You should read the following discussion of our financial condition and results
of operations in conjunction with the condensed consolidated financial
statements and the related notes included elsewhere in this Form 10-Q and with
our audited consolidated financial statements included in our 2020 10-K as filed
with the SEC.
Except for share and per share amounts or as otherwise specified to be in
millions, amounts presented are stated in thousands.
Overview
VBI Vaccines Inc. ("VBI") is a biopharmaceutical company driven by immunology in
the pursuit of powerful 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"), 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.
Product Pipeline - Lead Program Candidates
VBI's pipeline is comprised of vaccine and immunotherapeutic candidates
developed by virus-like particle technologies to target two distinct, but often
related, disease areas - infectious disease and oncology. We prioritize the
development of candidates for disease targets that are challenging, underserved,
and where the human immune system, when powered and stimulated appropriately,
can be a formidable opponent.
VLP vaccines are a type of sub-unit vaccine, in which only the portions of
viruses critical for eliciting an immune response are presented to the body.
Because of their structural similarity to viruses presented in nature, including
their particulate nature and repetitive structure, VLPs can stimulate potent
immune responses. VLPs can be customized to present any protein antigen,
including multiple antibody and T cell targets, making them, we believe, ideal
technologies for the development of both prophylactic and therapeutic vaccines.
However, only a few antigens self-assemble into VLPs, which limit the number of
potential targets. Notably, the HBV envelope antigens are among those that are
able to spontaneously form orderly VLP structures. VBI's proprietary eVLP
platform technology expands the list of potentially-viable target indications
for VLPs by providing a stable core (Gag Protein) and lipid bilayer (the
"envelope"). It is a flexible platform that enables the synthetic manufacture of
an "enveloped" VLP, or "eVLP", which looks structurally and morphologically
similar to the virus, with no infectious material.
Indication Program Technology Current Status
Prophylactic Candidates
3-antigen Vaccine BLA and MAA Accepted;
(Israel brand name VLP Approved in Israel
? Hepatitis B ("HBV") Sci-B-Vac®)
? Cytomegalovirus ("CMV") VBI-1501 eVLP Phase I Completed
? COVID-19 VBI-2902 eVLP Ongoing Phase I
? COVID-19 (B.1.351 Variant) VBI-2905 eVLP Pre-Clinical
? Pan-coronavirus VBI-2901 eVLP Pre-Clinical
Therapeutic Candidates
? Hepatitis B ("HBV") VBI-2601 VLP Ongoing Phase II
? Glioblastoma ("GBM") VBI-1901 eVLP Ongoing Phase I/IIa
A summary of these programs and recent developments follows.
23
Prophylactic Pipeline
3-antigen HBV Vaccine Candidate
A scientifically-differentiated approach to HBV vaccination, our 3-antigen HBV
vaccine candidate expresses all three surface antigens of HBV - pre-S1, pre-S2,
and S. Published data demonstrate pre-S1 antigens induce key neutralizing
antibodies that block virus receptor binding, and T cell responses to pre-S1 and
pre-S2 antigens can further boost responses to the S antigen. Our 3-antigen HBV
vaccine is further distinguished from other commercially available HBV vaccines
because it is produced in mammalian cells (Chinese hamster ovary "CHO" cells)
rather than in yeast.
Our 3-antigen HBV vaccine is approved for use and commercially available in
Israel, under the brand name Sci-B-Vac®, and successfully completed its pivotal
Phase III studies in the United States, Europe, and Canada in January 2020 but
is still an investigational candidate in such countries and has not yet been
approved for commercialization by the applicable regulatory authorities (e.g.,
FDA, EMA, MHRA, and Health Canada, each defined below). This Phase III program
consisted of two Phase III studies - PROTECT and CONSTANT - designed to assess
efficacy and safety of VBI's 3-antigen HBV vaccine candidate compared with
Engerix-B®, a single-antigen HBV vaccine, and lot-to-lot manufacturing
consistency of three consecutive lots of VBI's vaccine candidate. As announced
in June 2019 and January 2020, results from these two studies showed VBI's
3-antigen vaccine candidate achieved: (1) non-inferiority of seroprotection rate
(SPR) in all adults age 18 and older (VBI: 91.4% vs. Engerix-B: 76.5%); (2)
superiority (as defined in the clinical protocol) of SPR in adults age 45 and
older (VBI: 89.4% vs. Engerix-B: 73.1%); (3) higher SPR and anti-HBs titers at
all time points across all subgroup populations, regardless of age, diabetic
status, and BMI; (4) a safety profile consistent with the known safety profile
of the vaccine and comparable to that of Engerix-B; and (5) manufacturing
consistency.
The completed Phase III studies support the regulatory submissions to the United
States Food and Drug Administration ("FDA"); the European Medicines Agency
("EMA"); the United Kingdom Medicines and Healthcare products, Regulatory Agency
("MHRA"); and Health Canada. We submitted our Marketing Authorization
Application ("MAA") to the EMA on November 23, 2020, which was accepted for
review on December 22, 2020, and the Biologics License Application ("BLA") to
the FDA on November 30, 2020, which was accepted for review on January 29, 2021.
As part of the review process, the FDA has set a Prescription Drug User Fee Act
(PDUFA) target action date of November 30, 2021. However, there is no guarantee
that FDA will be able to meet these deadlines or that our BLA will be approved
in a timely manner, if at all. The submissions to UK and Health Canada are in
process and we expect to complete those regulatory filings in 2021.
