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 |
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the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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VBI VACCINES INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
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 2022 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2023. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | the timing of, and our ability to, obtain and maintain regulatory approvals for our clinical trials, products, and pipeline candidates; |
| ● | our ability to achieve and sustain commercial success of PreHevbrio in the United States (“U.S.”) and Canada and PreHevbri in Europe; |
| ● | the timing and results of our ongoing and planned clinical trials for products and pipeline candidates; |
| ● | the amount of funds we require for our prophylactic and therapeutic pipeline candidates; |
| ● | the potential benefits of strategic partnership agreements and our ability to enter into and successfully execute strategic partnership arrangements; |
| ● | our ability to manufacture, or to have manufactured, our 3-antigen hepatitis B vaccine and our pipeline candidates, at commercially viable scales to the standards and requirements of regulatory agencies; |
| ● | the impact and continuing effects of the COVID-19 endemic on our clinical studies, research programs, manufacturing, business plan, regulatory review including site inspections, and the global economy; |
| ● | our ability to effectively execute and deliver our plans related to commercialization, marketing, manufacturing capabilities, and strategy; |
| ● | our ability to retain and maintain a good relationship with our current employees, and our ability to competitively attract new employees with relevant experience and expertise; |
| ● | the suitability and adequacy of our office, manufacturing, and research facilities and our ability to secure term extensions or expansions of leased space; |
| ● | the ability of our vendors and suppliers to manufacture and deliver materials in a timely manner that meet regulatory agency and our standards and requirements to meet planned timelines and milestones; |
| 3 |
| ● | any disruption in the operations of our Rehovot, Israel manufacturing facility where we manufacture all of our clinical and commercial supplies of our 3-antigen hepatitis B vaccine and clinical supplies of our hepatitis B immunotherapeutic, VBI-2601; |
| ● | our compliance with all laws, rules, and regulations applicable to our business and products; |
| ● | our ability to continue as a going concern; |
| ● | our history of losses; |
| ● | our ability to generate revenues and achieve profitability; |
| ● | emerging competition and rapidly advancing technology in our industry that may outpace our technology; |
| ● | customer demand for our 3-antigen hepatitis B vaccine and pipeline candidates; |
| ● | the impact of competitive or alternative products, technologies, and pricing; |
| ● | general economic conditions and events and the impact they may have on us and our potential customers; |
| ● | our ability to obtain adequate financing in the future on reasonable terms, if, as, and when we need it; |
| ● | our ability to implement network systems and controls that are effective at preventing cyber-attacks, malware intrusions, malicious viruses, and ransomware threats; |
| ● | our ability to secure and maintain protection over our intellectual property; |
| ● | our ability to maintain our existing licenses with licensors of intellectual property, or obtain new licenses for intellectual property; |
| ● | changes to legal and regulatory processes for biosimilar approval and marketing that could reduce the duration of market exclusivity for our products; |
| ● | our ability to regain and maintain compliance with the NASDAQ Capital Market’s (“Nasdaq”) listing standards; |
| ● | our success at managing the risks involved in the foregoing items; and |
| ● | other factors discussed in this Form 10-Q. |
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Unless otherwise stated or the context otherwise requires, the terms “VBI,” “we,” “us,” “our,” and the “Company” refer to VBI Vaccines Inc. and its subsidiaries.
Unless indicated otherwise, all references to the U.S. Dollar, Dollar, or $ are to the United States Dollar, the legal currency of the United States of America and all references to € mean Euros, the legal currency of the European Union. We may also refer to NIS, which is the New Israeli Shekel, the legal currency of Israel, and the Canadian Dollar or CAD, which is the legal currency of Canada.
