10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2022

 

OR

 

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

 

For the transition period from _______ to _______

 

Commission file number: 001-37769

 

VBI VACCINES INC.

(Exact name of registrant as specified in its charter)

 

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

 

160 Second Street

Cambridge, Massachusetts

  02142
(Address of principal executive offices)   (Zip Code)

 

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

 

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

 

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

 

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

Yes ☒ No ☐

 

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

Yes ☒ No ☐

 

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

 

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

 

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

 

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

 

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

 

Common Shares, no par value per share   258,257,494
(Class)   Outstanding at May 9, 2022

 

 

 

 
 

 

VBI VACCINES INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

 

TABLE OF CONTENTS

 

      Page
       
PART I - FINANCIAL INFORMATION   5
       
Item 1. Condensed Consolidated Financial Statements   5
       
  Condensed Consolidated Balance Sheets - March 31, 2022 (unaudited) and December 31, 2021   5
       
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021 (unaudited)   6
       
  Condensed Consolidated Statements of Stockholders’ Equity for three months ended March 31, 2022 and 2021 (unaudited)   7
       
  Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)   8
       
  Notes to Condensed Consolidated Financial Statements (unaudited)   9
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   23
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   36
       
Item 4. Controls and Procedures   36
       
PART II - OTHER INFORMATION   37
       
Item 1. Legal Proceedings   37
       
Item 1A. Risk Factors   37
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   38
       
Item 3. Defaults Upon Senior Securities   38
       
Item 4. Mine Safety Disclosure   38
       
Item 5. Other Information   38
       
Item 6. Exhibits   38
       
Signatures   40

 

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  $101,337   $121,694 
Accounts receivable, net   102    8 
Inventory, net   4,057    2,576 
Prepaid expenses   2,167    2,373 
Other current assets   4,684    3,633 
Total current assets   112,347    130,284 
           
NON-CURRENT ASSETS          
Other long-term assets   1,446    1,259 
Property and equipment, net   10,846    11,037 
Right of use assets   3,846    3,344 
Intangible assets, net   63,218    62,091 
Goodwill   2,303    2,261 
Total non-current assets   81,659    79,992 
           
TOTAL ASSETS  $194,006   $210,276 
           
CURRENT LIABILITIES          
Accounts payable  $3,927   $4,280 
Other current liabilities   23,733    26,941 
Current portion of deferred revenues   649    526 
Current portion of long-term debt   4,744    - 
Current portion of lease liability   938    839 
Total current liabilities   33,991    32,586 
           
NON-CURRENT LIABILITIES          
Deferred revenues, net of current portion   2,168    2,277 
Long-term debt, net of debt discount and current portion   24,788    28,441 
Lease liability, net of current portion   2,921    2,516 
Liabilities for severance pay   574    574 
Total non-current liabilities   30,451    33,808 
           
COMMITMENTS AND CONTINGENCIES (NOTE 14)   -    - 
           
STOCKHOLDERS’ EQUITY          
Common shares (unlimited authorized; no par value) (March 31, 2022 - issued and outstanding 258,257,494; December 31, 2021 - issued and outstanding 258,250,273)   442,272    442,235 
Additional paid-in capital   81,314    81,583 
Accumulated other comprehensive (loss) income   3,538    (1,565)
Accumulated deficit   (397,560)   (378,371)
Total stockholders’ equity   129,564    143,882 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $194,006   $210,276 

 

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)

 

   2022   2021 
   Three Months Ended
March 31
 
   2022   2021 
         
Revenues  $126    301 
           
Operating expenses:          
Cost of revenues   2,754    2,412 
Research and development   2,362    6,839 
General and administrative   10,930    6,747 
Total operating expenses   16,046    15,998 
           
Loss from operations   (15,920)   (15,697)
           
Interest expense, net of interest income   (940)   (1,812)
Foreign exchange loss   (4,394)   (138)
Loss before income taxes   (21,254)   (17,647)
           
Income tax expense   -    - 
           
NET LOSS  $(21,254)   (17,647)
           
Other comprehensive income   5,103    343 
           
COMPREHENSIVE LOSS  $(16,151)   (17,304)
           
Net loss per share of common shares, basic and diluted  $(0.08)   (0.07)
           
Weighted-average number of common shares outstanding, basic and diluted   258,256,692    251,292,761 