On December 7, 2020, we announced a partnership for the commercialization of our
3-antigen HBV vaccine with Syneos Health ("Syneos"), who was selected for their
robust and innovative commercialization experience and deep vaccine expertise,
including successful partnerships with leading vaccine manufacturers.
VBI-2900: Coronavirus Vaccine Program (VBI-2901, VBI-2902, VBI-2905)
In response to the ongoing SARS-CoV-2 (COVID-19) pandemic, VBI initiated
development of a prophylactic coronavirus vaccine program. Coronaviruses are
enveloped viruses by nature which we believe make them a prime target for VBI's
flexible enveloped virus-like particle (eVLP) platform technology.
On March 31, 2020, we announced a collaboration with the National Research
Council of Canada ("NRC"), Canada's largest federal research and development
organization, to develop a coronavirus vaccine candidate. The collaboration
combines VBI's viral vaccine expertise, eVLP technology platform, and
coronavirus antigens with the NRC's uniquely designed SARS-CoV-2 antigens and
assay development capabilities to select the most immunogenic vaccine candidate
for further development. On December 21, 2020, we 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. The amendment also
extended the expiry date of the agreement to March 15, 2022.
24
On July 3, 2020, we and the NRC as represented by its Industrial Research
Assistance Program ("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.
On August 5, 2020, we announced that VBI Cda had been awarded up to a CAD$55,976
contribution from the Strategic Innovation Fund ("SIF"), established by the
Government of Canada, to support the Company's coronavirus vaccine development
program through Phase II clinical studies. This award is governed by the terms
of a Contribution Agreement (the "Contribution Agreement"), dated September 16,
2020, with Her Majesty The Queen in Right of Canada, as represented by the
Minister of Industry, pursuant to which our subsidiary, Variation
Biotechnologies Inc., is obligated to develop a novel, broadly reactive
coronavirus vaccine against COVID-19, SARS, and MERS, and/or a monovalent
vaccine targeting only COVID-19 through Phase II studies. We agreed to complete
such project in or before the first quarter of 2022, which will be conducted
exclusively in Canada, except as permitted otherwise under certain
circumstances.
On August 26, 2020, we announced data from three pre-clinical studies conducted
to enable selection of optimized clinical candidates for our coronavirus vaccine
program. As a result of these studies, VBI selected two vaccine candidates, with
the goal of bringing forward candidates that add meaningful clinical and medical
benefit to those already approved - be it as a one-dose administration and/or
providing broader protection against known and future mutated strains of
COVID-19: (1) VBI-2901, a multivalent pan-coronavirus vaccine candidate
expressing the COVID-19, SARS, and MERS spike proteins; and (2) VBI-2902, a
monovalent vaccine candidate expressing an optimized "prefusion" form of the
COVID-19 spike protein. A Phase I/II study of the first of the two candidates
(VBI-2902) initiated in March 2021, with initial data from Phase I of the study
expected by the end of the second quarter of 2021. Work is ongoing to further
optimize and manufacture VBI-2901, with the anticipation that a Phase I/II study
will begin later in 2021. On December 21, 2020, we 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. The amendment also
extended the expiry date of the agreement to March 15, 2022.
Since early in the pandemic SARS-CoV-2 variants started to emerge and certain of
these variants have been identified as having a significant public health
impact. In December 2020, South Africa reported to WHO a new variant of
SARS-CoV-2 named B.1.351, also known as 501Y.V2. The B.1.351 variant is
associated with a higher viral load and increased transmissibility, and may be
less sensitive to neutralizing antibody responses elicited by currently
available COVID-19 vaccines. On March 9, 2021, the Company and CEPI announced a
partnership ("CEPI Funding Agreement") to develop eVLP vaccine candidates
against SARS-COV-2 variants, including the B.1.351 variant. CEPI will 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 B.1.351 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.
VBI-1501: Prophylactic CMV Vaccine Candidate
CMV may cause severe infections in newborn children (congenital CMV) and may
also cause serious infections in people with weakened immune systems, such as
solid organ or bone marrow transplant recipients. Our prophylactic CMV vaccine
candidate uses the eVLP platform to express a modified form of the CMV
glycoprotein B ("gB") antigen and is adjuvanted with alum, an adjuvant used in
FDA-approved products.
Following the successful completion of the Phase I study in May 2018, and
positive discussions with Health Canada, we announced plans for a Phase II
clinical study evaluating VBI-1501 on December 20, 2018. We received similarly
positive guidance from the FDA in July 2019. The Phase II study is expected to
assess the safety and immunogenicity of dosages of VBI-1501 up to 20µg with
alum. We are currently evaluating the timing of the Phase II study.
25
Therapeutic Pipeline
VBI-2601: HBV Immunotherapeutic Candidate
VBI-2601 (BRII-179) is our novel, recombinant, protein-based immunotherapeutic
candidate in development for the treatment of chronic HBV infection, a disease
that affects more than 250 million people worldwide. Chronic HBV infection can
lead to cirrhosis of the liver, hepatocellular cancer, and other liver disease,
making it a life-threatening global health problem. VBI-2601 (BRII-179) is
formulated to induce broad immunity against HBV virus, including T-cell immunity
which plays an important role in controlling HBV infection.
