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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2021

 

OR

 

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

 

For the transition period from _______ to

 

Commission file number: 001-37769

 

VBI VACCINES INC.

(Exact name of registrant as specified in its charter)

 

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

 

222 Third Street, Suite 2241

Cambridge, Massachusetts

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

 

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

 

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

 

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

 

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

Yes ☒ No ☐

 

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

Yes ☒ No ☐

 

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

 

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

 

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

 

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

 

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

 

Common Shares, no par value per share  

256,008,341

(Class)   Outstanding at July 30, 2021

 

 

 

 

 

 

VBI VACCINES INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

 

TABLE OF CONTENTS

 

    Page
     
PART I - FINANCIAL INFORMATION 5
     
Item 1. Condensed Consolidated Financial Statements 5
     
  Condensed Consolidated Balance Sheets - June 30, 2021 (unaudited) and December 31, 2020 5
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020 (unaudited) 6
     
  Condensed Consolidated Statements of Stockholders’ Equity for three and six months ended June 30, 2021 and 2020 (unaudited) 7
     
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited) 8
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
     
Item 4. Controls and Procedures 36
     
PART II - OTHER INFORMATION 37
     
Item 1. Legal Proceedings 37
     
Item 1A. Risk Factors 37
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 39
   
Item 3. Defaults Upon Senior Securities 39
     
Item 4. Mine Safety Disclosure 39
     
Item 5. Other Information 39
     
Item 6. Exhibits 39
     
Signatures 41

 

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 2020 annual report on the Form 10-K filed with the Securities and Exchange Commission on March 2, 2021. 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;
● the timing and results of our ongoing and planned clinical trials for products and pipeline candidates;
● the amount of funds we require for our prophylactic and therapeutic pipeline candidates;
● the potential benefits of strategic partnership agreements and our ability to enter into strategic partnership arrangements;
● the impact of the ongoing COVID-19 pandemic on our clinical studies, research programs, manufacturing, sourcing and supply chain, 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 maintain a good relationship with our employees;
● the suitability and adequacy of our office, manufacturing, and research facilities and our ability to secure term extensions or expansions of leased space;
● our ability to manufacture, or to have manufactured, any products we develop at a commercially viable scale to the standards and requirements of regulatory agencies;
● the ability of our vendors and suppliers to manufacture and deliver materials that meet regulatory agency and our standards and requirements to meet planned timelines and milestones;
● any disruption in the operations of our Rehovot, Israel manufacturing facility where we manufacture all of our clinical and commercial supplies of our 3-antigen prophylactic 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 products 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 and funding in the future on reasonable terms, as and when we need it;
● our ability to implement network systems and controls that are effective at preventing cyber-attacks, malware intrusions, malicious viruses, and ransomware threats;
● our ability to secure and maintain protection over our intellectual property;
● our ability to maintain our existing licenses with licensors of intellectual property, or obtain new licenses for intellectual property;

 

3
 

 

● changes to legal and regulatory processes for biosimilar approval and marketing that could reduce the duration of market exclusivity for our products;
● our success at managing the risks involved in the foregoing items;
● our ability to maintain compliance with the NASDAQ Capital Market’s listing standards; and 
● other factors discussed in this Form 10-Q.

 

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

Unless otherwise stated or the context otherwise requires, the terms “VBI,” “we,” “us,” “our,” and the “Company” refer to VBI Vaccines Inc. and its subsidiaries.

 

Unless indicated otherwise, all references to the U.S. Dollar, Dollar or $ are to the United States Dollar, the legal currency of the United States of America and all references to € mean Euros, the legal currency of the European Union. We may also refer to NIS, which is the New Israeli Shekel, the legal currency of Israel, and the Canadian Dollar or CAD, which is the legal currency of Canada.

 

Except for share and per share amounts or as otherwise specified to be in millions, amounts presented are stated in thousands.

 

4
 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

 

    June 30,
2021 		    December 31,
2020 		 
    (unaudited)        
CURRENT ASSETS                
Cash and cash equivalents   $ 135,027     $ 93,825  
Short-term investments     -       25,276  
Accounts receivable, net     90       77  
Inventory, net     1,965       2,152  
Prepaid expenses     1,514       1,569  
Other current assets     7,490       9,142  
Total current assets     146,086       132,041  
                 
NON-CURRENT ASSETS                
Other long-term assets     951       639  
Property and equipment, net     10,282       10,721  
Right of use assets     1,120       1,554  
Intangible assets, net     63,868       62,156  
Goodwill     2,325       2,261  
Total non-current assets     78,546       77,331  
                 
TOTAL ASSETS   $ 224,632     $ 209,372  
                 
CURRENT LIABILITIES                
Accounts payable   $ 1,725     $ 3,734  
Other current liabilities     22,685       12,415  
Current portion of deferred revenues     885       255  
Current portion of lease liability     773       944  
Total current liabilities     26,068       17,348  
                 
NON-CURRENT LIABILITIES                
Lease liability, net of current portion     357       619  
Long-term debt, net of debt discount     27,453       16,329  
Liabilities for severance pay     569       522  
Deferred revenues, net of current portion     2,102       2,849  
Total non-current liabilities     30,481       20,319  
                 
COMMITMENTS AND CONTINGENCIES (NOTE 14)              
                 
STOCKHOLDERS’ EQUITY                
Common shares (unlimited authorized; no par value) (June 30, 2021 - issued and outstanding 255,145,138; December 31, 2020 - issued and outstanding 247,039,010)     432,268       403,528  
Additional paid-in capital     76,578       75,530  
Accumulated other comprehensive income     2,978       1,265  
Accumulated deficit     (343,741 )     (308,618 )
Total stockholders’ equity     168,083       171,705  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 224,632     $ 209,372  

 

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)

 

    2021     2020     2021     2020  
    Three Months Ended June 30     Six Months Ended June 30  
    2021     2020     2021     2020  
                         
Revenues   $ 142     $ 184     $ 443     $ 599  
                                 
Operating expenses:                                
Cost of revenues     2,634       2,060       5,046       4,637  
Research and development     4,582       2,365       11,421       5,558  
General and administrative     9,367       3,901       16,114       7,959  
Total operating expenses     16,583       8,326       32,581       18,154  
                                 
Loss from operations     (16,441 )     (8,142 )     (32,138 )     (17,555 )
                                 
Interest expense, net of interest income (including related party - see Note 9)     (845 )     (682 )     (2,657 )     (1,264 )
Foreign exchange (loss) gain     (190 )     (689 )     (328 )     948  
Loss before income taxes     (17,476 )     (9,513 )     (35,123 )     (17,871 )
                                 
Income tax expense     -       -       -       -  
                                 
NET LOSS   $ (17,476 )   $ (9,513 )   $ (35,123 )   $ (17,871 )
                                 
Other comprehensive income (loss)     1,370       2,969       1,713       (3,684 )
                                 
COMPREHENSIVE LOSS   $ (16,106 )   $ (6,544 )   $ (33,410 )   $ (21,555 )
                                 
Net loss per share of common shares, basic and diluted   $ (0.07 )   $ (0.04 )   $ (0.14 )   $ (0.09 )
                                 
Weighted-average number of common shares outstanding, basic and diluted     255,142,550       216,862,183       252,884,284       197,575,964  

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

6
 

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

    Number of
Common
Shares 		    Share
Capital 		    Additional
Paid-in
Capital 		    Accumulated
Other
Comprehensive
Income (Loss) 		    Accumulated
Deficit 		    Total Stockholders’
Equity 		 
                                     
BALANCE AS OF DECEMBER 31, 2020     247,039,010     $ 403,528     $ 75,530     $ 1,265     $ (308,618 )   $ 171,705  
                                                 
Common shares issued in financing transactions, net of share issuance costs     5,752,068       21,417       -       -       -       21,417  
Common shares issued upon exercise of warrants     34,494       52       -       -       -       52  
Common shares issued upon of conversion of long-term debt     1,369,863       2,000       -       -       -       2,000  
                                                 
Stock-based compensation
    -       51       2,088       -       -       2,139  
Net loss     -       -       -       -       (17,647 )     (17,647 )
Unrealized holding loss on short-term investments     -       -       -       (54 )     -       (54 )
Currency translation adjustments     -       -       -       397       -       397  
BALANCE AS OF MARCH 31, 2021     254,195,435     $ 427,048     $ 77,618     $ 1,608     $ (326,265 )   $ 180,009  
                                                 
BALANCE AS OF APRIL 1, 2021     254,195,435     $ 427,048     $ 77,618     $ 1,608     $ (326,265 )   $ 180,009  
                                                 
Common shares issued in financing transactions, net of share issuance costs     284,100       861       -       -       -       861  
Common shares issued upon exercise of warrants     19,346       29       -       -       -       29  
Common shares issued upon cashless exercise of warrants     646,257       4,298       (4,298 )     -       -       -  
Stock-based compensation     -       32       2,391       -       -       2,423  
Warrant modification in connection with debt amendment     -       -       867       -       -       867  
Net loss     -       -       -       -       (17,476 )     (17,476 )
Unrealized holding gain on short-term investments     -       -       -       54       -       54  
Currency translation adjustments     -       -       -       1,316       -       1,316  
BALANCE AS OF JUNE 30, 2021     255,145,138     $ 432,268     $ 76,578     $ 2,978     $ (343,741 )   $ 168,083  
                                                 
BALANCE AS OF DECEMBER 31, 2019     178,257,199     $ 284,965     $ 66,430     $ (752 )   $ (262,388 )   $ 88,255  
                                                 
Stock-based compensation     118,471       131       1,056       -       -       1,187  
Net loss     -       -       -       -       (8,358 )     (8,358 )
Currency translation adjustments     -       -       -       (6,653 )     -       (6,653 )
BALANCE AS OF MARCH 31, 2020     178,375,670     $ 285,096     $ 67,486     $ (7,405 )   $ (270,746 )   $ 74,431  
                                                 
BALANCE AS OF APRIL 1, 2020     178,375,670     $ 285,096     $ 67,486     $ (7,405 )   $ (270,746 )   $ 74,431  
                                                 
Common shares issued in financing transaction, net of issuance costs     52,272,726       53,894       -       -       -       53,894  
Warrants issued in connection with financing transactions     -       (453 )     1,634       -       -       1,181  
Conversion feature issued in debt financing transaction     -       -       2,577       -       -       2,577  
Stock-based compensation     -       91       983       -       -       1,074  
Net loss     -       -       -       -       (9,513 )     (9,513 )
Currency translation adjustments     -       -       -       2,969       -       2,969  
BALANCE AS OF JUNE 30, 2020     230,648,396     $ 338,628     $ 72,680     $ (4,436 )   $ (280,259 )   $ 126,613  

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

7
 

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

    2021     2020  
    For the Six Months Ended
June 30 		 
    2021     2020  
             
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (35,123 )   $ (17,871 )
Adjustments to reconcile net loss to cash and cash equivalents used in operating activities:                
Depreciation and amortization     921       803  
Stock-based compensation     4,562       2,261  
Amortization of debt discount     2,012       634  
Inventory reserve     720       965  
Interest accrued on short-term investments     -       (38 )
Net change in operating working capital items:                
Change in accounts receivable     (15 )     177  
Change in inventory     (563 )     (1,218 )
Change in prepaid expenses     73       (24 )
Change in other current assets     1,881       (25 )
Change in other long-term assets     (298 )     (6 )
Change in operating right of use assets     543       471  
Change in accounts payable     (2,097 )     1,193  
Change in deferred revenues     (175 )     (382 )
Change in other current liabilities     10,737       (1,927 )
Payments made on operating lease liabilities     (540 )     (468 )
Net cash flows used in operating activities     (17,362 )     (15,455 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Redemption of short-term investments     25,151       -  
Purchase of short-term investments     -       (25,000 )
Purchase of property and equipment     (960 )     (268 )
Net cash flows provided by/ (used in) investing activities     24,191       (25,268 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from issuance of common shares for cash     23,030       57,500  
Share issuance costs     (743 )     (3,606 )
Proceeds from debt financing     12,000       20,000  
Debt issuance costs     (22 )     (1,021 )
Proceeds from issuance of common shares for cash, upon exercise of warrants     81       -  
Repayment of long-term debt     -       (15,300 )
Net cash flows provided by financing activities     34,346       57,573  
                 
Effect of exchange rates on cash and cash equivalents     27       (29 )
                 
CHANGE IN CASH AND CASH EQUIVALENTS, FOR THE PERIOD     41,202       16,821  
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     93,825       44,213  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 135,027     $ 61,034  
                 
Supplementary information:                
Interest paid   $ 811     $ 724  
Non-cash investing and financing activities:                
Warrant modification in connection with debt amendment     867       -  
Warrant issued in connection with financing activities     -       1,634  
Common shares issued in connection with cashless warrant exercise     4,298       -  
K2 conversion feature in connection with financing activities     -       2,577  
Common shares issued upon conversion of debt     2,000       -  
Capital expenditures included in accounts payable and other current liabilities     122       64  
Share issuance costs included in other current liabilities     (9 )     -  

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

8
 

  

VBI Vaccines Inc. and Subsidiaries

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands, except share and per share amounts)

 

1. NATURE OF BUSINESS AND CONTINUATION OF BUSINESS

 

Corporate Overview

 

VBI Vaccines Inc. (the “Company” or “VBI”) was incorporated under the laws of British Columbia, Canada on April 9, 1965.

 

The Company and its wholly-owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s wholly-owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies, Inc. a Canadian company and the wholly-owned subsidiary of VBI US (“VBI Cda”); SciVac Ltd. an Israeli company (“SciVac”); SciVac Hong Kong Limited (“SciVac HK”), a Hong Kong corporation; 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 222 Third Street, Suite 2241, Cambridge, MA 02142. In addition, the Company has research and manufacturing facilities located in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.

 

Principal Operations

 

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, COVID-19 and coronaviruses, and cytomegalovirus (“CMV”), as well as aggressive cancers including glioblastoma (“GBM”). VBI is headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada, and a research and manufacturing site in Rehovot, Israel.

 

The ongoing COVID-19 pandemic has materially negatively affected and continues to affect the global economy, and there is continued severe uncertainty about the duration and intensity of the impacts of the pandemic. As a result, the Company’s business and results of operations have also been adversely affected and could continue to be adversely affected by COVID-19 which has necessitated restricting the number of personnel in the Company’s research laboratories and manufacturing facility at any given point in time, and has slowed recruitment to clinical trials. The pandemic has also caused interruptions to global supply chains which have significantly limited the availability of raw materials, laboratory supplies, and manufacturing equipment. The extent to which the COVID-19 pandemic will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted. We do not yet know the full extent of potential delays or impacts on our business, our clinical studies, our research programs, the recoverability of our assets, and our manufacturing; however, the COVID-19 pandemic may continue to disrupt or delay our business operations, including with respect to efforts relating to potential business development transactions, and it could disrupt the marketplace which could have an adverse effect on our operations.

 

9
 

 

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 of its products.

 

The Company had an accumulated deficit of $343,741 as of June 30, 2021 and cash outflows from operating activities of $17,362 for the six months ended June 30, 2021.

 

The Company will require significant additional funds to conduct clinical and non-clinical trials, achieve regulatory approvals, and, subject to such approvals, commercially launch its products. The Company plans to finance near term future operations with existing cash and cash equivalent reserves. Additional financing may be obtained from the issuance of equity securities, the issuance of additional debt, and/or revenues from potential business development transactions, if any. There is no assurance the Company will manage to obtain these sources of financing, if required. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

On March 9, 2021, the Company and the Coalition for Epidemic Preparedness Innovations (“CEPI”) announced a partnership (“CEPI Funding Agreement”) to develop eVLP vaccine candidates against SARS-COV-2 variants, including the Beta variant, also known as the B.1.351 variant and 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 Beta variant, 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. See more information on the CEPI Funding Agreement in Note 12.

 

On May 17, 2021, the Company entered into the First Amendment to the Loan and Guaranty Agreement and Affirmation of Pledge and Security Agreement (the “First Amendment”) with K2 HealthVentures LLC and any other lender from time-to-time party thereto (the “Lenders”). See Note 9 for more details.

 

In June 2021, the Company issued 646,257 common shares to Perceptive Credit Holdings, LP and PCOF EQ AIV, LP (related parties), upon exercise of 2,068,824 warrants on a cashless “net exercise” basis.

 

On July 31, 2020, the Company entered into an Open Market Sale AgreementSM with Jefferies LLC (“Jefferies”), pursuant to which the Company may offer and sell its common shares having an aggregate price of up to $125,000 from time to time through Jefferies, acting as agent or principal (the “ATM Program”). Common shares are offered pursuant to a sales agreement prospectus included in the Company’s automatic shelf registration on Form S-3 filed with the United States Securities and Exchange Commission (“SEC”) on July 31, 2020. During the six months ended June 30, 2021, the Company issued 6,036,168 common shares under the ATM Program, for total gross proceeds of $23,030 at an average price of $3.82. The Company incurred $753 of share issuance costs related to the common shares issued resulting in net proceeds of $22,277. As of June 30, 2021, $37,285 of common shares remained available for issuance under the ATM Program.

 

Financial instruments recognized in the condensed consolidated balance sheet consist of cash and cash equivalents, short-term investments, accounts receivable, other current assets, accounts payable, and other current liabilities. The Company believes that the carrying value of its current financial instruments approximates their fair values due to the short-term nature of these instruments. The Company does not hold any derivative financial instruments.

