UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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| Common Shares, no par value per share | ||
| (Class) | Outstanding at May 9, 2022 |
VBI VACCINES INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
TABLE OF CONTENTS
| 2 |
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT
This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “will,” “may,” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers, and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from our historical experience and our present expectations, or projections described under the sections in this Quarterly Report on Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 7, 2022. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | the timing of, and our ability to, obtain and maintain regulatory approvals for our clinical trials, products, and pipeline candidates; |
| ● | our ability to achieve and sustain commercial success of PreHevbrio in the U.S and PreHevbri in Europe; |
| ● | the timing and results of our ongoing and planned clinical trials for products and pipeline candidates; |
| ● | the amount of funds we require for our prophylactic and therapeutic pipeline candidates; |
| ● | the potential benefits of strategic partnership agreements and our ability to enter into strategic partnership arrangements;
|
| ● | our ability to manufacture, or to have manufactured, our 3-antigen hepatitis B vaccine and our pipeline candidates, at a commercially viable scale to the standards and requirements of regulatory agencies; |
| ● | the impact of the ongoing COVID-19 pandemic on our clinical studies, research programs, manufacturing, business plan, regulatory review including site inspections, and the global economy; |
| ● | our ability to effectively execute and deliver our plans related to commercialization, marketing, manufacturing capabilities and strategy; |
| ● | our ability to retain and maintain a good relationship with our current employees, and our ability to competitively attract new employees with relevant experience and expertise; |
| ● | the suitability and adequacy of our office, manufacturing, and research facilities and our ability to secure term extensions or expansions of leased space; |
| ● | the ability of our vendors and suppliers to manufacture and deliver materials in a timely manner that meet regulatory agency and our standards and requirements to meet planned timelines and milestones; |
| ● | any disruption in the operations of our Rehovot, Israel manufacturing facility where we manufacture all of our clinical and commercial supplies of our 3-antigen hepatitis B vaccine and clinical supplies of our hepatitis B immunotherapeutic, VBI-2601; |
| ● | our compliance with all laws, rules, and regulations applicable to our business and products; |
| ● | our ability to continue as a going concern; |
| ● | our history of losses; |
| ● | our ability to generate revenues and achieve profitability; |
| ● | emerging competition and rapidly advancing technology in our industry that may outpace our technology; |
| ● | customer demand for our 3-antigen hepatitis B vaccine and pipeline candidates; |
| ● | the impact of competitive or alternative products, technologies, and pricing; |
| ● | general economic conditions and events and the impact they may have on us and our potential customers; |
| ● | our ability to obtain adequate financing in the future on reasonable terms, as and when we need it; |
| ● | our ability to implement network systems and controls that are effective at preventing cyber-attacks, malware intrusions, malicious viruses, and ransomware threats; |
| ● | our ability to secure and maintain protection over our intellectual property; |
| ● | our ability to maintain our existing licenses with licensors of intellectual property, or obtain new licenses for intellectual property; |
| 3 |
| ● | changes to legal and regulatory processes for biosimilar approval and marketing that could reduce the duration of market exclusivity for our products;
|
| ● | our success at managing the risks involved in the foregoing items;
|
| ● | our ability to maintain compliance with the NASDAQ Capital Market’s listing standards; and
|
| ● | other factors discussed in this Form 10-Q. |
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Unless otherwise stated or the context otherwise requires, the terms “VBI,” “we,” “us,” “our,” and the “Company” refer to VBI Vaccines Inc. and its subsidiaries.
Unless indicated otherwise, all references to the U.S. Dollar, Dollar or $ are to the United States Dollar, the legal currency of the United States of America and all references to € mean Euros, the legal currency of the European Union. We may also refer to NIS, which is the New Israeli Shekel, the legal currency of Israel, and the Canadian Dollar or CAD, which is the legal currency of Canada.
