the lease liabilities:

  

       
Remaining 2023   $635 
2024    1,170 
2025    675 
2026    582 
2027    160 
Total   $3,222 
Effect of discounting    (497)
Total lease liability   $2,725 
Less: current portion    (993)
Lease liability, net of current portion   $1,732 

 

18. 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.

 

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Revenues, net from external customers are attributed to geographic areas based on location of the contracting customers:

 

   2023   2022   2023   2022 
   Three Months Ended   Six Months Ended 
   June 30   June 30 
   2023   2022   2023   2022 
                 
United States  $508   $207   $830   $207 
Israel   57    126    57    221 
China / Hong Kong   11    13    18    38 
Europe   144    -    300    6 
Revenues  $720   $346   $1,205   $472 

 

There was no revenue attributed to our country of domicile, Canada, for the three and six months ended June 30, 2023 and 2022.

 

19. SUBSEQUENT EVENTS

 

On July 5, 2023, as discussed in Note 1 and Note 13, the Company announced the expansion of its hepatitis B partnership with Brii Bio.

 

On July 5, 2023 as discussed in Note 11, the Company entered into the Third Amendment with K2HV.

 

During July 2023, as discussed in Note 1, the underwritten public offering and concurrent registered direct offering, in each case, for the issuance and sale of common shares and accompanying common warrants to purchase common shares, closed.

 

On July 27, 2023, the Company approved the grant of stock options to purchase up to an aggregate of 960,000 common shares to existing employees and directors pursuant to the 2016 Plan. Options granted to directors vest monthly over 12 months. Options granted to employees vest 25% on the one-year anniversary of the grant date, with the remaining 75% vesting on a monthly basis over 24 months. All options granted automatically expire on July 27, 2033.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis summarize the significant factors affecting our operating results, financial condition, liquidity, and cash flows as of and for the periods presented below. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q. In addition to historical information, this discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements.

 

Overview

 

We are a commercial-stage biopharmaceutical company driven by immunology in the pursuit of prevention and treatment of disease. Through our innovative approach to virus-like particles (“VLPs”), including a proprietary enveloped VLP (“eVLP”) platform technology, we develop vaccine candidates that mimic the natural presentation of viruses, designed to elicit the innate power of the human immune system. We are committed to targeting and overcoming significant infectious diseases, including hepatitis B (“HBV”), COVID-19 and coronaviruses, and cytomegalovirus (“CMV”), as well as aggressive cancers including glioblastoma (“GBM”). We are headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada, and a research and manufacturing site in Rehovot, Israel.

 

Product Pipeline

 

Our pipeline is comprised of vaccine and immunotherapeutic programs developed by virus-like particle technologies to target two distinct, but often related, disease areas – infectious disease and oncology. We prioritize the development of programs 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 antigenic proteins self-assemble into VLPs, which limit the number of potential targets. Notably, HBV antigens are among those that are able to spontaneously form orderly VLP structures. Our 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.

 

Our product pipeline includes an approved vaccine and multiple late- and early-stage investigational programs. The investigational programs are in various stages of clinical development and the scientific information included about these therapeutics is preliminary and investigative. The investigational programs have not been approved by the United States Food and Drug Administration (“FDA”), European Medicines Agency, United Kingdom Medicines and Healthcare products Regulatory Agency, Health Canada, or any other health authority and no conclusion can or should be drawn regarding the safety or efficacy of these investigational programs.

 

In addition to our existing pipeline programs, we may also seek to in-license clinical-stage vaccines or vaccine-related technologies that we believe complement our pipeline, as well as technologies that may supplement our efforts in both immuno-oncology and infectious disease.

 

Key Targeted Disease Areas

 

Hepatitis B Virus (“HBV”)

 

HBV infection can cause liver inflammation, fibrosis, and liver injury, resulting in potentially life-threatening conditions through acute illness and chronic disease, including liver failure, cirrhosis, and cancer. HBV remains a significant public health burden with as many as 2.2 million chronically infected people in the United States (“U.S.”) alone. Worldwide, this number is estimated to be as high as 350 million, with approximately 800,000 deaths resulting from the consequences of HBV infection each year.

 

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Despite the highly infectious nature of HBV, due to its often-asymptomatic nature, it is estimated that as many as 67% of chronically infected adults in the U.S. are unaware of their infection status. There is no cure available for HBV infection and while public health initiatives highlight immunization as the most effective strategy for the prevention of HBV infections, the U.S. adult HBV vaccination rates remain persistently low at only about 30% of all adults aged 19 years and older.