 

The carrying amounts of the Company’s long-term assets approximate their respective fair values.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Consolidation

 

The Company’s fiscal year ends on December 31 of each calendar year. The accompanying unaudited condensed consolidated financial statements have been prepared in U.S. dollars (“USD”) and pursuant to the rules and regulations of the SEC, for interim reporting. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. The December 31, 2020 consolidated balance sheet in this document was derived from the audited consolidated financial statements. The condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q (this “Form 10-Q”) does not include all of the disclosures required by U.S. GAAP and should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”), as filed with the SEC on March 2, 2021.

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: VBI DE, VBI US, VBI Cda, SciVac, SciVac HK, and VBI BV. Intercompany balances and transactions between the Company and its subsidiaries are eliminated in the condensed consolidated financial statements. Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.

 

In the opinion of management, these condensed consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary to fairly state the results of the periods presented. The results for the periods presented are not necessarily indicative of results to be expected for the full year or for any future periods.

 

10
 

 

Significant Accounting Policies

 

The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in the 2020 10-K, and there have been no changes to the Company’s significant accounting policies during the six months ended June 30, 2021, other than the polices discussed below.

 

CEPI Funding Agreement

 

Cash received in advance from the CEPI Funding Agreement is included in cash and cash equivalents on the condensed consolidated balance sheet, however, it is restricted as to its use until the relevant expenses are incurred. The cash received is recognized as deferred funding, included in other current liabilities on the condensed consolidated balance sheet, and recognized as a reduction in the related expense when incurred. As of June 30, 2021, the amount of cash included in cash and cash equivalents on the condensed consolidated balance sheets is $6,195. See more information on the CEPI Funding Agreement in Note 12.

 

3. NEW ACCOUNTING PRONOUNCEMENTS

 

Recently Adopted Accounting Pronouncements

 

None

 

Recently Issued Accounting Standards, not yet Adopted

 

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which will simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity. Specifically, the new standard will remove the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It will also remove certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and will simplify the diluted earnings per share calculation for convertible instruments. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. Early adoption is permitted but no earlier than fiscal periods beginning after December 15, 2020, including interim periods within those fiscal years. This ASU can be applied either through a modified retrospective method of transition or a fully retrospective method of transition. The Company will adopt ASU 2020-06 on January 1, 2022, and is currently evaluating the impact this new guidance will have on its condensed consolidated financial statements and related disclosures.

 

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), which will clarify and reduce diversity in practice. Specifically, the new standard includes a recognition model comprising four categories of transactions and corresponding accounting treatment for each category. The category that would apply to a modification or an exchange of an equity-classified warrant would depend on the substance of the modification transaction (e.g. a financing transaction to raise equity versus one to raise debt). This recognition model is premised on the idea that the accounting for the transaction should not differ from what it would have been had the issuer of the warrants paid cash instead of modifying the warrants. ASU 2021-04 will be effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. Early adoption is permitted. This ASU will be applied prospectively to modifications or exchanges occurring on or after the effective date of the ASU. The Company will adopt ASU 2021-04 on January 1, 2022, and is currently evaluating the impact this new guidance will have on its condensed consolidated financial statements and related disclosures.

 

11
 

 

4. INVENTORY, NET

 

Inventory consists of the following:

 

   

June 30,

2021

   

December 31,

2020

 
Work-in-process   $ 413     $ 390  
Raw materials     1,552       1,762  
Inventory, net   $ 1,965     $ 2,152  

 

5. OTHER CURRENT ASSETS

 

Other current assets consisted of the following:

 

   

June 30,

2021

   

December 31,

2020

 
Government receivables   $ 4,791     $ 7,830  
Other current assets     2,699       1,312  
Total other current assets   $ 7,490     $ 9,142  

 

6. INTANGIBLE ASSETS AND GOODWILL

 

          June 30, 2021  
   

Gross

Carrying
Amount

    Accumulated
Amortization 		    Cumulative
Impairment
Charge 		    Cumulative
Currency
Translation 		    Net Book
Value 		 
Patents   $ 669     $ (623 )   $ -     $ 41     $ 87  
In Process Research & Development (“IPR&D”) assets     61,500       -       (300 )     2,581       63,781  
    $ 62,169     $ (623 )   $ (300 )   $ 2,622     $ 63,868  

 

          December 31, 2020  
    Gross
Carrying
Amount 		    Accumulated
Amortization 		    Cumulative
Impairment
Charge 		    Cumulative
Currency
Translation 		    Net Book
Value 		 
Patents   $ 669     $ (590 )   $ -     $ 44     $ 123  
IPR&D assets     61,500       -       (300 )     833       62,033  
    $ 62,169     $ (590 )   $ (300 )   $ 877     $ 62,156  

 

The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives.

 

The change in carrying value for IPR&D assets from December 31, 2020 relates to currency translation adjustments which increased by $1,748 for the six-month period ended June 30, 2021.

 

          June 30, 2021  
   

Gross

Carrying

Amount

   

Cumulative

Impairment
Charge

   

Cumulative
Currency

Translation

    Net Book
Value 		 
Goodwill   $ 8,714     $ (6,292 )   $ (97 )   $ 2,325  

 

          December 31, 2020  
    Gross
Carrying
Amount 		   

Cumulative

Impairment
Charge

   

Cumulative
Currency

Translation

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

 

The change in carrying value for goodwill from December 31, 2020 relates to currency translation adjustments which increased by $64 for the six-month period ended June 30, 2021.

 

12
 

 

7. OTHER CURRENT LIABILITIES

 

Other current liabilities consisted of the following:

    June 30,
2021 		    December 31,
2020 		 
Accrued research and development expenses (including clinical trial accrued expenses)   $ 9,458     $ 5,842  
Accrued professional fees     3,034       1,547  
Payroll and employee-related costs     2,102       3,844  
Deferred government grants     1,269       825  
Deferred funding     6,195       -  
Other current liabilities     627       357  
Total other current liabilities   $ 22,685     $ 12,415  

 

8. LOSS PER SHARE OF COMMON SHARES

 

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, and stock options, which would result in the issuance of incremental shares of common shares unless such effect is anti-dilutive. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as their effect would be anti-dilutive. These potentially dilutive securities are more fully described in Note 10, Stockholders’ Equity and Additional Paid-in Capital.

 

The following potentially dilutive securities outstanding at June 30, 2021 and 2020 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

 

    June 30,
2021 		    June 30,
2020 		 
Warrants     1,387,502       3,948,824  
Stock options and restricted stock units     18,103,114       10,859,869  
K2 conversion feature     1,369,863       2,739,726  
      20,860,479       17,548,419  

 

13
 

 

9. LONG-TERM DEBT

 

As of June 30, 2021, and December 31, 2020, the long-term debt is as follows:

 

    June 30,
2021 		    December 31,
2020 		 
Long-term debt, net of debt discount of $4,771 ($5,061 at December 31, 2020)   $ 27,453     $ 16,329  
Less: current portion, net of debt discount of $0 ($0 at December 31, 2020)     -       -  
Long-term debt   $ 27,453     $ 16,329  

 

On May 22, 2020, the Company (along with its subsidiary VBI Cda) entered into the Loan and Guaranty Agreement (the “Loan Agreement”) with K2 HealthVentures LLC and any other lender from time to time party thereto (the “Lenders”) pursuant to which we received the first tranche secured term loan of $20,000 (the “First Tranche Term Loan”). The Lenders originally agreed to make available the following additional tranches subject to the following conditions and upon the submission of a loan request by the Company: (1) up to $10,000 available between January 1, 2021 and April 30, 2021 upon achievement of certain milestones (the “Second Tranche Term Loan”), (2) $10,000 available between the closing date and December 31, 2021, subject to achievement of a certain U.S. Food and Drug Administration approval (the “Third Tranche Term Loan”), and (3) a final tranche of up to $10,000 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 $4,000 of the secured term loan into common shares of the Company at a conversion price of $1.46 per share (“K2 conversion feature”) until the maturity date of June 1, 2024. On February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted $2,000 of the secured term loan into 1,369,863 common shares at a conversion price of $1.46. The Lenders have the ability to convert an additional $2,000 at the Lenders’ option.

 

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

 

In connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to 625,000 common shares (the “Original K2 Warrant”) at an exercise price of $1.12 (the “Warrant Price”). On May 17, 2021, in connection with the First Amendment, the Company issued the Lenders an amended and restated warrant to purchase an additional 312,500 common shares for a total of 937,500 common shares (the “Restated K2 Warrant”) with the same Warrant Price of $1.12. The number of common shares issuable pursuant to the Restated K2 Warrant, at any given time, is determined by dividing the Warrant Coverage Amount by the Warrant Price, where the Warrant Coverage Amount is equal to the sum of $1,050,000 plus the aggregate original principal amount of the Third Tranche and Fourth Tranche Term Loan advanced at that time multiplied by 3.5%. If the full $52,000 available in all K2 tranches is advanced pursuant to the Loan Agreement amended by the First Amendment, up to 1,562,500 common shares will be issuable pursuant to the Restated K2 Warrant. The Restated K2 Warrant may be exercised either for cash or on a cashless “net exercise” basis and expires on May 22, 2030.

 

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

 

The Second Tranche Term Loan, issued pursuant to the Loan Agreement as amended by the First Amendment, resulted in the Company incurring an additional $22 of debt issuance costs, $150 of third-party costs and being required to make a final payment of $834, which is equal to 6.95% of the Second Tranche Term Loan.

 

The Company accounted for the First Amendment as a debt modification and as a result the debt discount was increased by $1,723. This amount represents: (1) the incremental fair value of the Restated K2 warrant of $867; (2) the increased final payment of $834 related to the Second Tranche Term Loan; and (3) debt issuance costs of $22. The third-party costs were expensed in general and administration in the condensed consolidated statement of operations and comprehensive loss.

 

Upon receipt of additional funds under the Loan Agreement as amended by the First Amendment, additional common shares will be issuable pursuant to the Restated K2 Warrant as determined by the principal amount of the Third Tranche and Fourth Tranche actually funded multiplied by 3.5% and divided by the Warrant Price, and the final payment will increase by 6.95% of the funds advanced.

 

The total principal amount of the loan under the Loan Agreement, as amendment by the First Amendment, outstanding at June 30, 2021, including the $2,224 final payment discussed above, is $32,224. The principal amount of the loan made under the Loan Agreement prior to the First Amendment accrues interest at an annual rate equal to the greater of (a) 8.25% or (b) prime rate plus 5.00%. The principal amount of the Second Tranche Term Loan made under the Loan Agreement, as amended by the First Amendment, accrues interest at an annual rate equal to the greater of (a) 7.75% or (b) prime rate plus 4.50%. The interest rate as of June 30, 2021 was 8.25% for the First Tranche Term Loan and 7.75% for the Second Tranche Term Loan. The Company is required to pay only interest until January 1, 2023. The effective interest rate on the loan of $30,000, excluding the final payment, is 16.25%.

 

14
 

 

Upon the occurrence of an Event of Default, and during the continuance of an Event of Default, the applicable rate of interest, described above, will be increased by 5.00% per annum. The secured term loan maturity date is June 1, 2024, and the Loan Agreement includes both financial and non-financial covenants. The Company was in compliance with these covenants as of June 30, 2021.

 

The obligations under the Loan Agreement, as amended by the First Amendment, are secured on a senior basis by a lien on substantially all of the assets of the Company and its subsidiaries other than intellectual property. The subsidiaries of the Company, other than VBI Cda and SciVac HK, and VBI BV, are guarantors of the obligations of the Company and VBI Cda under the Loan Agreement. The Loan Agreement also contains customary events of default.

 

The total debt discount related to the Loan Agreement, as amended by the First Amendment, with K2 HealthVentures LLC is $7,890. As of June 30, 2021, and December 31, 2020, the unamortized debt discount was $4,771 and $5,061 respectively. The debt discount is being charged to interest expense, net of interest income in the condensed consolidated statement of operations and comprehensive loss using the effective interest method over the term of the debt.

 

During the three and six months ended June 30, 2021, as a result of the conversion of term loan to common shares, $0 and $1,161, respectively, of additional interest accretion was recognized in interest expense, net of interest income in the condensed consolidated statement of operations and comprehensive loss.

 

At June 30, 2021 and December 31, 2020, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy, is estimated to be $32,042 and $20,117, respectively.

 

Interest expense, net of interest income recorded in the three and six months ended June 30, 2021 and 2020 was as follows:

 

    2021     2020     2021     2020  
    Three months ended
June 30 		    Six months ended
June 30 		 
    2021     2020     2021     2020  
                         
Interest expense   $ 481     $ 433     $ 870     $ 908  
Amortization of debt discount     401       395       2,012       634  
Interest income     (37 )     (146 )     (225 )     (278 )
Total interest expense, net of interest income   $ 845     $ 682     $ 2,657     $ 1,264  

 

Interest expense and amortization of debt discount for the three and six months ended June 30, 2021 does not include any amounts incurred to a related party.

 

Interest expense and amortization of debt discount for the three months ended June 30, 2020 includes $248 and $222, respectively, incurred to a related party.

 

Interest expense and amortization of debt discount for the six months ended June 30, 2020 includes $723 and $461, respectively, incurred to a related party.

 

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

    Principal
payments on
Loan Agreement
and final payment 		 
Remaining 2021   $ -  
2022     -  
2023     19,573  
2024     12,651  
Total   $ 32,224  

 

15
 

 

10. STOCKHOLDERS’ EQUITY AND ADDITIONAL PAID-IN CAPITAL

 

Stock option plans

 

The Company’s stock option plans are approved by and administered by the Board and its Compensation Committee. The Board designates, in connection with recommendations from the Compensation Committee, eligible participants to be included under the plan, and designates the number of options, exercise price and vesting period of the new options.

 

2006 VBI US Stock Option Plan

 

The 2006 VBI US Stock Option Plan (the “2006 Plan”), was approved by and was previously administered by the VBI US board of directors which designated eligible participants to be included under the 2006 Plan, and designated the number of options, exercise price and vesting period of the new options. The 2006 Plan was not approved by the stockholders of VBI US. The 2006 Plan was superseded by the 2014 Plan (as defined below) following the PLCC Merger and no further options will be issued under the 2006 Plan. As of June 30, 2021, there were 989,813 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. No further options will be issued under the 2014 Plan. As of June 30, 2021, there were 521,242 options outstanding under the 2014 Plan.

 

2016 VBI Equity Incentive Plan

 

The 2016 Plan is a rolling incentive plan that sets the number of common shares issuable under the 2016 Plan, together with any other security-based compensation arrangement of the Company, at a maximum of 10% of the aggregate common shares issued and outstanding on a non-diluted basis at the time of any grant under the 2016 Plan. The 2016 Plan is an omnibus equity incentive plan pursuant to which the Company may grant equity and equity-linked awards to eligible participants in order to promote the success of the Company by providing a means to offer incentives and to attract, motivate, retain and reward persons eligible to participate in the 2016 Plan. Grants under the 2016 Plan include a grant or right consisting of one or more options, stock appreciation rights (“SARs”), restricted share units (“RSUs”), performance share units (“PSUs”), shares of restricted stock or other such award as may be permitted under the 2016 Plan. As of June 30, 2021, there were 16,510,650 options outstanding and 81,409 RSUs unvested under the 2016 Plan.

 

16
 

 

The aggregate number of common shares remaining available for issuance for awards under the 2016 Plan totaled 6,031,915 at June 30, 2021.

 

Activity related to stock options is as follows:

 

    Number of
Stock
Options 		    Weighted
Average
Exercise Price 		 
Balance outstanding at December 31, 2020     12,507,541     $ 2.38  
                 
Granted     5,540,000     $ 3.15  
Forfeited     (25,836 )   $ 2.80  
                 
Balance outstanding at June 30, 2021     18,021,705     $ 2.62  
                 
Exercisable at June 30, 2021     7,776,533     $ 2.58  

 

Information relating to RSUs is as follow:

 

    Number of
Stock Awards 		    Weighted
Avg Fair Value
at Grant Date 		 
Unvested shares outstanding at December 31, 2020     129,356     $ 1.62  
                 
Vested     (44,057)     $ 1.81  
Forfeited     (3,890)       1.51  
                 
Unvested shares outstanding at June 30, 2021     81,409     $ 1.51  

 

In determining the amount of stock-based compensation the Company used the Black-Scholes option pricing model to establish the fair value of options granted by applying the following weighted average assumptions:

 

    2021     2020  
Volatility     97.13 %     90.12 %
Risk free interest rate     0.54 %     1.54 %
Expected term in years     5.85       5.77  
Expected dividend yield     0.00 %     0.00 %
Weighted average fair value per option   $ 2.40     $ 1.04  

 

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 six months ended June 30, 2021 and 2020 was as follows:

 

   

Three months ended

June 30

   

Six months ended

June 30

 
    2021     2020     2021     2020  
                         
Research and development   $ 463     $ 218     $ 891     $ 461  
General and administrative     1,937       845       3,627       1,778  
Cost of revenues     23       11       44       22  
Total stock-based compensation expense   $ 2,423     $ 1074     $ 4,562     $ 2,261  

 

17
 

 

Warrants

 

On May 17, 2021, in connection with the First Amendment, as described in Note 9, the Company issued the Lenders the Restated K2 Warrant to purchase an additional 312,500 common shares for a total of 937,500 common shares with the same Warrant Price of $1.12.

