Item
1. Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(in
thousands, except share amounts)
See
accompanying Notes to Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in
thousands, except share and per share amounts)
See
accompanying Notes to Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Condensed
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in
thousands, except share amounts)
See
accompanying Notes to Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
(in
thousands)
See
accompanying Notes to Condensed Consolidated Financial Statements
VBI
Vaccines Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
March
31, 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
Vaccines Inc. (“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, VBI plans to focus the Company’s efforts on the fight against hepatitis B, concentrating on broadening
access to PreHevbrio and PreHevbri, where it is available, and advancing its HBV immunotherapeutic candidate, VBI-2601, which has the
potential to be part of functional cure regimen for chronic HBV patients. As part of this commitment, we also announced our plans to
reduce our workforce by 30-35%, a reduction which initiated in April and is expected to be largely completed by the end of June 2023.
As a result of this, and other reductions in spend, we also expect our operating expenses from normal business to be 30-35% lower in
the second half of 2023 as compared to the second half of 2022.
COVID-19
Pandemic
The
COVID-19 pandemic has materially negatively affected the global economy, and the ongoing effects of the COVID-19 pandemic, including
but not limited to, supply chain issues, global shortages of supplies, materials and products, volatile market conditions and rising
global inflation, continue to do so. As a result of the COVID-19 pandemic, our business and results of operations were adversely
affected and, as the ongoing effects of the COVID-19 pandemic continue to impact the global economy, these effects may continue to
adversely affect our business and results of operations. The extent to which these effects will continue to impact our business will
depend on future developments, which are highly uncertain and cannot be predicted. Recently, 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 pandemic 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 $517,360 and cash of $40,392 as of March 31, 2023. Cash outflows from operating activities were
$21,656 for the three months ended March 31, 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.
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.
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 three months ended March 31, 2023,
other than the polices discussed below.
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.
4.
INVENTORY, NET
Inventory
consists of the following:
SCHEDULE
OF INVENTORY
| |
March 31, 2023 | | |
December 31, 2022 | |
Finished goods | |
$ | 894 | | |
$ | 893 | |
Work-in-process | |
| 2,520 | | |
| 1,869 | |
Raw materials | |
| 3,354 | | |
| 3,837 | |
Inventory, net | |
$ | 6,768 | | |
$ | 6,599 | |
5.
OTHER CURRENT ASSETS
Other
current assets consisted of the following:
SCHEDULE
OF OTHER CURRENT ASSETS
| |
March 31, 2023 | | |
December 31, 2022 | |
Government receivables | |
$ | 1,203 | | |
$ | 4,033 | |
Other current assets | |
| 773 | | |
| 2,026 | |
Total other current assets | |
$ | 1,976 | | |
$ | 6,059 | |
6.
INTANGIBLE ASSETS, NET, AND GOODWILL
SCHEDULE OF INDEFINITE LIVED INTANGIBLE ASSETS INCLUDING CUMULATIVE IMPAIRMENT AND CURRENCY TRANSLATION
| |
| | |
March 31, 2023 | |
| |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Cumulative
Impairment
Charge | | |
Cumulative
Currency
Translation | | |
Net Book
Value | |
License | |
$ | 669 | | |
$ | (669 | ) | |
$ | - | | |
$ | - | | |
$ | - | |
IPR&D assets | |
| 61,500 | | |
| - | | |
| (300 | ) | |
| (2,700 | ) | |
| 58,500 | |
| |
$ | 62,169 | | |
$ | (669 | ) | |
$ | (300 | ) | |
$ | (2,700 | ) | |
$ | 58,500 | |
| |
| | |
December 31, 2022 | |
| |
Gross
Carrying
Amount | | |
Accumulated
Amortization | | |
Cumulative
Impairment
Charge | | |
Cumulative
Currency
Translation | | |
Net Book
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 currency translation adjustments which increased by
$155 for the three months ended March 31, 2023.
SCHEDULE OF GOODWILL
| |
| | |
March 31, 2023 | |
| |
Gross Carrying Amount | | |
Cumulative Impairment Charge | | |
Cumulative Currency Translation | | |
Net Book Value | |
Goodwill | |
$ | 8,714 | | |
$ | (6,292 | ) | |
$ | (290 | ) | |
$ | 2,132 | |
| |
| | |
December 31, 2022 | |
| |
Gross Carrying Amount | | |
Cumulative Impairment Charge | | |
Cumulative Currency Translation | | |
Net Book 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 $5 for the
three months ended March 31, 2023.
7.
OTHER CURRENT LIABILITIES
Other
current liabilities consisted of the following:
SCHEDULE OF OTHER CURRENT LIABILITIES
| |
March 31, 2023 | | |
December 31, 2022 | |
Accrued research and development expenses (including clinical trial accrued expenses) | |
$ | 5,450 | | |
$ | 6,561 | |
Accrued professional fees | |
| 3,215 | | |
| 3,250 | |
Payroll and employee-related costs | |
| 2,531 | | |
| 4,036 | |
Deferred funding | |
| 6,154 | | |
| 6,966 | |
Other current liabilities | |
| 751 | | |
| 1,775 | |
Total other current liabilities | |
$ | 18,101 | | |
$ | 22,588 | |
8.
LOSS PER SHARE OF COMMON SHARES
Basic
loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding
during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such
as warrants, and stock options, which would result in the issuance of incremental shares of common shares unless such effect is anti-dilutive.
In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains
the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as their
effect would be anti-dilutive. These potentially dilutive securities are more fully described in Note 10, Stockholders’ Equity
and Additional Paid-in Capital.
The
following potentially dilutive securities outstanding at March 31, 2023 and 2022 have been excluded from the computation of diluted weighted
average shares outstanding, as they would be antidilutive:
SCHEDULE
OF ANTI-DILUTIVE WEIGHTED AVERAGE SHARES OUTSTANDING
| |
2023 | | |
2022 | |
| |
Three months ended
March 31, | |
| |
2023 | | |
2022 | |
Warrants | |
| 118,816 | | |
| 46,136 | |
Stock options and restricted stock units | |
| 803,894 | | |
| 779,524 | |
K2HV conversion feature | |
| 205,396 | | |
| 45,662 | |
Antidilutive
weighted average shares outstanding | |
| 1,128,106 | | |
| 871,322 | |
9.