 

In April 2022, the Centers for Disease Control and Prevention (“CDC”) Advisory Committee on Immunization Practices (“ACIP”) implemented a change to the adult HBV vaccine recommendations. As incorporated in the CDC’s 2022 Adult Immunization Schedule and as published in the April 1, 2022, CDC Morbidity and Mortality Weekly Report, adults aged 19 to 59 years are now universally recommended to be vaccinated against HBV infection. Additionally, while adults aged 60 years and older with risk factors for HBV infection are still recommended to receive HBV vaccinations, adults aged 60 years and older without known risk factors for HBV may now also receive HBV vaccinations.

 

In addition to our approved vaccine, PreHevbrio [Hepatitis B Vaccine (Recombinant)], there are four other vaccines approved in the U.S. for the prevention of HBV infection in adults: Engerix-B® and Twinrix®, manufactured by GlaxoSmithKline Biologicals S.A. (“GSK”), Recombivax HB®, manufactured by Merck &. Co. (“Merck”), and Heplisav-B®, manufactured by Dynavax Technologies Corporation (“Dynavax”).

 

COVID-19 and Other Coronaviruses

 

Coronaviruses are a large family of enveloped viruses that cause respiratory illness of varying severities. Only seven coronaviruses are known to cause disease in humans, four of which most frequently cause symptoms typically associated with the common cold. Three of the seven coronaviruses, however, have more serious outcomes in people. These more pathogenic coronaviruses are (1) SARS-CoV-2, a novel coronavirus identified as the cause of COVID-19; (2) MERS-CoV, identified in 2012 as the cause of Middle East Respiratory Syndrome (“MERS”); and (3) SARS-CoV, identified in 2002 as the cause of Severe Acute Respiratory Syndrome (“SARS”).

 

The virus that causes COVID-19 continues to evolve and several SARS-CoV-2 variants have emerged and certain of these variants have been identified as having a significant public health impact. To date, notable Variants of Concern (“VOC”) have included:

 

  Alpha (B.1.1.7) – First identified as in the United Kingdom (“UK”), VOC in December 2020
  Beta (B.1.351) – First identified in South Africa, VOC in December 2020
  Gamma (P.1) – First identified in Brazil, VOC in January 2021
  Delta (B.1.617.2) – First identified in India, VOC in May 2021
  Omicron and subvariants – First identified in South Africa, VOC in November 2021

 

Glioblastoma (“GBM”)

 

GBM is among the most common and aggressive malignant primary brain tumors in humans. In the U.S. alone, about 12,000 new GBM cases are diagnosed each year. The current standard of care for GBM is surgical resection, followed by radiation and chemotherapy. Even with intensive treatment, GBM progresses rapidly and has a high mortality rate, with median overall survival for primary GBM of about 14 months. Median overall survival for recurrent GBM is even lower, at about 8 months.

 

Cytomegalovirus (“CMV”)

 

CMV is a common virus that is a member of the herpes family. It infects one in every two people in many developed countries. Most CMV infections are “silent”, meaning the majority of people who are infected exhibit no signs or symptoms. Despite its typically asymptomatic nature in older children and adults, 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. Congenital CMV infection can be treated – but not cured – and there are currently no approved vaccines available for the prevention of infection in either the congenital or the transplant setting.

 

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Pipeline Programs

 

The table below is an overview of our commercial vaccine and our lead investigational programs as of August 14, 2023:

 

Indication   Program   Technology   Current Status
Approved Vaccine   PreHevbrio1,2,3   VLP   Registration/Commercial
● Hepatitis B   Hepatitis B Vaccine        
    (Recombinant)        
Prophylactic Candidates            
● Coronaviruses (Multivalent)   VBI-2901   eVLP   Ongoing Phase I
● COVID-19 (Beta variant)   VBI-2905   eVLP   Phase Ib Completed
● COVID-19 (Ancestral)   VBI-2902   eVLP   Phase Ia Completed
● Cytomegalovirus   VBI-1501   eVLP   Phase I Completed
● Coronaviruses (Multivalent)   Undisclosed   eVLP   Pre-Clinical
             
Therapeutic Candidates            
● Hepatitis B   VBI-2601   VLP   Ongoing Phase II
● Glioblastoma   VBI-1901   eVLP   Ongoing Phase I/IIa

 

1Approved for use in the U.S. and Canada, under the brand name PreHevbrio, for the prevention of infection caused by all known subtypes of HBV in adults 18 years of age and older.

2 Approved for use in the European Union (“EU”) / European Economic Area (“EEA”) and the UK, under the brand name PreHevbri, for active immunization against infection caused by all known subtypes of the HBV in adults. It can be expected that hepatitis D will also be prevented by immunization with PreHevbri as hepatitis D (caused by the delta agent) does not occur in the absence of HBV infection.