 

The value attributed to the Restated K2 Warrant was based on the Black-Scholes option pricing model by applying the following assumptions:

 

    Restated K2 Warrant
     
Volatility     95.00 %
Risk free interest rate     1.53 %
Expected term in years     9  
Expected dividend yield     0.00 %
Fair value per warrant   $ 2.77  

 

Activity related to the warrants is as follows:

 

    Number of
Warrants 		    Weighted
Average
Exercise Price 		 
Balance outstanding at December 31, 2020     3,197,666     $ 2.23  
                 
Restated K2 Warrant     312,500       1.12  
Exercised     (2,122,664 )   $ 2.72  
                 
Balance outstanding at June 30, 2021     1,387,502     $ 1.24  

 

11. REVENUES AND DEFERRED REVENUE

 

Revenue comprises the following:

 

   

Three months ended

June 30

   

Six months ended

June 30

 
    2021     2020     2021     2020  
                         
Product revenues   $ 71     $ 18     $ 238     $ 198  
R&D service revenues     71       166       205       401  
Total revenue   $ 142     $ 184     $ 443     $ 599  

 

The following table presents revenues expected to be recognized in the future related to performance obligations, based on current estimates, that are unsatisfied at June 30, 2021:

 

    Total    

Current

portion to

June 30,
2022

   

Remaining

portion

thereafter

 
Product revenues   $ 469     $ -     $ 469  
R&D service revenues     2,518       885       1,633  
Total   $ 2,987     $ 885     $ 2,102  

 

The following table presents changes in the deferred revenue balance for the six months ended June 30, 2021:

 

         
Balance at December 31, 2020   $ 3,104  
         
Recognition of deferred revenue     (183)  
Currency translation     66  
         
Balance at June 30, 2021   $ 2,987  
         
Short Term   $ 885  
Long Term   $ 2,102  

 

Collaboration and License Agreement – Brii Bio

 

On December 4, 2018, we entered into a Collaboration and License Agreement with Brii Biosciences Limited (“Brii Bio”) (the “Collaboration and License Agreement”), amended on April 8, 2021, whereby:

 

  ● The Company and Brii Bio agreed to collaborate on the development of a hepatitis B recombinant protein-based immunotherapeutic in the licensed territory, which consists of China, Hong Kong, Taiwan, and Macau (collectively, the “Licensed Territory”), and to conduct a Phase Ib/IIa collaboration clinical trial for the purpose of comparing VBI-2601 (BRII-179), which is a recombinant protein-based immunotherapeutic developed by VBI for use in treating chronic hepatitis B, with a novel composition developed jointly with Brii Bio (either being the “Licensed Product”); and,
     
  ● The Company granted Brii Bio an exclusive royalty-bearing license to perform studies, regulatory and other activities, as may be required to obtain and maintain marketing approval of the Licensed Product in the Licensed Territory and to commercialize the Licensed Product for the diagnosis and treatment of hepatitis B in the Licensed Territory.

 

18
 

 

Pursuant to the Collaboration and License Agreement, the Company is responsible for the R&D services and Brii Bio is responsible for costs relating to the clinical trials for the Licensed Territory.

 

The initial consideration of the Collaboration and License Agreement consisted of a $11,000 non-refundable upfront payment. As part of the Collaboration and License Agreement, the Company and Brii Bio entered into a stock purchase agreement. Under the terms of the stock purchase agreement, the Company issued to Brii Bio 2,295,082 shares of its common stock valued at $3,626 (based on the Company’s common stock price on December 4, 2018). The remaining $7,374, deemed to be the initial transaction price, was allocated to two performance obligations: i) the VBI-2601 (BRII-179) license, and ii) R&D services. The R&D services were allocated $4,737 of the transaction price using an estimated selling price based on an expected cost plus a margin approach and the remaining transaction price of $2,637 was allocated to the VBI-2601 (BRII-179) license using the residual method.

 

In addition, the Company is also eligible to receive an additional $117,500 in potential regulatory and sales milestone payments, along with royalties on commercial sales in the Licensed Territory. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. Therefore, no variable consideration was included in the initial transaction price and no such amounts have been recognized to date.

 

The R&D Services will be satisfied over time as services are rendered using the “cost-to-cost” input method as this method represents the most accurate depiction of the transfer of services based on the types of costs expected to be incurred. As of June 30, 2021, R&D services related to Brii Bio that remain unsatisfied are $2,318, out of the $2,987 total deferred revenue.

 

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

 

12. COLLABORATION ARRANGEMENTS

 

GlaxoSmithKline Biologicals S.A. (“GSK”)

 

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

 

This relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic 606. Costs associated with the second study arm will be expensed as incurred in Research and Development expenses; three and six months ended June 30, 2021 are $70 and $326, respectively. Costs for the three and six months ended June 30, 2020 were $194 and $336, respectively.

 

National Research Council of Canada (“NRC”)

 

On March 31, 2020, the Company announced a collaboration with the NRC, Canada’s largest federal research and development organization, to develop a pan-coronavirus vaccine candidate, targeting COVID-19, SARS, and MERS. The NRC and the Company are collaborating to evaluate and select promising coronavirus vaccine candidates. The collaboration combines the Company’s viral vaccine expertise, eVLP technology platform, and modified coronavirus antigens with the NRC’s proprietary SARS-CoV-2 antigens and assay development capabilities to select the most immunogenic vaccine candidate for further development.

 

On December 21, 2020, 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.

 

On July 8, 2021, we signed a second amendment to the collaboration agreement with the NRC to broaden the scope of the collaboration to include developing a vaccine against the Beta variant of SARS-CoV-2.

 

The expiry date of the collaboration agreement is March 15, 2022.

 

This relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic 606. Costs, gross of government grants and CEPI funding, associated with the collaboration will be expensed as incurred in Research and Development expenses; costs for the three and six months ended June 30, 2021 are $56 and $229, respectively. Costs for the three and six months ended June 30, 2020 were de-minimis and $264, respectively.

 

CEPI

 

On March 9, 2021, the Company and CEPI announced the CEPI Funding Agreement, to develop eVLP vaccine candidates against SARS-COV-2 variants, including the Beta variant, also known as the B.1.351 variant and as 501Y.V2, first identified in South Africa. CEPI 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 Beta variant strain, through Phase I clinical development. This funding will also support preclinical expansion of additional multivalent vaccine candidates designed to evaluate the potential breadth of our eVLP technology. The preclinical expansion is intended to develop clinic-ready vaccine candidates capable of addressing emerging variants.

 

Under the terms of the CEPI Funding Agreement, among other things, the Company and CEPI agreed on the importance of global equitable access to any vaccines produced pursuant to the CEPI Funding Agreement. Any such vaccines, if approved, are expected to be procured and allocated through global mechanisms under discussion as part of the Access to COVID-19 Tools (ACT) Accelerator, an international initiative launched by the World Health Organization (“WHO”), Gavi the Vaccine Alliance, CEPI, and other global non-governmental organizations and governmental leaders in 2021.

 

19
 

 

This relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic 606. Costs associated with the collaboration will be expensed as incurred in Research and Development expenses; costs for the three and six months ended June 30, 2021 are $2,048 and $2,207, respectively. As of June 30, 2021, the Company had $6,195 recorded as deferred funding, recorded in other current liabilities on the condensed consolidated balance sheet.

 

Brii Biosciences Limited

 

On December 4, 2018, we entered into the Collaboration and License Agreement with Brii Bio, which was amended on April 8, 2021, as described in Note 11.

 

13. GOVERNMENT GRANTS

 

Grants recognized in research and development expenses in the consolidated statement of operations and comprehensive loss are as follows:

 

Industrial Research Assistance Program (“IRAP”)

 

On July 3, 2020, the Company and the NRC as represented by its IRAP signed a contribution agreement whereby the NRC agreed to contribute up to CAD $1,000 for the transfer and scale-up of the technical production process for our prophylactic coronavirus vaccine program.

 

For the three and six months ended June 30, 2021 the Company recognized $0 and $0, respectively, as a reduction in expenses. As of June 30, 2021, the Company had $303 recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance sheet.

 

Strategic Innovation Fund (“SIF”)

 

On September 16, 2020, the Company and Her Majesty the Queen in Right of Canada as represented by the Minister of Industry (“ISED”) signed a contribution agreement (the “Contribution Agreement”) for a contribution from SIF whereby ISED agreed to contribute up to CAD $55,976 to support the development of the Company’s coronavirus vaccine program, through Phase II clinical studies, for a period commencing on April 15, 2020 and ending on or before the last day of the first quarter of 2022.

 

For the three and six months ended June 30, 2021 the Company recognized $1,324 and $4,012, respectively, as a reduction in expenses. As of June 30, 2021, the Company had $967 recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance sheet.

 

20
 

 

14. COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings 

 

From time to time, the Company may be involved in certain claims and litigation arising out of the ordinary course and conduct of business. Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the most likely outcome.

 

On September 13, 2018, two civil claims were brought in the District Court of the central district in Israel naming our subsidiary SciVac as a defendant. In one claim, two minors, through their parents, allege, among other things: defects in certain batches of our 3-antigen prophylactic HBV vaccine discovered in July 2015; that our 3-antigen prophylactic HBV vaccine was approved for use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac failed to provide accurate information about our 3-antigen prophylactic HBV vaccine to consumers; and that each child suffered side effects from the vaccine. The claim was filed together with a motion seeking approval of a class action on behalf of 428,000 children vaccinated with our 3-antigen prophylactic HBV vaccine in Israel from April 2011 and seeking damages in a total amount of NIS 1,879,500,000 (not in thousands) ($576,534). The second claim is a civil action brought by two minors and their parents against SciVac and the Israel Ministry of Health alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine; that our 3-antigen prophylactic HBV vaccine was marketed in Israel without sufficient evidence establishing its safety; and that our 3-antigen prophylactic HBV vaccine was produced and marketed in Israel without approval of a western regulatory body. The claim seeks damages for past and future losses and expenses as well as punitive damages.

 

SciVac believes these matters to be without merit and intends to defend these claims vigorously.

 

The District Court has accepted SciVac’s motion to suspend reaching a decision on the approval of the class action pending the determination of liability under the civil action. Preliminary hearings for the trial of the civil action began on January 15, 2020, with subsequent preliminary hearings held on May 13, 2020 and December 3, 2020 to discuss document disclosure. The next preliminary hearing is scheduled to be held on September 13, 2021.

 

Operating leases

 

The Company has entered into various non-cancelable lease agreements for its office, lab, and manufacturing facilities, which are classified as operating leases. The office facility lease agreement in the United States expires on April 30, 2023, with no option to extend. Our manufacturing facility lease agreement expires on January 31, 2022, which includes one five-year option to extend until January 31, 2027. The lease agreement for our research facility in Canada, which comprises office and laboratory space, has a term ending on December 31, 2022 with an option to extend the term for one additional period of three years. A lease for additional office space at our research facility commenced on October 1, 2020 with a term ending April 30, 2023.

 

Options to extend are not recognized as part of the lease liabilities or recognized as right to use assets. There are no residual value guarantees, no variable lease payments, and no restrictions or covenants imposed by leases. The discount rate used in measuring the lease liabilities and right of use assets was determined by reviewing our incremental borrowing rate at the initial measurement date.

Lease cost:      
Operating lease costs:      
Three months ended June 30, 2021   $ 340  
Six months ended June 30, 2021     683  
Three months ended June 30, 2020     294  
Six months ended June 30, 2020     581  

 

Other information:      
Weighted average remaining lease term   1.68 years  
Weighted average discount rate     12 %

 

Operating lease costs are included in general and administrative (“G&A”) expenses in the statement of operations and comprehensive loss.

 

21
 

 

The following table summarizes future undiscounted cash payments reconciled to the lease liabilities:

 

Year ending December 31:   2021  
Remaining 2021   $ 544  
2022     527  
2023     125  
Total   $ 1,196  
Effect of discounting     (66 )
Total lease liability   $ 1,130  
Less: current portion     (773 )
Lease liability, net of current portion   $ 357  

 

15. SEGMENT INFORMATION

 

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

 

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

 

   

Three Months Ended

June 30

   

Six Months Ended

June 30

 
    2021     2020     2021     2020  
                         
Israel   $ 87     $ 19     $ 256     $ 150  
China / Hong Kong     55       165       183       396  
Europe     -       -       4       53  
Total   $ 142     $ 184     $ 443     $ 599  

 

There was no revenue attributed to our country of domicile, Canada, for the three and six months ended June 30, 2021 and 2020.

 

16. SUBSEQUENT EVENTS

 

Subsequent to June 30, 2021, pursuant to the Open Market Sale Agreement with Jefferies, the Company issued 860,170 common shares under the ATM Program for total gross proceeds of $2,894 at an average price of $3.36. We incurred $70 of share issuance costs related to the common shares issued resulting in net proceeds of $2,824.

 

Subsequent to June 30, 2021, the Company granted a total of 350,000 stock options to a new employee and a new director pursuant to the 2016 Plan. Options granted to vest monthly over 36 months or vest 25% on the one-year anniversary of the grant date, with the remaining 75% vesting on a monthly basis over 24 months. All options granted automatically expire 10 years from the date of issuance.

 

On July 11, 2021, the Company entered into a new sub-lease agreement in Israel.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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”), 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.

 

Product Pipeline – Lead Program Candidates

 

VBI’s pipeline comprises 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. Only a few antigens self-assemble into VLPs, however, 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            
● Hepatitis B (“HBV”)  

3-antigen vaccine candidate

(Israel brand name Sci-B-Vac®)

  VLP  

BLA and MAA Accepted;

Approved in Israel

● Cytomegalovirus (“CMV”)   VBI-1501   eVLP   Phase I Completed
● COVID-19   VBI-2902   eVLP   Ongoing Phase I
● COVID-19 (Beta 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.

 

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Prophylactic Pipeline

 

3-antigen HBV Vaccine Candidate

 

Our 3-antigen HBV vaccine is a scientifically-differentiated approach to HBV vaccination. In contrast to other commercially-available HBV vaccines, which contain only one surface antigen (the S antigen) of HBV, our vaccine candidate contains all three of the HBV surface antigens: the S antigen, the pre-S1 antigen, and the pre-S2 antigen. Published data demonstrated that the 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 candidate is further distinguished from other commercially available HBV vaccines by its production in mammalian cells (“CHO” cells) rather than in yeast; resulting in a glycosylation pattern that resembles the native virion antigen structure.

 

Our 3-antigen HBV vaccine candidate is approved for use and commercially available in Israel, under the brand name Sci-B-Vac®, and in January 2020 successfully completed its pivotal Phase III studies in the United States, Europe, and Canada, where it 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 (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 candidate 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.

 

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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 our subsidiary, Variation Biotechnologies Inc (“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 VBI Cda 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 on or before the end of 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: (1) VBI-2901, a multivalent pan-coronavirus vaccine candidate expressing the SARS-CoV-2, SARS, and MERS spike proteins; and (2) VBI-2902, a monovalent vaccine candidate expressing an optimized “prefusion” form of the SARS-CoV-2 spike protein.

 

In March 2021, an adaptive Phase I/II study of VBI-2902 was initiated and on June 29, 2021 we announced initial positive data from the Phase I portion of this study that evaluated one- and two-dose regimens of 5µg of VBI-2902 in 61 healthy adults age 18-54 years. After two doses, VBI-2902 induced neutralization titers in 100% of participants, with 4.3x higher geometric mean titer (“GMT”) than that of the convalescent serum panel (n=25), and peak antibody binding GMT of 1:4,047. The study supports the assessment of a one-dose booster regimen in seropositive individuals and two-dose regimens in seronegative individuals. VBI-2902 was also well tolerated with no safety signals observed.

 

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 Beta, also known as B.1.351 or 501Y.V2. The Beta 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 (the “CEPI Funding Agreement”) to develop eVLP vaccine candidates against SARS-COV-2 variants, including the Beta 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 Beta 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.

 

In response to the increased circulation of SARS-CoV-2 variants, the next phase of the ongoing adaptive Phase I/II study is expected to initiate in Q3 2021 and will assess VBI-2905, our eVLP vaccine candidate directed against the SARS-CoV-2 Beta variant. In addition, the first clinical study of VBI’s multivalent candidate, designed to increase breadth of protection against COVID-19, is expected to begin in the first half of 2022. 

 

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.

 

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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, 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 (“Collaboration and License Agreement”) announced on December 6, 2018, as amended on April 8, 2021. 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 unadjuvanted and adjuvanted VBI-2601 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) VBI-2601 (BRII-179) induced restimulation of T cell responses to HBV surface antigens, including S, Pre-S1 and Pre-S2, in greater than 50% of the evaluable patients compared to no detectable response in the control arm; (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-α, 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: GBM

 

Our cancer vaccine immunotherapeutic program, VBI-1901, targets CMV proteins present in tumor cells. CMV is associated with a number of solid tumors including GBM, breast cancer, and pediatric medulloblastoma.