VBI-2601 (BRII-179) is in an ongoing Phase Ib/IIa study in patients with chronic
HBV infection, which initiated enrollment in November 2019, and is being
conducted by our partner Brii Biosciences Limited ("Brii Bio") pursuant to a
Collaboration and License Agreement ("License Agreement") announced on December
6, 2018. The Phase Ib/IIa study is a randomized, controlled study designed to
assess the safety, tolerability, antiviral and immunological activity of
VBI-2601 (BRII-179). The study is designed as a two-part dose-escalation study
assessing different dose levels of VBI-2601 (BRII-179) with and without an
immunomodulatory adjuvant and enrolled 46 patients. The study is being conducted
at multiple study sites in New Zealand, Australia, Thailand, South Korea, Hong
Kong SAR, and China.
On November 18, 2020, we announced interim data from the low-dose cohorts, which
achieved human proof-of-concept, demonstrating restoration of both antibody and
T cell responses in chronically-infected HBV patients. The data showed 1) potent
re-stimulation of T cell responses to HBV surface antigens in 67% (n=6/9) and
78% (n=7/9) of evaluable patients in the low-dose VBI-2601 unadjuvanted and
adjuvanted study arms, respectively; and 2) antibody responses against HBV
surface antigens in 60% of evaluable patients (n=6/10) in the unadjuvanted
cohort and in 67% (n=6/9) in the adjuvanted cohort. The low-dose, with and
without the adjuvant, was well-tolerated with no safety signals observed.
On April 12, 2021, we announced additional data from Phase Ib/IIa clinical study
for 33 evaluable patients across all study arms that suggest: 1) VBI-2601
(BRII-179) is well tolerated at all dose levels with and without the adjuvant
with no significant adverse events identified; 2) restimulation of T cell
responses to HBV surface antigens, including S, Pre-S1 and Pre-S2, in greater
than 50% of the evaluable patients from all VBI-2601 (BRII-179) cohorts compared
to no detectable response in the control arm; 3) the T cell responses and
antibody responses were comparable across the 20µg and 40µg unadjuvanted study
arms; and 4) T cell response rates between the adjuvanted and unadjuvanted
cohorts were also comparable.
Based on the acceptable safety profile and vaccine-induced adaptive immune
responses observed to-date, the high dose (40 µg) of VBI-2601 (BRII-179), both
with and without IFN-?, was selected to progress into a Phase II combination
study of VBI-2601 (BRII-179) and BRII-835 (VIR-2218), a novel small interfering
ribonucleic acid (siRNA) therapeutic candidate designed to inhibit expression of
HBV proteins. Patient dosing for the study initiated in April 2021. Brii Bio has
led the design and implementation of this functional cure proof-of-concept study
with the support of VBI and Vir Biotechnology ("VIR"), and is the sponsor of the
Phase II study. This study will be conducted at sites in Australia, China,
Taiwan, Hong Kong Special Administrative Region of China, South Korean, New
Zealand, Singapore, and Thailand.
VBI-1901: Glioblastoma
Our cancer vaccine immunotherapeutic program, VBI-1901, targets CMV proteins
present in tumor cells. CMV is associated with a number of solid tumors
including GBM, breast cancer, and pediatric medulloblastoma.
In January 2018, we initiated dosing in a two-part, multi-center, open-label
Phase I/IIa clinical study of VBI-1901 in 38 patients with recurrent GBM. Phase
I (Part A) of the study was a dose-escalation phase that defined the safety,
tolerability, and optimal dose level of VBI-1901 adjuvanted with
granulocyte-macrophage colony-stimulating factor (GM-CSF) in recurrent GBM
patients with any number of prior recurrences. In December 2018, this phase
completed enrollment of 18 patients across three dose cohorts, the highest of
which (10 µg) was selected as the optimal dose level to test in the Phase IIa
portion (Part B) of the study. Phase IIa of the study, which initiated
enrollment in July 2019, is a subsequent extension of the 10µg dose level
cohort. This phase is a two-arm study that enrolled 20 first-recurrent GBM
patients to receive 10µg of VBI-1901 in combination with either GM-CSF or
GlaxoSmithKline Biologicals S.A. ("GSK") proprietary adjuvant system, AS01, as
immunomodulatory adjuvants. AS01 is provided pursuant to a Clinical
Collaboration and Support Study Agreement ("Collaboration Agreement") we entered
into with GSK on September 10, 2019. Enrollment of the 10 patients in the
VBI-1901 with GM-CSF arm was completed in March 2020 and enrollment of the 10
patients in the VBI-1901 with AS01 was completed in October 2020.
26
Data from the ongoing Phase IIa portion of the study was announced throughout
2020, with the latest data presented in November 2020 at the Society for
Neuro-Oncology (SNO) 2020 Annual Meeting. This data showed two partial responses
("PRs") and two stable disease ("SD") observed in the VBI-1901 plus GM-CSF
vaccinated group, resulting in a disease control rate of 40% (n=4/10). A 56%
disease control rate was achieved in the group vaccinated with VBI-1901 plus
AS01, with 5 stable disease observations (n=5/9). Presumed pseudoprogression was
observed in both vaccinated groups, defined as immune infiltration into the
tumor which appears initially as tumor growth but later subsides resulting in
tumor growth stabilization and/or shrinkage.
VBI-1901 continues to be safe and well tolerated at all doses tested, with no
safety signals observed.