3Approved for use in Israel, under the brand name Sci-B-Vac, for active immunization against hepatitis B virus (HBV infection).

 

A summary of our marketed product, lead pipeline programs, and recent developments follows.

 

Marketed Product

 

PreHevbrio [Hepatitis B Vaccine (Recombinant)]

 

PreHevbrio [Hepatitis B Vaccine (Recombinant)] was approved by the FDA on November 30, 2021, for the prevention of infection caused by all known subtypes of HBV in adults aged 18 years and older. PreHevbrio contains the S, pre-S2, and pre-S1 HBV surface antigens, and is the only approved 3-antigen HBV vaccine for adults in the U.S. On February 23, 2022, following discussion at the CDC’s ACIP meeting, PreHevbrio joined the list of recommended products for prophylactic adult vaccination against HBV infection. The inclusion of PreHevbrio in the ACIP recommendation was reflected in a CDC publication on April 1, 2022 and was a notable milestone as many insurance plans and institutions require an ACIP recommendation before a vaccine can be reimbursed or is made available to patients. Additionally, PreHevbrio was included in the 2023 annual update of the CDC Adult Immunization Schedule, as detailed in the CDC publication on February 10, 2023. VBI launched PreHevbrio in the U.S. at the end of the first quarter of 2022, and revenue generation began in the second quarter of 2022. In June 2023, PreHevbrio was also awarded part of the CDC 2023 Adult Vaccine contract, for up to $25,350. The CDC vaccine contracts are established for the purchase of vaccines by immunization programs that receive CDC immunization cooperative agreement funds (i.e., state health departments, certain large city immunization projects, and certain current and former U.S. territories).

 

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Commercial and regulatory activity for VBI’s 3-antigen HBV vaccine outside of the U.S. include:

 

● EU: On May 2, 2022, we announced that the European Commission (the “EC”) granted Marketing Authorization for PreHevbri [Hepatitis B Vaccine (Recombinant, Adsorbed)]. The European Commission’s centralized marketing authorization is valid in all EU Member States as well as in the EEA countries (Iceland, Liechtenstein, and Norway). On September 8, 2022, we announced a partnership with Valneva SE (“Valneva”) for the marketing and distribution of PreHevbri in select European markets, initially including the UK, Sweden, Norway, Denmark, Finland, Belgium, and the Netherlands. On July 19, 2023, we announced that PreHevbri is now available in the Netherlands and Belgium for active immunization against infection caused by all known subtypes of HBV in adults. VBI expects PreHevbri will be made available in certain additional European Union countries throughout 2023.

 

● UK: On June 1, 2022, we announced that the UK Medicines and Healthcare Products Regulatory Agency granted marketing authorization for PreHevbri [Hepatitis B Vaccine (Recombinant, Adsorbed)]. This follows the EC centralized marketing authorization received in May 2022 and was conducted as part of the EC Decision Reliance Procedures. The UK is included in the Valneva marketing and distribution agreement for PreHevbri. On June 15, 2023, VBI announced the launch and availability of PreHevbri in the UK as part of the Valneva partnership.

 

● Canada: On December 8, 2022, we announced that Health Canada approved PreHevbrio [3-antigen Hepatitis B Vaccine (Recombinant)] for the prevention of infection caused by all known subtypes of HBV in adults aged 18 years and older. VBI expects to make PreHevbrio available in Canada in the first half of 2024.

 

● Israel: Approved and commercially available under the brand name Sci-B-Vac® since 2000.

 

● APAC: On July 5, 2023, we announced a license and collaboration agreement with Brii Biosciences (“Brii Bio”) for the development and commercialization of PreHevbri in the Asia Pacific region (“APAC”), excluding Japan.

 

Prophylactic Investigational Candidates

 

VBI-2900: Coronavirus Vaccine Program (VBI-2901, VBI-2902, VBI-2905)

 

In response to the SARS-CoV-2 (COVID-19) endemic, VBI initiated development of a prophylactic coronavirus vaccine program. Coronaviruses are enveloped viruses by nature which make them a prime target for VBI’s flexible eVLP platform technology.

 

On 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: (1) VBI-2901, a multivalent coronavirus vaccine candidate expressing the SARS-CoV-2, SARS, and MERS spike proteins; and (2) VBI-2902, a monovalent vaccine candidate expressing an optimized “prefusion” form of the SARS-CoV-2 spike protein.