 

In January 2018, we initiated dosing in a two-part, multi-center, open-label Phase I/IIa clinical study of VBI-1901 in 38 patients with recurrent GBM. Phase I (Part A) of the study was a dose-escalation phase that defined the safety, tolerability, and optimal dose level of VBI-1901 adjuvanted with granulocyte-macrophage colony-stimulating factor (“GM-CSF”) in recurrent GBM patients with any number of prior recurrences. In December 2018, this phase completed enrollment of 18 patients across three dose cohorts, the highest of which (10 µg) was selected as the optimal dose level to test in the Phase IIa portion (Part B) of the study. Phase IIa of the study, which initiated enrollment in July 2019, is a 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.’s (“GSK’s”) proprietary adjuvant system, AS01B, as immunomodulatory adjuvants. AS01B 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 B was completed in October 2020.

 

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Data from the ongoing Phase IIa portion of the study was announced throughout 2020, with the latest data presented in June 2021 at the American Society of Clinical Oncology Annual Meeting. The data demonstrates: (1) 12-month overall survival (“OS”) of 60% (n=6/10) in the VBI-1901 formulated with GM-CSF study arm compared to historical controls of ~30%, with the 12-month OS not yet reached with the VBI-1901 + AS01B arm; (2) 2 partial tumor responses and 7 stable disease observations across both study arms; and (3) VBI-1901 continues to be safe and well tolerated at all doses tested, with no safety signals observed.

 

On June 8, 2021, we announced that the FDA granted Fast-Track Designation for VBI-1901 formulated with GM-CSF for the treatment of recurrent GBM patients with first tumor recurrence. The designation was granted based on data from the Phase I/II study.

 

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 at the end 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 and obtaining regulatory approval to continue the ongoing clinical study with VBI-2905, our COVID-19 vaccine candidate against the Beta variant;
   
● 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;
   
● 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 candidate 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 June 30, 2021, VBI had an accumulated deficit of approximately $343.7 million and stockholders’ equity of approximately $168.1 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, government or non-governmental organization grants or subsidies, and revenues from potential business development transactions, if any. There is no assurance we will manage to obtain these sources of financing, if required. These factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

 

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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 $35.1 million for the six months ended June 30, 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, the Company (along with its subsidiary VBI Cda) entered into the Loan and Guaranty Agreement (the “Loan Agreement”) with K2 HealthVentures LLC and any other lender from time to time party thereto (the “Lenders”) pursuant to which we received the first tranche secured term loan of $20 million (the “First Tranche Term Loan”). The Lenders originally agreed to make available the following additional tranches subject to the following conditions and upon the submission of a loan request by the Company: (1) up to $10 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. Food and Drug Administration 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”) until the maturity date of June 1, 2024. 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.

 

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

 

In connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to 625,000 common shares (the “Original K2 Warrant”) at an exercise price of $1.12 (the “Warrant Price”). On May 17, 2021, in connection with the First Amendment, the Company issued the Lenders an amended and restated warrant to purchase an additional 312,500 common shares for a total of 937,500 common shares (the “Restated K2 Warrant”) with the same Warrant Price of $1.12. The number of common shares issuable pursuant to the Restated K2 Warrant, at any given time, is determined by dividing the Warrant Coverage Amount by the Warrant Price, where the Warrant Coverage Amount is equal to the sum of $1,050,000 plus the aggregate original principal amount of the Third Tranche and Fourth Tranche Term Loan advanced at that time multiplied by 3.5%. If the full $52 million available in all K2 tranches is advanced pursuant to the Loan Agreement amended by the First Amendment, up to 1,562,500 common shares will be issuable pursuant to the Restated K2 Warrant. The Restated 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 Original 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 related to the First Tranche Term Loan. The total initial debt discount was $6,169.

 

The Second Tranche Term Loan, issued pursuant to the Loan Agreement as amended by the First Amendment, resulted in the Company incurring an additional $22 of debt issuance costs, $150 of third-party costs and being required to make a final payment of $834, which is equal to 6.95% of the Second Tranche Term Loan.

 

The total principal amount of the loan under the Loan Agreement, as amendment by the First Amendment, outstanding at June 30, 2021, including the $2,224 final payment discussed above, is $32,224. The principal amount of the loan made under the Loan Agreement prior to the First Amendment accrues interest at an annual rate equal to the greater of (a) 8.25% or (b) prime rate plus 5.00%. The principal amount of the Second Tranche Term Loan made under the Loan Agreement, as amended by the First Amendment, accrues interest at an annual rate equal to the greater of (a) 7.75% or (b) prime rate plus 4.50%. The interest rate as of June 30, 2021 was 8.25% for the First Tranche Term Loan and 7.75% for the Second Tranche Term Loan. The Company is required to pay only interest until January 1, 2023.

 

Upon receipt of additional funds under the Loan Agreement as amended by the First Amendment, additional common shares will be issuable pursuant to the Restated K2 Warrant as determined by the principal amount of the Third Tranche and Fourth Tranche actually funded multiplied by 3.5% and divided by the Warrant Price, and the final payment will increase by 6.95% of the funds advanced.

 

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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 six months ended June 30, 2021, we provided services to biotechnology companies including analytical development.

 

In addition, pursuant to the Collaboration and 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 six months ended June 30, 2021, we made a milestone payment of €200; related to our prophylactic coronavirus vaccine program.

 

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Financial Overview

 

Overall Performance

 

The Company had net losses of $17,476 and $9,513 for the three months ended June 30, 2021 and 2020, respectively, and $35,123 and $17,871 for the six months ended June 30, 2021 and 2020 respectively. We had an accumulated deficit of $343,741 at June 30, 2021. We had $135,027 of cash and cash equivalents and net working capital of $120,018 as of June 30, 2021.

 

Revenues

 

Revenues consist of R&D services revenue recognized as part of the Collaboration and 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 and Six Months Ended June 30, 2021 Compared to the Three and Six Months Ended June 30, 2020

 

All dollar amounts stated below are in thousands, unless otherwise indicated.

 

   

Three months ending

June 30

             
    2021     2020     Change $     Change %  
Revenues   $ 142     $ 184     $ (42 )     (23 )%
                                 
Expenses:                                
Cost of revenues     2,634       2,060       574       28 %
Research and development     4,582       2,365       2,217       94 %
General and administrative     9,367       3,901       5,466       140 %
Total operating expenses     16,583       8,326       8,257       99 %
                                 
Loss from operations     (16,441 )     (8,142 )     (8,299 )     102 %
                                 
Interest expense, net of interest income     (845 )     (682 )     (163 )     24 %
Foreign exchange loss     (190 )     (689 )     499       (72 )%
Loss before income taxes     (17,476 )     (9,513 )     (7,963 )     84 %
                                 
Income tax expense     -       -       -       - %
                                 
NET LOSS   $ (17,476 )   $ (9,513 )   $ (7,963 )     84 %

 

   

Six months ending

June 30

             
    2021     2020     Change $     Change %  
Revenues   $ 443     $ 599     $ (156 )     (26 )%
                                 
Expenses:                                
Cost of revenues     5,046       4,637       409       9 %
Research and development     11,421       5,558       5,863       105 %
General and administrative     16,114       7,959       8,155       102 %
Total operating expenses     32,581       18,154       14,427       79 %
                                 
Loss from operations     (32,138 )     (17,555 )     (14,583 )     83 %
                                 
Interest expense, net of interest income     (2,657 )     (1,264 )     (1,393 )     110 %
Foreign exchange (loss) gain     (328 )     948       (1,276 )     (135 )%
Loss before income taxes     (35,123 )     (17,871 )     (17,252 )     97 %
                                 
Income tax expense     -       -       -       - %
                                 
NET LOSS   $ (35,123 )   $ (17,871 )   $ (17,252 )     97 %

 

Revenues

 

Revenues for the three months ended June 30, 2021 decreased by $42 or 23% 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 June 30, 2021 compared to the three months ended June 30, 2020; partially offset by increased product sales in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

 

Revenues for the six months ended June 30, 2021 decreased by $156 or 26% due to a decrease in R&D services revenue for VBI-2601, our hepatitis B immunotherapeutic candidate, partially offset by increased product sales as discussed above.

 

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Revenues by Geographic Region

 

   

Three months ending

June 30

             
    2021     2020     $ Change     % Change  
Revenue in Israel   $ 87     $ 19     $ 68       358 %
Revenues in China / Hong Kong     55       165       (110 )     (67 )%
Total Revenues   $ 142     $ 184     $ (42 )     (23 )%

 

   

Six months ending

June 30

             
    2021     2020     $ Change     % Change  
Revenue in Israel   $ 256     $ 150     $ 106       71 %
Revenues in China / Hong Kong     183       396       (213 )     (54 )%
Revenue in Europe     4       53       (49 )     (92 )%
Total Revenues   $ 443     $ 599     $ (156 )     (26 )%

 

Cost of Revenues

 

Cost of revenues for the three months ended June 30, 2021 was $2,634 as compared to $2,060 for the three months ended June 30, 2020. The increase in the cost of revenues of $574 or 28% is due to increased outsourced testing costs, and inventory related costs incurred in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

 

Cost of revenues for the six months ended June 30, 2021 was $5,046 as compared to $4,637 for the six months ended June 30, 2020. The increase in the cost of revenues of $409 or 9% is due to the increase discussed above.

 

Research and Development Expenses

 

R&D expenses for the three months ended June 30, 2021 were $4,582 as compared to $2,365 for the three months ended June 30, 2020. The increase in R&D expenses of $2,217 or 94% is a result of: (1) the increase in the costs related to our coronavirus vaccine program, including the Phase I portion of the ongoing adaptive Phase I/II clinical study, and development and manufacturing of VBI-2905 offset by government grants and funding arrangements; (2) an increase in R&D expenses related to continued development of our other vaccines candidates; and (3) an increase in regulatory costs related marketing authorization applications to Canada and United Kingdom for the 3-antigen prophylactic HBV vaccine candidate.

 

R&D expenses for the six months ended June 30, 2021 were $11,421 as compared to $5,558 for the six months ended June 30, 2020. The increase in R&D expenses of $5,863 or 105%, is a result of an increase in R&D expenses discussed above.

 

General and Administrative Expenses

 

G&A expenses for the three months ended June 30, 2021 were $9,367 as compared to $3,901 for the three months ended June 30, 2020. The G&A expense increase of $5,466 or 140%, is a result of the increase in pre-commercial activities as potential regulatory approvals approach, increased insurance costs, and increased labor costs.

 

G&A expenses for the six months ended June 30, 2021 were $16,114 as compared to $7,959 for the six months ended June 30, 2020. The G&A expense increase of $8,155 or 102% is a result of the increase discussed above.

 

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Loss from Operations

 

The net loss from operations for the three months ended June 30, 2021 was $16,441 as compared to $8,142 for the three months ended June 30, 2020. The $8,299 increase in the net loss from operations resulted from the items discussed above.

 

The net loss from operations for the six months ended June 30, 2021 was $32,138 as compared to $17,555 for the six months ended June 30, 2020. The $14,583 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 $163 and $1,393 for the three and six months ended June 30, 2021, compared to three and six months ended June 30, 2020, is due to the following: (1) 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; and (2) an increase in long-term debt of $12,000.

 

Foreign Exchange Gain (Loss)

 

The foreign exchange loss of $190 and $328 for the three and six months ended June 30, 2021 respectively, and the foreign exchange loss of $689 and gain of $948 for the three and six months ended June 30, 2020, respectively, 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 $17,476 and $35,123 for the three and six months ended June 30, 2021 compared to $9,513 and $17,871 for the three and six months ended June 30, 2020 respectively is a result of the items discussed above.

 

Liquidity and Capital Resources

 

   

June 30,

2021

   

December 31,

2020

    $ Change     % Change  
                         
Cash and cash equivalents   $ 135,027     $ 93,825     $ 41,202       44 %
Current Assets     146,086       132,041       14,045       11 %
Current Liabilities     26,068       17,348       8,740       50 %
Working Capital     120,018       114,693       5,325       5 %
Accumulated Deficit   $ (343,741 )   $ (308,618 )   $ (35,123 )     11 %

 

As of June 30, 2021, we had cash and cash equivalents of $135,027 as compared to $93,825 as of December 31, 2020. As of June 30, 2021, we had working capital of $120,018 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 June 30, 2021, VBI had an accumulated deficit of approximately $343.7 million and stockholders’ equity of approximately $168.1 million.

 

During the six months ended June 30, 2021, the Company issued 6,036,168 common shares under the ATM Program, for total gross proceeds of $23,030 at an average price of $3.82. The Company incurred $753 of shares issuance costs related to the common shares issued resulting in net proceeds of $22,277.

 

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 Beta variant, also known as the B.1.351 variant and 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 Beta variant, 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.

 

On May 17, 2021 the Company entered into the First Amendment to the Loan Agreement with the Lenders, see Long Term Debt above for more details.

 

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.

 

33
 

 

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 and the Second 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 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 $35,123 and $17,871 in the six months ended June 30, 2021 and 2020, respectively. The Company used $17,362 and $15,455 in cash for operating activities during the six months ended June 30, 2021 and 2020, respectively. The increase in cash outflows is largely a result of an increase in net loss, offset by the change in operating working capital, notably the cash received in advance from the CEPI Funding Agreement.

 

34
 

 

Net cash used in Investing Activities

 

Net cash flows provided by investing activities was 24,191 for the six months ended June 30, 2021 compared to cash used in investing activities of $25,268 for the six months ended June 30, 2020. During the six months ended June 30, 2020 we purchased short term investments, and during the six months ended June 30, 2021 the short term investments were redeemed.

 

Net cash provided by Financing Activities

 

Net cash flows provided by financing activities decreased from $57,573 for the six months ended June 30, 2020 to $34,346 during the six months ended June 30, 2021. During the six months ended June 30, 2020, we completed a public offering for net proceeds of $53,894 and completed debt financing for net proceeds of $3,679. During the six months ended June 30, 2021, we issued common shares as part of the ATM Program for net proceeds of $22,287 and completed additional debt financing for net proceeds of $11,978.

 

Off-Balance Sheet Arrangements

 

As of June 30, 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 six months ended June 30, 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, including the new Delta variant of COVID-19, which appears to be the most transmissible variant to-date, 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.

 

35
 

 

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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer and Head of Business Development (our principal financial and accounting officer), the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer and Head of Business Development have concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer and Head of Business Development, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended June 30, 2021, that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

36
 

 

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may be involved in certain claims and litigation arising out of the ordinary course and conduct of business. Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the most likely outcome.

 

On September 13, 2018, two actions were brought in the District Court of the central district in Israel naming our subsidiary SciVac as a defendant. In one claim, two minors, through their parents, allege among other things, defects in certain batches of our 3-antigen prophylactic HBV vaccine discovered in July 2015; that our 3-antigen prophylactic HBV vaccine was approved for use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac failed to provide accurate information about our 3-antigen prophylactic HBV vaccine to consumers and that each child suffered side effects from the vaccine. The claim was filed together with a motion seeking approval of a class action on behalf of 428,000 children vaccinated with our 3-antigen prophylactic HBV vaccine in Israel from April 2011 and seeking damages in a total amount of NIS 1,879,500,000 (not in thousands) ($576,534). The second claim is a civil action brought by two minors and their parents against SciVac and the Israel Ministry of Health alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine; that our 3-antigen prophylactic HBV vaccine was marketed in Israel without sufficient evidence establishing its safety; and that our 3-antigen prophylactic HBV vaccine was produced and marketed in Israel without approval of a western regulatory body. The claim seeks damages for past and future losses and expenses as well as punitive damages.

 

SciVac believes these matters to be without merit and intends to defend these claims vigorously.

 

The District Court has accepted SciVac’s motion to suspend reaching a decision on the approval of the class action pending the determination of liability under the civil action. Preliminary hearings for the trial of the civil action began on January 15, 2020, with subsequent preliminary hearings held on May 13, 2020 and December 3, 2020 to discuss document disclosure. The next preliminary hearing is scheduled to be held on September 13, 2021.

 

Item 1A. Risk Factors 

 

The following description of risk factors includes any material changes to risk factors associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on March 2, 2021. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results, and stock price.

 

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10- Q.

 

Risks Related to Our Product Development

 

We rely on government and non-government organization grants or subsidies to contribute to our coronavirus vaccine development program. If we are unable to satisfy our contractual obligations or meet expected deadlines, the development of the coronavirus vaccine candidates may be extended, delayed, modified, or terminated and we may be required to repay all or part of the grants or subsidies.

 

On September 16, 2020, we signed the Contribution Agreement with Her Majesty the Queen in Right of Canada, as represented by the Minister of Industry (“ISED”) whereby ISED agreed to contribute up to CAD $56 million from the SIF to support the development of our coronavirus vaccine program, VBI-2900, though Phase II clinical studies (the “Project”). We agreed to complete the Project in or before the first quarter of 2022, which will be conducted exclusively in Canada, except as permitted otherwise under certain circumstances. In an event of default, subject to a rectification period available in certain circumstances, among other things, the Minister may (i) suspend or terminate its contribution to the Project, or (ii) require repayment of all or part of the contribution paid by the Minster, together with interest from the day of demand at the interest rate set forth in the Contribution Agreement. As a result, if we default on our obligations under the Contribution Agreement, we may not have sufficient funds available to continue the development of our coronavirus vaccine program, and we cannot be certain that we will be able to obtain additional capital to fund the program. In addition, we may be required to repay the grants made under the Contribution Agreement, which would harm our business, financial condition and results of operations.

 

37
 

 

Furthermore, in connection with execution of the Contribution Agreement, we obtained a consent of K2 HealthVentures LLC, as administrative agent for the lenders and a lender, pursuant to the Loan Agreement, dated May 22, 2020. Pursuant to such consent, certain events of default that result in contributions made under the Contribution Agreement in excess of $500 becoming due and payable could result in an event of default under the Loan Agreement.