Except for share and per share amounts, or as otherwise specified to be in millions, amounts presented are stated in thousands.
| 4 |
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
VBI Vaccines Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
| September 30, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| 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, net of debt discount | ||||||||
| Current portion of lease liability | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Deferred revenues, net of current portion | ||||||||
| Long-term debt, net of debt discount | ||||||||
| 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 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 September 30 | Nine
Months Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales, general and administrative | ||||||||||||||||
| Impairment charges | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| NET LOSS | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Deemed dividend on certain warrants | ( | ) | ( | ) | ||||||||||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss) | ( | ) | ||||||||||||||
| 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 | Accumulated | |||||||||||||||||||||||
| of | Additional | Other | Total | |||||||||||||||||||||
| Common | Share | Paid-in | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||
| Shares | Capital | Capital | Income (Loss) | Deficit | Equity | |||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Currency translation adjustments | - | |||||||||||||||||||||||
| BALANCE AS OF MARCH 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| BALANCE AS OF APRIL 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Currency translation adjustments | - | |||||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| BALANCE AS OF JULY 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued in financing transactions, net of issuance costs | ||||||||||||||||||||||||
| Warrants issued in connection with financing transactions | - | ( | ) | |||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Currency translation adjustments | - | |||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| 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 APRIL 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Currency translation adjustments | - | |||||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| BALANCE AS OF JULY 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Warrant issued in connection with debt amendment | - | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Currency translation adjustments | - | ( | ) | ( | ) | |||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
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 Nine Months Ended September 30 | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Loss on extinguishment of long-term debt | ||||||||
| Impairment charges | ||||||||
| Inventory reserve | ||||||||
| Change in operating right of use assets | ||||||||
| 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 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 commons shares for cash | ||||||||
| Share issuance costs | ( | ) | ||||||
| Proceeds from debt financing | ||||||||
| Debt 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 | ( | ) | ( | ) | ||||
| CHANGE IN CASH FOR THE PERIOD | ( | ) | ( | ) | ||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| Supplementary information: | ||||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Adjustments for prior periods from adoption of ASU 2020-06 | ||||||||
| Warrant issued in connection with financing transactions | ||||||||
| Warrants issued in connection with debt amendment | ||||||||
| Capital expenditures included in accounts payable and other current liabilities | ||||||||
| Share issuance costs included in other current liabilities | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
| 8 |
VBI Vaccines Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2023 and 2022
(in thousands, except share and per share amounts)
1. NATURE OF BUSINESS AND CONTINUATION OF BUSINESS
Corporate Overview
VBI
Vaccines Inc. (the “Company” or “VBI”) was incorporated under the laws of British Columbia, Canada on
The Company and its wholly owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s wholly owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies, Inc. a Canadian company and the wholly owned subsidiary of VBI US (“VBI Cda”); SciVac Ltd. an Israeli company (“SciVac”); SciVac Hong Kong Limited (“SciVac HK”); and VBI Vaccines B.V, a Netherlands company (“VBI BV”), are collectively referred to as the “Company”, “we”, “us”, “our”, or “VBI”.
The Company’s registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with its principal office located at 160 Second Street, Floor 3, Cambridge, MA 02142. In addition, the Company has manufacturing facilities located in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.
Reverse Stock Split
The
Company effected a
Principal Operations
VBI is a commercial-stage biopharmaceutical company driven by immunology in the pursuit of prevention and treatment of disease. Through its innovative approach to virus-like particles (“VLPs”), including a proprietary enveloped VLP (“eVLP”) platform technology and a proprietary mRNA-launched eVLP (“MLE”) 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.
2023 Organizational Changes
As
announced on April 4, 2023, the Company reduced its internal workforce by
| 9 |
COVID-19 Endemic
In May 2023, the World Health Organization determined that COVID-19 no longer fit the definition of a public health emergency and the U.S. government announced its plan to let the declaration of a public health emergency associated with COVID-19 expire on May 11, 2023. COVID-19 is expected to remain a serious endemic threat for an indefinite future period and may continue to adversely affect the global economy, and we are unable to predict the full extent of potential delays or impacts on our business, our clinical studies, our research programs, the recoverability of our assets, and our manufacturing. The effects of the COVID-19 endemic, including but not limited to supply chain issues, global shortages of supplies, material and products, volatile market conditions and rising global inflation may continue to disrupt or delay our business operations, including with respect to efforts relating to potential business development transactions, and it could continue to disrupt the marketplace which could have an adverse effect on our operations.