 

In March 2021, a Phase I study of VBI-2902 was initiated and on June 29, 2021, we announced initial positive data from the Phase Ia portion of this study that evaluated one- and two-dose regimens of 5µg of VBI-2902 in 61 healthy adults aged 18-54 years. After two doses, VBI-2902 induced neutralization titers in 100% of participants, with 4.3x higher geometric mean titer (“GMT”) than that of the convalescent serum panel (n=25), and peak antibody binding GMT of 1:4,047. VBI-2902 was also well tolerated with no safety signals observed.

 

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In response to the increased circulation of SARS-CoV-2 variants, the Phase Ib portion of the Phase I study was initiated in September 2021 to assess VBI-2905, our eVLP vaccine candidate directed against the SARS-CoV-2 Beta variant. On April 5, 2022, we announced new data from the Phase Ib study (n=53). A single-dose booster of VBI-2905 increased the GMT of neutralizing antibodies directed against the Beta variant 3.8-fold, at day 28, in participants who had previously received two-doses of an mRNA vaccine (ancestral strain) – approximately 2-fold increases were also seen at day 28 in antibody GMTs against both the ancestral and delta variant. New preclinical data announced at the same time showed that against a panel of coronavirus variants in mice, reactivity was seen with VBI-2902 against all variants including the ancestral strain, Delta, Beta, Omicron, Lambda, and RaTG13 (a bat coronavirus that is distant to circulating human strains). In this same panel, VBI-2901 was able to elicit an even stronger response against all variants tested – as the strains became more divergent from the ancestral strain, VBI-2901 elicited a greater difference in GMT from VBI-2902, ranging from 2.5-fold higher against the ancestral strain to 9.0-fold higher against the bat coronavirus. Additionally, a validated pseudoparticle neutralization assay benchmarked against the WHO reference standard demonstrated that VBI-2902 elicited neutralizing antibody responses of 176 IU50/mL in its Phase Ia study – this international standard measure would predict a greater than 90% efficacy, with two internationally approved vaccines estimated to have 90% efficacy at 83 and 140 IU50/mL (Gilbert, PB, 2021). The clinical and preclinical data for all three candidates continue to support the potential of the eVLP platform against coronaviruses. On September 29, 2022, we announced that we initiated the first clinical study of VBI’s multivalent coronavirus candidate, VBI-2901, designed to increase breadth of protection against COVID-19 and related coronaviruses. Interim data from this study are expected to be announced in the third quarter of 2023.

 

The VBI-2900 program is supported by a partnership with the Coalition for Epidemic Preparedness Innovations (“CEPI” and the partnership, the “CEPI Funding Agreement”), with contributions of up to $33,018; a partnership with the Strategic Innovation Fund, established by the Government of Canada, with an award of up to CAD $55,976; contribution of up to CAD $1,000 from the Industrial Research Assistance Program (“IRAP”) of the National Research Council of Canada (“NRC”); and a collaboration with the NRC. On December 6, 2022, we and CEPI announced that we expanded the scope of the CEPI Funding Agreement to advance the development of multivalent coronavirus vaccines that could be deployed against COVID-19 as well as a future “Coronavirus X”.

 

VBI-1501: Prophylactic CMV Vaccine Candidate

 

Our prophylactic CMV vaccine candidate uses the eVLP platform to express a modified form of the CMV glycoprotein B 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 Investigational Candidates

 

VBI-2601: HBV Immunotherapeutic Candidate

 

VBI-2601 is our novel, recombinant, protein-based immunotherapeutic candidate in development for the treatment of chronic HBV infection. VBI-2601 is formulated to induce broad immunity against HBV, including T-cell immunity which plays an important role in controlling HBV infection.

 

On April 12, 2021, and June 23, 2021, we announced data from the completed Phase Ib/IIa clinical study in patients with chronic HBV infection, which was conducted by our partner Brii Bio. The study was a randomized, controlled study designed to assess the safety, tolerability, antiviral and immunologic activity of VBI-2601. The study was a two-part, dose-escalation study assessing different dose levels of VBI-2601 with and without an immunomodulatory adjuvant, conducted at multiple study sites in New Zealand, Australia, Thailand, South Korea, Hong Kong Special Administrative Region of China, and China.

 

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The data from the Phase Ib/IIa for 33 evaluable patients across all study arms suggested: (1) VBI-2601 was well tolerated at all dose levels with and without the adjuvant with no significant adverse events identified; (2) VBI-2601 induced both B cell (antibody) and T cell responses in chronically-infected HBV patients, (3) VBI-2601 induced restimulation of T cell responses to HBV surface antigens, including S, Pre-S1, and Pre-S2, in greater than 50% of the evaluable patients compared to no detectable response in the control arm; (4) the T cell responses and antibody responses were comparable across the 20µg and 40µg unadjuvanted study arms; and (5) 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 seen in this study, VBI-2601 advanced to Phase II studies.