Except for share and per share amounts or as otherwise specified to be in millions, amounts presented are stated in thousands.
| 4 |
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
VBI Vaccines Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
| March
31, 2022 | December
31, 2021 | |||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Other long-term assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Other current liabilities | ||||||||
| Current portion of deferred revenues | ||||||||
| Current portion of long-term debt | - | |||||||
| Current portion of lease liability | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Deferred revenues, net of current portion | ||||||||
| Long-term debt, net of debt discount and current portion | ||||||||
| Lease liability, net of current portion | ||||||||
| Liabilities for severance pay | ||||||||
| Total non-current liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 14) | - | - | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common
shares ( authorized; | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements
| 5 |
VBI Vaccines Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)
| Three
Months Ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | |||||||
| Operating expenses: | ||||||||
| Cost of revenues | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Interest expense, net of interest income | ( | ) | ( | ) | ||||
| Foreign exchange loss | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | - | - | ||||||
| NET LOSS | $ | ( | ) | ( | ) | |||
| Other comprehensive income | ||||||||
| COMPREHENSIVE LOSS | $ | ( | ) | ( | ) | |||
| Net loss per share of common shares, basic and diluted | $ | ( | ) | ( | ) | |||
| Weighted-average number of common shares outstanding, basic and diluted | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
| 6 |
VBI Vaccines Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)
Number of Common Shares | Share Capital | Additional Capital | Accumulated Comprehensive | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Adjustments for prior periods from adoption of ASU 2020-06 | - | - | ( | ) | - | ( | ) | |||||||||||||||||
| Common shares issued upon exercise of options | - | - | - | |||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Currency translation adjustments | - | - | - | - | ||||||||||||||||||||
| BALANCE AS OF MARCH 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
BALANCE AS OF DECEMBER 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued in financing transactions, net of share issuance costs | - | - | - | |||||||||||||||||||||
| Common shares issued upon exercise of warrants | - | - | - | |||||||||||||||||||||
| Common shares issued upon of conversion of long-term debt | - | - | - | |||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Unrealized holding loss on short-term investments | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Currency translation adjustments | - | - | - | - | ||||||||||||||||||||
| BALANCE AS OF MARCH 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
| 7 |
VBI Vaccines Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| For
the Three Months Ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash and cash equivalents used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Inventory reserve | ||||||||
| Interest accrued on short-term investments | - | ( | ) | |||||
| Unrealized foreign exchange loss | ||||||||
| Net change in operating working capital items: | ||||||||
| Change in accounts receivable | ( | ) | ( | ) | ||||
| Change in inventory | ( | ) | ( | ) | ||||
| Change in prepaid expenses | ||||||||
| Change in other current assets | ( | ) | ||||||
| Change in other long-term assets | ( | ) | ( | ) | ||||
| Change in operating right of use assets | ||||||||
| Change in accounts payable | ( | ) | ( | ) | ||||
| Change in deferred revenues | ( | ) | ( | ) | ||||
| Change in other current liabilities | ( | ) | ||||||
| Payments made on operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash flows used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash flows used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of common shares for cash | - | |||||||
| Share issuance costs | - | ( | ) | |||||
| Proceeds from issuance of common shares for cash, upon exercise of options | ||||||||
| Net cash flows provided by financing activities | ||||||||
| Effect of exchange rates on cash and cash equivalents | ( | ) | ||||||
| CHANGE IN CASH AND CASH EQUIVALENTS, FOR THE PERIOD | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | ||||||
| Supplementary information: | ||||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Adjustments for prior periods from adoption of ASU 2020-06 | - | |||||||
| Common shares issued upon conversion of debt | - | |||||||
| Capital expenditures included in accounts payable and other current liabilities | ||||||||
| Share issuance costs included in other current liabilities | ||||||||
| Unrealized holding gains on short term investment | - | ( | ) | |||||
See accompanying Notes to Condensed Consolidated Financial Statements
| 8 |
VBI Vaccines Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands, except share and per share amounts)
1. NATURE OF BUSINESS AND CONTINUATION OF BUSINESS
Corporate Overview
VBI
Vaccines Inc. (the “Company” or “VBI”) was incorporated under the laws of British Columbia, Canada on
The Company and its wholly-owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s wholly-owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies, Inc. a Canadian company and the wholly-owned subsidiary of VBI US (“VBI Cda”); and SciVac Ltd. an Israeli company (“SciVac”); SciVac Hong Kong Limited (“SciVac HK”) and VBI Vaccines B.V a Netherlands company (“VBI BV”), are collectively referred to as the “Company”, “we”, “us”, “our”, or “VBI”.
The Company’s registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with its principal office located at 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.
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.