Based on the data seen to-date, VBI is exploring a randomized, controlled,
clinical study with registration potential for the next phase of development,
which, subject to approval from regulatory bodies, is expected to begin in the
fourth quarter of 2021.
In addition to the lead program candidates described above, we may also seek to
in-license clinical-stage vaccines or vaccine-related technologies that we
believe complement our product and pipeline portfolio, in addition to
technologies that may supplement our therapeutic and preventative vaccination
efforts in both immuno-oncology and infectious disease.
At present, our operations are focused on:
? preparing for commercialization of our 3-antigen prophylactic HBV vaccine
candidate in the United States, Europe, and Canada, where we may obtain
regulatory approval;
? conducting the Phase I/IIa clinical study of our GBM vaccine immunotherapeutic
candidate, VBI-1901;
? conducting the Phase I clinical study of our prophylactic COVID-19 vaccine
candidate, VBI-2902;
? continuing our development and scaling-up production processes for our three
prophylactic coronavirus vaccine candidates VBI-2901, VBI-2902 and VBI-2905
using a Contract Development and Manufacturing Organization ("CDMO") located in
Canada;
? seeking regulatory approval to conduct clinical trials of VBI-2905;
? developing VBI-2601 (BRII-179), our protein-based immunotherapeutic candidate
for treatment of chronic HBV, in collaboration with Brii Bio;
? ensuring our recently modernized manufacturing facility in Rehovot, Israel
obtains all required regulatory approvals;
? preparing marketing authorization applications for our 3-antigen prophylactic
HBV vaccine candidate in the United Kingdom and Canada;
? preparation for further development of VBI-1501, our preventative CMV vaccine
candidate;
? continuing the research and development ("R&D") of our pipeline candidates,
including the exploration and development of new pipeline candidates;
? implementing operational, financial, and management information systems,
including through third party partners, to support our commercialization
activities;
? maintaining, expanding, and protecting our intellectual property portfolio; and
? developing our internal systems and processes for regulatory affairs and
compliance.
VBI's revenue generating activities have been the sale of our 3-antigen
prophylactic HBV vaccine in markets where it is approved or available on a named
patient basis where it is not approved, though those markets have generated a
limited number of sales to-date, various business development transactions, and
R&D services generating fees. VBI has incurred significant net losses and
negative operating cash flows since inception and expects to continue incurring
losses and negative cash flows from operations as we carry out planned clinical,
regulatory, R&D, sales, and manufacturing activities with respect to the
advancement of our 3-antigen prophylactic HBV vaccine and new pipeline
candidates. As of March 31, 2021, VBI had an accumulated deficit of
approximately $326.3 million and stockholders' equity of approximately $180.0
million. Our ability to maintain our status as an operating company and to
realize our investment in our In Process Research & Development ("IPR&D")
assets, which consist of our CMV and GBM programs, is dependent upon obtaining
adequate cash and cash equivalents to finance our clinical development,
manufacturing, our administrative overhead and our research and development
activities, and ultimately to profitably monetize our IPR&D. We plan to finance
near term future operations with existing cash and cash equivalents reserves. We
expect that we will need to secure additional financing to finance our business
plans, which may be a combination of proceeds from the issuance of equity
securities, the issuance of additional debt, structured asset financings,
government or non-governments organization grants or subsidies, and revenues
from potential business development transactions, if any. There is no assurance
we will manage to obtain these sources of financing, if required. These factors
raise substantial doubt about our ability to continue as a going concern. The
accompanying financial statements have been prepared assuming that we will
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result should we be unable to continue as a going concern.
27
We have incurred operating losses since inception, have not generated
significant product sales revenue and have not achieved profitable operations.
We incurred net losses of $17,647 for the three months ended March 31, 2021, and
we expect to continue to incur substantial losses in future periods. We
anticipate that we will continue to incur substantial operating expenses as we
continue our research and development, clinical studies, and as we take steps to
commercialize our products. These include expenses related to the focus of our
operations highlighted above.
In addition, we have incurred and will continue to incur significant expenses as
a public company, which subjects us to the reporting requirements of the
Exchange Act, the Sarbanes-Oxley Act, the rules and regulations of the NASDAQ
Capital Market, and the Canadian securities regulators.
Long Term Debt
On May 22, 2020, we (along with our subsidiary VBI Cda) entered into a 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 million (the "First
Tranche Term Loan"). The Lenders agreed to make available the following
additional tranches subject to the following conditions and upon the submission
of a loan request by us: (1) up to $10 million available between January 1, 2021
and April 30, 2021 upon achievement of certain milestones ( the "Second Tranche
Term Loan"), (2) $10 million available between the closing date and December 31,
2021, subject to achievement of a certain U.S. FDA approval, (the "Third Tranche
Term Loan"), and (3) a final tranche of up to $10 million that can 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 "Fourth Tranche Term Loan"). Pursuant to the Loan Agreement, the Lenders
originally had the ability to convert, at the Lenders' option, up to $4 million
of the secured term loan into common shares of the Company at a conversion price
of $1.46 per share ("K2 conversion feature"). On February 3, 2021, pursuant to
the Loan Agreement, the Lenders, converted $2 million 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 million at the Lenders' option.
The Administrative Agent has determined that sufficient Second Tranche
Milestones have been satisfied to enable the Company to request draw down of the
Second Tranche Term Loan up to the Second Tranche Maximum Amount (as such terms
are defined in the Loan Agreement). The Company and the Lenders are in the
process of amending the Loan Agreement to extend the Second Tranche Availability
Period.