 

On April 21, 2021, we announced that the first patient had been dosed in a Phase II clinical study evaluating VBI-2601 in combination with BRII-835 (VIR-2218), an investigational small interfering ribonucleic acid targeting HBV, for the treatment of chronic HBV infection. The multi-center, randomized, open-label study is designed to evaluate the safety and efficacy of this combination with and without interferon-alpha as a co-adjuvant. The study is being conducted at clinical sites in Australia, Taiwan, Hong Kong Special Administrative Region of China, South Korea, New Zealand, Singapore, and Thailand. Our partner, Brii Bio, is the study sponsor. A total of 50 adult, non-cirrhotic patients who received NRTI therapy for at least 12 months were randomized and dosed across three cohorts:

 

  Cohort A: BRII-835 Alone Regimen – Nine subcutaneous 100mg doses of BRII-835, dosed every four (4) weeks through Week 32
  Cohort B: BRII-835 Alone Regimen + nine 40µg intramuscular doses of VBI-2601 admixed with interferon-alpha (IFN-α) as co-adjuvant every four weeks from Week 8 through Week 40
  Cohort C: BRII-835 Alone Regimen + nine 40µg intramuscular doses of VBI-2601 without IFN-α every four weeks from Week 8 through Week 40

 

On February 15, 2023, we announced interim data from the Phase II combination study. The data, which was featured in an oral presentation at the 32nd Conference of the Asian Pacific Association for the Study of the Liver on February 18, 2023, demonstrated that the combination therapy was generally well-tolerated, restored strong anti-HBsAg antibody responses, and led to improved HBsAg-specific T-cell responses, when compared to BRII-835 alone. Notably:

 

  Mean changes in HBsAg reduction relative to baseline at week 40 were -1.68 log10 IU/mL in Cohort A, -1.75 log10 IU/mL in Cohort B, and -1.77 log10 IU/mL in Cohort C
  Potent HBV surface antibody levels (> 100 IU/L) were observed in more than 40% of participants in Cohorts B and C at week 40 – by comparison, no antibody responses were detected in Cohort A
  Out of 25 evaluable patients, a higher proportion of Cohort B and C patients demonstrated potent HBsAg-specific T-cell responses (70%; 14/20) relative to those in Cohort A (20%; 1/5) through week 44
  To date, two participants receiving combination regimens achieved either HBsAg below LLOQ (0.05 mIU/mL), to an undetectable level, or at LLOQ with maximum reductions of ≥ 4 log10 HBsAg – both participants mounted potent anti-HBs antibody and HBV-specific T-cell responses

 

Additional data from the study are expected to be announced by our partner Brii Bio in the second half of 2023.

 

On January 5, 2022, we announced that the first patient was dosed in a second Phase IIa/IIb clinical study evaluating VBI-2601. This Phase II study assesses VBI-2601 as an add-on therapy to the standard-of-care in China nucleos(t)ide reverse transcriptase inhibitor (“NRTI”) and pegylated interferon therapy (PEG-IFN-α,). Interim topline clinical data from part one of this Phase IIa/IIb clinical study are expected to be announced by our partner Brii Bio in the second half of 2023.

 

On July 5, 2023, we announced the A&R Collaboration Agreement (as defined below) with Brii Bio, expanding Brii Bio’s rights to the development and commercialization of VBI-2601 from Greater China rights to global rights.

 

VBI-1901: Glioblastoma (GBM)

 

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.

 

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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, was a two-arm study that enrolled 20 first-recurrent GBM patients who received 10 µg of VBI-1901 in combination with either GM-CSF or GSK proprietary adjuvant system, AS01, as immunomodulatory adjuvants. AS01 was provided pursuant to a Clinical Collaboration and Support Study Agreement with GSK, which we entered into 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 arm was completed in October 2020.

 

Data from the Phase IIa portion of the study was announced throughout 2020, 2021, and 2022, with the latest data presented in November 2022 at the 2022 Society for Neuro-Oncology (SNO) Annual Meeting. The data from the Phase IIa portion of this study demonstrate: (1) improvement in 6-month, 12-month, and 18-month overall survival (“OS”) data compared to historical controls; (2) 12-month OS of 60% (n=6/10) in the VBI-1901 + GM-CSF study arm and 70% (n=7/10) in the VBI-1901 + AS01 study arm, compared to historical controls of ~30%; (3) 18-month OS of 30% (3/10) in the VBI-1901 + GM-CSF study arm and 40% (n=4/10) in the VBI-1901 + AS01 study arm; (4) 2 patients with partial tumor responses, one of whom remained on protocol for over two years and had achieved a 93% tumor reduction relative to baseline at initiation of treatment at the start of the study, and 10 stable disease observations across all study arms; and (5) VBI-1901 continues to be safe and well tolerated at all doses tested, with no safety signals observed.