LONG-TERM DEBT
As
of March 31, 2023, and December 31, 2022, the Company’s long-term debt is as follows:
SCHEDULE
OF LONG-TERM DEBT
| |
March 31, 2023 | | |
December 31, 2022 | |
Long-term debt, net of debt discount of $6,341 ($6,811 at December 31, 2022) | |
$ | 49,359 | | |
$ | 48,888 | |
Less: current portion | |
| - | | |
| - | |
Long-term debt, net of current portion | |
$ | 49,359 | | |
$ | 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 up to four tranches subject to the achievement of milestones and other customary conditions, (ii) add certain minimum net
revenue covenants to the Second Amendment, (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 second tranche of term loans of up to $15,000 will be available from April 1, 2023, through June
30, 2023, subject to the achievement of certain clinical milestones and compliance with a liquidity requirement which requires the Company
to have sufficient cash on hand to funds its operations for at least nine months (the “Liquidity Requirement”). The third
tranche of term loans of up to $10,000 will be available from April 1, 2024, through June 30, 2024, so long as certain of the milestones
for the second tranche of term loans were achieved, no events of default under the Loan Agreement have occurred and are continuing, and
the Liquidity Requirement is satisfied. The fourth 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 the full remaining $50,000 available in the K2HV tranches is advanced pursuant to the Second Amendment, up to an
additional 72,680 common shares will be issuable pursuant to the Second Amendment Warrant. 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 second, third and fourth 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 second tranche, third tranche
and fourth 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 March 31, 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 March 31, 2023 was 12.00%. 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 15.66%.
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 Restatement
Third Tranche Term Loan (as defined in the Second Amendment) 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
March 31, 2023.
The
obligations under the Loan Agreement as amended by the Second Amendment are secured on a senior basis by a lien on substantially all
of the assets of the Company and its subsidiaries other than intellectual property. The subsidiaries of the Company, other than VBI Cda,
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.
The
total initial debt discount related to the Second Amendment is $7,359. As of March 31, 2023, and December 31, 2022, the unamortized debt
discount was $6,341 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
March 31, 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 $51,290 and $56,510, respectively.
Interest
expense, net recorded in the three months ended March 31, 2023 and 2022 was as follows:
SCHEDULE
OF INTEREST EXPENSE
| |
| | |
| |
| |
Three months ended March 31 | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Interest expense | |
$ | 1,461 | | |
$ | 607 | |
Amortization of debt discount | |
| 470 | | |
| 410 | |
Interest income | |
| (502 | ) | |
| (77 | ) |
Total interest expense,
net of interest income | |
$ | 1,429 | | |
$ | 940 | |
The
following table summarizes the future principal payments due under long-term debt:
SCHEDULE
OF FUTURE PRINCIPAL OF LONG-TERM DEBT
|
|
Principal
payments
on
Loan
Agreement
and
final payment |
|
Remaining 2023 |
|
$ |
- |
|
2024 |
|
|
2,224 |
|
2025 |
|
|
- |
|
2026 |
|
|
53,475 |
|
Total |
|
$ |
55,699 |
|
10.
STOCKHOLDERS’ EQUITY AND ADDITIONAL PAID-IN CAPITAL
Stock
option plans
The
Company’s stock option plans are approved by and administered by the Board and its Compensation Committee. The Board designates,
in connection with recommendations from the Compensation Committee, eligible participants to be included under the plan, and designates
the number of options, exercise price and vesting period of the new options.
2006
VBI US Stock Option Plan
The
2006 VBI US Stock Option Plan (the “2006 Plan”), was approved by and was previously administered by the VBI US board of directors
which designated eligible participants to be included under the 2006 Plan, and designated the number of options, exercise price and vesting
period of the new options. The 2006 Plan was not approved by the stockholders of VBI US. The 2006 Plan was superseded by the 2014 Plan
(as defined below) following the PLCC Merger and no further options will be issued under the 2006 Plan. As of March 31, 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 March 31, 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 March 31, 2023, there were 758,436 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 totaled 8,169 at March 31, 2023.
Activity
related to stock options is as follows:
SCHEDULE
OF STOCK OPTIONS ACTIVITY
| |
Number of Stock
Options | | |
Weighted Average Exercise Price | |
Balance outstanding at December 31, 2022 | |
| 761,243 | | |
$ | 71.26 | |
| |
| | | |
| | |
Granted | |
| 43,976 | | |
| 17.25 | |
Forfeited | |
| (1,325 | ) | |
| 75.58 | |
| |
| | | |
| | |
Balance outstanding at March 31, 2023 | |
| 803,894 | | |
$ | 68.32 | |
| |
| | | |
| | |
Exercisable at March 31, 2023 | |
| 592,328 | | |
$ | 73.33 | |
Information
relating to RSUs is as follow:
SCHEDULE
OF RESTRICTED STOCK UNITS
| |
Number of Stock Awards | | |
Weighted Average Fair Value at Grant Date | |
Unvested shares outstanding at December 31, 2022 | |
| 82 | | |
$ | 43.80 | |
| |
| | | |
| | |
Vested | |
| (82 | ) | |
| 43.80 | |
Unvested shares outstanding at March 31, 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:
SCHEDULE
OF FAIR VALUE OF OPTIONS GRANTED BY USING BLACK SCHOLES OPTION PRICING ASSUMPTIONS
| |
Three months ended
March 31 | |
| |
2023 | | |
2022 | |
Volatility | |
| 94.46 | % | |
| 93.17 | % |
Risk free interest rate | |
| 3.56 | % | |
| 1.71 | % |
Expected term in years | |
| 5.76 | | |
| 5.83 | |
Expected dividend yield | |
| 0.00 | % | |
| 0.00 | % |
Weighted average fair value per option | |
$ | 13.25 | | |
$ | 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 months ended March 31, 2023 and 2022 was as follows:
SCHEDULE
OF STOCK-BASED COMPENSATION EXPENSE
| |
Three months ended March 31 | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Research and development | |
$ | 266 | | |
$ | 510 | |
Sales, general and administrative | |
| 1,718 | | |
| 1,966 | |
Cost of revenues | |
| 27 | | |
| 26 | |
| |
$ | 2,011 | | |
$ | 2,502 | |
11.