Liquidity and Going Concern
The Company faces a number of risks, including but not limited to, uncertainties regarding the success of the development and commercialization of its products, demand and market acceptance of the Company’s products, and reliance on major customers. The Company anticipates that it will continue to incur significant operating costs and losses in connection with the development and commercialization of its products.
The
Company has an accumulated deficit of $
The Company will require significant additional funds to conduct clinical and non-clinical trials, achieve and maintain regulatory approvals, and commercially launch and sell our approved products. Additional financing may be obtained from the issuance of equity securities, the issuance of additional debt, government or non-governmental organization grants or subsidies, and/or revenues from potential business development transactions, if any. There is no assurance the Company will manage to obtain these sources of financing, if required. If we are unable to obtain additional financing, we may be required to pursue a reorganization proceeding, including under applicable bankruptcy or insolvency laws. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from this uncertainty.
On
August 26, 2022, we 1) filed a registration statement on Form S-3 (File No. 333-267109), which included a base prospectus which covers
the offering, issuance and sale of up to $
On
July 5, 2023, the Company announced the expansion of its hepatitis B partnership with Brii Bio. Through (i) a Collaboration and
License Agreement (the “Collaboration Agreement”), dated July 5, 2023, by and between the Company and Brii Bio, and (ii)
the Amended and Restated Collaboration and License Agreement (the “A&R Collaboration Agreement, and together with the
Collaboration Agreement, the “Brii Collaboration Agreements”), dated July 5, 2023, by and between the Company and Brii
Bio, Brii Bio expanded its exclusive license to VBI-2601 to global rights and acquired an exclusive license for PreHevbri in Asia
Pacific (“APAC”), excluding Japan. As part of this collaboration, Brii Bio paid the Company an upfront payment of $
| 10 |
The
Company is also eligible to receive up to an additional $
In
July 2023, the Company closed (i) an underwritten public offering of
common shares and accompanying common warrants to purchase up to
As
of September 30, 2023, the Company had outstanding warrants to purchase up to an aggregate of
On November 1, 2023, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common shares for the 30 consecutive business day period between September 19, 2023 through October 31, 2023, it did not meet the minimum bid price of $1.00 per share required for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until April 29, 2024 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).
In order to regain compliance with Nasdaq’s minimum bid price requirement, the common shares must maintain a minimum closing bid price of $1.00 for a minimum of ten consecutive business days during the Compliance Period. In the event that the Company does not regain compliance by the end of the Compliance Period, it may be eligible for additional time to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for the market value of our publicly held shares and all other initial listing standards for Nasdaq, with the exception of the bid price requirement, and will need to provide written notice of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split if necessary. If we meet these requirements, the Company may be granted an additional 180 calendar days to regain compliance. The Company has not regained compliance as of the date of this Form 10-Q, and if it fails to regain compliance during the Compliance Period or any subsequent grace period granted by Nasdaq, its common shares will be subject to delisting by Nasdaq, which could seriously decrease or eliminate the value of an investment in the common shares and result in significantly increased uncertainty as to the Company’s ability to raise additional capital.
Financial instruments recognized in the condensed consolidated balance sheet consist of cash, accounts receivable, other current assets, accounts payable, and other current liabilities. The Company believes that the carrying value of its current financial instruments approximates their fair values due to the short-term nature of these instruments. The Company does not hold any derivative financial instruments.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The Company’s fiscal year ends on December 31 of each calendar year. The accompanying unaudited condensed consolidated financial statements have been prepared in U.S. dollars (“USD”) and pursuant to the rules and regulations of the SEC, for interim reporting. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted pursuant to such rules and regulations. The December 31, 2022 condensed consolidated balance sheet in this document was derived from the audited consolidated financial statements. The condensed consolidated financial statements and notes included in this quarterly report on this Form 10-Q does not include all of the disclosures required by U.S. GAAP and should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 10-K”), as filed with the SEC on March 13, 2023.