 

On June 8, 2021, we announced that the FDA granted Fast-Track Designation for VBI-1901 formulated with GM-CSF for the treatment of recurrent GBM patients with first tumor recurrence. The designation was granted based on data from the Phase I/IIa study.

 

On June 22, 2022, we announced that the FDA granted Orphan Drug Designation for VBI-1901 for the treatment of GBM.

 

In the third quarter of 2023, we expect to dose the first patients in a Phase IIb study of VBI-1901 in recurrent GBM patients with first tumor recurrence. This study expands the existing study to include a Part C, which is a multi-center, randomized, controlled, open-label study.

 

On October 12, 2022, we announced a collaboration with Agenus Inc. to evaluate VBI-1901 in combination with anti-PD-1 balstilimab in a second Phase II study as part of the INSIGhT adaptive platform trial in patients with primary GBM. Subject to approval from regulatory bodies, we expect to initiate enrollment in the VBI-1901 study arm in INSIGhT in the fourth quarter of 2023.

 

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 “original 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.

 

On October 18, 2022, the Company amended and restated the original Ferring License Agreement (the “Amended and Restated Ferring License Agreement”), which amends and restates certain of the terms relating to the manufacture and marketing of HBsAg products, which includes, among others, updates to the definition of net sales, and a reduction in the fixed royalty rate on net sales of HBsAg products (“Product”) from seven percent (7%) to three and a half percent (3.5%) in consideration for the grant of the license to utilize genetically engineered CHO cells encoding the hepatitis B antigen and certain information related to the manufacture of hepatitis B vaccines. In connection with the Amended and Restated Ferring License Agreement, the Company has also agreed to act as the guarantor for SciVac’s obligations under the Amended and Restated Ferring License Agreement, or if the Amended and Restated Ferring License Agreement is assigned to a third party, guarantor for SciVac’s obligations that have accrued up until the date of such assignment. 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 original Ferring License Agreement) of Product. Under the original 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 original 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 Amended and Restated Ferring License Agreement and SciGen Assignment Agreement will continue to be payable for the duration of the extended license periods.

 

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Under a license agreement with UPMC and other licensors relating to eVLP technology, we have an exclusive license to a family of patents that will expire in the U.S. in 2023 and expired in other countries in 2021. UPMC is also a co-owner of the patent family covering our VBI-1501 CMV vaccine. During the three and six months ended June 30, 2023, we did not make any milestone payments.

 

Recent Developments

 

Launch of PreHevbri in the UK, Netherlands, and Belgium

 

In June and July 2023, we announced that PreHevbri [Hepatitis B Vaccine (Recombinant, Adsorbed)] is now available in the UK, Netherlands, and Belgium for active immunization against infection caused by all known subtypes of HBV in adults. As part of the marketing and distribution partnership announced in September 2022, PreHevbri will be available in the UK, Netherlands, and Belgium through Valneva’s existing commercial infrastructure and distribution networks.

 

CDC Adult Vaccine Contract Award

 

On June 30, 2023, the CDC released its 2023 Adult Vaccine contract, which included PreHevbrio and an award of part of the contract for up to $25,350. The CDC vaccine contract is established for the purchase of vaccines by immunization programs that receive CDC immunization cooperative agreement funds (i.e., state health departments, certain large city immunization projects, and certain current and former U.S. territories).

 

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Expanded Hepatitis B Partnership with Brii Bio

 

On July 5, 2023, the Company announced the expansion of its hepatitis B partnership with Brii Bio. Through (i) a Collaboration and License Agreement (the “Collaboration Agreement”), dated July 5, 2023, by and between the Company and Brii Bio, and (ii) the Amended and Restated Collaboration and License Agreement (the “A&R Collaboration Agreement, and together with the Collaboration Agreement, the “Brii Collaboration Agreements”), dated July 5, 2023, by and between the Company and Brii Bio, Brii Bio expanded its exclusive license to VBI-2601 to global rights and acquired an exclusive license for PreHevbri in APAC, excluding Japan. As part of this collaboration, Brii Bio paid the Company an upfront payment of $15,000 pursuant to the Brii Collaboration Agreements and the concurrent registered direct offering, consisting of a $3,000 equity investment in a concurrent registered direct offering (discussed below), $5,000 as an advance payment for the clinical and commercial manufacture and supply of the VBI-2601 licensed product and PreHevbri and any related manufacturing expenditures and $7,000 as a non-refundable upfront payment. In addition, pursuant to the Letter Agreement, dated July 5, 2023, by and among the Company, SciVac and Brii Bio, the Company also granted to Brii Bio a security interest, subject to a Subordination Agreement between Brii Bio and K2HV, in all of its respective right, title and interest in and to all intellectual property, know-how, and licenses to the extent related to PreHevbri and VBI-2601, and all proceeds of the foregoing, in order to secure performance of all of the Company’s obligations under the Brii Collaboration Agreements, the Supply Agreement, and the Loan Agreement (each as defined herein).