REVENUES, NET AND DEFERRED REVENUE
Revenues,
net comprises the following:
SCHEDULE
OF REVENUE COMPRISED
| |
Three months ended March 31 | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Product revenues, net | |
$ | 478 | | |
$ | 91 | |
R&D service revenues | |
| 7 | | |
| 35 | |
| |
$ | 485 | | |
$ | 126 | |
The
following table presents revenues expected to be recognized in the future related to performance obligations, based on current estimates,
that are unsatisfied at March 31, 2023:
SUMMARY
OF REVENUE EXPECTED TO BE RECOGNIZED IN FUTURE RELATED TO PERFORMANCE OBLIGATIONS
| |
Total | | |
Current portion to March 31, 2024 | | |
Remaining portion thereafter | |
Product revenues, net | |
$ | 469 | | |
$ | - | | |
$ | 469 | |
R&D service revenues | |
| 2,141 | | |
| 649 | | |
| 1,492 | |
| |
$ | 2,610 | | |
$ | 649 | | |
$ | 1,961 | |
The
following table presents changes in the deferred revenue balance for the three months ended March 31, 2023:
SUMMARY
OF CHANGES IN DEFERRED REVENUE
Balance at January 1, 2022 | |
$ | 2,803 | |
| |
| - | |
| |
| - | |
| |
| | |
Balance at December 31, 2022 | |
| 2,613 | |
| |
| | |
Recognition of deferred revenue | |
| (7 | ) |
Currency translation | |
| 4 | |
| |
| | |
Balance at March 31, 2023 | |
$ | 2,610 | |
| |
| | |
Short Term | |
$ | 649 | |
Long Term | |
$ | 1,961 | |
Collaboration
and License Agreement – Brii Bio
On
December 4, 2018, the Company entered into a Collaboration and License Agreement (the “License Agreement”) with Brii Biosciences
Limited (“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. |
On
December 20, 2021, the Company and Brii Bio further amended the License Agreement (the “Second Amendment 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 License Agreement, as amended, the Company is responsible for the R&D Services and Brii Bio is responsible for costs relating
to the clinical trials for the Licensed Territory.
The
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 License Agreement.
The
initial consideration of the License Agreement consisted of an $11,000 non-refundable upfront payment. As part of the 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 License Agreement.
In
addition, the Company is also eligible to receive an additional $117,500 in potential regulatory and sales milestone payments, along
with royalties on commercial sales in the Licensed Territory. Milestone payments that are not within the control of the Company or the
licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. Therefore,
no variable consideration was included in the initial transaction price and no such amounts have been recognized to date.
The
R&D Services will be satisfied over time as services are rendered using the “cost-to-cost” input method as this method
represents the most accurate depiction of the transfer of services based on the types of costs expected to be incurred. As of March 31,
2023, R&D services related to Brii Bio that remain unsatisfied are $1,941, out of the $2,610 total deferred revenue.
Upon
termination of the License Agreement prior to the end of the term, there is no obligation for refund and any amounts in deferred revenue
related to unsatisfied performance obligations will be immediately recognized.
12.
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.
Set
forth below are the approximate amounts expensed for Collaboration Agreements during the three months ended March 31, 2023 and 2022,
respectively. These expensed amounts are included under Research and Development expenses in the accompanying condensed consolidated
statements of operations.
SCHEDULE
OF RESEARCH AND DEVELOPMENT EXPENSE
| |
2023 | | |
2022 | |
| |
Three months ended March 31 | |
| |
2023 | | |
2022 | |
| |
| | |
| |
GlaxoSmithKline Biologicals S.A | |
$ | 103 | | |
$ | 135 | |
National Research Council of Canada (“NRC”) | |
| 35 | | |
| 280 | |
Coalition for Epidemic Preparedness Innovations (“CEPI”) | |
| 829 | | |
| 1,693 | |
Brii Biosciences Limited | |
| 69 | | |
| 24 | |
Agenus Inc. | |
| 56 | | |
| - | |
Research and Development
expenses | |
$ | 1,092 | | |
$ | 2,132 | |
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 $6,154
recorded as deferred funding, recorded in other
current liabilities on the condensed consolidated balance sheet.
13.
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 months ended
March 31, 2023 and 2022, the Company recognized $41 and $0, respectively, as a reduction in expenses. As of March 31, 2023 and 2022,
the Company had $0 and $44, respectively, 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 $56 million 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.
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 months ended March 31, 2023 and 2022, the Company recognized $1,707
and $1,453,
respectively, as a reduction in expenses. As of March 31, 2023 and 2022, the Company had $0
and $753,
respectively, recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance
sheet.
14.
COMMITMENTS AND CONTINGENCIES
Legal
Proceedings
From
time to time, the Company may be involved in certain claims and litigation arising out of the ordinary course and conduct of business.
Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred
and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the most likely
outcome.
On
September 13, 2018, two civil claims were brought in the District Court of the central district in Israel naming our subsidiary SciVac
as a defendant. In one claim, two minors, through their parents, allege, among other things: defects in certain batches of 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 ($519,917). 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, and January 12, 2023. The next preliminary
hearing is scheduled to be held on July 13, 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 July 13, 2023.
SciVac
believes these matters to be without merit and intends to defend these claims vigorously.
15.
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
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.
SCHEDULE
OF LEASE COST AND OTHER INFORMATION
| |
Three months ended March 31 | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Operating lease cost | |
$ | 491 | | |
$ | 341 | |
Weighted average discount rate | |
| 13 | % | |
| 12 | % |
Weighted average remaining lease term | |
| 2.74 years | | |
| 3.39 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:
SUMMARY
OF FUTURE UNDISCOUNTED CASH PAYMENTS RECONCILED TO LEASE LIABILITIES
| |
| | |
Remaining 2023 | |
$ | 970 | |
2024 | |
| 1,193 | |
2025 | |
| 686 | |
2026 | |
| 594 | |
2027 | |
| 163 | |
Total | |
$ | 3,606 | |
Effect of discounting | |
| (594 | ) |
Total lease liability | |
$ | 3,012 | |
Less: current portion | |
| (986 | ) |
Lease liability, net of current portion | |
$ | 2,026 | |
16.