 

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
Paid-in

Capital

  

Accumulated
Other

Comprehensive
Income (Loss)

   Accumulated
Deficit
  

Total Stockholders’

Equity

 
                         
BALANCE AS OF DECEMBER 31, 2021   258,250,273   $442,235   $81,583   $(1,565)  $(378,371)  $143,882 
                               
Adjustments for prior periods from adoption of ASU 2020-06   -     -     (2,746)   -     2,065    (681)
Common shares issued upon exercise of options   7,221    12    -    -    -    12 
Stock-based compensation   -    25    2,477    -    -    2,502 
Net loss   -    -    -    -    (21,254)   (21,254)
Currency translation adjustments   -    -    -    5,103    -    5,103 
BALANCE AS OF MARCH 31, 2022   258,257,494   $442,272   $81,314   $3,538   $(397,560)  $129,564 

 

BALANCE AS OF DECEMBER 31, 2020

   247,039,010   $403,528   $75,530   $1,265   $(308,618)  $171,705 

 

Beginning Balance

   247,039,010   $403,528   $75,530   $1,265   $(308,618)  $171,705 
                               
Common shares issued in financing transactions, net of share issuance costs   5,752,068    21,417    -    -    -    21,417 
Common shares issued upon exercise of warrants   34,494    52    -    -    -    52 
Common shares issued upon of conversion of long-term debt   1,369,863    2,000    -    -    -    2,000 
                               
Stock-based compensation   -    51    2,088    -    -    2,139 
Net loss   -    -    -    -    (17,647)   (17,647)
Unrealized holding loss on short-term investments   -    -    -    (54)   -    (54)
Currency translation adjustments   -    -    -    397    -    397 
BALANCE AS OF MARCH 31, 2021   254,195,435   $427,048   $77,618   $1,608   $(326,265)  $180,009 
Ending Balance   254,195,435   $427,048   $77,618   $1,608   $(326,265)  $180,009 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

7

 

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

   2022   2021 
   For the Three Months Ended
March 31
 
   2022   2021 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(21,254)  $(17,647)
Adjustments to reconcile net loss to cash and cash equivalents used in operating activities:          
Depreciation and amortization   473    446 
Stock-based compensation   2,502    2,139 
Amortization of debt discount   410    1,611 
Inventory reserve   220    122 
Interest accrued on short-term investments   -    (111)
Unrealized foreign exchange loss   4,297    165 
Net change in operating working capital items:          
Change in accounts receivable   (94)   (100)
Change in inventory   (1,744)   (214)
Change in prepaid expenses   209    486 
Change in other current assets   (928)   616 
Change in other long-term assets   (197)   (152)
Change in operating right of use assets   342    270 
Change in accounts payable   (459)   (2,114)
Change in deferred revenues   (11)   (103)
Change in other current liabilities   (3,350)   8,211 
Payments made on operating lease liabilities   (341)   (269)
Net cash flows used in operating activities   (19,925)   (6,644)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of property and equipment   (515)   (556)
Net cash flows used in investing activities   (515)   (556)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from issuance of common shares for cash   -    22,113 
Share issuance costs   -    (541)
Proceeds from issuance of common shares for cash, upon exercise of options   12    52 
Net cash flows provided by financing activities   12    21,624 
           
Effect of exchange rates on cash and cash equivalents   71    (23)
           
CHANGE IN CASH AND CASH EQUIVALENTS, FOR THE PERIOD   (20,357)   14,401 
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   121,694    93,825 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $101,337   $108,226 
           
Supplementary information:          
Interest paid  $604   $403 
Non-cash investing and financing activities:          
Adjustments for prior periods from adoption of ASU 2020-06   681    - 
Common shares issued upon conversion of debt   -    2,000 
Capital expenditures included in accounts payable and other current liabilities   146    119 
Share issuance costs included in other current liabilities   67    155 
Unrealized holding gains on short term investment   -    (54)

 

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 April 9, 1965.

 

The Company and its wholly-owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s wholly-owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies, Inc. a Canadian company and the wholly-owned subsidiary of VBI US (“VBI Cda”); and SciVac Ltd. an Israeli company (“SciVac”); SciVac Hong Kong Limited (“SciVac HK”) and VBI Vaccines B.V a Netherlands company (“VBI BV”), are collectively referred to as the “Company”, “we”, “us”, “our”, or “VBI”.