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: VBI DE, VBI US, VBI Cda, SciVac, SciVac HK, and VBI BV. Intercompany balances and transactions between the Company and its subsidiaries are eliminated in the condensed consolidated financial statements. Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.
| 11 |
In the opinion of management, these condensed consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary to fairly state the results of the periods presented. The results for the periods presented are not necessarily indicative of results to be expected for the full year or for any future periods.
Significant Accounting Policies
The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in the 2022 10-K, and there have been no changes to the Company’s significant accounting policies during the nine months ended September 30, 2023, other than the polices discussed below.
Restructuring charges
Restructuring costs include charges associated with exit or disposal activities that meet the definition of restructuring under FASB ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”). The Company’s restructuring plans are typically completed within a one-year period or less. Restructuring costs incurred under these plans may include (i) one-time termination benefits related to employee separations, (ii) contract termination costs, and (iii) other related costs associated with exit or disposal activities including, but not limited to, costs for consolidating or closing facilities.
3. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Our adoption of this ASU, effective January 1, 2023, did not have a material impact on our condensed consolidated financial statements and the related footnote disclosures.
4. INVENTORY, NET
Inventory consists of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Work-in-process | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
5. OTHER CURRENT ASSETS
Other current assets consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Government receivables | $ | $ | ||||||
| Other current assets | ||||||||
| $ | $ | |||||||
| 12 |
6. IMPAIRMENT CHARGES
The drop in market conditions experienced in April 2023 and subsequently in September 2023 were considered triggering events for interim impairment tests for property and equipment, In-Process Research and Development (“IPR&D”) and goodwill. The impairment test compares the carrying amount of the assets to their respective fair values. If the carrying amount exceeds the fair value of the assets, such excess is recorded as an impairment charge.
Impairment charges consist of the following:
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Property and equipment (Note 7) | $ | $ | $ | $ | ||||||||||||
| IPR&D (Note 8) | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
7. PROPERTY AND EQUIPMENT
As
discussed above, in April 2023, the Company performed an interim impairment test. The fair value of the property and
equipment’s assets included in the impairment test was determined using a combination of the market approach and the cost
approach and is considered Level 3 in the fair value hierarchy. Some of the more significant estimates and assumptions inherent in
the estimate of the fair value the property and equipment include: 1) current market prices; 2) cost to replace the assets; and 3)
factors to account for obsolescence. The Company recorded an impairment of property and equipment of $
8. INTANGIBLE ASSETS, NET, AND GOODWILL
The
Company’s intangible assets determined to have indefinite useful lives IPR&D and goodwill, are tested for impairment
annually, or more frequently if events or circumstances indicate that the assets might be impaired. As discussed above, in April
2023, the Company performed an interim impairment test. The IPR&D assets, consisting of the CMV and GBM programs acquired in a
business combination (the 2016 merger between VBI and SciVac), are capitalized as an intangible asset and are tested for impairment
at least annually until commercialization, after which time the IPR&D will be amortized over its estimated useful life. The fair
value of the IPR&D assets included in the impairment test was determined using the income approach method and is considered
Level 3 in the fair value hierarchy. Some of the more significant estimates and assumptions inherent in the estimate of the fair
value of IPR&D assets include: 1) the amount and timing of costs to develop the IPR&D into viable products; 2) the amount
and timing of future cash inflows; 3) the discount rate; and 4) the probability of technical and regulatory success. The discount
rate used was
| 13 |
| September 30, 2023 | ||||||||||||||||||||
| Gross | Cumulative | Cumulative | ||||||||||||||||||