SEGMENT INFORMATION
The
Company’s Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker. The CEO evaluates
the performance of the Company and allocates resources based on the information provided by the Company’s internal management system
at a consolidated level. The Company has determined that it has only one operating segment.
Revenues,
net from external customers are attributed to geographic areas based on location of the contracting customers:
SCHEDULE
OF REVENUES FROM EXTERNAL CUSTOMERS
| |
Three Months Ended March 31 | |
| |
2023 | | |
2022 | |
| |
| | |
| |
United States | |
$ | 322 | | |
$ | - | |
Israel | |
| - | | |
| 95 | |
China / Hong Kong | |
| 7 | | |
| 25 | |
Europe | |
| 156 | | |
| 6 | |
| |
$ | 485 | | |
$ | 126 | |
There
was no revenue attributed to our country of domicile, Canada, for the three months ended March 31, 2023 and 2022.
17.
SUBSEQUENT EVENTS
On
April 4, 2023, as discussed in Note 1, the Company announced its intention to reduce our operating expenses and internal workforce
by 30-35%,
which began in April and is expected to be largely completed by the end of June 2023.
On
April 12, 2023, as discussed in Note 1, the Company effected the Reverse Stock Split.
On
April 26, 2023, the Company received a letter from the Listing Qualifications Department of Nasdaq stating that for the last 10 consecutive
business days, from April 12, 2023 to April 25, 2023, the closing bid price of the Company’s common shares had been at or greater
than $1.00 per share and accordingly, the Company had regained compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was
now closed.
On
April 27, 2023, the Company approved the grant of options
to purchase 8,000 common shares to a new director pursuant to the 2016 Plan. The options vest monthly over 36 months.
The options granted automatically expire on April
27, 2033.
The
Company has experienced a significant and sustained drop in our stock price during April 2023 that may be an indicator of a potential
impairment to our property and equipment, intangible assets, and goodwill, which may result in the Company having to perform an interim
impairment analysis during the three months ended June 30, 2023.
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
VBI
Vaccines Inc. (“VBI”) is 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
VBI’s
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 (“EMA”), United Kingdom Medicines and Healthcare products Regulatory Agency (“MHRA”), 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 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.
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.
Zika
Zika
is a mosquito-borne virus that is spread primarily through the bite of an infected Aedes species mosquito, but can also be transmitted
sexually, during pregnancy, or during childbirth. Acute infections are typically mild, but Zika has been associated with a number of
neurological complications in newborns. The first formal description of Zika virus was published in 1952, but it was not until 2007 that
the first Zika outbreak in humans was recorded. Over the past decade, Zika has begun to spread globally, and between January 2014 and
February 2016, 33 countries reported circulation of the Zika virus, including in North America. There is currently no vaccine to prevent
Zika infection.
Pipeline
Programs
The
table below is an overview of our commercial vaccine and our investigational programs as of May 12, 2023:
Indication |
|
Program |
|
Technology |
|
Current
Status |
Approved
Vaccine
●
Hepatitis B |
|
PreHevbrio1,2,3
Hepatitis
B Vaccine |
|
VLP |
|
Registration/Commercial |
|
|
(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 |
● Zika |
|
VBI-2501 |
|
eVLP |
|
Pre-Clinical |
|
|
|
|
|
|
|
Therapeutic Candidates |
|
|
|
|
|
|
● Hepatitis B |
|
VBI-2601 |
|
VLP |
|
Ongoing Phase II |
● Glioblastoma |
|
VBI-1901 |
|
eVLP |
|
Phase I/IIa |
● Other CMV-Associated Cancers |
|
Undisclosed |
|
eVLP |
|
Preclinical |
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.
Commercial
and regulatory activity for VBI’s 3-antigen HBV vaccine outside of the U.S. include:
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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. As part of this partnership, VBI expects PreHevbri will be available
in certain European countries beginning in the first half of 2023. |
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UK: On June 1, 2022,
we announced that the MHRA 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
(“ECDRP”). The UK is included in the Valneva marketing and distribution agreement for PreHevbri. |
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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 2023. |
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Israel: Approved
and commercially available under the brand name Sci-B-Vac® since 2000. |
Prophylactic
Investigational Candidates
VBI-2900:
Coronavirus Vaccine Program (VBI-2901, VBI-2902, VBI-2905)
In
response to the ongoing SARS-CoV-2 (COVID-19) pandemic, VBI initiated development of a prophylactic coronavirus vaccine program. Coronaviruses
are enveloped viruses by nature which 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.
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 geometric mean titer (“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 (“PNA”) 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 mid-year
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 million; a partnership with the Strategic Innovation Fund
(“SIF”), established by the Government of Canada, with an award of up to CAD $56 million; contribution of up to CAD $1 million
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 (“gB”) antigen
and is adjuvanted with alum, an adjuvant used in FDA-approved products.
Following
the successful completion of the Phase I study in May 2018, and positive discussions with Health Canada, we announced plans for a Phase
II clinical study evaluating VBI-1501 on December 20, 2018. We received similarly positive guidance from the FDA in July 2019. The Phase
II study is expected to assess the safety and immunogenicity of dosages of VBI-1501 up to 20µg with alum. We are currently evaluating
the timing of the Phase II study.
Therapeutic
Investigational Candidates
VBI-2601:
HBV Immunotherapeutic Candidate
VBI-2601
(BRII-179) is our novel, recombinant, protein-based immunotherapeutic candidate in development for the treatment of chronic HBV infection.
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 Biosciences Limited (“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.
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 (BRII-179) 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 (“siRNA”) 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. VBI’s 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:
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Cohort A: BRII-835 Alone
Regimen – Nine subcutaneous 100mg doses of BRII-835, dosed every four (4) weeks through Week 32 |
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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 |
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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 (“APASL”) 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:
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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 |
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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 |
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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 |
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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 around the end of the year.