The ongoing COVID-19 pandemic has materially negatively affected and continues to affect the global economy, and there is continued severe uncertainty about the duration and intensity of the impacts of the pandemic. As a result, the Company’s business and results of operations have also been adversely affected and could continue to be adversely affected by COVID-19 which has necessitated restricting the number of personnel in the Company’s research laboratories and manufacturing facility at any given point in time, and has slowed recruitment to clinical trials. The extent to which the COVID-19 pandemic will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted. We do not yet know the full extent of potential delays or impacts on our business, our clinical studies, our research programs, the recoverability of our assets, and our manufacturing; however, the COVID-19 pandemic may 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.
| 9 |
Liquidity and Going Concern
The Company has a limited operating history and faces a number of risks, including but not limited to, uncertainties regarding the success of the development and commercialization of its products, demand and market acceptance of the Company’s products, and reliance on major customers. The Company anticipates that it will continue to incur significant operating costs and losses in connection with the development and commercialization of its products.
The
Company had an accumulated deficit of $
The Company will require significant additional funds to conduct clinical and non-clinical trials, commercially launch our products, and achieve regulatory approvals. The Company plans to finance near term future operations with existing cash and cash equivalent reserves. Additional financing may be obtained from the issuance of equity securities, the issuance of additional debt, structured asset financings, 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 should the Company be unable to continue as a going concern.
Financial instruments recognized in the condensed consolidated balance sheet consist of cash and cash equivalents, short-term investments, accounts receivable, other current assets, accounts payable, and other current liabilities. The Company believes that the carrying value of its current financial instruments approximates their fair values due to the short-term nature of these instruments. The Company does not hold any derivative financial instruments.
The carrying amounts of the Company’s other long-term assets approximate their respective fair values.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The Company’s fiscal year ends on December 31 of each calendar year. The accompanying unaudited condensed consolidated financial statements have been prepared in U.S. dollars (“USD”) and pursuant to the rules and regulations of the SEC, for interim reporting. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. The December 31, 2021 consolidated balance sheet in this document was derived from the audited consolidated financial statements. The condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q (this “Form 10-Q”) does not include all of the disclosures required by U.S. GAAP and should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 10-K”), as filed with the SEC on March 7, 2022.
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.
| 10 |
Significant Accounting Policies
The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in the 2021 10-K, and there have been no changes to the Company’s significant accounting policies during the three months ended March 31, 2022, other than the polices discussed below.
3. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity. Specifically, the new standard has removed the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It has also removed certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation for convertible instruments.
On January 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method and recognized a cumulative effect of initially applying the ASU as an adjustment to the January 1, 2022 opening balance of accumulated deficit. Our conversion option that was previously bifurcated and recorded as a debt discount and additional paid-in capital has now been combined as a single instrument classified as a liability. The Company eliminated the beneficial conversion feature from additional paid-in capital; eliminated the interest accretion on the beneficial conversion feature through December 31, 2021 from the opening balance of accumulated deficit; and eliminated the corresponding debt discount. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.
Accordingly, the cumulative effect of the changes made on our January 1, 2022 condensed consolidated balance sheet for the adoption of the ASU was as follows:
| Balance as at December 31, 2021 | Adjustments from adoption of ASU 2020-06 | Balance as at January 1, 2022 | ||||||||||
| Liabilities | ||||||||||||
| Long-term debt, net of debt discount | $ | $ | $ | |||||||||
| Stockholders’ equity | ||||||||||||
| Additional paid-in capital | $ | $ | ( | ) | $ | |||||||
| Accumulated deficit | $ | ( | ) | $ | $ | ( | ) | |||||
Recently Issued Accounting Standards, not yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“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. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This ASU will be implemented through a modified retrospective method of transition. The Company is currently evaluating the potential impact of ASU 2016-13 on its condensed consolidated financial statements.