In connection with the Loan Agreement, on May 22, 2020, we issued the Lenders a
warrant to purchase up to 625,000 common shares (the "K2 Warrant") at an
exercise price of $1.12 (the "Warrant Price"). The number of common shares
issuable pursuant to the K2 Warrant, at any given time, is determined by the
aggregate original principal amount of the loans advanced at that time pursuant
to the Loan Agreement multiplied by 3.5% and divided by the Warrant Price. If
the full $50 million available in all K2 tranches is advanced pursuant to the
Loan Agreement, up to 1,562,500 common shares will be issuable pursuant to the
K2 Warrant. The K2 Warrant may be exercised either for cash or on a cashless
"net exercise" basis and expires on May 22, 2030.
As a result of the K2 Warrant and K2 conversion feature, the debt was issued at
a discount of $3,758. We also incurred $1,021 of debt issuance costs and are
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. The total initial debt discount
is $6,169.
The total principal amount of the loan under the Loan Agreement outstanding at
March 31, 2021, including the $1,390 final payment discussed above, is $19,390.
The principal amount of the loan made under the Loan Agreement accrues interest
at an annual rate equal to the greater of (a) 8.25% or (b) prime rate plus
5.00%. The interest rate as of March 31, 2021 was 8.25%. We are required to pay
only interest until July 1, 2022. If there is no Event of Default (as defined in
the Loan Agreement), and a Third Tranche Term Loan of $10 million is made upon
the achievement of a certain milestone, then the interest only period is
extended to January 1, 2023.
Upon receipt of additional funds under the Loan Agreement, additional common
shares will be issuable pursuant to the K2 Warrant as determined by the
principal amount of the additional funds advanced multiplied by 3.5% and divided
by the Warrant Price, and the final payment will increase by 6.95% of the funds
advanced.
28
Research and Development Services
Pursuant to an agreement with the Israel Innovation Authority (formerly the
Office of the Chief Scientist of Israel), we are required to make services
available for the biotechnology industry in Israel. These services include
relevant activities for development and manufacturing of therapeutic proteins
according to international standards and Good Manufacturing Practice ("GMP")
quality level suitable for toxicological studies in animals. Service activities
include analytics/bio analytics methods for development and process development
of therapeutic proteins starting with a candidate clone through manufacturing.
These R&D services are primarily marketed to the Israeli research community in
academia and Israeli biotechnology companies in the life sciences industry
lacking the infrastructure or experience in the development and production of
therapeutic proteins to the standards and quality required for clinical trials
for human use. During the three months ended March 31, 2021, we provided
services to biotechnology companies including analytical development.
In addition, pursuant to the License Agreement with Brii Bio we provide R&D
services to Brii Bio as part of the development of VBI-2601 (BRII-179).
Modernization and Capacity Increases of Our Manufacturing Facility
In 2018, we temporarily closed our manufacturing facility in Rehovot, Israel,
for modernization and capacity increase. We re-commenced operations in May 2019
and the review of the modernization and the capacity increase by the Israeli
Ministry of Health ("IMoH") occurred in December of 2019. We received our
certificate of GMP compliance from the IMoH on January 27, 2020. In addition to
the GMP compliance certification, the IMoH will also need to review and approve
the process validation submission, and provide approval for us to sell our
3-antigen prophylactic HBV vaccine manufactured at the modernized facility. We
increased the capacity of our manufacturing facility to be able to supply
commercial quantities of our 3-antigen prophylactic HBV vaccine candidate upon
FDA, and/or EMA, and/or MHRA, and/or Health Canada approval, and to supply
clinical supplies of VBI-2601 (BRII-179).
Third Party License and Assignment Agreements
We currently are dependent on licenses from third parties for certain of our key
technologies, including the license granted pursuant to an agreement between
Savient Pharmaceuticals Inc. and SciGen Ltd dated June 2004, as subsequently
amended (the "Ferring License Agreement") and a license from L'Universite Pierre
et Marie Curie, now Sorbonne Université ("UPMC"), Institut National de la Santé
et de la Recherche Médicale ("INSERM") and L'école Normale Supérieure de Lyon.
Under the Ferring License Agreement, we are committed to pay Ferring royalties
equal to 7% of net sales (as defined therein) of HBsAg "Product" (as defined
therein). Under an Assignment Agreement between FDS Pharm LLP and SciGen Ltd.,
dated February 14, 2012 (the "SciGen Assignment Agreement"), we are required to
pay royalties to SciGen Ltd. equal to 5% of net sales (as defined in the Ferring
License Agreement) of Product. Under the Ferring License Agreement and the
SciGen Assignment Agreement, we originally were to pay royalties on a
country-by-country basis until the date 10 years after the date of commencement
of the first royalty year in respect of such country. In April 2019, we
exercised our option to extend the Ferring License Agreement in respect of all
the countries that still make up the territory for an additional 7 years by
making a one-time payment to Ferring of $100. Royalties under the Ferring
License Agreement and SciGen Assignment Agreement will continue to be payable
for the duration of the extended license periods. Under our license agreement
with UPMC and other licensors relating to eVLP technology, we have an exclusive
license to a family of patents that is expected to expire in the United States
in 2022 and 2021 in other countries. Under this agreement, we are required to
pay UPMC between 0.75% to 1.75% of net sales and certain lump-sum milestone
payments. UPMC is also a co-owner of the patent family covering our VBI-1501 CMV
vaccine and we are currently negotiating extension of our existing license to
cover this patent family. During the three months ended March 31, 2021, we made
a milestone payment of €50 and as of March 31, 2021, we are obligated to make
another milestone payment of €150; both related to our prophylactic coronavirus
vaccine program.