 

The Company’s registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with its principal office located at 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 $397,560 as of March 31, 2022 and cash outflows from operating activities of $19,925 for the three months ended March 31, 2022.

 

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  $28,441   $681   $29,122 
Stockholders’ equity               

Additional paid-in capital

  $81,583   $(2,746)  $78,837 
Accumulated deficit  $(378,371)  $2,065   $(376,306)

 

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  $305   $- 
Work-in-process   866    645 
Raw materials   2,886    1,931 
Total  $4,057   $2,576 

 

5. OTHER CURRENT ASSETS

 

Other current assets consisted of the following:

 

  

March 31,

2022

   December 31,
2021
 
Government receivables  $2,769   $1,438 
Other current assets   1,915    2,195 
Total  $4,684   $3,633 

 

6. INTANGIBLE ASSETS AND GOODWILL

 

       March 31, 2022 
  

Gross

Carrying
Amount

   Accumulated
Amortization
   Cumulative
Impairment
Charge
   Cumulative
Currency
Translation
   Net Book
Value
 
Patents  $669   $(678)  $-   $47   $38 
IPR&D assets   61,500    -    (300)   1,980    63,180 
   $62,169   $(678)  $(300)  $2,027   $63,218 

 

       December 31, 2021 
   Gross
Carrying
Amount
   Accumulated
Amortization
   Cumulative
Impairment
Charge
   Cumulative
Currency
Translation
   Net Book
Value
 
Patents  $669   $(660)  $-   $47   $56 
IPR&D assets   61,500    -    (300)   835    62,035 
   $62,169   $(660)  $(300)  $882   $62,091 

 

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 $1,145 for the three months ended March 31, 2022.

 

       March 31, 2022 
  

Gross

Carrying

Amount

  

Cumulative

Impairment
Charge

  

Cumulative
Currency

Translation

   Net Book
Value
 
Goodwill  $8,714   $(6,292)  $(119)  $2,303 

 

       December 31, 2021 
   Gross
Carrying
Amount
  

Cumulative

Impairment
Charge

  

Cumulative
Currency

Translation

   Net Book
Value
 
Goodwill  $8,714   $(6,292)  $(161)  $2,261 

 

The change in carrying value for goodwill from December 31, 2021 relates to currency translation adjustments which increased by $42 for the three months period ended March 31, 2022.

 

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)  $7,334   $8,196 
Accrued professional fees   3,906    2,294 
Payroll and employee-related costs   2,495    4,805 
Deferred funding   8,657    10,183 
Other current liabilities   1,341    1,463 
Total  $23,733   $26,941 

 

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, 2022 and 2021 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

 

   March 31,
2022
   March 31,
2021
 
Warrants   1,384,469    3,163,172 
Stock options and restricted stock units   23,390,983    18,139,335 
K2 conversion feature   1,369,863    1,369,863 
Total   26,145,315    22,672,370 

 

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 $2,692 ($3,783 at December 31, 2021)  $29,532   $28,441 
Less: current portion, net of debt discount of $396 ($0 at December 31, 2021)   4,744    - 
Long-term debt  $24,788   $28,441 

 

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 $20,000 (the “First Tranche Term Loan”). The Lenders originally agreed to make available the following additional tranches subject to the following conditions and upon the submission of a loan request by the Company: (1) up to $10,000 available between January 1, 2021 and April 30, 2021 upon achievement of certain milestones (the “Second Tranche Term Loan”), (2) $10,000 available between the closing date and December 31, 2021, subject to achievement of a certain U.S. Food and Drug Administration (“FDA”) approval (the “Third Tranche Term Loan”), and (3) a final tranche of up to $10,000 that could be made available any time prior to June 30, 2022, subject to the advance of the Third Tranche Term Loan, satisfactory review by the administrative agent of our financial and operating plan, and approval by the Lenders’ investment committee. The Company obtained FDA approval on November 30, 2021 but elected not to draw down the Third Tranche Term Loan. As the Third Tranche Term Loan availability period has passed, the final tranche will not be made available. 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 $1.46 per share (“K2 conversion feature”) until the maturity date of June 1, 2024. On February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted $2,000 of the secured term loan into 1,369,863 common shares at a conversion price of $1.46. The Lenders have the ability to convert an additional $2,000 at the Lenders’ option.