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 in the second half of 2023.
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.
In
January 2018, we initiated dosing in a two-part, multi-center, open-label Phase I/IIa clinical study of VBI-1901 in 38 patients with
recurrent GBM. Phase I (Part A) of the study was a dose-escalation phase that defined the safety, tolerability, and optimal dose level
of VBI-1901 adjuvanted with granulocyte-macrophage colony-stimulating factor (GM-CSF) in recurrent GBM patients with any number of prior
recurrences. In December 2018, this phase completed enrollment of 18 patients across three dose cohorts, the highest of which (10 µg)
was selected as the optimal dose level to test in the Phase IIa portion (Part B) of the study. Phase IIa of the study, which initiated
enrollment in July 2019, is a two-arm study that enrolled 20 first-recurrent GBM patients to receive 10 µg of VBI-1901 in combination
with either GM-CSF or GSK proprietary adjuvant system, AS01, as immunomodulatory adjuvants. AS01 is 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; (3) 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 (4) 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.
Based
on the data seen to-date, as part of the next phase of development we anticipate assessing VBI-1901 in randomized, controlled
studies in both primary and recurrent GBM patients. In the recurrent setting, we aim to expand the number of patients in the current
trial and add a control arm, with the potential to support an accelerated approval application based on tumor response rates and
improvement in overall survival. Subject to discussion with the FDA, the amended protocol is expected to initiate enrollment of
additional patients mid-year 2023.
On
October 12, 2022, we announced a collaboration with Agenus Inc. to evaluate VBI-1901 in combination with anti-PD-1 balstilimab in a Phase
II study as part of the INSIGhT adaptive platform trial in patients with primary GBM. Subject to approval from regulatory bodies, we
expect enrollment to initiate in the VBI-1901 study arm in INSIGhT in the third 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 $0.1 million. 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.
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 months ended March 31, 2023,
we did not make any milestone payments.
Recent
Developments
Organizational
Changes
On
April 4, 2023, the Company announced that it intends to reduce its internal workforce by 30-35%, which began in April and is
expected to be largely completed by the end of June 2023. As a result of this and other reductions in spend, the Company 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. However,
there is no assurance that the planned reduction in workforce and other expenses will result in the expected overall reduction of
our operating expenses.
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
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.
Nasdaq
Minimum Listing Requirements
On
April 26, 2023, the Company received a letter from the Listing Qualifications Department of Nasdaq stating that for the last 10 consecutive
business days, from April 12, 2023 to April 25, 2023, the closing bid price of the Company’s common shares had been at or greater
than $1.00 per share and accordingly, the Company had regained compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was
now closed.
Financial
Operations Overview
At
present, our operations are focused on:
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continuing
the commercialization of PreHevbrio in the U.S. and preparations for the commercialization of PreHevbri in Europe; |
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preparing
for commercialization of our 3-antigen HBV vaccine in Canada; |
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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 may obtain marketing authorization; |
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developing VBI-2601, our protein-based immunotherapeutic candidate for
treatment of chronic HBV, in collaboration with Brii Bio; |
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conducting
the Phase I/IIa clinical studies of our GBM vaccine immunotherapeutic candidate, VBI-1901; |
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preparing
for the next phase of development for our GBM vaccine immunotherapeutic candidate, VBI-1901; |
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conducting
the Phase I clinical study of our multivalent coronavirus candidate, VBI-2901; |
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completing
the Phase I clinical study of our prophylactic COVID-19 vaccine candidates, VBI-2902 and VBI-2905 (Beta variant); |
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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; |
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preparation
for further development of VBI-1501, our preventative CMV vaccine candidate; |
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continuing
the research and development (“R&D”) of our other pipeline candidates, including the exploration and development
of new pipeline candidates; |
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implementing
operational, compliance, financial, and management information systems, including through third party partners, to support our commercialization
activities; |
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maintaining,
expanding, and protecting our intellectual property portfolio; and |
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developing
our internal systems and processes for regulatory affairs, legal, and compliance. |
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 in Israel under the name Sci-B-Vac. In addition, we have sold our 3-antigen HBV vaccine through named patient programs
in countries where our 3-antigen HBV vaccine was not approved, though those markets have generated a limited number of sales. 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 common shares, 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 March 31, 2023, VBI had an accumulated deficit of
approximately $517.4 million, stockholders’ equity of approximately $45 million and cash of $40.4 million. Cash outflows from operating
activities were $21.7 million for the three months ended March 31, 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 $27.8 million for the three months ended March 31, 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
We
had net losses of $27,751 and $21,254 for the
three months ended March 31, 2023, and 2022, respectively. We had an accumulated deficit
of $517,360 at March 31, 2023. We had $ 40,392 of cash and working capital of $ 22,263 as of March 31, 2023.
Revenues,
net
Revenues,
net consist of product sales of PreHevbrio in the U.S., PreHevbri in the UK 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 the first quarter of 2023, PreHevbri was sold to our partner Valneva in the UK (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.
Pursuant
to the License Agreement with Brii Bio, we provide R&D services to Brii Bio as part of the development of VBI-2601.
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-2601, our hepatitis B immunotherapeutic candidate; VBI-1901, our GBM vaccine
immunotherapeutic candidate; VBI-2900, our coronavirus vaccine program; and VBI-1501, our CMV vaccine candidate. These costs include:
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the cost of acquiring,
developing, and manufacturing clinical study materials, and other consumables and lab supplies used in our pre-clinical studies; |
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expenses
incurred under agreements with contractors or CDMOs or Contract Research Organizations to advance the vaccine candidates into and through
completion of clinical studies; and |
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employee-related expenses,
including salaries, benefits, travel, and stock-based compensation expense. |
We
expense R&D costs when we incur them.
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.