29
Financial Overview
Overall Performance
The Company had net losses of $17,647 and $8,358 for the three months ended
March 31, 2021 and 2020, respectively. We had an accumulated deficit of $326,265
at March 31, 2021. We had $108,226 of cash and cash equivalents and $25,333 of
short-term investments and net working capital of $121,734 as of March 31, 2021.
Revenues
Revenues consist of R&D services revenue recognized as part of the License
Agreement with Brii Bio and revenues related to the sale of products and other
R&D services.
Cost of revenues
Cost of revenues consist primarily of costs incurred for manufacturing our
3-antigen prophylactic HBV vaccine, which includes cost of materials,
consumables, supplies, contractors, and manufacturing salaries.
Research and Development Expenses
R&D expenses, net of government grants and funding arrangements consist
primarily of costs incurred for the development of our 3-antigen prophylactic
HBV vaccine; VBI-1901, our GBM vaccine immunotherapeutic candidate; VBI-1501,
our CMV vaccine candidate; VBI-2601 (BRII-179), our hepatitis B
immunotherapeutic candidate; and VBI-2900, our coronavirus vaccine program,
which include:
? the cost of acquiring, developing, and manufacturing clinical study materials,
and other consumables and lab supplies used in our pre-clinical studies;
? expenses incurred under agreements with contractors or CDMOs or Contract
Research Organizations to advance the vaccines into and through completion of
clinical studies; and
? employee-related expenses, including salaries, benefits, travel, and
stock-based compensation expense.
We expense R&D costs when we incur them.
General and Administrative ("G&A") Expenses
G&A expenses consist principally of salaries and related costs for executive and
other administrative personnel and consultants, including stock-based
compensation, impairment charges, and travel expenses. Other general and
administrative expenses include professional fees for legal, patent protection,
consulting and accounting services, commercialization costs, travel and
conference fees, board of directors meeting costs, scientific and commercial
advisory board meeting costs, rent, maintenance of facilities, depreciation,
office supplies, information technology costs and expenses, insurance, and other
general expenses. G&A expenses are expensed when incurred.
We expect that our general and administrative expenses will increase in the
future as a result of adding employees and scaling our operations commensurate
with advancing clinical candidates, commercializing products, and continuing to
support a public company infrastructure. These increases will likely include
increased costs for insurance, hiring of additional personnel, board committees,
outside consultants, investor relations, lawyers, and accountants, among other
expenses.
Interest Expense, net of interest income
Interest expense is associated with our long-term debt as discussed in Note 9 of
the Notes to the Condensed Consolidated Financial Statements.
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Results of Operations
Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31,
2020
All dollar amounts stated below are in thousands, unless otherwise indicated.
Three months ending
March 31
2021 2020 Change $ Change %
Revenues $ 301 $ 415 $ (114 ) (27 )%
Expenses:
Cost of revenues 2,412 2,577 (165 ) (6 )%
Research and development 6,839 3,193 3,646 114 %
General and administration 6,747 4,058 2,689 66 %
Total operating expenses 15,998 9,828 6,170 63 %
Loss from operations (15,697 ) (9,413 ) (6,284 ) 67 %
Interest expense, net of
interest income (1,812 ) (582 ) (1,230 ) 211 %
Foreign exchange (loss) gain (138 ) 1,637 (1,775 ) (108 )%
Loss before income taxes (17,647 ) (8,358 ) (9,289 ) 111 %
Income tax expense - - - - %
NET LOSS $ (17,647 ) $ (8,358 ) $ (9,289 ) 111 %
Revenues
Revenues for the three months ended March 31, 2021 decreased by $114 or 27% due
to a decrease in R&D services revenue for VBI-2601, our hepatitis B
immunotherapeutic candidate, being developed in collaboration with Brii Bio, as
fewer manufacturing and non-clinical research services were required in the
three months ended March 31, 2021 compared to the three months ended March 31,
2020.
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Revenues by Geographic Region
Three months ending
March 31
2021 2020 $ Change % Change
Revenue in Israel $ 169 $ 132 $ 37 28 %
Revenues in China / Hong Kong 128 231 (103 ) (45 )%
Revenue in Europe 4 52 (48 ) (92 )%
Total Revenues $ 301 $ 415 $ (114 ) (27 )%
Cost of Revenues
Cost of revenues for the three months ended March 31, 2021 was $2,412 as
compared to $2,577 for the three months ended March 31, 2020. The decrease in
the cost of revenues of $165 or 6% is due to a decrease in R&D services as
discussed above.
Research and Development Expenses
R&D expenses for the three months ended March 31, 2021 were $6,839 as compared
to $3,193 for the three months ended March 31, 2020. The increase in R&D
expenses of $3,646 or 114%, is a result of an increase in R&D expenses related
to: 1) our prophylactic coronavirus vaccine candidates, as during the three
months period ended March 31, 2020, we were in the very early stages of
development for these candidates; and 2) regulatory costs related to the BLA
submission for the 3-antigen prophylactic HBV vaccine candidate.