 

On March 9, 2021, we signed the CEPI Funding Agreement with the Coalition for Epidemic Preparedness Innovations (“CEPI”) whereby CEPI agreed to contribute up to $33 million to support the advancement of our eVLP vaccine candidates against SARS-CoV-2 including the advancement of VBI-2905 through Phase I clinical development. We agreed to use commercially reasonable efforts to fulfill our obligations, including achieving certain objectives and timelines within the agreed timeframe laid out in the CEPI Funding Agreement. If we are unable to achieve such objectives or timelines, or if CEPI determines that we are unable to meet our obligations under the CEPI Funding Agreement, subject to certain conditions, CEPI may choose not to provide additional tranches of funding, to provide less funding, or to terminate the CEPI Funding Agreement. If CEPI terminates the CEPI Funding Agreement, CEPI will not be required to make any further payments to us and we will be required to return any CEPI funds that are unspent, subject to certain limitations. If CEPI terminates the CEPI Funding Agreement or chooses not to provide additional tranches of funding, or to provide less funding than expected, this could have a material adverse impact on our business, results of operations, financial condition and prospects; in addition, our ability to advance VBI-2905 would require alternative funding, which could significantly slow down the product development and approval process, and jeopardize our ability to commence product sales and generate revenue.

 

If we are unable to manufacture our pipeline candidates and products in sufficient quantities, at sufficient yields or are unable to obtain regulatory approvals for a manufacturing facility for our vaccines, we may experience delays in product development, clinical trials, regulatory approval, commercial distribution, and the In Process Research & Development (“IPR&D”) assets may become impaired and be written off at some time in the future.

 

Completion of our clinical trials and commercialization of our pipeline candidates and products require access to, or development of, facilities to manufacture our pipeline candidates and products at sufficient yields and at commercial-scale. We have limited experience manufacturing any of our pipeline candidates and products in the volumes that will be necessary to support large-scale clinical trials or commercial sales. Efforts to establish these capabilities may not meet initial expectations as to scheduling, scale-up, reproducibility, yield, purity, cost, potency, or quality.

 

If we are unable to manufacture our pipeline candidates and products in clinical or commercial quantities, as the case may be, in sufficient yields, with sufficient purity, potency, quality, and identity, then we must find, qualify, and rely on third parties. Any new third-party manufacturers must also receive FDA approval before we may use product manufactured by them as our commercial products and pipeline candidates. Our products may be in competition with other products for access to these facilities and may be subject to delays in manufacture if our third-party manufacturers give other products greater priority. Any delays experienced by third-party manufacturers, whether directly or by its raw material suppliers in relation to our project, may result in delays in clinical development of our pipeline candidates.

 

As a result, any delay or interruption, could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, the IPR&D assets may become impaired and be written off at some time in the future, which could also have a material adverse effect on the financial statements.

 

The FDA and corresponding foreign regulatory agencies may require additional information, clinical trial data, or manufacturing changes, for our 3-antigen prophylactic HBV vaccine candidate before granting regulatory approval, if regulatory approval is granted at all.

 

We submitted the BLA to the FDA and the MAA to the EMA in the fourth quarter of 2020 for our 3-antigen HBV vaccine candidate, which have subsequently been accepted for review by the regulatory authorities. Our registration and commercial timelines for such vaccine candidate depend on further discussions with the FDA and corresponding foreign regulatory agencies. They could have requirements and requests for additional data, beyond what is included in the submissions, completion of additional clinical trials, including a request to increase the size of the safety data set, or changes to the manufacturing process or our manufacturing facility. Any such requirements or requests could:

 

  ● adversely affect our ability to timely and successfully commercialize or market our 3-antigen prophylactic HBV vaccine candidate in the United States, Europe, Canada, and other jurisdictions where our vaccine is not currently approved;
     
  ● result in significant additional costs;
     
  ● potentially diminish any competitive advantages for our 3-antigen prophylactic HBV vaccine candidate;
     
  ● potentially limit the markets for our 3-antigen prophylactic HBV vaccine candidate;
     
  ● adversely affect our ability to enter into collaborations or receive milestone payments or royalties from potential collaborators;
     
  ● cause us to abandon the further development of our 3-antigen prophylactic HBV vaccine candidate or certain of our pipeline candidates to comply with requests by the FDA or other jurisdictions where it is not currently approved; or
     
  ● limit our ability to obtain additional financing on acceptable terms, if at all.

 

38
 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

a) Sales of Unregistered Securities

 

There have been no unregistered sales of securities during the period covered by this Form 10-Q that have not been previously reported in a current report on Form 8-K. We have not made any purchases of our own securities during the time period covered by this Form 10-Q.

 

c) Issuer Purchases of Equity Securities

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

See the Exhibit Index following the signature page to this Form 10-Q for a list of exhibits filed or furnished with this Form 10-Q, which Exhibit Index is incorporated herein by reference.

 

39
 

 

EXHIBIT INDEX

 

Exhibit

No.

  Description
     
10.1   Amendment to the Collaboration and License Agreement with Brii Bioscience, effective April 8, 2021 (incorporated by reference to Exhibit 10.3 to the quarterly report on Form 10-Q (SEC File No. 001-37769), filed with the SEC on May 10, 2021).
     
10.2   First Amendment to Loan and Guaranty Agreement, dated as of May 17, 2021, by and among VBI Vaccines Inc., as borrower, Variation Biotechnologies Inc., as borrower representative, each of the guarantors signatory thereto, and K2 HealthVentures LLC, as lender and as administrative agent (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K (SEC File No. 001-37769), filed with the SEC on May 21, 2021).
     
10.3   Form of Amended and Restated Warrant issued to K2 HealthVentures LLC (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K (SEC File No. 001-37769), filed with the SEC on May 21, 2021).
     
10.4*#   Amendment to the Agreement signed by NRC on March 30, 2020 and Amendment One signed by NRC on December 21, 2020 effective July 8, 2021
     
10.5*  

Addendum #3 to sublease agreement signed by Ayalot Investment (Ramat Vered) 1994 Ltd; EMI Car Wash Systems Ltd and SciVac Ltd effective July 11, 2021

     
10.6*   Sublease signed by EMI Car Wash Systems Ltd. And SciVac Ltd effective July 11, 2021
     
31.1*   Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
     
31.2*   Certification of Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
     
32.1**   Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
     
32.2**   Certification of Principal Financial and Accounting Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
     
101.INS*   Inline XBRL Instance Document.
     
101.SCH*   Inline XBRL Taxonomy Extension Schema Document.
     
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB*   Inline XBRL Taxonomy Extension Labels Linkbase Document.
     
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
     
104*   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

+ Indicates a management contract or compensatory plan.

 

* Filed herewith.

 

** Furnished herewith.

 

# Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the SEC upon its request.

 

40
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: August 2, 2021 VBI VACCINES INC.
     
  By: /s/ Jeffrey Baxter
   

Jeffrey Baxter

President & Chief Executive Officer

(Principal Executive Officer)

     
  By: /s/ Christopher McNulty
    Christopher McNulty
    Chief Financial Officer and Head of Business Development
    (Principal Financial and Accounting Officer)

 

41

 

Exhibit 10.4

 

 

Business Confidential – Protected B

 

THIS IS AN AMENDING AGREEMENT

 

BETWEEN: NATIONAL RESEARCH COUNCIL OF CANADA
   
 

a departmental corporation forming part of the Government of Canada

created by the National Research Council Act (R.S.C. 1985, c. N-15), and

an agent of Her Majesty the Queen in Right of Canada

whose head office address is:

   
    1200 Montreal Road
    Ottawa, Ontario K1A 0R6 (called the “NRC”)
       
AND: VARIATION BIOTECHNOLOGIES INC.
   
  a Company incorporated under the Canada Business Corporations Act under number 393728-3 whose Registered Office Address is located in:
   
    300 Hunt Club Road East, 2nd Floor
    Ottawa, Ontario K1V 1C1 (called the “Collaborator” or “VBI”)
       
      (Collectively known as the “Parties”)

 

WHEREAS the parties entered into an Agreement signed by the NRC on 30 March 2020 (called the “Original Agreement”) and an Amendment One signed by NRC on 21 December 2020 (called “Amendment One”) by which the Parties agreed to collaborate in a “Project”, described as: COVID-19 vaccine evaluation. Original and Amendment One Agreements are now called “The Agreements”.

 

WHEREAS this Amending Agreement includes certain special obligations which relate solely to Tasks performed for the purpose of developing a vaccine against the South Africa (Beta) variant of COVID-19, which project is being funded by the Coalition for Epidemic Preparedness Innovations (CEPI). These special obligations are required by the terms of the funding agreement between Collaborator and CEPI.

 

WHEREAS the parties wish to amend the Agreements. In consideration of the mutual covenants hereunder, the parties agree as follows

 

1. The Agreements shall be read with the amended terms stated below. With respect to all other terms, the Parties confirm the Agreements.
   
2. The attached “SCHEDULE OF PAYMENTS” is in addition to, the “Schedule of Payments” from the Agreements except that the amount shown for Task 1.7 shall replace the amount shown for Task 1.7 in Amendment One and the amount shown for Task 1.8 shall replace the amount shown for Task 1.8-1.9 in Amendment One. Furthermore, Annex B to Amendment One has been cancelled.
   
3. The attached “NEW STATEMENT OF WORK AND DELIVERABLES” is in addition and, in the case of Tasks 1.7, 1.8 and 1.9 and Annex B is an amendment to the “STATEMENT OF WORK AND DELIVERABLES” in the Agreements.
   
4. The estimated total value of this Project amendment two is: minimum of $[***] (without options) to a maximum of $[***] (with options) as stated in the Statement of Work.
   
5. The Collaborator is a Canadian Small and Medium Enterprise (SME) or a Canadian educational institution, including a community college, CEGEP, polytechnic or university, and benefits from a Fee Reduction of minimum of $[***] (without options) to a maximum of $[***] (with options). The Collaborator hereby warrants that, at the time of signing this Agreement, it is a SME and has 500 or fewer full-time equivalent employees, or it is a Canadian educational institution.

 

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6. The amount that the Collaborator will pay to the NRC in cash for this amendment two is: minimum of $[***] (without options) to a maximum of $[***] (with options) as stated in the Statement of Work.
   
7. The estimated value of the NRC’s in-kind contribution for this amendment is: $[***].
   
8. The following special provisions apply to Tasks carried out pursuant to this Amending Agreement:
     
  (a) NRC shall exert reasonable efforts to retain records of its activities regarding the work performed pursuant to this Amending Agreement for a period of at least 5 years from the date of completion of the work, to the extent that it does not contradict with any applicable laws, regulations, or policies of the NRC and can provide a copy of such documentation to Collaborator upon request.
     
  (b) NRC shall exert reasonable efforts to retain, for a period of at least 5 years (to the extent that it does not contradict with any applicable laws, regulations, or policies of the NRC) from the date of completion of the work described in this Amending Agreement, documentation supporting the amounts invoiced to and paid by Collaborator pursuant to this Amending Agreement and can provide a copy of such documentation to Collaborator upon request.
     
  (c) Each of NRC and Collaborator agree that it shall carry its obligations hereunder in accordance with laws and regulations that are applicable to its activities and operations.
     
  (d) Section IU-8 of the Original Agreement is amended to add the following last paragraph:
     
    Collaborator shall be permitted to disclose Confidential Non-Project Information to CEPI solely to the extent required to comply with its obligations pursuant to its funding agreement with CEPI, including its obligations pursuant to the CEPI Third Party Code. NRC will have the right to review the Confidential Information prior to any disclosure to CEPI;
     
  (e) The NRC is part of the Government of Canada and confirms that it is in compliance with laws, regulations, and policies whose goals are aligned with the goals of the CEPI Third Party Code.
     
9. This Amending Agreement may be executed in one or more counterparts and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one valid and binding agreement. A portable document format (PDF) copy of an executed counterpart signature page will be as valid as an originally executed counterpart for purposes of signing this Amending Agreement.

 

SIGNED by the Collaborator at Ottawa, Ontario

 

      VARIATION BIOTECHNOLOGIES INC.
         
Date: July 6, 2021

  Per: /s/ Jeff Baxter   
        Jeff Baxter
        CEO

 

SIGNED by the NRC at Ottawa, Ontario

 

  NATIONAL RESEARCH COUNCIL OF CANADA

 

Date: July 8, 2021

  Per: /s/ Lakshmi Krishnan 
        Lakshmi Krishnan, Ph.D.
        A/Vice President, Life Sciences

 

HUMAN HEALTH THERAPEUTICS – Vaccines and Emerging infections RI Page 2 of 8
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ANNEX SP – SCHEDULE OF PAYMENTS TO NRC

 

Billing address: See page 1

 

Billing contact:

 

  Name:   Andrea McRae
  Title:   Project Manager
  Telephone:   [***] Email: [***]

 

SP-1 The Collaborator shall be invoiced as follows:

 

Invoicing Schedule (Estimated Dates)   Amount Due*
STAGE 1    
1. Invoice to be issued on signature of this amendment for Task 1.7   [***]
2. Invoice to be issued upon completion of Task 1.8   [***]
3. Invoice to be issued on completion of Task 1.10   [***]
4. Invoice to be issued upon completion of Task 1.11   [***]
5. Invoice to be issued upon completion of Task 1.12   [***]
6. Invoice to be issued upon completion of Task 1.13   [***]
7. Invoice to be issued upon completion of Task 1.14   [***]
8. Invoice to be issued upon approval to exercise Optional Task 1.9.1   [***]
9. Invoice to be issued upon approval to exercise Optional Task 1.9.2   [***]
10. Invoice to be issued upon approval to exercise Optional Task 1.15.1   [***]
11. Invoice to be issued upon approval to exercise Optional Task 1.15.2   [***]
12. Invoice to be issued upon approval to exercise Optional Task 1.16.1   [***]
13. Invoice to be issued upon approval to exercise Optional Task 1.16.2   [***]
STAGE 2    
14. Invoice to be issued on signature of this amendment for Tasks 2.6 and 2.7.1   [***]
15. Invoice to be issued on completion of Tasks 2.7.2, 2.7.3 and 2.7.4   [***]
16. Invoice to be issued upon approval to exercise Optional Task 2.7.5.1   [***]
17. Invoice to be issued upon approval to exercise Optional Task 2.7.5.2   [***]

 

*Plus applicable taxes

 

SP-2 All amounts shall be due 30 days from the date of the invoice.

 

SP-3 Payments must be made to: “Receiver General - National Research Council of Canada” and addressed to:

 

Accounts Receivable

National Research Council of Canada

1200 Montreal Road

Ottawa, Ontario, K1A 0R6 CANADA

 

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SP-4 Payments can be made by cheque, MasterCard, Visa or American Express; or by wire transfer. Wire transfer information is available upon request. The Collaborator is responsible for all bank charges associated with wire transfers. Any inquiries may be directed to: AccountsReceivable@nrc-cnrc.gc.ca.

 

SP-5 The Collaborator shall provide any Invoicing Reference Number at the time of Agreement signature or promptly thereafter. The NRC will not delay or cancel invoicing nor defer accrual of interest due to the Collaborator’s failure to provide an Invoicing Reference Number.

 

SP-6 The NRC may suspend its performance of any obligations under this Agreement so long as any payment is overdue for any reason.

 

SP-7 If this Agreement is amended to increase the scope of the Services, the NRC reserves the right to calculate costing for its additional Project activities at its rates that are in effect at that time. Any such cost increases shall be approved, in writing, by both Parties.

 

SP-8 If the NRC expects that the value of its estimated contribution will be exceeded by more than 10%, it shall promptly notify the other Party. The Parties shall then negotiate a further agreement on costs or payments, and either Party may suspend the performance of any obligations, other than confidentiality, intellectual property and accrued obligations to pay, until a further agreement is reached. If the Parties fail to agree on an amendment within 60 days of the notice, then this Agreement shall terminate on the 60th day after the notice, unless the Parties agree otherwise in writing.

 

SP-9 If a surplus of prepayment remains as a result of premature termination, it will be refunded.

 

SP-10 If an instrument tendered in payment or settlement of an amount due to the NRC is dishonoured for any reason, the NRC will invoice an additional administrative charge of CAD 25 and this amount will be due as invoiced.

 

SP-11 Interest is payable on all overdue amounts. Interest is calculated and compounded monthly at the average bank rate plus 3% and accrues during the period beginning on the due date and ending on the day before the day on which payment is received by the NRC. For purposes of this paragraph “bank rate” means the rate of interest established periodically by the Bank of Canada as the minimum rate at which the Bank of Canada makes short term advances to members of the Canadian Payments Association, and “average bank rate” means the weighted arithmetic average of the bank rates that are established during the month before the month in respect of which interest is being calculated.

 

(Rate information may be found at http://www.tpsgc-pwgsc.gc.ca/recgen/txt/tipp-ppir-eng.html. This site provides information on the rate used by departments of the Government of Canada to calculate the interest on overdue accounts payable and is the same rate used by the NRC to charge interest on overdue accounts receivable under the Interest and Administrative Charges Regulations, SOR/96-188. This web site address, and the information set out there, is provided here for convenience. In case of rate discrepancy, the rates quoted by the Bank of Canada shall prevail.)