 

The Company is also eligible to receive up to an additional $422,000 in potential regulatory and commercial milestone payments (combined under the Brii Collaboration Agreements), and potential double-digit royalties in the licensed territories, which is worldwide for VBI-2601, and APAC, excluding Japan, for PreHevbri. Brii Bio will be responsible for all development, regulatory, and commercial activities and costs for the two programs in their respective licensed territories. There is no assurance that Brii Bio will achieve any of the milestones as specified in the Brii Collaboration Agreements and that we will receive any or all of these potential payments pursuant to the Brii Collaboration Agreements.

 

Underwritten Public Offering and Registered Direct Offering

 

In July 2023, the Company closed (i) an underwritten public offering of 12,445,454 common shares and accompanying common warrants to purchase up to 12,545,454 common shares (which included 1,536,363 common shares and common warrants to purchase up to 1,636,363 common shares issued pursuant to the underwriters’ partial exercise of their option to purchase additional common shares and common warrants) at a combined public offering price of $1.65 per common share and accompanying common warrant, and (ii) a concurrent registered direct offering, pursuant to the expanded hepatitis B partnership with Brii Bio, of 1,818,182 common shares and accompanying common warrants to purchase up to 1,818,182 common shares, at a combined purchase price of $1.65 per share and accompanying common warrant. The accompanying common warrants issued and sold in each of the underwritten public offering and the registered direct offering have an exercise price of $1.65 per share and expire five years from the date of issuance. The aggregate gross proceeds from the underwritten public offering, including aggregate gross proceeds from the underwriters’ exercise of their option to purchase additional securities, were $20,500. The aggregate gross proceeds from the concurrent registered direct offering were $3,000.

 

Financial Operations Overview

 

At present, our operations are focused on:

 

continuing the commercialization of PreHevbrio in the U.S. and commercialization of PreHevbri in Europe;
   
manufacturing our 3-antigen HBV vaccine at commercial scale to meet demand in the U.S., Europe, Canada and Israel, where it is approved, and to prepare for supply in markets where we or our partner Brii Bio may obtain marketing authorization;
   
manufacturing VBI-2601, our protein-based immunotherapeutic candidate for treatment of chronic HBV, in collaboration with Brii Bio;
   
preparing for the Phase IIb clinical study of our GBM vaccine immunotherapeutic candidate, VBI-1901, in the recurrent GBM setting;
   
preparing for a clinical study of VBI-1901 in the primary GBM setting;
   
conducting the Phase I clinical study of our multivalent coronavirus candidate, VBI-2901;
   

preparing for commercialization of PreHevbrio in Canada;

   
completing the Phase I clinical study of our monovalent prophylactic COVID-19 vaccine candidates, VBI-2902 (ancestral strain) and VBI-2905 (Beta variant);
   
continuing our development and scaling-up production processes for our prophylactic coronavirus vaccine candidates using a Contract Development and Manufacturing Organization (“CDMO”) located in Canada;
   
preparation for further development of VBI-1501, our preventative CMV vaccine candidate;
   
continuing the research and development (“R&D”) of our other pipeline candidates, including the exploration and development of new pipeline candidates;
   
implementing operational, compliance, financial, and management information systems, including through third party partners, to support our commercialization activities;
   
maintaining, expanding, and protecting our intellectual property portfolio; and
   
developing our internal systems and processes for regulatory affairs, legal, and compliance.

 

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VBI’s revenue generating activities have been the sale of our 3-antigen HBV vaccine, under the brand name PreHevbrio in the U.S., PreHevbri in the UK and certain countries in the EU, and in Israel under the name Sci-B-Vac. We have also generated revenue from various business development transactions and R&D services generating fees. To date, we have financed our operations primarily with proceeds from sales of our securities, our long-term debt agreements, and contribution agreements and partnerships with CEPI and the Government of Canada.

