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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2022

 

OR

 

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

 

For the transition period from _______ to _______

 

Commission file number: 001-37769

 

VBI VACCINES INC.

(Exact name of registrant as specified in its charter)

 

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

 

160 Second Street

Cambridge, Massachusetts

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

 

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

 

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

 

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

 

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

Yes ☒ No ☐

 

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

Yes ☒ No ☐

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 
 

 

VBI VACCINES INC.

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

 

TABLE OF CONTENTS

 

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

 

2

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT

 

This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “will,” “may,” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers, and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from our historical experience and our present expectations, or projections described under the sections in this Quarterly Report on Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 7, 2022. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

 

the timing of, and our ability to, obtain and maintain regulatory approvals for our clinical trials, products, and pipeline candidates;
   
our ability to achieve and sustain commercial success of PreHevbrio in the U.S and PreHevbri in Europe;
   
the timing and results of our ongoing and planned clinical trials for products and pipeline candidates;
   
the amount of funds we require for our prophylactic and therapeutic pipeline candidates;
   

the potential benefits of strategic partnership agreements and our ability to enter into strategic partnership arrangements;

 

our ability to manufacture, or to have manufactured, our 3-antigen hepatitis B vaccine and our pipeline candidates, at a commercially viable scale to the standards and requirements of regulatory agencies;
   
the impact of the ongoing COVID-19 pandemic on our clinical studies, research programs, manufacturing, business plan, regulatory review including site inspections, and the global economy;
   
our ability to effectively execute and deliver our plans related to commercialization, marketing, manufacturing capabilities and strategy;
   
our ability to retain and maintain a good relationship with our current employees, and our ability to competitively attract new employees with relevant experience and expertise;
   
the suitability and adequacy of our office, manufacturing, and research facilities and our ability to secure term extensions or expansions of leased space;
   
the ability of our vendors and suppliers to manufacture and deliver materials in a timely manner that meet regulatory agency and our standards and requirements to meet planned timelines and milestones;
   
any disruption in the operations of our Rehovot, Israel manufacturing facility where we manufacture all of our clinical and commercial supplies of our 3-antigen hepatitis B vaccine and clinical supplies of our hepatitis B immunotherapeutic, VBI-2601;
   
our compliance with all laws, rules, and regulations applicable to our business and products;
   
our ability to continue as a going concern;

 

our history of losses;
   
our ability to generate revenues and achieve profitability;
   
emerging competition and rapidly advancing technology in our industry that may outpace our technology;
   
customer demand for our 3-antigen hepatitis B vaccine and pipeline candidates;
   
the impact of competitive or alternative products, technologies, and pricing;
   
general economic conditions and events and the impact they may have on us and our potential customers;
   
our ability to obtain adequate financing in the future on reasonable terms, as and when we need it;
   
our ability to implement network systems and controls that are effective at preventing cyber-attacks, malware intrusions, malicious viruses, and ransomware threats;
   
our ability to secure and maintain protection over our intellectual property;
   
our ability to maintain our existing licenses with licensors of intellectual property, or obtain new licenses for intellectual property;

 

3

 

 

changes to legal and regulatory processes for biosimilar approval and marketing that could reduce the duration of market exclusivity for our products;

 

our success at managing the risks involved in the foregoing items;

 

our ability to maintain compliance with the NASDAQ Capital Market’s listing standards; and

 

other factors discussed in this Form 10-Q.

 

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

 

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

 

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

 

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

 

4

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

 

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

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

5

 

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

 

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

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

6

 

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

  

Number of

Common

Shares

  

Share

Capital

  

Additional
Paid-in

Capital

  

Accumulated
Other

Comprehensive
Income (Loss)

   Accumulated
Deficit
  

Total Stockholders’

Equity

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

 

BALANCE AS OF DECEMBER 31, 2020

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

 

Beginning Balance

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

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

7

 

 

VBI Vaccines Inc. and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

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

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

8

 

 

VBI Vaccines Inc. and Subsidiaries

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands, except share and per share amounts)

 

1. NATURE OF BUSINESS AND CONTINUATION OF BUSINESS

 

Corporate Overview

 

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

 

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

 

The Company’s registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with its principal office located at 160 Second Street, Floor 3, Cambridge, MA 02142. In addition, the Company has manufacturing facilities located in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.