 

On May 17, 2021, the Company entered into the First Amendment with the Lenders to: (1) increase the Second Tranche Term Loan from $10,000 to $12,000; (2) extend the availability period of the Second Tranche Term Loan beyond April 30, 2021, subject to certain conditions; (3) amend the Second Tranche Term Loan interest rate equal to the greater of (a) 7.75% and (b) prime rate plus 4.50%; and (4) extend the date as of which amortization of the loans under the Loan Agreement shall begin from July 1, 2022 to January 1, 2023.

 

In connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to 625,000 common shares (the “Original K2 Warrant”) at an exercise price of $1.12 (the “Warrant Price”). On May 17, 2021, in connection with the First Amendment, the Company issued the Lenders an amended and restated warrant to purchase an additional 312,500 common shares for a total of 937,500 common shares (the “Restated K2 Warrant”) with the same Warrant Price of $1.12. The Restated K2 Warrant may be exercised either for cash or on a cashless “net exercise” basis and expires on May 22, 2030.

 

The total proceeds attributed to the Original K2 Warrant was $1,181 based on the relative fair value of the Original K2 Warrant as compared to the sum of the fair values of the Original K2 Warrant, K2 conversion feature and debt. The effective conversion price of the K2 conversion feature of $1.52 was determined to be less than the fair value of the underlying common stock at the date of commitment, resulting in a beneficial conversion feature (“BCF”) at that date. The intrinsic value of the BCF was $2,577 and recorded to additional paid-in capital. The Original K2 Warrant and the K2 conversion feature resulted in the debt being issued at a discount. The Company also incurred $1,021 of debt issuance costs and is required to make a final payment equal to 6.95% of the aggregate original secured term loan principal on the maturity date of the term loan, or upon earlier prepayment of the term loans in accordance with the Loan Agreement, resulting in an additional discount of $1,390 related to the First Tranche Term Loan. The total initial debt discount was $6,169. As discussed in Note 3, upon adoption of ASU 2020-06, effective January 1, 2022, the BCF was eliminated from additional paid-in capital and the debt discount.

 

The Second Tranche Term Loan, issued pursuant to the Loan Agreement as amended by the First Amendment, resulted in the Company incurring an additional $20 of debt issuance costs, $150 of third-party costs and being required to make a final payment of $834, which is equal to 6.95% of the Second Tranche Term Loan.

 

The Company accounted for the First Amendment as a debt modification and as a result the debt discount was increased by $1,721. This amount represents: (1) the incremental fair value of the Restated K2 Warrant of $867; (2) the increased final payment of $834 related to the Second Tranche Term Loan; and (3) debt issuance costs of $20. The third-party costs were expensed in general and administration in the condensed consolidated statement of operations and comprehensive loss.

 

The total principal amount of the loan under the Loan Agreement, as amended by the First Amendment, outstanding at March 31, 2022, including the $2,224 final payment discussed above, is $32,224. The principal amount of the loan made under the Loan Agreement prior to the First Amendment accrues interest at an annual rate equal to the greater of (a) 8.25% or (b) prime rate plus 5.00%. The principal amount of the Second Tranche Term Loan made under the Loan Agreement, as amended by the First Amendment, accrues interest at an annual rate equal to the greater of (a) 7.75% or (b) prime rate plus 4.50%. The interest rate as of March 31, 2022 was 8.50% for the First Tranche Term Loan and 8.00% for the Second Tranche Term Loan. The Company is required to pay only interest until January 1, 2023. The effective interest rate on the loan of $30,000, excluding the final payment, is 13.75%.

 

14

 

 

Upon the occurrence of an Event of Default, and during the continuance of an Event of Default, the applicable rate of interest, described above, will be increased by 5.00% per annum. The secured term loan maturity date is June 1, 2024, and the Loan Agreement includes both financial and non-financial covenants. The Company was in compliance with these covenants as of March 31, 2022.

 

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 $7,209 (subsequent to adjustments made as a result of the implementation of ASU 2020-06). As of March 31, 2022, and December 31, 2021, the unamortized debt discount was $2,692 and $3,783 respectively. The debt discount is being charged to interest expense, net of interest income in the condensed consolidated statement of operations and comprehensive loss using the effective interest method over the term of the debt.

 

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 $30,292 and $30,406, respectively.