Interest
Expense, Net
Interest
expense is associated with our long-term debt as discussed in Note 9 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
Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022
All
dollar amounts stated below are in thousands, unless otherwise indicated.
| |
Three months ended March 31 | | |
| | |
| |
| |
2023 | | |
2022 | | |
Change $ | | |
Change % | |
Revenues, net | |
$ | 485 | | |
$ | 126 | | |
$ | 359 | | |
| 285 | % |
| |
| | | |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of revenues | |
| 3,559 | | |
| 2,754 | | |
| 805 | | |
| 29 | % |
Research and development | |
| 3,151 | | |
| 2,362 | | |
| 789 | | |
| 33 | % |
Sales, general and administrative | |
| 13,284 | | |
| 10,930 | | |
| 2,354 | | |
| 22 | % |
Total operating expenses | |
| 19,994 | | |
| 16,046 | | |
| 3,948 | | |
| 25 | % |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (19,509 | ) | |
| (15,920 | ) | |
| (3,589 | ) | |
| 23 | % |
| |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (1,429 | ) | |
| (940 | ) | |
| (489 | ) | |
| 52 | % |
Foreign exchange loss | |
| (6,813 | ) | |
| (4,394 | ) | |
| (2,419 | ) | |
| 55 | % |
Loss before income taxes | |
| (27,751 | ) | |
| (21,254 | ) | |
| (6,497 | ) | |
| 31 | % |
| |
| | | |
| | | |
| | | |
| | |
Income tax expense | |
| - | | |
| - | | |
| - | | |
| 0 | % |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
$ | (27,751 | ) | |
$ | (21,254 | ) | |
$ | (6,497 | ) | |
| 31 | % |
Revenues,
net
Revenues,
net for the three months ended March 31, 2023, were $485 as compared to $126 for the three months ended March 31, 2022. Revenues for
the three months ended March 31, 2023 increased by $359 or 285% due to an increase in product revenue as a result of the launch of PreHebvrio
in the U.S. during the three months ended March 31, 2022 with revenue generation starting during the three months ended June 30, 2022,
and sale of PreHevbri to our UK partner Valneva during the three months ended March 31, 2023, offset by lower sales in the Israeli market.
Revenues,
net Composition
| |
Three months ended March 31 | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Product revenue, net | |
$ | 478 | | |
$ | 91 | |
R&D service revenue | |
| 7 | | |
| 35 | |
| |
$ | 485 | | |
$ | 126 | |
Revenues,
net by Geographic Region
| |
Three months ended March 31 | | |
| | |
| |
| |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
Revenue, net in United States | |
$ | 322 | | |
$ | - | | |
$ | 322 | | |
| 100 | % |
Revenue, net in Israel | |
| - | | |
| 95 | | |
| (95 | ) | |
| (100 | )% |
Revenue, net in China / Hong Kong | |
| 7 | | |
| 25 | | |
| (18 | ) | |
| (72 | )% |
Revenue, net in Europe | |
| 156 | | |
| 6 | | |
| 150 | | |
| 2500 | % |
| |
$ | 485 | | |
$ | 126 | | |
$ | 359 | | |
| 285 | % |
Cost
of Revenues
Cost
of revenues for the three months ended March 31, 2023 was $3,559 as compared to $2,754 for the three months ended March 31, 2022. The
increase in the cost of revenues of $805 or 29% is due to increased product sales, direct labor costs, and inventory related costs incurred
in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.
Research
and Development Expenses
R&D
expenses for the three months ended March 31, 2023 were $3,151 as compared to $2,362 for the three months ended March 31, 2022. R&D
expenses were offset by $2,402 for the three months ended March 31, 2023 and $2,838 for the three months ended March 31, 2022 due to
government grants and funding arrangements. The increase in R&D expenses of $789 or 33%, is mainly a result of the increase in R&D
expenses related to continued development of our vaccine candidates, specifically VBI-2901, as the clinical trial began in the third
quarter of 2022 and is ongoing having achieved full enrollment during the three months ending March 31, 2023. For the three months ended March 31, 2022, both the VBI-2902 and
VBI-2905 clinical trials were ongoing, however, they were in the monitoring phase
with the patient testing portion mostly completed.
Sales,
General and Administrative Expenses
SG&A
expenses, net of government grants and funding arrangements, for the three months ended March 31, 2023 were $13,284 as compared to $10,930
for the three months ended March 31, 2022. SG&A expenses were offset by $183 for the three months ended March 31, 2023 and
$308 for the three months ended March 31, 2022 due to government grants and funding arrangements. The SG&A expense increase of $2,354
or 22%, is mainly a result of the increase in commercial activities related to PreHevbrio, most notably the deployment of our full commercial
field teams in the middle of the three months ended March 30, 2022, and the continued development of our distribution infrastructure, following FDA regulatory
approval of PreHevbrio in late 2021. Additional increase in costs include increased insurance costs, increased professional
costs, and increased labor costs.
Loss
from Operations
The
net loss from operations for the three months ended March 31, 2023 was $19,509 as compared to $15,920 for the three months ended
March 31, 2022. The $3,589 increase in the net loss from operations resulted from the
items discussed above. As a result of the headcount reductions and other reductions in spend as announced on April 4, 2023, we
expect our operating expenses from normal business to be 30-35% lower in the second half of 2023 as compared to the second half of
2022.
Interest
Expense, Net
Interest
expense, net for the three months ended March 31, 2023 was $1,429 as
compared to $940 for the three months ended March 31, 2022. The increase in interest expense, net of $489 or 52% is
due to an increase in long-term debt of $20,000 beginning mid-September 2022 and increased interest payments on our long-term debt due
to higher interest rates applied during the three months ended March 31, 2023.
Foreign
Exchange Loss
The
foreign exchange loss for the three months ended March 31, 2023 was $6,813 compared to $4,394
for the three months ended March 31, 2022. The change is a result of the changes in the foreign currency exchange rates (NIS and
CAD) in which the foreign currency transactions were denominated for each of those periods, including the foreign exchange impact of
intercompany loans that are translated at period end.
Net
Loss
Net
loss for the three months ended March 31, 2023 was $27,751 compared to $21,254 for the three
months ended March 31, 2022 and was a result of the items discussed above.