 

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, commercial, and manufacturing activities with respect to the advancement of our 3-antigen HBV vaccine and new pipeline candidates. As of June 30, 2023, VBI had an accumulated deficit of approximately $561,988, stockholders’ equity of approximately $8,738 and cash of $20,840. In early July 2023, we received $15,000 from an upfront payment from Brii Bio pursuant to the Brii Collaboration Agreements and the concurrent registered direct offering and aggregate gross proceeds of $20,500 from an underwritten public offering. Cash outflows from operating activities were $40,866 for the six months ended June 30, 2023. 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 to finance our clinical development, manufacturing, our administrative overhead and our research and development activities, and ultimately to profitably monetize our IPR&D. 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, government or non-governmental 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 from this uncertainty.

 

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 $72,379 for the six months ended June 30, 2023, which includes a $20,000 non-cash impairment realized in the three months ended June 30, 2023, 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 and clinical studies, and as we continue the commercialization of PreHevbrio in the U.S. and Canada, and PreHevbri in Europe. 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 subject us to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the rules and regulations of Nasdaq, and the Canadian securities regulators. We have also incurred and will continue to incur regulatory compliance costs and general and administrative costs related to our clinical regulatory operations and commercialization of our marketed product and product candidates.

 

Overall Performance

 

The Company had net losses of $44,628 and $45,699 for the three months ended June 30, 2023 and 2022, respectively, and $72,379 and $66,953 for the six months ended June 30, 2023 and 2022, respectively, which includes a $20,000 non-cash impairment realized in the three months ended June 30, 2023. We had an accumulated deficit of $561,988 at June 30, 2023. We had $20,840 of cash and net working capital of $4,217 as of June 30, 2023. As described elsewhere, in early July 2023, the Company received $15,000 from an upfront payment from Brii Bio pursuant to the Brii Collaboration Agreements and the concurrent registered direct offering and aggregate gross proceeds of $20,500 from an underwritten public offering.

 

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Revenues, net

 

Revenues, net consist of product sales of PreHevbrio in the U.S., PreHevbri in the UK and certain countries in the EU as part of our partnership with Valneva, and sales of Sci-B-Vac in Israel, as well as R&D services revenue recognized as part of the License Agreement with Brii Bio and other R&D services.

 

In the U.S., beginning in the second quarter of 2022, PreHevbrio was sold to a limited number of wholesalers and specialty distributors; and beginning in 2023, PreHevbri was sold to our partner Valneva in the UK and certain countries in the EU (collectively, our “Customers”). We expect to continue to expand our market share in 2023. Revenues from product sales are recognized when we have satisfied our performance obligations, which is the transfer of control of our product upon delivery to the Customer. Our standard credit terms are short-term, and we expect to receive payment in less than one year, there is no significant financing component on the related receivables. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.

 

In Israel, Sci-B-Vac is sold through procurement requests from four health funds (“HMOs”) (collectively, the “Sci-B-Vac Customers”).

 

Overall, product revenue, net, reflects our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. If our estimates differ significantly from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment.

 

In addition, 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 cGMP 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.

 

Cost of Revenues

 

Cost of revenues consist primarily of costs incurred for manufacturing our 3-antigen 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 advancement of our lead programs, including: our 3-antigen HBV vaccine; VBI-1901, our GBM vaccine immunotherapeutic candidate; VBI-2601, our hepatitis B immunotherapeutic candidate; VBI-2900, our coronavirus vaccine program; and VBI-1501, our CMV vaccine candidate. These costs include:

 

  the cost of acquiring, developing, and manufacturing clinical study materials, and other consumables and lab supplies used in our pre-clinical studies;
     
  expenses incurred under agreements with contractors or CDMOs or Contract Research Organizations to advance the vaccine candidates into and through completion of clinical studies; and
     
  employee-related expenses, including salaries, benefits, travel, and stock-based compensation expense.

 

We expense R&D costs when we incur them.

 

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Sales, General, and Administrative (“SG&A”) Expenses

 

SG&A expenses consist principally of commercialization costs, salaries, and related costs for executive and other administrative personnel and consultants, including stock-based compensation, and travel expenses. Other sales, general, and administrative expenses include professional fees for legal, patent protection, consulting and accounting services, 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. SG&A expenses are expensed when incurred.

 

Impairment charges

 

Impairment charges consist of impairment on property and equipment, IPR&D, and goodwill.

 

Interest Expense, Net

 

Interest expense is associated with our long-term debt as discussed in Note 11 of the notes to the condensed consolidated financial statements.

 

In line with our announcement on April 4, 2023, as a result of headcount and other cost reductions, we expect our operating expenses from normal business will decrease beginning in the third quarter of 2023.

 

Results of Operations

 

Three and Six Months Ended June 30, 2023 Compared to the Three and Six Months Ended June 30, 2022

 

All dollar amounts stated below are in thousands, unless otherwise indicated.

 

   Three months ended         
   June 30         
   2023   2022   Change $   Change % 
Revenues, net  $720   $346   $374    108%