 

(the rest of this page was intentionally left blank)

 

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Statement of Work

 

Covid-19 Vaccine Evaluation – Amendment two

 

1. Workplan

 

  Stage 1: Candidate Identification & Immunogenicity
   
  Tasks 1.5 and 1.6 in Amendment 1 have been completed and invoiced.
     
    The following tasks are amended/added to the workplan:
     
    Work related to ISED funding (Products: VBI-2901; VBI -2902)
   
    Task 1.7: [***]
     
    [***]
     
    Estimated budget: $[***]
     
    Task 1.8 Phase I clinical sample testing by PRNT (R&D assay) for both Wuhan and South African:
     
    [***]
     
  Estimated budget: $[***]
     
    OPTIONAL: Task 1.9 Phase II clinical sample testing by PRNT (R&D assay) to be conducted upon Collaborator request.
     
    [***]
     
    Estimated budget: $[***]
     
    Tasks captured below are new work added and relate to new variants under project funded by CEPI
     
    Task 1.10 Study 29B688: Mouse study (72 mice, 2 doses) and PRNT (R&D assay) for both Wuhan and South African
     
    [***]
     
  Estimated budget: $[***]
   
    Task 1.11 Study TBD1: Mouse study (48 mice, 2 doses) and PRNT (R&D assay) for both Wuhan and South African
     
    [***]

 

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  Estimated budget: $[***]

 

  Task 1.12 Study TBD2: Mouse study (48 mice, 2 doses) and PRNT (R&D assay)
   
  [***]
   
  Estimated budget: $[***]
   
  Task 1.13 PRNTs (R&D assay) for both Wuhan and South African strain on samples from Hamster Challenge Study 1 done at VIDO.
   
  [***] Estimated budget: $[***]
   
  Task 1.14 PRNTs (R&D assay) for both Wuhan and South African on samples from Hamster Challenge Study 2 done at VIDO
   
  [***]
   
  Estimated budget: $[***]
   
  OPTIONAL: Task 1.15 Phase I clinical sample testing by PRNT (R&D assay) to be conducted upon Collaborator request.
   
  [***]
   
  Estimated budget: $[***]
   
  OPTIONAL: Task 1.16 Phase II clinical sample testing by PRNT (R&D assay) to be conducted upon client request.
   
  [***]
   
Estimated budget: $[***]

 

  [***]
   
  Stage 2: Tech Transfer & Process Development Activities
     
    The following Tasks have been completed:
     
    Task 2.1 - [***] eVLP Purification
     
    Task 2.4.1 [***] production of [***]
     
    The following tasks are amended/added to the workplan:
     
    Task 2.2 Process transfer [***]. This includes:
     
    Subtasks [***] are cancelled ([***]).
     
    Task 2.3
     
    Task 2.4 [***] process scale up (including new IEX step) No changes to subtasks 2.4.1 and 2.4.2
     
    2.4.3 [***]

 

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    Estimated budget: $[***]
     
    Work related to new variants under project funded by CEPI
     
    Task 2.6 [***]
     
    [***]
     
    Estimated budget: $[***]
     
  Task 2.7 Upstream Optimization
   
    [***]
     
    [***]
     
    Estimated budget: [***]
     
  Stage 4: At Risk Domestic Production during Stage 4 and Prior to Approval
   
    Task 4.1: [***]
     
    Task 4.2: [***]
     
    Task 4.3: [***]
     
    [***]

 

    ● Deliverables[***]
       
  2. Assumptions
   
    ● [***]
       
  3. Estimated Budget

 

Budget Summary: VBI Covid-19 Vaccine Evaluation-

Amendment 2 – STAGE 1

           
Work Task   Task Value   CAN SME Fee Reduction   NRC Task Price*
[***]   [***]   [***]   [***]
[***]            

 

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NRC Ref. #: A-0040072 (orig. A-0035546)

 

 

 

4. Project Schedule
     
    [***]
     
5. Responsibilities

 

  NRC Responsibilities
     
  ● Perform the above work according to high standards of quality;
  ● The NRC will repeat, at its own cost, any portion of work whose failure was due to error by the NRC personnel or to power or equipment failure;
  ● Maintain good lines of communication with Variation Biotechnologies Inc.;
  ● To report any problems encountered to Variation Biotechnologies Inc. immediately;
  ● NRC cannot guarantee that a specific amount/level of purity or of product will be obtained.
  ● Samples will be stored within an NRC facility for the duration of the project, unless stated otherwise. NRC will dispose of any remaining samples or may transfer to Variation Biotechnologies Inc. upon request.

 

  Variation Biotechnologies Inc. Responsibilities
       
    ● Provide to the NRC all of the necessary information;
    ● Provide to the NRC a copy of the Informed Consent Form for the clinical trial samples;
    ● Provide to NRC the plasmids needed for all productions;
    ● Maintain good lines of communication with the NRC;
    ● Shipment of product will be charged to Variation Biotechnologies Inc.’s courier account.

 

HUMAN HEALTH THERAPEUTICS – Vaccines and Emerging infections RI Page 8 of 8
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Exhibit 10.5

 

Addendum No. 3 to the Lease Agreement for an Unprotected Property from November 2013

 

Held and signed on the 11th of July 2021

 

Between:   Ayalot Investment (Ramat Vered) 1994 Ltd.    
    (hereinafter: “the landlord”)    
        First Party;
And:   EMI Car Wash Systems Ltd.    
    Private Company 514142256    
    From 27 Moshe Yatom Street, Rehovot    
    (hereinafter: “the renter”)    
        Second Party;
And:   SciVac Ltd.    
    Private Company 513679555    
    13 Gad Road, Rehovot    
    P.O. Box 580,7610303    
    (hereinafter: “the sub-renter”)    
        Third Party;

 

Whereas In November 2013, an unprotected lease Agreement was signed between the original landlord, Ayalot Investments (Ramat Vered) 1994 Ltd. and CN: 511693533 (Shrada Ltd.) (hereinafter together: “the original landlord”) and Green Power YE. YM. Ltd. (hereinafter: “the original renter”) on all its appendices (hereinafter: “the lease Agreement”) according to which the original renter rented an area of 536 square meters gross located on the first floor of the building known as Phase C and the renter also used five parking spaces (hereinafter the area and parking spaces together: “the Property”) in Rehovot Park (hereinafter: “the park”);
   
Whereas The landlord acquired the rights in the park from the original above-mentioned landlord, and replaced it for all intents and purposes, it became the owner of the full rights in the park, including the Property, and it will be the only to constitute the landlord for all intents and purposes in the lease Agreement;
   
Whereas On January 16, 2017, an addition to the lease Agreement was signed between the landlord, the original renter, and the sub-renter (hereinafter: “Addendum No.1”), according to which the sub-renters rented from the original renter an area of 200 square meters gross (hereinafter: “the territory”) from the area of the Property.
   
Whereas On June 1, 2020, an addition to the lease Agreement (hereinafter: “Addendum No. 2”) was signed between the landlord, the original renter, the renter, according to which all the rights and obligations of the original renter were transferred according to the main Agreement to the renter.
   
  (Hereinafter the lease Agreement and additions numbers 1 and 2 will be called jointly: “the main Agreement”)
   
Whereas The sub-renter is still subletting the area from the renter in accordance with and subject to the provisions set forth in Addendum No. 1;
   
Whereas The landlord wishes to sublet to the sub-renter the entire Property at an area of 536 square meters gross in a sublease, and the sub-renter is willing to sublease the entire Property, and the landlord agrees to the sublease of the Property subject to the following in this addition below;

 

 
 

 

It has therefore been agreed between the parties to this Addendum as follows:

 

  1. The preamble to this addendum forms an integral part thereof.
     
  2. The terms appearing in this Addendum shall have the interpretation given to them in the principal Agreement.
     
  3. From the date of signing this Addendum by all parties to it, the renter will be entitled to sublet the Property to the sub-renter in a sublease, for a period that does not in any case exceed the tenancy periods set forth in the main Agreement.
     
  4. All provisions of Addendum No. 1 dated 1.16.2017, which apply to the sublease of the sub-renter in the territory, shall apply accordingly and with the obligatory changes regarding the sublease of the entire Property to the sublease to the sub-renter, insofar as these have not been expressly changed in this Addendum.
     
  5. Despite what is stated in Addendum No. 1 dated January 16, 2017, it is clarified that the sub-renter intends to use part of the Property area for the purpose of establishing a production plant.
     
  6. No other change will apply to the other provisions of the main Agreement.

 

IN WITNESS WHEREOF the parties have signed

 

/s/ Ayalot Investment (Ramat Vered) 1994 Ltd  
The landlord  
   
/s/ EMI Car Wash Systems Ltd  
The renter  
   
/s/ SciVac Ltd  
The sub-renter  

 

 

 

Exhibit 10.6

 

Agreement

 

Held and Signed in Rehovot on the 11 of July, 2021

 

Between:   EMI Car Wash Systems Ltd.    
    Private Company 514142256    
    From 27 Moshe Yatom Street, Rehovot    
    (hereinafter: “the landlord” or “the company”)    
        First Party;
And:   SciVac Ltd. Private Company 513679555    
    13 Gad Road, Rehovot    
    P.O. Box 580,7610303    
    E-mail for messages: roee@scivac.us    
    (hereinafter: “the sub-renter”)    
        Second Party;

 

Whereas The landlord is the main renter of an area of 536 square meters gross located on the first floor of the building known as Phase C in Rehovot Park known as Block 3649 part of Lot 17 and another 5 parking spaces according to a lease Agreement from November 2013 between Ayalot Investment (Ramat Vered) 1994 Ltd. (hereinafter : “the main landlord” and “the main lease Agreement”, respectively) CN: 511693533 company (“Shrada Ltd.”) (who sold the rights in the lease to the main landlord, including according to the main lease Agreement) and Green Power YE. YM. Ltd. Private Company 514876952 (hereinafter: “the previous landlord”) which was transferred and assigned to the landlord from the previous landlord under an Agreement dated June 1, 2020, in the framework of which the lease period was also extended according to the main lease Agreement;
   
Whereas On June 17, 2020, the main landlord informed the sub-renter that the landlord would step into the shoes of the previous landlord, regarding all the debts, obligations and rights of the previous landlord as aforesaid in the main lease Agreement, and that the main lease Agreement is valid until November 30, 2027, and that the landlord has the right to terminate the Agreement early;
   
Whereas and the sub-renter is interested in renting from the landlord in an unprotected sublease the entire area of 536 square meters gross marked in yellow in the schedule attached as Appendix A and 5 more parking spaces (hereinafter together: “the Property”) as of 01.01.2022;
   
Whereas The sub-renter rented from the previous landlord in a sublease about 200 square meters of the Property, in accordance with a sublease Agreement dated 01.16.2017 with the main landlord and the previous landlord, and according to an addition to the said sublease Agreement signed on 01.15.2019 between the sub-renter and the previous landlord (hereinafter the sublease Agreement and the addendum will be referred to together as: “Green Agreement”), the lease period is until 01.31.2022;
   
Whereas The parties wish to settle their relationship, obligations and rights, all as set forth in this Agreement;

 

 
 

 

It has therefore been stated, conditioned, and agreed between the parties as follows:

 

  1. Preamble Appendices and Definitions

 

  1.1. The preamble and appendices to this Agreement constitute an integral part thereof.

 

  2. The Lease

 

The landlord hereby leases to the sub-renter and the sub-renter hereby leases from the landlord, in an unprotected sublease, the Property under the conditions and for the period specified in this Agreement. The Property shall be delivered to the sub-renter in proper condition; regarding the part of the Property that is not currently leased to the sub-renter, the landlord may postpone the delivery date (as defined below) for up to 4 days and this will not be considered a breach of the Agreement, for the purpose of preparing it for delivery to the sub-renter after the current sub-renter leaves.

 

  3. The Purpose of the Lease

 

The purpose of the lease is for the purpose of a manufacturing plant and accompanying uses such as offices and storage only.

 

  4. The Applicability of the Provisions of the Main Lease Agreement

 

  4.1. The full provisions of the main lease Agreement and the full statements and obligations of the landlord under the main lease Agreement shall apply, mutatis mutandis and subject to the provisions of this Agreement below, to the sub-renter, insofar as it relates to the Property.
     
  4.2. The sub-renter confirms that he is aware that he is subject to the main tenancy, and all in accordance with “Addendum No. 3 to the lease Agreement for an unprotected tenant from November 2013”, which is signed in parallel with this Agreement between the main landlord, the landlord and the sub-renter.
     
  4.3. The landlord declares that (1) he is the sole holder of the Property (subject to the subleases which are in effect at the time of signing this Agreement) and may lease it to the sub-renter, and that there is no impediment under any law and/ or agreement and/ or otherwise to come into contract in this Agreement, (2) the Property and its rights therein are released from any debt, hypothecation, attachment, foreclosure and rights of any third party, (3) to the best of his knowledge there is no damage and/ or defect in the Property and all systems of the Property are in good working order.

 

5. Statements and Obligations of the Sub-renter

 

The sub-renter declares and obliges:

 

  5.1. He knows the Property and he even rents and holds part of it in an area of 200 square meters and the parking lots, checked its physical, planning and legal conditions – including the possibilities of utilization and use for the purpose of the lease – and found all of these suitable for his needs, and he rents the Property as it was at the time of delivery. (“As-Is”)
     
  5.2. The sub-renter declares that he has not paid and is not required to pay a key money for renting the Property, and that he is aware and agrees that his status in the Property is not that of a protected renter or a protected tenant under the Tenant Protection Act [Consolidated Version], 5732 - 1972 (hereinafter: “Tenant Protection Act), and that the Tenant Protection Act shall not apply to the renting of this Property under this Agreement and a law or legislation to amend or replace the Tenant Protection Act or the provisions of any other law aimed at protecting the tenants shall not apply.

 

 
 

 

  5.3. The sub-renter undertakes to comply with and carry out any provision of law, regulation, order or by-law in connection with the Property or the possession or use thereof, and not to do or permit to do anything to the Property or in connection to it that may constitute a hazard or nuisance or damage to the landlord, Property and neighbors of the sub-renter.
     
  5.4. Without derogating from the above, the sub-renter shall be responsible and bear the full costs of obtaining a business license and/ or any permit, approval or license required from an authority competent under any law for the purpose of operating in the Property for the purpose of the lease, as required.

 

  6. The Rental Period

 

  6.1. It is agreed with the parties that the Green Agreement will come to an end on 12.31.2021, so that this Agreement will apply starting 01.01.2022.
     
  6.2. The period of the Agreement will be for 47 months, starting on 01.01.2022 (hereinafter: “delivery date”) and up until 11.30.2025 (hereinafter: “rental period”).
     
  6.3. The sub-renter will have the right to extend the rental period by an additional 24 months, i.e., from 12.01.2025 until 11.30.2027 (abovementioned and hereinafter: “the option period”), subject to the provisions of clause 6.4 below.
     
  6.4. The rights to the option as stated in clause 6.3 are conditional on the fulfillment of the cumulative conditions below:

 

  6.4.1. The landlord will decide to exercise his existing option in relation to the Property under the main lease Agreement. The exercise of the option by the landlord is at his sole discretion and this Agreement does not impose an obligation on him to do so.
     
  6.4.2. The sub-renter will meet all the terms of this contract in full and on time.
     
  6.4.3. The sub-renter gave prior notice in writing to the landlord, 150 days before the end of the rental period of the sub-renter’s intention to exercise the option. The landlord will notify the sub-renter within 21 days of receiving the above notice, whether the conditions for exercising the sub-renter’s option have been met, in particular according to the previous clause 6.4.1.
     
  6.4.4. The sub-renter shall provide the landlord with updated collateral in accordance with this Agreement no later than 14 days before the commencement of the exercised option period.

 

  6.5. The monthly rent during the option period, if exercised, will increase by 3% (three) in relation to the rent during the previous rental period.

 

 
 

 

  7. The Rent

 

  7.1. The rent for the Property will be in the amount of 52,250 NIS (fifty-two thousand two hundred and fifty NIS) per month plus VAT for each month of rent (hereinafter: “the rent”).
     
  7.2. The sub-renter will pay the landlord the rent for each month in advance on the first day of each month by bank transfer to the landlord’s account. The landlord will send an invoice to the sub-renter for each rental month up to two days before the 1st of the relevant month.
     
  7.3.  It is agreed that the rent includes the following payments in respect of the Property: municipal Property tax, security fee, management fee (for the avoidance of doubt, the aforesaid in the clause above applies even if implied otherwise from the main lease Agreement and exceeds what is stated in the main lease Agreement). The rent does not include payment for water and electricity consumption. The sub-renter will pay the landlord the value of the electricity bills as well as the water bills in respect of the actual Property, against presentation of the bills transferred from the electricity company and the water corporation, within 15 days from the date of transfer of the demand and copy of the aforementioned bills. Not paying these bills by the sub-renter as set forth in the previous clause is legally liable as not paying rent under this Agreement.
     
  7.4. Property taxes, betterment tax, sidewalks, sewers and all payments and taxes that apply or will apply according to law and/ or practice to the owner of the Property and/ or to the owner of land will not apply to the sub-renter.
     
  7.5. The rent shall be index-linked, in the manner specified in the main lease Agreement, in particular clause 7 thereof; the settlement for the linkage differences to the index will be made once every 6 months and the payment for the linkage will be paid to the landlord within 7 days from the date of transfer of the requirement in accordance with the calculation to be made. The basic index will be the June 2021 index.
     