| Carrying | Accumulated | Impairment | Currency | Net Book | ||||||||||||||||
| Amount | Amortization | Charge | Translation | Value | ||||||||||||||||
| IPR&D assets | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Gross | Cumulative | Cumulative | ||||||||||||||||||
| Carrying | Accumulated | Impairment | Currency | Net Book | ||||||||||||||||
| Amount | Amortization | Charge | Translation | Value | ||||||||||||||||
| IPR&D assets | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
The
change in carrying value for IPR&D assets from December 31, 2022, relates to the impairment of $
Goodwill
represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a
business combination. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more
likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero”
approach. Subsequently (if necessary, after step zero), if the carrying value of a reporting unit exceeded its fair value an
impairment would be recorded. We performed our goodwill impairment test by comparing the fair value of a reporting unit with its
carrying amount. There was no goodwill impairment determined as a result of the Company’s interim impairment test performed as
of April 30, 2023 and its annual impairment test performed as of August 31, 2023. As discussed above, the Company considered the
further decline in market conditions in September 2023 to be an additional triggering event for the second interim impairment
test to be performed and determined there was
| September 30, 2023 | ||||||||||||||||
| Gross | Cumulative | Cumulative | ||||||||||||||
| Carrying | Impairment | Currency | Net Book | |||||||||||||
| Amount | Charge | Translation | Value | |||||||||||||
| Goodwill | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| December 31, 2022 | ||||||||||||||||
| Gross | Cumulative | Cumulative | ||||||||||||||
| Carrying | Impairment | Currency | Net Book | |||||||||||||
| Amount | Charge | Translation | Value | |||||||||||||
| Goodwill | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
The
change in carrying value for goodwill from December 31, 2022, relates to currency translation adjustments which decreased by $
The Company has experienced a continued drop in market conditions subsequent to September 30, 2023 that may be an indicator of additional impairment to our property and equipment, intangible assets, and/or goodwill, which may result in the Company having to perform an additional interim impairment analysis during the three months ended December 31, 2023.
9. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Accrued research and development expenses (including clinical trial accrued expenses) | $ | $ | ||||||
| Accrued professional fees | ||||||||
| Payroll and employee-related costs | ||||||||
| Deferred funding | ||||||||
| Other current liabilities | ||||||||
| $ | $ | |||||||
| 14 |
Included
in payroll and employee-related costs are one time termination benefits as a result of our organizational changes to reduce our internal
workforce by
The Company did not incur significant charges in one-time termination benefits during the three or nine months ended September 30, 2023.
The following table presents changes in one-time termination benefits for nine months ended September 30, 2023.
| Accrued balance at January 1, 2023 | $ | |||
| Charges | ||||
| Cash payments | ( | ) | ||
| Accrued balance at September 30, 2023 | $ |
The restructuring charges are included in cost of revenues, research and development and sales, general and administrative in the condensed consolidated statements of operations and comprehensive loss.
Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, and stock options, which would result in the issuance of incremental shares of common shares unless such effect is anti-dilutive. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as their effect would be anti-dilutive. These potentially dilutive securities are more fully described in Note 12, Stockholders’ Equity and Additional Paid-in Capital.
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Warrants | ||||||||
| Stock options and restricted stock units | ||||||||
| K2HV conversion feature | ||||||||
| Total | ||||||||
11. LONG-TERM DEBT
As of September 30, 2023, and December 31, 2022, the Company’s long-term debt is as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Long-term debt, net of debt discount of $ | $ | $ | ||||||
| Less: current portion, net of debt discount of $ | ||||||||
| Long-term debt, net of current portion | $ | $ | ||||||
| 15 |
On
May 22, 2020, the Company, along with its subsidiary VBI Cda (collectively, the “Borrowers”), entered into the Loan and Guaranty
Agreement (the “Loan Agreement”) with K2HV and any other lender from time-to-time party thereto (the “Lenders”).