| 11 |
4. INVENTORY, NET
Inventory consists of the following:
March 31, 2022 | December
31, 2021 | |||||||
| Finished goods | $ | $ | ||||||
| Work-in-process | ||||||||
| Raw materials | ||||||||
| Total | $ | $ | ||||||
5. OTHER CURRENT ASSETS
Other current assets consisted of the following:
March 31, 2022 | December
31, 2021 | |||||||
| Government receivables | $ | $ | ||||||
| Other current assets | ||||||||
| Total | $ | $ | ||||||
6. INTANGIBLE ASSETS AND GOODWILL
| March 31, 2022 | ||||||||||||||||||||
Gross Carrying | Accumulated Amortization | Cumulative Impairment Charge | Cumulative Currency Translation | Net
Book Value | ||||||||||||||||
| Patents | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| IPR&D assets | ( | ) | ||||||||||||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Cumulative Impairment Charge | Cumulative Currency Translation | Net
Book Value | ||||||||||||||||
| Patents | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| IPR&D assets | ( | ) | ||||||||||||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||
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, 2021 relates to currency translation adjustments which increased by $
| March 31, 2022 | ||||||||||||||||
Gross Carrying Amount | Cumulative Impairment | Cumulative Translation | Net
Book Value | |||||||||||||
| Goodwill | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| December 31, 2021 | ||||||||||||||||
| Gross Carrying Amount | Cumulative Impairment | Cumulative Translation | Net
Book Value | |||||||||||||
| Goodwill | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
The
change in carrying value for goodwill from December 31, 2021 relates to currency translation adjustments which increased by $
| 12 |
7. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
| March
31, 2022 | December
31, 2021 | |||||||
| Accrued research and development expenses (including clinical trial accrued expenses) | $ | $ | ||||||
| Accrued professional fees | ||||||||
| Payroll and employee-related costs | ||||||||
| Deferred funding | ||||||||
| Other current liabilities | ||||||||
| Total | $ | $ | ||||||
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.
| March
31, 2022 | March
31, 2021 | |||||||
| Warrants | ||||||||
| Stock options and restricted stock units | ||||||||
| K2 conversion feature | ||||||||
| Total | ||||||||
| 13 |
9. LONG-TERM DEBT
As of March 31, 2022, and December 31, 2021, the long-term debt is as follows:
| March
31, 2022 | December
31, 2021 | |||||||
| Long-term
debt, net of debt discount of $ | $ | $ | ||||||
| Less:
current portion, net of debt discount of $ | - | |||||||
| 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 K2 HealthVentures LLC and any other lender from time-to-time party thereto (the “Lenders”) pursuant to which we received
the first tranche secured term loan of $
On
May 17, 2021, the Company entered into the First Amendment with the Lenders to: (1) increase the Second Tranche Term Loan from $
In
connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to
The
total proceeds attributed to the Original K2 Warrant was $
The
Second Tranche Term Loan, issued pursuant to the Loan Agreement as amended by the First Amendment, resulted in the Company incurring
an additional $
The
Company accounted for the First Amendment as a debt modification and as a result the debt discount was increased by $
The
total principal amount of the loan under the Loan Agreement, as amended by the First Amendment, outstanding at March 31, 2022, including
the $
| 14 |
Upon
the occurrence of an Event of Default, and during the continuance of an Event of Default, the applicable rate of interest, described
above, will be increased by
The obligations under the Loan Agreement, as amended by the First 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 and 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 debt discount related to the Loan Agreement, as amended by the First Amendment, with K2 HealthVentures LLC is $
At
March 31, 2022 and December 31, 2021, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy,
is estimated to be $
Interest expense, net of interest income recorded in the three months ended March 31, 2022 and 2021 was as follows:
| Three
months ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Interest expense | $ | $ | ||||||
| Amortization of debt discount | ||||||||
| Interest income | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
The following table summarizes the future principal payments due under long-term debt:
| Principal
payments on Loan Agreement and final payment | ||||
| Remaining 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total | $ | |||
| 15 |
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, 2022, there were 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, 2022, there were options outstanding under the 2014 Plan.
2016 VBI Equity Incentive Plan
The 2016 Plan is a rolling incentive plan that sets the number of common shares issuable under the 2016 Plan, together with any other security-based compensation arrangement of the Company, at a maximum of % 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, 2022, there were options outstanding and RSUs unvested under the 2016 Plan.
| 16 |
The aggregate number of common shares remaining available for issuance for awards under the 2016 Plan totaled at March 31, 2022.