  7.6. It is hereby declared and emphasized that compliance with the payment dates is a fundamental and main condition of this Agreement, and without prejudice to any other right of the landlord in case of breach of the sub-renter obligation, any payment paid more than 7 days late - in addition to indexation, will also bear arrears of interest from the first day of the arrear on the amount that the sub-renter was late in paying at the customary rate at Bank Leumi le-Israel Ltd. for unauthorized deviations in the current debt account, the interest will be calculated for the period between the date intended for payment and the day he actually paid it.

 

  8. Maintenance of the Property

 

  8.1. The sub-renter hereby undertakes to take care of the Property, clean and maintain it in order, use the Property carefully and properly, keep it in good and proper condition and repair at his expense any breakdown, breakage or defect and make any repairs required to the Property (including those due to normal wear and tear), excluding repairs that are included in the management fee that the sub-renter pays and/ or that are the responsibility of the main landlord and/ or the management company. For the avoidance of doubt, this clause does not impose any obligation on the landlord regarding the proper maintenance of the Property, except for the obligation to contact and work with the management company and/ or the main landlord as long as no repairs are made that are imposed on them.

 

 
 

 

  8.2. The sub-renter may not make any changes, repairs, additions and/ or construction work to the Property and its systems unless he has obtained the prior consent of the landlord in writing. Notwithstanding the foregoing, the landlord confirms that he is aware that the sub-renter intends to demolish the existing Property and build a manufacturing plant therein and has no objection subject to the consent of the main landlord. The sub-renter is aware that in accordance with the main lease Agreement, the main landlord may refuse changes and/ or additions and/ or any construction work at his absolute discretion.
     
  8.3. If the sub-renter has made additions and/ or alterations and/ or construction work to the Property, whether with the consent of the landlord or not, the landlord will be entitled to demand from the sub-renter at the end of the rental period and/ or the option period according to the matter to restore the situation to its previous condition, or alternatively leave it to the landlord as his Property, the changes and/ or additions and the sub-renter agrees that these will be the sole Property of the landlord without the sub-renter receiving anything in this regard.

 

  9. Warranty and Insurance

 

  9.1. The sub-renter is legally liable to the landlord, any employee of the landlord, anyone who comes on his behalf and towards any third party for any damage of any kind and type, which will be caused to any person and any possessions, including – but without prejudice to the above – the visitors in the Property, the employees of the sub-renter and any person who is in the Property premises, resulting from the Property’s condition and/ or the equipment installed in it, and/ or the work, business or act or omission that will occur in it, and/ or the behavior of the sub-renter and/ or his employees, or his licensees and/ or suppliers and/ or service providers who are in the Property area or in its immediate vicinity, in the service and/ or with the permission of the sub-renter, or by any other person and entity, whether he is permitted in the Property, or not, whether randomly or otherwise.
     
  9.2. Without derogating from the provisions of clause 9.1 above, the sub-renter undertakes to take all steps to cancel any claim and/ or demand filed against the landlord, for any damage as stated in clause 9.1 above and to indemnify the landlord in the amount of all funds he will be required to pay by virtues of such a claim and\ or demand filed against the landlord, as well as for all other expenses in connection therewith, immediately upon the landlord’s first demand provided that the landlord has notified the sub-renter of a claim and/ or demand, and has allowed the sub-renter to defend against it.
     
  9.3. During the entire period of the lease, the parties undertake to arrange and maintain the insurances listed in the insurance appendix attached to this Agreement and forms an integral part of it and is marked as Appendix B, and the sub-renter will issue the insurance approval attached as Appendix B1, B2.

 

  10. Management Company

 

The sub-renter undertakes to comply with all the instructions of the management company in the building in which the Property is located in full and as worded.

 

 
 

 

  11. Collaterals

 

As a security for the fulfillment of the sub-renter’s obligations and as a condition for handing over possession to him, the sub-renter will provide the landlord with the following collaterals:

 

  11.1. Up to 30 days before handing over possession of the leased Property, a bank guarantee in the amount of 186,030 NIS (three months’ rent including VAT) linked to a monthly index in the version as attached in Appendix C.
     
  11.2. 2 promissory notes in favor of the landlord in the amount of 250,000 NIS (two hundred and fifty thousand) each, signed by the sub-renter, with irrevocable trust to fill in the bills their due date as well as any other details, so that the landlord can use any of the collateral given to him under this Agreement, collect and redeem them within the limit of damage caused to him in case of failure of the sub-renter to fulfill an obligation under this Agreement that has not been fully amended after notice as stated in clause 11.3 below, all without prejudice to the landlord’s right to any additional or other remedy available to him under this Agreement and/ or under any law. The promissory notes shall be linked to the consumer price index.
     
  11.3. The company shall be allowed to exercise the collateral listed above or part thereof, in the event of a fundamental breach of the provisions of this Agreement by the sub-renter, after giving the sub-renter 15 days written notice during which the breach has not been fully remedied.
     
  11.4. The company will return to the sub-renter the abovementioned collateral after 30 days from the end of the rental period, after verifying that the sub-renter has met all his obligations under this contract to make payments, evict the Property and not cause damages to the Property.
     
  11.5. If the company has collected more from the collateral than the amounts due to it – the difference will be refunded to the sub-renter within 15 days.
     
  11.6. For the avoidance of doubt, the provisions of this clause above apply even if implied otherwise in the main lease Agreement and supersede the provisions of the main lease Agreement.

 

  12. Assignment of Rights

 

  12.1. The sub-renter undertakes not to transfer his rights in accordance with this contract or any part thereof to another or others in any form and/ or to hand over the Property or part thereof to any third party and/ or to allow the use of the Property or any part thereof to another or others, whether for an exchange or not. The company may transfer its rights in the Property, in whole or in part, to a third party, and all this subject to the retention of the rights of the sub-renter in the Property in accordance with the provisions of this Agreement.

 

  13. Evacuation

 

  13.1. At the end of the rental period and/ or the option to the extent exercised and/ or upon lawful termination of this Agreement, the sub-renter undertakes to vacate the Property, immediately, and hand over its possession to the landlord and/ or someone on his behalf when the Property is free from any person and object belonging to the sub-renter, and arranged as is in condition at the commencement of the rental period subject to reasonable wear and tear.
     
  13.2. If the sub-renter does not vacate the Property immediately, as stated in clause 13.1 above, then for each day of delay in evicting the Property, the sub-renter will pay the landlord daily compensation in the amount of 3,500 NIS (three thousand and five hundred). Notwithstanding the foregoing in this clause above, a delay in good faith of up to 3 days will not establish a right to the said compensation, a delay of 4 days or more will be entitled to the said compensation from the first day of the delay. It is clarified that the compensation as stated above does not detract from any compensation or additional relief to which the landlord will be entitled according to the law.

 

 
 

 

  14. Remedies for Breach of Contract

 

  14.1. Without derogating from what is stated in this Agreement and/ or in any other law, the provisions of the Contracts (Remedies for Breach of Contract) Law, 5731-1970, shall apply to the breach of the contract. Without derogating from the above, or from any relief or remedy conferred on the company under this contract and\ or under any law, the company may terminate the lease under this contract and demand the eviction of the Property, and the sub-renter undertakes to vacate the Property within 30 days and hand over the exclusive possession of the Property to the company, in the existence of one of the following cases:

 

  a. If the sub-renter did not pay the rent or part of it, the arrears exceeded 21 days.
     
  b. If the sub-renter conducts in the Property any activity that is contrary to the purpose of the lease under this Agreement and/ or contrary to any law.
     
  c. The sub-renter has breached any breach of the provisions of this contract and has not rectified the breach within 21 days from the date required to do so in writing.
     
  d. An application was filed against the sub-renter for liquidation or receivership, or foreclosures or orders were imposed on him, or a receiver or liquidator was appointed for him, and these were not removed within 60 days of granting the order or filing of the application, as the case may be.

 

  14.2. If the company has lawfully rescinded this contract due to its breach by the sub-renter, the sub-renter shall not be entitled to a refund of payments made by him in respect of the period after cancellation of the contract, and he shall be liable, without prejudice to any other relief or remedy granted to the company under this contract and under any law, to pay the company the rent for the period up to the end of the lease, except in the case where the company has contracted with an alternative renter on terms not less than the terms of this Agreement, then the sub-renter will be exempt from payments from the date the Agreement with the alternative sub-renter begins. The company undertakes to act in order to reduce its damages by attempting to locate such an alternative renter and in any case the company will be compensated by the sub-renter for any expenses (such as, but not limited to, broker’s fees) and/ or damages caused to it due to cancellation of the contract by the sub-renter.
     
  14.3. The sub-renter is not allowed to deduct from the rent any amount, for any reason, whether the amount is fixed or not. In addition, the sub-renter waives any Lien in the Property or rent as long as such a right exists.

 

  15. Miscellaneous

 

The addresses of the parties for the purpose of this Agreement are:

 

The company: as detailed in the preamble.

 

The sub-renter: in the Property or as detailed in the preamble.

 

Any notice sent by registered mail from one party to another will be deemed to have been received 96 hours after delivery at the post office, and if delivered by hand, immediately upon delivery.

 

IN WITNESS WHEREOF the parties have signed:

 

/s/ EMI Car Wash Systems Ltd   /s/ SciVac Ltd
EMI CAR WASH SYSTEMS LTD   SciVac LTD

 

 
 

 

Appendix A – Blueprint of the Property

 

 
 

 

Appendix B – Insurance Appendix

 

 
 

 

Insurance Appendix – Appendix B

 

In this addendum, “the landlord” means Ayalot Investment (Ramat Vered) 1994 Ltd.; the “sub-renter” means EMI Car Wash Systems Ltd.; the “renter” means SciVac Ltd.

 

This appendix supersedes any provision of the main lease Agreement that concerns insurance, and in the event of a conflict between the provisions of the main lease Agreement and the provisions of this appendix relating to insurance, the provisions of this appendix shall prevail (except commercial provisions arranged between the parties). The terms used in this appendix shall be construed in the manner in which they are construed in the main lease Agreement. For the avoidance of doubt, it is clarified that wherever it is written “the landlord” it means: “the landlord and/ or the management company” and that wherever it is written “the landlord and/ or someone on his behalf” it means: “the landlord and/ or the management company and/ or anyone on their behalf”.

 

  1. Labor Insurances in the Property

 

  1.1. Subject to the provisions of the Agreement regarding obtaining permission to perform work on the Property and should any work be performed in the Property, by the renter or by anyone on behalf of the renter, at any time during the lease period, the renter must present to the landlord and management company with the renter’s approval to perform labor insurance, which is attached to this Agreement, and forms an integral part thereof and marked as Appendix A1 (“Approval of the Renter’s Labor Insurance” and “Renter’s Labor Insurance” respectively) signed by the renter’s insurer. The issuance of such a renter’s labor approval is a condition precedent for performing any work in the Property, and the landlord and the management company shall have the right (but not the obligation) to prevent the renter from carrying out work on the Property, if the renter’s work insurance approval was not issued before the work began1.
     
    Notwithstanding the foregoing, in works on the Property, the value of which does not exceed 250,000 NIS, the renter may not take out contractor work insurance as stated, provided that he issues an approval of arranging the renter’s permanent insurance, which specifies that the insurances include coverage for work performed on the Property.

 

  2. Permanent Insurances

 

  2.1. For the entire rental period, the renter must arrange and maintain the insurances as follows:

 

  2.1.1

Property contents insurance and any other possessions brought to the Property or building by or for the renter (including equipment, furniture, facilities and inventory), and any alteration, improvement and addition to the Property made by the sub-renter, the renter or for the renter and/ or financed by the main landlord and/ or the sub, in full value and on the basis of reinstatement value, from loss or damage due to the accepted risks in extended fire coverage, including fire, smoke, lightning, explosion, earthquake, storm and strong weather, flood, fluid damage and cracking of pipes, damage by vehicles, damage by aircraft, riots, strikes, malicious damage, broken inside-glass only and burglary damage. The insurance includes a clause whereby the insurer waives the right of subrogation towards the landlord and towards the management company and towards employees and managers of the landlord or management company, as well as towards other renters, tenants, and other rights’ holders in the building (together: “other rights’ holders”), in whose Property insurance a corresponding clause regarding the waiver of the right of subrogation towards the renter exists, or in an agreement conferring on the other rights’ holders as aforesaid rights in the building is included an exemption from liability in favor of the renter for loss or damage that may be caused to the Property of the other rights’ holders due to the risks that are included in the extended fire coverage risks; such abovementioned waiver shall not apply to the person who caused the malicious damage.

 

 

1 Limits of liability for approval for labor insurance:

 

Scope of works   Chapter A – expansion of nearby Property and
Property on which work is done 		  Limit of liability chapter B
250,000   200,000 NIS   1,000,000 NIS
250,000 – 500,000   300,000 NIS   2,000,000 NIS
500,000 – 1,000,000   300,00 NIS   3,000,000 NIS
Over 1,000,000   400,000 NIS   4,000,000 NIS

 

 
 

 

  2.1.2 Third party liability coverage that ensures the renter’s liability under law for bodily injury or damage to Property that may be caused to the body or Property of any person or entity in the Property and its surroundings, within the limit of liability in the amount of 6,000,000 NIS per case and cumulative under the policy. The insurance is extended to cover the main landlord and the sub-renter and the management company for liability that will be imposed on any of them due to an act or omission of the renter, subject to a cross-liability clause.
     
  2.1.3 Employers’ liability insurance that insures the renter’s liability under the Torts Ordinance (new version) and/ or according to the Liability for Defective Products Law, 5740-1980 towards the renter’s employees for bodily injury or occupational illness that may be caused to any of them while and due to their work on or around the Property, within the limit of liability of 6,000,000 NIS (six million NIS) per employee and 20,000,000 NIS (twenty million NIS) per case and in total for the insurance period. The insurance is extended to indemnify the main landlord and the sub-renter and the management company if decided, in the case of a work accident or any occupational disease, that any of them has any employer obligations towards any of the renter’s employees.
     
  2.1.4 Consequential loss insurance that insures loss of gross profit of the renter [expressly excluding loss of rent, management fees and parking fees (if any) to the main landlord, sub-renter and management company] due to loss or damage caused to the insured’s assets under clause 1 above or to the Property or building structure, as a result of one of the risks insured under clause 1 above (excluding burglary, robbery and expansion off all the clauses), for an indemnity period of 12 months. The insurance includes a clause according to which the insurer waives the right of subrogation towards the main landlord and sub-landlord and towards the management company and towards employees and managers of the landlord or management company as well as towards other rights’ holders whose consequential loss insurance includes a corresponding clause regarding the waiver of a right of subrogation towards the renter, or in an agreement granting the other rights’ holders such rights in the building is included an exemption from liability in favor of the renter in respect of a consequential loss to the holders of the other rights due to the risks that can be covered by extended fire coverage; such waiver shall not apply to the person who caused the malicious damage.

 

 
 

 

  2.2. Without the need for any requirement on the part of the landlord or the management company and the sub-landlord, the renter must submit to the main- and sub-landlord and to the management company, no later than the date of receipt of possession of the Property or before any assets are transferred to the Property (other than assets included in the insured works according to clause 1.1 above) - the earlier of the two dates – the approval to take out the insurance, which is attached to this Agreement and forms an integral part thereof and is marked as Appendix B2 (“Approval of renter’s permanent insurance” and “Renter’s permanent insurance”, respectively). The renter is signed by the renter’s insurer. The issuance of a permanent insurance approval by the renter is a condition precedent for receiving the hold of the Property or for bringing any assets into the Property (other than assets included in the insured works under clause 1.1 above), and the landlord and the management company shall have the right (but not the obligation) to prevent the renter from receiving the hold of the Property or the insertion of said assets in the event that the permit was not issued before the date specified above.
     
  2.3. The renter has the right not to take out consequential loss insurance and/ or Property insurance, in whole or in part, but the exemption specified in clause 2.6 below will apply as if the insurances as aforesaid had been taken out in full.
     
  2.4. If, in the opinion of the renter, additional or supplementary insurance is required for the renter’s labor insurance or for the renter’s permanent insurance, the renter may take out the additional or supplementary insurance as aforesaid. Any additional or supplementary Property insurance as aforesaid shall include a clause regarding the waiver of the right of subrogation towards the landlord, the management company and any of the persons on their behalf, as well as towards other renters, tenants, and other rights’ holders in the building (together: “other rights holders”), in whose Property insurance or in the Property chapter for contract work carried out by them included a waiver of a right of transfer towards the renter, provided that the exemption does not apply in favor of the person who caused the damage maliciously.
     
  2.5. The renter must update the insurance amounts in respect of the insurances taken out according to the renter’s permanent insurance approval, from time to time, so that they always reflect the full value of the insured subject under them.
     
  2.6. The renter exempts the sub-landlord, the main landlord, the management company and those on their behalf as well as the other rights’ holders, whose lease agreements or any other agreement granting the other rights’ holders such rights in the building includes a corresponding exemption towards the renter, from liability for damage that the renter has indemnification rights in regards thereof, according to the insurances the renter has to take in accordance with clause (1) for the approval of the renter’s work insurance, clauses (2.1.1) and (2.1.4) above as well as additional Property insurance as stated in clause 2.4 above (or that the renter had the right to indemnification for without the deductibles stated in the policies and/ or missing insurance and/ or violation of the terms of the insurance policies), but the exemption from such liability will not apply in favor of the person who caused the damage maliciously.
     