General and Administrative Expenses
G&A expenses for the three months ended March 31, 2021 were $6,747 as compared
to $4,058 for the three months ended March 31, 2020. The G&A expense increase of
$2,689 or 66%, is a result of the increase in pre-commercial activities as
potential regulatory approval approaches, increased insurance costs, and
increased labor costs.
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Loss from Operations
The net loss from operations for the three months ended March 31, 2021 was
$15,697 as compared to $9,413 for the three months ended March 31, 2020. The
$6,284 increase in the net loss from operations resulted from the items
discussed above.
Interest Expense, net of interest income
The interest expense, net of interest income increased by $1,230 for the three
months ended March 31, 2021, compared to the three months ended March 31, 2020,
largely resulting from the conversion of $2,000 of the secured term loan to
common shares, which resulted in $1,161 of additional interest accretion being
recognized in interest expense, net of interest income in the condensed
consolidated statement of operations and comprehensive loss.
Foreign Exchange Gain (Loss)
The foreign exchange loss of $138 for the three months ended March 31, 2021 and
the foreign exchange gain of $1,637 for the three months ended March 31, 2020
are a result of the changes in the foreign currency exchange rates (NIS and CAD)
in which the foreign currency transactions were denominated for each of those
periods.
Net Loss
Net loss of $17,647 for the three months ended March 31, 2021 compared to $8,358
for the three months ended March 31, 2020 is a result of the items discussed
above.
Liquidity and Capital Resources
March 31, December 31,
2021 2020 $ Change % Change
Cash and cash equivalents $ 108,226 $ 93,825 $ 14,401 15 %
Current Assets 145,559 132,041 13,518 10 %
Current Liabilities 23,825 17,348 6,477 37 %
Working Capital 121,734 114,693 7,041 6 %
Accumulated Deficit $ (326,265 ) $ (308,618 ) $ (17,647 ) 6 %
As of March 31, 2021, we had cash and cash equivalents of $108,226 as compared
to $93,825 as of December 31, 2020. As of March 31, 2021, we had working capital
of $121,734 as compared to working capital of $114,693 at December 31, 2020.
Working capital is calculated by subtracting current liabilities from current
assets.
The report of our independent registered public accounting firm on our
consolidated financial statements for the year ended December 31, 2020 contains
an explanatory paragraph regarding our ability to continue as a going concern.
VBI has incurred significant net losses and negative operating cash flows since
inception and expects to continue incurring losses and negative cash flows from
operations as we carry out our planned clinical, regulatory, R&D, sales, and
manufacturing activities with respect to the advancement of our 3-antigen
prophylactic HBV vaccine candidate and new pipeline candidates. As of March 31,
2021, VBI had an accumulated deficit of approximately $326.3 million and
stockholders' equity of approximately $180.0 million.
During the first quarter of 2021, the Company issued 5,752,068 common shares
under the ATM Program, for total gross proceeds of $22,113 at an average price
of $3.84. The Company incurred $696 of shares issuance costs related to the
common shares issued resulting in net proceeds of $21,417.
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.
On March 9, 2021, the Company and CEPI announced a partnership, the CEPI Funding
Agreement, to develop eVLP vaccine candidates against SARS-COV-2 variants,
including the B.1.351 variant, also known as 501Y.V2, first identified in South
Africa. CEPI will 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 B.1.351 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.
Our ability to maintain our status as an operating company and to realize our
investment in our IPR&D assets is dependent upon obtaining adequate cash and
cash equivalents to finance our clinical development, manufacturing, our
administrative overhead and our research and development activities. We plan to
finance near term future operations with existing cash and cash equivalents
reserves. We expect that we will need to secure additional financing to finance
our business plans, which may be a combination of proceeds from the issuance of
equity securities, the issuance of additional debt, structured asset financings,
government grants or subsidies, and revenues from potential business development
transactions, if any. There is no assurance we will manage to obtain these
sources of financing. The accompanying financial statements have been prepared
assuming that we will continue as a going concern; however, the above conditions
raise substantial doubt about our ability to do so. The financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result should we be unable to continue as a going
concern. Our long-term success and ability to continue as a going concern is
dependent upon obtaining sufficient capital to fund the research and development
of our products, to bring about their successful commercial release, to generate
revenue, and, ultimately, to attain profitable operations, or, alternatively, to
advance our products and technology to such a point that they would be
attractive candidates for acquisition by others in the industry.
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We will require additional funds to conduct clinical and non-clinical trials,
achieve regulatory approvals, and, subject to such approvals, commercially
launch our products, and will need to secure additional financing in the future
to support our operations and to realize our investment in our IPR&D assets. We
base this belief on assumptions that are subject to change, and we may be
required to use our available cash and cash equivalent resources sooner than we
currently expect. Our actual future capital requirements will depend on many
factors, including the progress and results of our ongoing clinical trials, the
duration and cost of discovery and preclinical development, laboratory testing
and clinical trials for our pipeline candidates, the timing and outcome of
regulatory review of our products, obtaining regulatory approvals for our
recently modernized manufacturing facility in Rehovot, Israel, product sales
outside of Israel, the costs involved in preparing, filing, prosecuting,
maintaining, defending, and enforcing patent claims and other intellectual
property rights, the number and development requirements of other pipeline
candidates that we pursue, and the costs of commercialization activities,
including product marketing, sales, and distribution.