Liquidity
and Capital Resources
| |
March 31, 2023 | | |
December 31, 2022 | | |
$ Change | | |
% Change | |
| |
| | |
| | |
| | |
| |
Cash | |
$ | 40,392 | | |
$ | 62,629 | | |
$ | (22,237 | ) | |
| (36 | )% |
Current Assets | |
| 51,836 | | |
| 77,690 | | |
| (25,854 | ) | |
| (33 | )% |
Current Liabilities | |
| 29,573 | | |
| 36,942 | | |
| (7,369 | ) | |
| (20 | )% |
Working Capital | |
| 22,263 | | |
| 40,748 | | |
| (18,485 | ) | |
| (45 | )% |
Accumulated Deficit | |
| (517,360 | ) | |
| (489,609 | ) | |
| (27,751 | ) | |
| 6 | % |
As
of March 31, 2023, we had cash of $40,392 as compared to $62,629 as of December 31, 2022. As of March 31, 2023, we had working capital
of $22,263 as compared to working capital of $40,748 at December 31, 2022. Working capital is calculated by subtracting current liabilities
from current assets.
Net
Cash Used in Operating Activities
The
Company incurred net losses of $27,751 and $21,254 in the three months ended March 31, 2023 and
2022, respectively. The Company used $21,656 and $19,925 in cash for operating activities during the three months ended March
31, 2023 and 2022, respectively. The increase in cash outflows is largely a result of an increase in net loss, offset by the change
in operating working capital, most notably in other current assets and accounts payable.
Net
Cash Used in Investing Activities
Net
cash flows used by investing activities was $534 for the three months ended March 31, 2023 compared to cash used in investing
activities of $515 for the three months ended March 31, 2022. The cash outflow in both periods is a result of routine property and
equipment purchases.
Net
Cash Provided by Financing Activities
Net
cash flows provided by financing activities was $0 for the three months ended March 31, 2023 compared to cash flows provided by financing
activities of $12 during the three months ended March 31, 2022.
Sources
of Liquidity
Jefferies
Open Market Sale Agreement
On
August 26, 2022, we 1) filed a registration statement on Form S-3 (File No. 333-267109), which included a base prospectus which
covers the offering, issuance and sale of up to $300,000 of common shares, warrants, units and/or subscription rights; and 2)
entered into an Open Market Sale Agreement with Jefferies LLC (“Jefferies”), pursuant to which we may offer and sell our
common shares having an aggregate price of up to $125,000 from time to time through Jefferies, acting as agent or principal (the
“ATM Program”). The ATM Program replaced the Open Market Sale Agreements previously entered into with Jefferies on July
31, 2020 and September 3, 2021, pursuant to each of which we could offer and sell our common shares having an aggregate price of up
to $125,000 from time to time, through “at the market” equity offering programs. Prior to termination, $27,022 of our
common shares remained available for sale pursuant to the first ATM program, and $125,000 of our common shares remained available
for sale pursuant to the second ATM program. $125,000 of our common shares remain available for sale pursuant to the current ATM
program, established August 2022, as we did not make any sales under the ATM Program during the three months ended March 31,
2023.
K2
HealthVentures LLC Long Term Debt
On
May 22, 2020, the Company, along with its subsidiary VBI Cda, entered into the Loan and Guaranty Agreement (the “Loan Agreement”)
with 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 up to four tranches subject to the achievement of milestones and other customary conditions, (ii) add certain minimum net
revenue covenants to the Second Amendment, (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 second tranche of term loans of up to $15,000 will be available from April 1, 2023, through
June 30, 2023, subject to the achievement of certain clinical milestones and compliance with a liquidity requirement which requires the
Company to have sufficient cash on hand to funds its operations for at least nine months (the “Liquidity Requirement”). The
third tranche of term loans of up to $10,000 will be available from April 1, 2024, through June 30, 2024, so long as certain of the milestones
for the second tranche of term loans were achieved, no events of default under the Loan Agreement have occurred and are continuing, and
the Liquidity Requirement is satisfied. The fourth 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. If the full remaining $50,000 available in the K2HV tranches is advanced pursuant to the Second Amendment, up to an additional
72,680 common shares will be issuable pursuant to the Second Amendment Warrant. 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 second, third and fourth 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 second tranche, third tranche
and fourth 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 March 31, 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 March 31, 2023 was 12.00%. The Company is required
to pay only interest until September 14, 2026.
CEPI
Partnership
On
March 9, 2021, we and CEPI announced the CEPI Funding Agreement, to develop eVLP vaccine candidates against SARS-COV-2 variants, including
the Beta variant, also known as the B.1.351 variant and as 501Y.V2, first identified in South Africa. CEPI agreed to provide up to $33,018
to support the advancement of VBI-2905, a monovalent eVLP candidate expressing the pre-fusion form of the spike protein from the Beta
variant strain, through Phase I clinical development. On December 6, 2022, we and CEPI entered into the CEPI Amendment to expand the
scope of the CEPI Funding Agreement. The CEPI Amendment, among others, (i) expands the definition of “Project Vaccine” to
include additional multivalent vaccine constructs within the VBI-2900 program, (ii) removes certain pricing restrictions previously allocated
to high-income countries in the CEPI Funding Agreement, (iii) updates the proposed volume commitment percentage contributions by us to
CEPI for a Project Vaccine, and (iv) adds certain commercial benefits and related adjustments for CEPI following the pandemic period,
including royalties paid to CEPI, in the event that CEPI provides funding for Phase III clinical studies of the Project Vaccine. Since
inception of the CEPI Funding Agreement we received $19,327, of which there is a balance remaining of $6,154 in other current liabilities
on the consolidated balance sheet.
Plan
of Operations and Future Funding Requirements
The
report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31,
2022 contains an explanatory paragraph regarding our ability to continue as a going concern. VBI has incurred significant net losses
and negative operating cash flows since inception and expects to continue incurring losses and negative cash flows from operations as
we carry out our planned clinical, regulatory, R&D, commercial, and manufacturing activities with respect to the advancement of our
3-antigen HBV vaccine and pipeline candidates. As of March 31, 2023, VBI had an accumulated deficit of $517,360 and stockholders’
equity of $45,022.