  2.7. At the end of the renter’s permanent insurance period, the renter must deposit with the main landlord or the management company and the sub-landlord the renter’s permanent insurance approval for the extension of its validity for another period. The renter must return and deposit the renter’s permanent insurance approvals on the specified dates, every insurance period and as long as this agreement is valid.

 

 
 

 

  2.8. Whenever the renter’s insurer notifies the landlord or management company as well as the sub-landlord that any of the renter’s permanent insurances is about to be canceled or is about to be subject to change for the worse, the renter must re-edit that insurance and issue a renewed insurance approval, until the date of cancellation or change for the worse in such insurance.
     
  2.9. For the avoidance of doubt, it is clarified that failure to present the insurance approvals on time will not affect the renter’s obligations under this Agreement, including and without prejudice to the generality of the said, any obligation to pay that applies to the renter. The renter must fulfill all the renter’s obligations under the Agreement even if the renter is prevented from performing work, receiving possession of the Property, bringing assets into the Property or opening the business in the Property due to failure to present the permits on time.
     
  2.10. The main landlord and sub-landlord and the management company have the right (but not the obligation) to check the insurance permits presented by the renter, and the renter must make any changes or amendments required to conform to the renter’s obligations in this Agreement. The landlord and management company’s right is to examine the permits and order their amendment as described above does not impose on the landlord or the management company or anyone on their behalf any obligation and liability whatsoever in relation to the said insurance certificates, the nature, scope and validity of the insurances made under the said approvals or in their absence, and does not detract from any liability imposed on the renter under this Agreement or by law.
     
  2.11. The renter must comply with the terms of the insurance policies drawn up by the renter, pay the insurance premiums in full and on time, and ensure that the renter’s permanent insurance is renewed from time to time as necessary and is valid for the entire rental period.
     
  2.12. The renter must adhere to reasonable safety guidelines that will be published (if published) from time to time by the landlord or by the management company.
     
  2.13. The limits of liability required by the insurance permits are a minimum requirement imposed on the renter which does not derogate from any obligation of the renter under the Agreement and/ or under any law and does not release the renter from full liability under this Agreement and/ or by law. The renter will not have any claim or demand against the landlord or against the management company or against anyone on their behalf, with regard to the limits of such liability.
     
  2.14. The landlord, the sub-landlord and the management company do not have any obligation to maintain security or other security measures in the building or in the Property, and the existence of security or other security measures in the building or in the Property does not create any obligation or liability towards the renter. The Bailees Law 5727-1967 does not apply to the Agreement and its appendices.

 

 
 

 

  2.15. Without derogating from the provisions of this Agreement and without derogating from the responsibility of the landlord and/ or sub-renter and/ or the responsibility of the management company under this Agreement or by law, the landlord and sub-renter, as the case may be, arrange and maintain, either through the main landlord or through the management company for the duration of the Agreement, the insurances listed later in this clause with a legally authorized and reputable insurance company:

 

  2.15.1. Building structure coverage (including the leased Property) and its adjoining structures and systems, in the full value of their establishment, as well as any additional Property of the landlord, sub-landlord or management company located in and around the building, in their establishment value, from loss or damage following the risks that are covered in an extended fire coverage, including fire, smoke, lightning, explosion, earthquake, storm and hurricane, flood, fluid damage and cracking of pipes, damage by vehicles, damage by aircraft, riots, strikes, malicious damage as well as burglary damage. The said insurance will include a clause regarding a waiver of the right of transfer towards the renter and those on behalf of the renter, but the said waiver will not apply in favor of the person who caused the damage maliciously. Such insurance shall not and expressly exclude Property specified in clause 2.1.1 above any contents, additions, improvements or extensions made by or on behalf of or for the renter or other rights’ holders.
     
  2.15.2. Consequential loss insurance that insures loss of rent and management fees (and parking fees if any) due to damage caused to the building structure (including the leased Property) as well as any additional assets as stated in clause 2.15.1 above due to the risks listed in clause 2.15.1 above (excluding burglary), for indemnity period of 24 months. The said insurance will include a clause regarding the waiver of the right of subrogation in favor of the renter and those on behalf of the renter, but the said waiver will not apply in favor of the person who caused the damage maliciously.
     
    The landlord, the sub-landlord and the management company have the right not to take out consequential loss insurance that insures the loss of rent, management fees and parking fees (if any) as stated in clause 2.15.1 above, in whole or in part, but the provisions of clause 2.19 below shall apply as stated fully. In addition, the sub-landlord may not take out Property insurance subject to clause 2.19 below.
     
  2.15.3. Third party liability insurance with a liability limit of 4,000,000 NIS (four million NIS) for a case and cumulatively under the policy, which insures the liability of the landlord, the sub-landlord, and the management company according to law for bodily injury or damage to Property that may be caused to the body or possessions of any person or legal entity in the building. The insurance will be extended to indemnify the renter for liability imposed on the renter due to an act or omission of the landlord or the management company, subject to a cross-liability clause according to which the insurance is considered to have been arranged separately for each of the insured.
     
  2.15.4. Employers’ liability insurance that insures the liability of the landlord, sub-landlord and management company towards their employees for physical injury or occupational disease that may be caused to any of them while or due on their work in the project and its surroundings, within the limit of liability of 6,000,000 NIS (six million NIS) per employee and 20,000,000 NIS (20 million NIS) for a case and in total for the insurance period. The insurance will be extended to indemnify the renter in case of a work accident or a work-related disease for the renter holds responsibility for the landlord’s workers, the sub-landlord or the managing company.

 

  2.16. The landlord and the sub-landlord have the right, at the sole discretion of the landlord or the sub-landlord, to take out additional insurance for the insurances specified in clause 2.15 above. Any additional Property insurance taken out by the landlord or sub-landlord, as the case may be in connection with the asset in which the Property is located, will include a waiver of transfer to the renter and successors on behalf of the renter, but such waiver will not apply to the person who caused the malicious damage.

 

  2.17. In the arrangement of the insurances listed in clause 2.15 above, shall not be in addition to the responsibility of the landlord or the management company beyond what is stated in this Agreement or to detract from the responsibility of the renter under the Agreement or according to law (except as expressly stated in end to clause 2.18 below).
     
  2.18. The sub-landlord and the landlord exempt, on behalf of the landlord and on behalf of the management company, the renter and those on behalf of the renter from liability for damage for which the landlord, sub-landlord or management company is entitled to indemnification under the insurance the landlord or sub-landlord and management company are to take out according to clauses 2.15.1 and 2.15.2 above and insurance in accordance with clause 2.16 above, insofar as they were made (or were entitled to indemnification for it without the deductibles specified in the policies and/ or missing insurance and/ or violation of the terms of the insurance policies), but exemption from such liability will not apply to the one who caused the damage maliciously.
     
  2.19. Notwithstanding the foregoing, if there was an insured case insured under clauses 2.15.1 and 2.15.2 and 2.17 above in circumstances which are the responsibility of the renter as stated in the Agreement or by law, the renter must bear the amount of the damage caused up to the amount of the deductibles under the said policies, provided that the said amount, for any event, will not exceed $ 5,000.

 

 
 

 

Appendix B1 – Approval of the Renter’s Labor Insurance

 

Approval of existence of insurances – contracting work insurance \ in building Date of issue of approval (DD\MM\YYYY)
This insurance approval is a reference to the fact that the insured has a valid insurance policy, in accordance with the information specified in it. The information detailed in this approval does not include all the terms of the policy and its exceptions. However, in the event of a conflict between the conditions specified in this approval and the conditions set forth in the insurance policy, what is stated in the insurance policy will prevail, except in the case where a condition in this approval benefits the applicant for the approval.
The applicant for the approval

The insured

 

Address of the insured Property\ Address of the place of works Status of the applicant for the approval

Name of landlord: Ayalot Investment (Ramat Vered) 1994 Ltd. and\ or parent company and\ or subsidiaries and\ or related companies and\ or the management company

Sub-landlord:

EMI car wash systems Ltd.

Name of the renter and\ or contractors and\ or sub-contractors

 

 

☐ Contractor

☐ Sub-contractor

☐ Renter

☒ Other: main- and sub-renter\ management company

 

ID\ Private Company ID\ Private Company
Address Address
Coverages      

Policy Chapters

Division by limits of liability or insurance amounts

 

Policy No.

 

Policy version and addition

Beginning date

 

End date

Limits of liability\ insurance amount\ work worth

 

Additional coverages in effect and cancellation of exceptions
          Amount Currency  

All the risks contractual works

Example extensions details can be given according to policy chapters

 

        The amounts should be updated in accordance with the table on page 1 of the insurance addendum in the connection agreement   318, 309, 308 (Waiver of transfer towards tenants, renters and other rights’ holders in the asset (subject to reciprocity) 313,314, 316, 318, 328
            included
Property on which work is done         250,000 NIS
Adjacent property         250,000 NIS
Property in transfer         200,000 NIS
Removal of rubble           NIS
Third party         The amounts should be updated in accordance with footnote 2 on page 1 of the Insurance Addendum to the connection Agreement NIS 318, 302, 329, 315, 322, 328
Employer’s responsibility         20,000,000 NIS 318, 328
Other              
Details of the services (subject to the services specified in the agreement between the insured and the applicant for approval, the service code must be indicated from the list detailed in Addendum C)

Construction – large contracting works 007

Renting 096

Cancellation\ change of policy
A change for the worse of the applicant for approval or cancellation of an insurance policy will not take effect until 30 days after sending a notice to the applicant for approval regarding the change or cancellation.
The signature of the approval
The insurer:
                     

 
 

 

Appendix B2 – Approval of the Renter’s Permanent Insurance – New 2021

 

Approval of existence of insurances Date of issue of approval (DD\MM\YYYY)

This insurance approval is a reference to the fact that the insured has a valid insurance policy, in accordance with the information specified in it. The information detailed in this certificate does not include all the terms of the policy and its exceptions. However, in the event of a conflict between the conditions specified in this approval and the conditions set forth in the insurance policy, what is stated in the insurance policy will prevail, except in the case where a condition in this approval benefits the applicant for the approval.

 

The applicant for the approval*

 

The insured

 

The nature of the deal

 

Status of the applicant for the approval*

 

Name of sublandlord: EMI car wash systems ltd. and\ or Ayalot Investment (Ramat Vered) 1994 ltd.  and\ or parent company and\ or subsidiaries and\ or related companies and\ or the management company

Name of renter

 

☐ real estate

☐ services

☐ product supply

☒ other: rent of a property located in

________

 

☒ the landlord and\ or management company

☐ renter

☐ franchisee

☐ sub-contractors

☐ service requester

☐ supply requester

☒ other: ______

sub-tenant ____________

 

 

ID\ Private Company: 514142256

 

ID\ Private Company
Address 27 Moshe Yatom str, Rehovot Address
Coverages      

Policy Chapters

Division by limits of liability or insurance amounts

 

Policy No.

 

Policy version and addition

Beginning date

 

End date

Limits of liability\ insurance amount

 

 

 

Additional coverages in effect and cancellation of exceptions

A coverage code must be specified in accordance with Addendum D.

Amount Currency
Possessions           NIS 309, 328, 313, 314, 316,  , 324 – for the possessions of the applicant for approval
            NIS
             
             
Third party           NIS 304, 302, 328, 307,   321, 315,  , 321
Employer’s responsibility         20,000,000 NIS 304, 319, 328

Other

Consequential loss

          NIS 309, 328, 313, 316,  
Details of the services (subject to the services specified in the agreement between the insured and the applicant for approval, the service code must be indicated from the list detailed in Addendum C)
 
Cancellation\ change of policy
A change for the worse of the applicant for approval or cancellation of an insurance policy will not take effect until 30 days after sending a notice to the applicant for approval regarding the change or cancellation.
The signature of the approval
The insurer:

 

 
 

 

Appendix C

 

Attn.

EMI CAR WASH SYSTEMS LTD

From 27 Moshe Yatom St., Rehovot

 

Branch:________

Address:________

Date:__________

 

Dear Sir\ Madam,

 

Re: Bank Guarantee No.:___________

 

  1. We hereby guarantee to you a payment of any amount up to a total of 186,030 NIS (One hundred eighty-six thousand and thirty NIS) (hereinafter: “guaranteed amount”), that you shall demand from SciVac Ltd. private company 513679555 (hereinafter: “the guaranteed”), in connection with a lease agreement signed between you and the guaranteed, all additions thereto, as signed or will be signed periodically.
     
    This amount will be linked to the Consumer Price Index as published from time to time by the Central Bureau of Statistics and Economic Research, under the linkage conditions below:
     
    The “basic index” for the purpose of this guarantee will be an index for the month of June 2021 published on the 15th of the following month (or close to that date), at a rate of ____ points.
     
    The “new index” for this guarantee will be the index that was published recently and prior to receiving your claim according to this guarantee.
     
    The linkage differences regarding this guarantee will be calculated as follows: if it turns out that the new index has increased compared to the basic index, then the amount of the guarantee will be calculated when it is increased at the same rate as the rate of increase of the new index compared to the basic index. If the new index is lower than the basic index, we will pay you the amount specified in your claim up to the amount of the guarantee, without any linkage differences.
     
  2. According to your first written request, no later than ten days from the date your request was received by us at our address indicated above, we will pay you any amount specified in the claim provided that it does not exceed the guarantee amount plus linkage differences, without imposing an obligation on you to prove or explain your demand and without you having to demand the payment first by the guaranteed.
     
  3. This guarantee will remain valid until November 30, 2025 (inclusive) only and after that date it will be null and void.
     
    Any request under this letter of guarantee must be received by us in writing according to our address indicated above, no later than the above stated date and the closing time for the customer reception of our branch.
     
  4. A written demand that reaches the bank via facsimile will also constitute a written demand for the purpose of this guarantee.
     
  5. This guarantee is not transferable or convertible.

 

Respectfully,

Bank___________

 

 
 

 

#1

 

P r o m i s s o r y N o t e

 

In Rehovot, on day ____________ moth_____________ of year ___________

 

I, the undersigned, SciVac Ltd. private company: 513679555 hereby undertake to pay against this bill to EMI Car Wash Systems Ltd. (hereinafter: “the holder”), a total of 250,000 NIS (two hundred fifty thousand NIS) when it is linked to the consumer price index known at the time of actual payment. The base index will be the June 2021 index.

 

The holder is exempt from all obligations imposed on the holder of the note, including presentation for payment and/ or the witness and/ or notice of desecration. We waive all rights and protections granted to us under the Bank notes Ordinance (except with respect to the statute of limitations).

 

The holder is and will be entitled to take any procedure for the execution, enforcement and/ or collection of this promissory note in any way, including through the Writ of Execution and/ or in a lawsuit in court. The holder will be allowed and entitled at any time to complete any missing detail in this note (if missing), at its sole and absolute discretion.

 

In witness whereof we affix our signature

 

In Rehovot on the 11 of July, 2021

 

  /s/ SciVac Ltd
  SciVac Ltd.

 

 
 

 

#2

 

P r o m i s s o r y N o t e

 

In Rehovot, on day ____________ moth_____________ of year ___________

 

I, the undersigned, SciVac Ltd. private company: 513679555 hereby undertake to pay against this bill to EMI Car Wash Systems Ltd. (hereinafter: “the holder”), a total of 250,000 NIS (two hundred fifty thousand NIS) when it is linked to the consumer price index known at the time of actual payment. The base index will be the June 2021 index.

 

The holder is exempt from all obligations imposed on the holder of the note, including presentation for payment and/ or the witness and/ or notice of desecration. We waive all rights and protections granted to us under the Bank notes Ordinance (except with respect to the statute of limitations).

 

The holder is and will be entitled to take any procedure for the execution, enforcement and/ or collection of this promissory note in any way, including through the Writ of Execution and/ or in a lawsuit in court. The holder will be allowed and entitled at any time to complete any missing detail in this note (if missing), at its sole and absolute discretion.

 

In witness whereof we affix our signature

 

In Rehovot on the 11 of July, 2021

 

  /s/ SciVac Ltd
  SciVac Ltd.

 

 

 

Exhibit 31.1

 

CERTIFICATION

 

I, Jeffrey Baxter, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of VBI Vaccines Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 2, 2021  
   
  /s/ Jeffrey Baxter
  Jeffrey Baxter
 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

Exhibit 31.2

 

CERTIFICATION

 

I, Christopher McNulty, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of VBI Vaccines Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 2, 2021  
   
  /s/ Christopher McNulty
  Christopher McNulty
  Chief Financial Officer and Head of Business Development
  (Principal Financial and Accounting Officer)

 

 

 

Exhibit 32.1

 

CERTIFICATION

 

In connection with the quarterly report of VBI Vaccines Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, Jeffrey Baxter, Chief Executive Officer (Principal Executive Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

Date: August 2, 2021  
   
  /s/ Jeffrey Baxter
  Jeffrey Baxter
  Chief Executive Officer
  (Principal Executive Officer)

 

 

 

Exhibit 32.2

 

CERTIFICATION

 

In connection with the quarterly report of VBI Vaccines Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, Christopher McNulty, Chief Financial Officer and Head of Business Development (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

Date: August 2, 2021  
   
  /s/ Christopher McNulty
  Christopher McNulty
  Chief Financial Officer and Head of Business Development
  (Principal Financial and Accounting Officer)