 

Interest expense, net of interest income recorded in the three months ended March 31, 2022 and 2021 was as follows:

 

   2022   2021 
   Three months ended
March 31
 
   2022   2021 
         
Interest expense  $607   $389 
Amortization of debt discount   410    1,611 
Interest income   (77)   (188)
Total  $940   $1,812 

 

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

 

   Principal
payments on
Loan Agreement
and final payment
 
Remaining 2022  $- 
2023   19,573 
2024   12,651 
Total  $32,224 

 

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 889,763 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 521,242 options outstanding under the 2014 Plan.

 

2016 VBI Equity Incentive Plan

 

The 2016 Plan is a rolling incentive plan that sets the number of common shares issuable under the 2016 Plan, together with any other security-based compensation arrangement of the Company, at a maximum of 10% of the aggregate common shares issued and outstanding on a non-diluted basis at the time of any grant under the 2016 Plan. The 2016 Plan is an omnibus equity incentive plan pursuant to which the Company may grant equity and equity-linked awards to eligible participants in order to promote the success of the Company by providing a means to offer incentives and to attract, motivate, retain and reward persons eligible to participate in the 2016 Plan. Grants under the 2016 Plan include a grant or right consisting of one or more options, stock appreciation rights (“SARs”), restricted share units (“RSUs”), performance share units (“PSUs”), shares of restricted stock or other such award as may be permitted under the 2016 Plan. As of March 31, 2022, there were 21,952,188 options outstanding and 27,790 RSUs unvested under the 2016 Plan.

 

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The aggregate number of common shares remaining available for issuance for awards under the 2016 Plan totaled 996,806 at March 31, 2022.

 

Activity related to stock options is as follows:

 

   Number of
Stock
Options
   Weighted
Average
Exercise Price
 
Balance outstanding at December 31, 2021   18,534,379   $2.63 
           
Granted   4,990,000   1.53 
Exercised   (7,221)  1.65 
Forfeited   (153,965)  2.80 
           
Balance outstanding at March 31, 2022   23,363,193   $2.40 
           
Exercisable at March 31, 2022   12,284,144   $2.54 

 

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   39,329   $1.47 
           
Vested   (11,539)   1.51 
           
Unvested shares outstanding at March 31, 2022   27,790   $1.46 

 

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:

 

   2022   2021 
Volatility   93.17%   97.13%
Risk free interest rate   1.71%   0.54%
Expected term in years   5.83    5.85 
Expected dividend yield   0.00%   0.00%
Weighted average fair value per option  $1.15   $2.40 

 

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, 2022 and 2021 was as follows:

 

  

Three months ended

March 31

 
   2022   2021 
         
Research and development  $510   $428 
General and administrative   1,966    1,690 
Cost of revenues   26    21 
Total  $2,502   $2,139 

 

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11. REVENUES AND DEFERRED REVENUE

 

Revenue comprises the following:

 

  

Three months ended

March 31

 
   2022   2021 
         
Product revenues  $91   $167 
R&D service revenues   35    134 
Total  $126   $301 

 

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  $469   $-   $469 
R&D service revenues   2,348    649    1,699 
Total  $2,817   $649   $2,168 

 

The following table presents changes in the deferred revenue balance for the three months ended March 31, 2022:

 

Balance at December 31, 2021  $2,803 
      
Recognition of deferred revenue   (25)
Currency translation   39 
      
Balance at March 31, 2022  $2,817 
      
Short Term  $649 
Long Term  $2,168 

 

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 $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 2,295,082 shares of its common stock valued at $3,626 (based on the Company’s common stock price on December 4, 2018). The remaining $7,374, deemed to be the initial transaction price, was allocated to two performance obligations: i) the VBI-2601 (BRII-179) license and ii) R&D services. The R&D services were allocated $4,737 of the transaction price using an estimated selling price based on an expected cost plus a margin approach and the remaining transaction price of $2,637 was allocated to the VBI-2601 (BRII-179) license using the residual method.

 

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There was no additional consideration contemplated in the Second Amendment.

 

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, 2022, R&D services related to Brii Bio that remain unsatisfied are $2,148, out of the $2,817 total deferred revenue.

 

Upon termination of the Collaboration and License Agreement prior to the end of the term, there is no obligation for refund and any amounts in deferred revenue related to unsatisfied performance obligations will be immediately recognized.