 

Principal Operations

 

VBI Vaccines Inc. (“VBI”) is a commercial stage biopharmaceutical company driven by immunology in the pursuit of prevention and treatment of disease. Through its innovative approach to virus-like particles (“VLPs”), including a proprietary enveloped VLP (“eVLP”) platform technology, VBI develops vaccine candidates that mimic the natural presentation of viruses, designed to elicit the innate power of the human immune system. VBI is committed to targeting and overcoming significant infectious diseases, including hepatitis B (“HBV”), COVID-19 and coronaviruses, and cytomegalovirus (“CMV”), as well as aggressive cancers including glioblastoma (“GBM”). VBI is headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada, and a research and manufacturing site in Rehovot, Israel.

 

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

 

9

 

 

Liquidity and Going Concern

 

The Company has a limited operating history and faces a number of risks, including but not limited to, uncertainties regarding the success of the development and commercialization of its products, demand and market acceptance of the Company’s products, and reliance on major customers. The Company anticipates that it will continue to incur significant operating costs and losses in connection with the development and commercialization of its products.

 

The Company had an accumulated deficit of $397,560 as of March 31, 2022 and cash outflows from operating activities of $19,925 for the three months ended March 31, 2022.

 

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

 

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

 

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

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Consolidation

 

The Company’s fiscal year ends on December 31 of each calendar year. The accompanying unaudited condensed consolidated financial statements have been prepared in U.S. dollars (“USD”) and pursuant to the rules and regulations of the SEC, for interim reporting. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. The December 31, 2021 consolidated balance sheet in this document was derived from the audited consolidated financial statements. The condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q (this “Form 10-Q”) does not include all of the disclosures required by U.S. GAAP and should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 10-K”), as filed with the SEC on March 7, 2022.

 

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

 

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

 

10

 

 

Significant Accounting Policies

 

The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in the 2021 10-K, and there have been no changes to the Company’s significant accounting policies during the three months ended March 31, 2022, other than the polices discussed below.

 

3. NEW ACCOUNTING PRONOUNCEMENTS

 

Recently Adopted Accounting Pronouncements

 

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity. Specifically, the new standard has removed the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It has also removed certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation for convertible instruments.

 

On January 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method and recognized a cumulative effect of initially applying the ASU as an adjustment to the January 1, 2022 opening balance of accumulated deficit. Our conversion option that was previously bifurcated and recorded as a debt discount and additional paid-in capital has now been combined as a single instrument classified as a liability. The Company eliminated the beneficial conversion feature from additional paid-in capital; eliminated the interest accretion on the beneficial conversion feature through December 31, 2021 from the opening balance of accumulated deficit; and eliminated the corresponding debt discount. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

 

Accordingly, the cumulative effect of the changes made on our January 1, 2022 condensed consolidated balance sheet for the adoption of the ASU was as follows:

 

   Balance as at December 31, 2021   Adjustments from adoption of ASU 2020-06   Balance as at January 1, 2022 
Liabilities               
Long-term debt, net of debt discount  $28,441   $681   $29,122 
Stockholders’ equity               

Additional paid-in capital

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

 

Recently Issued Accounting Standards, not yet Adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“2016-13”). The amendments in ASU 2016-13, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This ASU will be implemented through a modified retrospective method of transition. The Company is currently evaluating the potential impact of ASU 2016-13 on its condensed consolidated financial statements. 

 

11

 

 

4. INVENTORY, NET

 

Inventory consists of the following:

 

  

March 31,

2022

   December 31,
2021
 
Finished goods  $305   $- 
Work-in-process   866    645 
Raw materials   2,886    1,931 
Total  $4,057   $2,576 

 

5. OTHER CURRENT ASSETS

 

Other current assets consisted of the following:

 

  

March 31,

2022

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

 

6. INTANGIBLE ASSETS AND GOODWILL

 

       March 31, 2022 
  

Gross

Carrying
Amount

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

 

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

 

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

 

The change in carrying value for IPR&D assets from December 31, 2021 relates to currency translation adjustments which increased by $1,145 for the three months ended March 31, 2022.