Our
ability to maintain our status as an operating company and to realize our investment in our IPR&D assets is dependent upon obtaining
adequate cash to finance our clinical development, manufacturing, our commercialization activities, our administrative overhead and our
research and development activities. 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-government
grants or subsidies, and revenues from potential business development transactions, if any. There is no assurance we will manage to obtain
these sources of financing. The accompanying financial statements have been prepared assuming that we will continue as a going concern;
however, the above conditions raise substantial doubt about our ability to do so. The financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result from this uncertainty. Our long-term success and ability to continue as a going concern is dependent upon obtaining sufficient
capital to fund the research and development of our products, to bring about their successful commercial release, to generate revenue,
and, ultimately, to attain profitable operations, or, alternatively, to advance our products and technology to such a point that they
would be attractive candidates for acquisition by others in the industry.
We
will require additional funds to conduct clinical and non-clinical trials, achieve and maintain regulatory approvals, and, subject to
such approvals, commercially launch and sell our products, and will need to secure additional financing in the future to support our
operations and to realize our investment in our IPR&D assets. We base this belief on assumptions that are subject to change, and
we may be required to use our available cash and cash equivalent resources sooner than we currently expect. Our actual future capital
requirements will depend on many factors, including the progress and results of our ongoing clinical trials, the duration and cost of
discovery and preclinical development, laboratory testing and clinical trials for our pipeline candidates, the timing and outcome of
regulatory review of our products, product sales, the costs involved in preparing, filing, prosecuting, maintaining,
defending, and enforcing patent claims and other intellectual property rights, the number and development requirements of other pipeline
candidates that we pursue, and the costs of commercialization activities, including product marketing, sales, and distribution.
We
expect to finance our future cash needs through public or private equity offerings, debt financings, government grants or non-government
funding, or business development transactions. Pursuant to the Contribution Agreement, we will receive up to CAD $55,976 as a government
grant to support the development of the Company’s coronavirus vaccine program, though Phase II clinical studies, and pursuant to
the CEPI Funding Agreement, as amended by the CEPI Amendment, we will receive up to $33,018 in funding to support the development of
the Company’s coronavirus vaccine program. We may need to raise additional funds more quickly if one or more of our assumptions
prove to be incorrect or if we choose to expand our product development efforts more rapidly than we presently anticipate. We may also
decide to raise additional funds even before we need them if the conditions for raising capital are favorable. Additional equity, debt,
government grants or non-government funding, or business development transactions may not be available on acceptable terms, if at all.
If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our R&D programs, reduce our planned
commercialization efforts or obtain funds through arrangements with collaborators or others that may require us to relinquish rights
to certain pipeline candidates that we might otherwise seek to develop or commercialize independently.
To the extent we raise additional capital by issuing equity securities or obtaining borrowings convertible into equity, ownership dilution
to existing stockholders will result and future investors may be granted rights superior to those of existing stockholders. The incurrence
of indebtedness or debt financing would result in increased fixed obligations and could also result in covenants that would restrict
our operations. Our ability to obtain additional capital may depend on prevailing economic conditions and financial, business, and other
factors beyond our control. The COVID-19 pandemic, its ongoing effects, the continuing armed conflict between Russia and Ukraine, and
inflation among others, have caused an unstable economic environment globally. Disruptions in the global financial markets may adversely
impact the availability and cost of credit, as well as our ability to raise money in the capital markets. Current economic conditions
have been, and continue to be, volatile. Continued instability in these market conditions may limit our ability to access the capital
necessary to fund and grow our business.
The
Company’s long-term success and ability to continue as a going concern are dependent upon obtaining sufficient capital to fund
the research and development of its pipeline candidates, to bring about their successful commercial release, to generate revenue and,
ultimately, to attain profitable operations or, alternatively, to advance its products and technology to such a point that they would
be attractive candidates for acquisition by others in the industry.
To
date, the Company has been able to obtain financing as and when it was needed; however, there is no assurance that financing will
be available in the future, or if it is, that it will be available at acceptable terms.
As
of March 31, 2023, we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other
relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Known
Trends, Events, and Uncertainties
As
with other companies that are in the process of developing and commercializing novel pharmaceutical and biologic products, we will
need to successfully manage normal business and scientific risks. Research and development of new technologies is, by its nature,
unpredictable. We cannot assure you that our technology will be adopted, that we will ever earn revenues sufficient to support our
operations, or that we will ever be profitable. The World Health Organization recently determined that COVID-19 no longer fit the
definition of a public health emergency and the U.S. government has 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. The impact of the COVID-19 pandemic, and its ongoing effects,
has adversely affected and may continue to adversely affect our operations and the global economy. In addition, the consequences of
the ongoing conflict between Russia and Ukraine, including related sanctions and countermeasures, are difficult to predict, and
could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility,
which may in turn adversely affect our business and operations. Furthermore, other than as discussed in this report, we have no
committed source of financing and may not be able to raise money as and when we need it to continue our operations. If we cannot
raise funds as and when we need them, we may be required to severely curtail, or even to cease, our operations.
In
addition, we began the reduction of our internal workforce by 30-35% in April and expect to be largely completed by the
end of June 2023. As a result of this and other reductions in spend, although we expect our operating expenses from normal business
to be 30-35% lower in the second half of 2023 as compared with the second half of 2022, there is no assurance that the planned
reduction in workforce and other expenses will result in the expected overall reduction of our operating expenses.
Other
than as discussed above and elsewhere in this report, we are not aware of any trends, events or uncertainties that are likely to have
a material effect on our financial condition.
Critical
Accounting Policies and Estimates
There
have been no changes to our critical accounting policies during the three months ended March 31, 2023. Critical accounting policies and
the significant accounting estimates made in accordance with such policies are regularly discussed with the Audit Committee of the Company’s
board of directors. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion
and Analysis of the Financial Condition and Results of Operations” included in Item 7 of our 2022 10-K for the year ended December
31, 2022, as well as in our consolidated financial statements and the footnotes thereto, included in the 2022 Form 10-K.
Recent
Accounting Pronouncements
See
Note 3 of Notes to the Condensed Consolidated Financial Statements in this Form 10-Q.