We expect to finance our future cash needs through public or private equity
offerings, potential additional proceeds from the long-term debt from the
Lenders pursuant to the Loan Agreement, debt financings, government grants or
subsidies, structured asset financings, or business development transactions. In
addition to the First Tranche Term Loan, the Lenders agreed to make available
subject to the conditions discussed above and upon the submission of a loan
request by the Company, the Second Tranche Term Loan, the Third Tranche Term
Loan, and the Fourth Tranche Term Loan. Pursuant to the Contribution Agreement,
we will receive up to CAD $55,976 as a government grant to support the
development of the Company's coronavirus vaccine program, though Phase II
clinical studies, and pursuant to the CEPI Funding Agreement, we will receive up
to $33,018 in funding to support the development of the Company's coronavirus
vaccine program, specifically SARS-COV-2 variants. We may need to raise
additional funds more quickly if one or more of our assumptions prove to be
incorrect or if we choose to expand our product development efforts more rapidly
than we presently anticipate. We may also decide to raise additional funds even
before we need them if the conditions for raising capital are favorable.
Additional equity, debt, structured asset financing, government grants or
subsidies, or business development transactions may not be available on
acceptable terms, if at all. If adequate funds are not available, we may be
required to delay, reduce the scope of or eliminate our R&D programs, reduce our
planned commercialization efforts or obtain funds through arrangements with
collaborators or others that may require us to relinquish rights to certain
pipeline candidates that we might otherwise seek to develop or commercialize
independently.
To the extent we raise additional capital by issuing equity securities or
obtaining borrowings convertible into equity, ownership dilution to existing
stockholders will result and future investors may be granted rights superior to
those of existing stockholders. The incurrence of indebtedness or debt financing
would result in increased fixed obligations and could also result in covenants
that would restrict our operations. Our ability to obtain additional capital may
depend on prevailing economic conditions and financial, business, and other
factors beyond our control. The ongoing COVID-19 pandemic has caused an unstable
economic environment globally. Disruptions in the global financial markets may
adversely impact the availability and cost of credit, as well as our ability to
raise money in the capital markets. Current economic conditions have been, and
continue to be, volatile. Continued instability in these market conditions may
limit our ability to access the capital necessary to fund and grow our business.
The Company's long-term success and ability to continue as a going concern is
dependent upon obtaining sufficient capital to fund the research and development
of its products, to bring about their successful commercial release, to generate
revenue and, ultimately, to attain profitable operations or, alternatively, to
advance its products and technology to such a point that they would be
attractive candidates for acquisition by others in the industry.
To date, the Company has been able to obtain financing as and when it was
needed? however, there is no assurance that financing will be available in the
future, or if it is, that it will be available at acceptable terms.
Net cash used in Operating Activities
The Company incurred net losses of $17,647 and $8,358 in the three months ended
March 31, 2021 and 2020, respectively. The Company used $6,644 and $7,648 in
cash for operating activities during the three months ended March 31, 2021 and
2020, respectively. The decrease in cash outflows is largely a result of the
change in operating working capital, notably the cash received in advance from
the CEPI Funding Agreement, offset by an increase in net loss.
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Net cash used in Investing Activities
Cash flows used in investing activities increased from $133 for the three months
ended March 31, 2020 to $556 for the three months ended March 31, 2021. The
investing activities for the three months ended March 31, 2021 and March 31,
2020 were for routine purchases of property and equipment.
Net cash provided by Financing Activities
Net cash flows in financing activities increased from cash used of $600 for the
three months ended March 31, 2020 to cash provided of $21,624 during the three
months ended March 31, 2021. This increase is due to the common shares issued as
part of the ATM Program.
Off-Balance Sheet Arrangements
As of March 31, 2021, we have no off-balance sheet transactions, arrangements,
obligations (including contingent obligations), or other relationships with
unconsolidated entities or other persons that have, or may have, a material
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures, or capital
resources.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies during the three
months ended March 31, 2021. Critical accounting policies and the significant
accounting estimates made in accordance with such policies are regularly
discussed with the Audit Committee of the Company's board of directors. Those
policies are discussed under "Critical Accounting Policies" in our "Management's
Discussion and Analysis of the Financial Condition and Results of Operations"
included in Item 7 of our Annual Report on Form 10-K for the year ended December
31, 2020, as well as in our consolidated financial statements and the footnotes
thereto, included in the Annual Report on Form 10-K.
Trends, Events and Uncertainties
As with other companies that are in the process of commercializing novel
pharmaceutical products, we will need to successfully manage normal business and
scientific risks. Research and development of new technologies is, by its
nature, unpredictable. We cannot assure you that our technology will be adopted,
that we will ever earn revenues sufficient to support our operations, or that we
will ever be profitable. In addition, the impact of the ongoing COVID-19
pandemic and its resurgence is currently indeterminable and rapidly evolving,
and has adversely affected and may continue to adversely affect our operations
and the global economy. Furthermore, other than as discussed in this report, we
have no committed source of financing and may not be able to raise money as and
when we need it to continue our operations. If we cannot raise funds as and when
we need them, we may be required to severely curtail, or even to cease, our
operations.
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Other than as discussed above and elsewhere in this Form 10-Q, we are not aware
of any trends, events or uncertainties that are likely to have a material effect
on our financial condition.
Recent Accounting Pronouncements
See Note 3 of Notes to the Condensed Consolidated Financial Statements.
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VBI VACCINES INC. 