On May 22, 2020, the Lenders advanced the first tranche of term loans of $
On
May 17, 2021, the Company entered into the First Amendment to the Loan and Guaranty Agreement (“First Amendment”) with the
Lenders and received additional loan advances of $
On
September 14, 2022, the Company entered into the Second Amendment to the Loan Agreement (the “Second Amendment”) with the
Lenders to: (i) increase the amount of the term loans available under the Loan Agreement to $
On
September 15, 2022, the Lenders advanced to the Borrowers the Restatement First Tranche Term Loan (as defined in the Second Amendment)
in an aggregate amount of $
Pursuant
to the Second Amendment, the Lenders have the ability to convert $
In
connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to
The First Amendment Warrant and the Second Amendment Warrant may be exercised either for cash or on a cashless “net exercise” basis. The First Amendment Warrant expires on May 22, 2030 and the Second Amendment Warrant expires on September 14, 2032.
The
Company is required to make a final payment equal to
Upon
receipt of additional funds, issuable pursuant to the various tranches, under the Second Amendment, additional common shares will be
issuable pursuant to the Second Amendment Warrant as determined by the principal amount of the applicable tranche actually funded multiplied
by 3.5% and divided by the warrant exercise price of $
| 16 |
The
total principal amount of the loan under the Loan Agreement as amended by the Second Amendment, outstanding at September 30, 2023, including
the Original Final Payment of $
The
secured term loan maturity date is
The obligations under the Loan Agreement as amended by the Third Amendment (as defined below) are secured on a senior basis by a lien on substantially all of the assets of the Company and its subsidiaries. The subsidiaries of the Company, other than VBI Cda, SciVac HK, and VBI BV, are guarantors of the obligations of the Company and VBI Cda under the Loan Agreement. The Loan Agreement also contains customary events of default.
On July 5, 2023, the Borrowers and K2HV entered into (i) an amendment (the “Third Amendment”) to the Loan Agreement, and (ii) an amendment to the Pledge and Security Agreement, dated May 22, 2020, by and among the Company, VBI DE, VBI Cda, K2HV, and Ankura Trust Company, LLC, as collateral trustee for the lenders, pursuant to which the parties have agreed to permit the Brii Collaboration Agreements, the Supply Agreement, and the Letter Agreement, SciVac and Brii Bio. The Company granted to K2HV a security interest in, all of its respective right, title, and interest in and to substantially all of the Company’s intellectual property. In addition, among others, any breach, default or other triggering event by the Company occurring under the Brii Collaboration Agreements resulting in Brii Bio exercising a right to terminate the Brii Collaboration Agreements, will cross default the Third Amendment.
The
total initial debt discount related to the Second Amendment is $
At
September 30, 2023 and December 31, 2022, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy,
is estimated to be $
| 17 |
Interest expense, net recorded in the three and nine months ended September 30, 2023 and 2022 was as follows:
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Extinguishment loss | ||||||||||||||||
| Interest income | ( |
( |
) | ( |
) | ( |
) | |||||||||
| $ | $ | $ | $ | |||||||||||||
12. STOCKHOLDERS’ EQUITY AND ADDITIONAL PAID-IN CAPITAL
Stock option plans
The Company’s stock option plans are approved by and administered by the Board and its Compensation Committee. The Board designates, in connection with recommendations from the Compensation Committee, eligible participants to be included under the plan, and designates the number of options, exercise price and vesting period of the new options.
2006 VBI US Stock Option Plan
The 2006 VBI US Stock Option Plan (the “2006 Plan”), was approved by and was previously administered by the VBI US board of directors which designated eligible participants to be included under the 2006 Plan, and designated the number of options, exercise price and vesting period of the new options. The 2006 Plan was not approved by the stockholders of VBI US. The 2006 Plan was superseded by the 2014 Plan (as defined below) following the PLCC Merger and no further options will be issued under the 2006 Plan. As of September 30, 2023, 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 September 30, 2023, there were options outstanding under the 2014 Plan.