 

       March 31, 2022 
  

Gross

Carrying

Amount

  

Cumulative

Impairment
Charge

  

Cumulative
Currency

Translation

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

 

       December 31, 2021 
   Gross
Carrying
Amount
  

Cumulative

Impairment
Charge

  

Cumulative
Currency

Translation

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

 

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

 

12

 

 

7. OTHER CURRENT LIABILITIES

 

Other current liabilities consisted of the following:

 

   March 31,
2022
   December 31,
2021
 
Accrued research and development expenses (including clinical trial accrued expenses)  $7,334   $8,196 
Accrued professional fees   3,906    2,294 
Payroll and employee-related costs   2,495    4,805 
Deferred funding   8,657    10,183 
Other current liabilities   1,341    1,463 
Total  $23,733   $26,941 

 

8. LOSS PER SHARE OF COMMON SHARES

 

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

 

The following potentially dilutive securities outstanding at March 31, 2022 and 2021 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

 

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

 

13

 

 

9. LONG-TERM DEBT

 

As of March 31, 2022, and December 31, 2021, the long-term debt is as follows:

 

   March 31,
2022
   December 31,
2021
 
Long-term debt, net of debt discount of $2,692 ($3,783 at December 31, 2021)  $29,532   $28,441 
Less: current portion, net of debt discount of $396 ($0 at December 31, 2021)   4,744    - 
Long-term debt  $24,788   $28,441 

 

On May 22, 2020, the Company (along with its subsidiary VBI Cda) entered into the Loan and Guaranty Agreement (the “Loan Agreement”) with K2 HealthVentures LLC and any other lender from time-to-time party thereto (the “Lenders”) pursuant to which we received the first tranche secured term loan of $20,000 (the “First Tranche Term Loan”). The Lenders originally agreed to make available the following additional tranches subject to the following conditions and upon the submission of a loan request by the Company: (1) up to $10,000 available between January 1, 2021 and April 30, 2021 upon achievement of certain milestones (the “Second Tranche Term Loan”), (2) $10,000 available between the closing date and December 31, 2021, subject to achievement of a certain U.S. Food and Drug Administration (“FDA”) approval (the “Third Tranche Term Loan”), and (3) a final tranche of up to $10,000 that could be made available any time prior to June 30, 2022, subject to the advance of the Third Tranche Term Loan, satisfactory review by the administrative agent of our financial and operating plan, and approval by the Lenders’ investment committee. The Company obtained FDA approval on November 30, 2021 but elected not to draw down the Third Tranche Term Loan. As the Third Tranche Term Loan availability period has passed, the final tranche will not be made available. Pursuant to the Loan Agreement, the Lenders originally had the ability to convert, at the Lenders’ option, up to $4,000 of the secured term loan into common shares of the Company at a conversion price of $1.46 per share (“K2 conversion feature”) until the maturity date of June 1, 2024. On February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted $2,000 of the secured term loan into 1,369,863 common shares at a conversion price of $1.46. The Lenders have the ability to convert an additional $2,000 at the Lenders’ option.

 

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

 

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

 

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

 

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

 

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

 

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

 

14

 

 

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

 

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

 

The total debt discount related to the Loan Agreement, as amended by the First Amendment, with K2 HealthVentures LLC is $7,209 (subsequent to adjustments made as a result of the implementation of ASU 2020-06). As of March 31, 2022, and December 31, 2021, the unamortized debt discount was $2,692 and $3,783 respectively. The debt discount is being charged to interest expense, net of interest income in the condensed consolidated statement of operations and comprehensive loss using the effective interest method over the term of the debt.

 

At March 31, 2022 and December 31, 2021, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy, is estimated to be $30,292 and $30,406, respectively.

 

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

 

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

 

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

 

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

 

15

 

 

10. STOCKHOLDERS’ EQUITY AND ADDITIONAL PAID-IN CAPITAL

 

Stock option plans

 

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

 

2006 VBI US Stock Option Plan

 

The 2006 VBI US Stock Option Plan (the “2006 Plan”), was approved by and was previously administered by the VBI US board of directors which designated eligible participants to be included under the 2006 Plan, and designated the number of options, exercise price and vesting period of the new options. The 2006 Plan was not approved by the stockholders of VBI US. The 2006 Plan was superseded by the 2014 Plan (as defined below) following the PLCC Merger and no further options will be issued under the 2006 Plan. As of March 31, 2022, there were 889,763 options outstanding under the 2006 Plan.

 

2014 Equity Incentive Plan

 

On May 1, 2014, the VBI DE board of directors adopted the VBI Vaccines Inc. 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the VBI DE’s shareholders on July 14, 2014. The 2014 Plan was superseded by the 2016 Plan (as defined below) and no further options will be issued under the 2014 Plan. As of March 31, 2022, there were 521,242 options outstanding under the 2014 Plan.