 

12. COLLABORATION ARRANGEMENTS

 

GlaxoSmithKline Biologicals S.A. (“GSK”)

 

On September 10, 2019, the Company entered into a Clinical Collaboration Agreement (“Collaboration Agreement”) pursuant to which we will investigate the use of GSK’s proprietary AS01B adjuvant system in our ongoing study of VBI-1901. As a result of the Collaboration Agreement, a second study arm was added to Part B of the ongoing Phase Ib/IIa clinical study to accommodate the AS01B adjuvant.

 

This relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic 606. Costs associated with the second study arm will be expensed as incurred in Research and Development expenses; costs for the three months ended March 31, 2022 and 2021 are $135 and $256, respectively.

 

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 $280 and $158, respectively.

 

CEPI

 

On March 9, 2021, the Company and CEPI announced the CEPI Funding Agreement, to develop eVLP vaccine candidates against SARS-COV-2 variants, including the 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. This funding will also support preclinical expansion of additional multivalent vaccine candidates designed to evaluate the potential breadth of our eVLP technology. The preclinical expansion is intended to develop clinic-ready vaccine candidates capable of addressing emerging variants.

 

Under the terms of the CEPI Funding Agreement, among other things, the Company and CEPI agreed on the importance of global equitable access to any vaccines produced pursuant to the CEPI Funding Agreement. Any such vaccines, if approved, are expected to be procured and allocated through global mechanisms 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.

 

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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 $1,693 and $157, respectively. Such expenses, including administrative expenses, for the three months ended March 31, 2022 and 2021 were reduced by the same amount. Since inception of the CEPI Funding Agreement in 2021, the Company received $18,363 from CEPI and the Company had $8,657 recorded as deferred funding, recorded in other current liabilities on the condensed consolidated balance sheet.

 

Brii Biosciences Limited

 

On December 4, 2018, we entered into 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 $24.

 

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 $1,000 for the transfer and scale-up of the technical production process for our prophylactic coronavirus vaccine program.

 

For the three months ended March 31, 2022 the Company recognized $0, respectively, as a reduction in expenses. As of March 31, 2022, the Company had $44 recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance sheet.

 

For the three months ended March 31, 2021, the Company recognized $0, respectively as a reduction in expenses.

 

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 $55,976 to support the development of the Company’s coronavirus vaccine program, through Phase II clinical studies, for a period commencing on April 15, 2020 and ending on or before the first quarter of 2022 (the “Project Completion Date”). On March 28, 2022, the Company and ISED 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.

 

For the three months ended March 31, 2022, the Company recognized $1,453, respectively, as a reduction in expenses. As of March 31, 2022, the Company had $753 recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance sheet.

 

For the three months ended March 31, 2021, the Company recognized $2,688, respectively as a reduction in expenses.

 

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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 ($591,782). The second claim is a civil action brought by two minors and their parents against SciVac and the Israel Ministry of Health alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine; that 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.

 

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 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. The lease agreement for our research facility in Canada, which comprises office and laboratory space, has a term ending on December 31, 2022 with an option to extend the term for one additional period of three years. A lease for additional office space at our research facility commenced on October 1, 2020 with a term ending April 30, 2023.

 

During the three months ended March 31, 2022, the Company entered into new lease agreements and recognized a ROU asset of $795.

 

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  $341 
Three months ended March 31, 2021   343 

 

Other information:     
Weighted average remaining lease term   3.39 years 
Weighted average discount rate   12.0%

 

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  $1,027 
2023   1,242 
2024   1,127 
2025   633 
2026   633 
2027   186 
Total  $4,848 
Effect of discounting   989 
Total lease liability  $3,859 
Less: current portion   938 
Lease liability, net of current portion  $2,921 

 

15. SEGMENT INFORMATION

 

The Company’s Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker. The CEO evaluates the performance of the Company and allocates resources based on the information provided by the Company’s internal management system at a consolidated level. The Company has determined that it has only one operating segment.

 

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

 

  

Three Months Ended

March 31

 
   2022   2021 
         
Israel  $95   $169 
China / Hong Kong   25    128 
Europe   6    4 
Total  $126   $301 

 

There was no revenue attributed to our country of domicile, Canada, for the three months ended March 31, 2022 and 2021.