| Number
of Stock Options | Weighted Average Exercise Price | |||||||
| Balance outstanding at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Balance outstanding at March 31, 2022 | $ | |||||||
| Exercisable at March 31, 2022 | $ | |||||||
Information relating to RSUs is as follow:
| Number
of Stock Awards | Weighted Average Fair Value at Grant Date | |||||||
| Unvested shares outstanding at December 31, 2021 | $ | |||||||
| Vested | ( | ) | ||||||
| Unvested shares outstanding at March 31, 2022 | $ | |||||||
| 2022 | 2021 | |||||||
| Volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Expected term in years | ||||||||
| Expected dividend yield | % | % | ||||||
| Weighted average fair value per option | $ | $ | ||||||
Three months ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Cost of revenues | ||||||||
| Total | $ | $ | ||||||
| 17 |
11. REVENUES AND DEFERRED REVENUE
Revenue comprises the following:
Three months ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Product revenues | $ | $ | ||||||
| R&D service revenues | ||||||||
| Total | $ | $ | ||||||
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, 2022:
| Total | Current portion to March 31, 2023 | Remaining portion thereafter | ||||||||||
| Product revenues | $ | $ | $ | |||||||||
| R&D service revenues | ||||||||||||
| Total | $ | $ | $ | |||||||||
The following table presents changes in the deferred revenue balance for the three months ended March 31, 2022:
| Balance at December 31, 2021 | $ | |||
| Recognition of deferred revenue | ( | ) | ||
| Currency translation | ||||
| Balance at March 31, 2022 | $ | |||
| Short Term | $ | |||
| Long Term | $ |
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 Ib/IIa collaboration clinical trial for the purpose of comparing VBI-2601 (BRII-179), which is a recombinant protein-based immunotherapeutic developed by VBI for use in treating chronic HBV, with a novel composition developed jointly with Brii Bio (either being the “Licensed Product”); | |
| ● | 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 for the Licensed Product, for the treatment of HBV in the Licensed Territory and to commercialize and promote the Licensed Product for the diagnosis and treatment of chronic HBV in the Licensed Territory; and | |
| ● | 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”) subject to the following additional terms and conditions:
| ● | the Company and Brii Bio agreed to conduct an additional Phase II combination clinical trial of VBI-2601 (BRII-179), 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.
As
part of the initial consideration of the License
Agreement consisted of an $
| 18 |
There was no additional consideration contemplated in the Second Amendment.
In
addition, the Company is also eligible to receive an additional $
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,
2022, R&D services related to Brii Bio that remain unsatisfied are $
Upon termination of the Collaboration and License Agreement prior to the end of the term, there is no obligation for refund and any amounts in deferred revenue related to unsatisfied performance obligations will be immediately recognized.
12. COLLABORATION ARRANGEMENTS
GlaxoSmithKline Biologicals S.A. (“GSK”)
On September 10, 2019, the Company entered into a Clinical Collaboration Agreement (“Collaboration Agreement”) pursuant to which we will investigate the use of GSK’s proprietary AS01B adjuvant system in our ongoing study of VBI-1901. As a result of the Collaboration Agreement, a second study arm was added to Part B of the ongoing Phase Ib/IIa clinical study to accommodate the AS01B adjuvant.
This
relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope
of ASC Topic 606. Costs associated with the second study arm will be expensed as incurred in Research and Development expenses; costs
for the three months ended March 31, 2022 and 2021 are $
National Research Council of Canada (“NRC”)
On March 31, 2020, the Company announced a collaboration with the NRC, Canada’s largest federal research and development organization, to develop a pan-coronavirus vaccine candidate, targeting COVID-19, SARS, and MERS. The NRC and the Company are collaborating to evaluate and select promising coronavirus vaccine candidates. The collaboration combines the Company’s viral vaccine expertise, eVLP technology platform, and modified coronavirus antigens with the NRC’s proprietary SARS-CoV-2 antigens and assay development capabilities to select the most immunogenic vaccine candidate for further development.
On December 21, 2020, the Company signed an amendment to the collaboration agreement with the NRC to broaden the scope of collaboration to include certain pre-clinical evaluations, bioprocess optimization, technology transfer, and the performance of additional scale up work.
On July 8, 2021, the Company signed a second amendment to the collaboration agreement with the NRC to broaden the scope of the collaboration to include developing a vaccine against the Beta variant of SARS-CoV-2.
On August 27, 2021, the Company signed a third amendment to the collaboration agreement with the NRC further broaden the scope to include certain stable cell line work for our vaccine candidate against the Beta variant of SARS-CoV-2.
On November 15, 2021, we signed a fourth amendment to the collaboration agreement with the NRC to further broaden the scope to include additional animal studies and PRNT analysis for our vaccine candidate against the Beta variant of SARS-CoV-2.