2016 VBI Equity Incentive Plan
The 2016 VBI Equity Incentive Plan (the “2016 Plan”) is a rolling incentive plan that sets the number of common shares issuable under the 2016 Plan, together with any other security-based compensation arrangement of the Company, at a maximum of % 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 September 30, 2023, there were 1,617,603 options outstanding and no RSUs unvested under the 2016 Plan.
The aggregate number of common shares remaining available for issuance for awards under the 2016 Plan totaled at September 30, 2023.
| 18 |
| Number of | Weighted | |||||||
| Stock | Average | |||||||
| Options | Exercise Price | |||||||
| Balance outstanding at December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Forfeited | ||||||||
| Balance outstanding at September 30, 2023 | $ | |||||||
| Exercisable at September 30, 2023 | $ | |||||||
Information relating to RSUs is as follow:
| Weighted | ||||||||
| Average | ||||||||
| Number of | Fair Value | |||||||
| Stock Awards | at Grant Date | |||||||
| Unvested shares outstanding at December 31, 2022 | $ | |||||||
| Vested | ( | ) | ||||||
| Unvested shares outstanding at September 30, 2023 | $ | |||||||
| Nine months ended September 30 | ||||||||
| 2023 | 2022 | |||||||
| Volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Expected term in years | ||||||||
| Expected dividend yield | % | % | ||||||
| Weighted average fair value per option | $ | $ | ||||||
The fair value of the options is recognized as an expense on a straight-line basis over the vesting period and forfeitures are accounted for when they occur. The total stock-based compensation expense recorded in the three and nine months ended September 30, 2023 and 2022 was as follows:
Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Sales, general, and administrative | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
13. REVENUES, NET AND DEFERRED REVENUE
Revenues, net comprises the following:
Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Product revenues, net | $ | $ | $ | $ | ||||||||||||
| License revenue | ||||||||||||||||
| R&D service revenues | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 19 |
The following table presents revenues expected to be recognized in the future related to performance obligations, based on current estimates, that are unsatisfied at September 30, 2023:
| Total | Current portion to September 30, 2024 | Remaining portion thereafter | ||||||||||
| Product revenues, net | $ | $ | $ | |||||||||
| R&D service revenues | ||||||||||||
| $ | $ | $ | ||||||||||
The following table presents changes in the deferred revenue balance for the nine months ended September 30, 2023:
| Balance at January 1, 2022 | $ | |||
| Balance at December 31, 2022 | ||||
| Revenue deferred | ||||
| Recognition of deferred revenue | ( | ) | ||
| Currency translation | ||||
| Balance at September 30, 2023 | $ | |||
| Short Term | $ | |||
| Long Term | $ |
Brii Collaboration Agreements – VBI-2601
On December 4, 2018, the Company entered into a Collaboration and License Agreement (the “Brii Collaboration and License Agreement”) with Brii Bio, amended on April 8, 2021, whereby:
| ● | the Company and Brii Bio agreed to collaborate on the development of a HBV recombinant protein-based immunotherapeutic in the licensed territory, which consists of China, Hong Kong, Taiwan, and Macau (collectively, the “Licensed Territory”), and to conduct a Phase II collaboration clinical trial for the purpose of comparing VBI-2601, which is a recombinant protein-based immunotherapeutic developed by VBI for use in treating chronic HBV, with a novel composition developed jointly with Brii Bio (either being the “Licensed Product”); | |
| ● | the Company granted Brii Bio an exclusive royalty-bearing license to perform studies, and regulatory and other activities, as may be required to obtain and maintain marketing approval of the Licensed Product, for the treatment of HBV in the Licensed Territory and to commercialize and the Licensed Product for the diagnosis and treatment of chronic HBV in the Licensed Territory; and | |
| ● | Brii Bio granted the Company an exclusive royalty-free license under Brii Bio’s technology and Brii Bio’s interest in any joint technology developed during the collaboration to develop and commercialize the Licensed Product for the diagnosis and treatment of chronic HBV in the countries of the world other than the Licensed Territory. |
| 20 |