On February 8, 2022, we signed a fifth amendment to the collaboration agreement with the NRC to further broaden the scope to include additional assays of new variants against SARS-CoV-2.
On April 28, 2022, we signed a sixth amendment to the collaboration agreement with the NRC to further broaden the scope to include generation and testing of stable pools of cells expressing SARS-CoV-2 spike protein.
The expiry date of the collaboration agreement, as amended, is October 31, 2022.
This
relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope
of ASC Topic 606. Costs associated with the collaboration will be expensed as incurred in Research and Development expenses; costs for
the three months ended March 31, 2022 and 2021 are $
CEPI
Under the terms of the CEPI Funding Agreement, among other things, the Company and CEPI agreed on the importance of global equitable access to any vaccines produced pursuant to the CEPI Funding Agreement. Any such vaccines, if approved, are expected to be procured and allocated through global mechanisms as part of the Access to COVID-19 Tools (ACT) Accelerator, an international initiative launched by the WHO, Gavi the Vaccine Alliance, CEPI, and other global non-governmental organizations and governmental leaders in 2021.
| 19 |
This relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic 606.
Costs
associated with the collaboration are expensed as incurred in Research and Development and General and Administrative expenses; costs
for the three months ended March 31, 2022 and 2021 are $
Brii Biosciences Limited
On December 4, 2018, we entered into the Collaboration and License Agreement with Brii Bio, which was amended on April 8, 2021, as described in Note 11.
As
described in Note 11, the Company and Brii Bio entered into the Second Amendment on December 20, 2021. The Combo Clinical Trial collaboration
is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic
606. Costs associated with the Combo Clinical Trial collaboration will be expensed as incurred in Research and Development expenses;
costs for the three months ended March 31, 2022, were $
13. GOVERNMENT GRANTS
Grants recognized in research and development expenses in the condensed consolidated statement of operations and comprehensive loss are as follows:
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 $
For
the three months ended March 31, 2022 the Company recognized $
For
the three months ended March 31, 2021, the Company recognized $
Strategic Innovation Fund (“SIF”)
On
September 16, 2020, the Company and Her Majesty the Queen in Right of Canada as represented by the Minister of Industry (“ISED”)
signed a contribution agreement (the “Contribution Agreement”) for a contribution from SIF whereby ISED agreed to contribute
up to CAD $
For
the three months ended March 31, 2022, the Company recognized $
For
the three months ended March 31, 2021, the Company recognized $
| 20 |
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
SciVac believes these matters to be without merit and intends to defend these claims vigorously.
The District Court has accepted SciVac’s motion to suspend reaching a decision on the approval of the class action pending the determination of liability under the civil action. Preliminary hearings for the trial of the civil action began on January 15, 2020, with subsequent preliminary hearings held on May 13, 2020, December 3, 2020 and September 30, 2021. The next preliminary hearing is scheduled to be held on June 9, 2022.
Operating leases
The
Company has entered into various non-cancelable lease agreements for its office, lab, and manufacturing facilities, which are classified
as operating leases. The office facility lease agreement in the United States expires on
During
the three months ended March 31, 2022, the Company entered into new lease agreements and recognized a ROU asset of $
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.
| Lease cost: | ||||
| Operating lease costs: | ||||
| Three months ended March 31, 2022 | $ | |||
| Three months ended March 31, 2021 |
| Other information: | ||||
| Weighted average remaining lease term | ||||
| Weighted average discount rate | % |
Operating lease costs are included G&A expenses in the statement of operations and comprehensive loss.
| 21 |
The following table summarizes future undiscounted cash payments reconciled to the lease liabilities:
| Remaining 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | $ | |||
| Effect of discounting | ||||
| Total lease liability | $ | |||
| Less: current portion | ||||
| Lease liability, net of current portion | $ |
15. SEGMENT INFORMATION
The
Company’s Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker. The CEO evaluates
the performance of the Company and allocates resources based on the information provided by the Company’s internal management system
at a consolidated level. The Company has determined that it has only
Revenues from external customers are attributed to geographic areas based on location of the contracting customers:
Three Months Ended March 31 | ||||||||
| 2022 | 2021 | |||||||
| Israel | $ | $ | ||||||
| China / Hong Kong | ||||||||
| Europe | ||||||||
| Total | $ | $ | ||||||
There
was