 

2016 VBI Equity Incentive Plan

 

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

 

16

 

 

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

 

Activity related to stock options is as follows:

 

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

 

Information relating to RSUs is as follow:

 

   Number of
Stock Awards
   Weighted
Average Fair Value
at Grant Date
 
Unvested shares outstanding at December 31, 2021   39,329   $1.47 
           
Vested   (11,539)   1.51 
           
Unvested shares outstanding at March 31, 2022   27,790   $1.46 

 

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

 

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

 

The fair value of the options is recognized as an expense on a straight-line basis over the vesting period and forfeitures are accounted for when they occur. The total stock-based compensation expense recorded in the three months ended March 31, 2022 and 2021 was as follows:

 

  

Three months ended

March 31

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

 

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11. REVENUES AND DEFERRED REVENUE

 

Revenue comprises the following:

 

  

Three months ended

March 31

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

 

The following table presents revenues expected to be recognized in the future related to performance obligations, based on current estimates, that are unsatisfied at March 31, 2022:

 

   Total  

Current

portion to

March 31, 2023

  

Remaining

portion

thereafter

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

 

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

 

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

 

Collaboration and License Agreement – Brii Bio

 

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

 

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

 

On December 20, 2021, the Company and Brii Bio further amended the License Agreement (the “Second Amendment”) subject to the following additional terms and conditions:

 

  the Company and Brii Bio agreed to conduct an additional Phase II combination clinical trial of VBI-2601 (BRII-179), both with and without IFN-α, and BRII-835 (VIR-2218) (“Combo Clinical Trial”); and

 

  Brii Bio granted the Company a non-exclusive royalty free license under the Brii Bio technology arising from the data generated in the Combo Clinical Trial solely for use in the development, manufacture or commercialization of the Licensed Product in combination with an siRNA in the countries of the world other than the Licensed Territory.

 

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

 

The Company and Brii Bio will jointly own all right, title and interest in the joint know-how development and the patents claiming joint inventions made pursuant to the Second Amendment.

 

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

 

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There was no additional consideration contemplated in the Second Amendment.

 

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

 

The R&D Services will be satisfied over time as services are rendered using the “cost-to-cost” input method as this method represents the most accurate depiction of the transfer of services based on the types of costs expected to be incurred. As of March 31, 2022, R&D services related to Brii Bio that remain unsatisfied are $2,148, out of the $2,817 total deferred revenue.

 

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

 

12. COLLABORATION ARRANGEMENTS

 

GlaxoSmithKline Biologicals S.A. (“GSK”)

 

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

 

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

 

National Research Council of Canada (“NRC”)

 

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

 

On December 21, 2020, the Company signed an amendment to the collaboration agreement with the NRC to broaden the scope of collaboration to include certain pre-clinical evaluations, bioprocess optimization, technology transfer, and the performance of additional scale up work.

 

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

 

On August 27, 2021, the Company signed a third amendment to the collaboration agreement with the NRC further broaden the scope to include certain stable cell line work for our vaccine candidate against the Beta variant of SARS-CoV-2.

 

On November 15, 2021, we signed a fourth amendment to the collaboration agreement with the NRC to further broaden the scope to include additional animal studies and PRNT analysis for our vaccine candidate against the Beta variant of SARS-CoV-2.

 

On February 8, 2022, we signed a fifth amendment to the collaboration agreement with the NRC to further broaden the scope to include additional assays of new variants against SARS-CoV-2.

 

On April 28, 2022, we signed a sixth amendment to the collaboration agreement with the NRC to further broaden the scope to include generation and testing of stable pools of cells expressing SARS-CoV-2 spike protein.

 

The expiry date of the collaboration agreement, as amended, is October 31, 2022.

 

This relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic 606. Costs associated with the collaboration will be expensed as incurred in Research and Development expenses; costs for the three months ended March 31, 2022 and 2021 are $280 and $158, respectively.

 

CEPI

 

On March 9, 2021, the Company and CEPI announced the CEPI Funding Agreement, to develop eVLP vaccine candidates against SARS-COV-2 variants, including the Beta variant, also known as the B.1.351 variant and as 501Y.V2, first identified in South Africa. CEPI agreed to provide up to $33,018 to support the advancement of VBI-2905, a monovalent eVLP candidate expressing the pre-fusion form of the spike protein from the Beta variant strain, through Phase I clinical development. This funding will also support preclinical expansion of additional multivalent vaccine candidates designed to evaluate the potential breadth of our eVLP technology. The preclinical expansion is intended to develop clinic-ready vaccine candidates capable of addressing emerging variants.

 

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

 

19

 

 

This relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic 606.

 

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

 

Brii Biosciences Limited

 

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

 

As described in Note 11, the Company and Brii Bio entered into the Second Amendment on December 20, 2021. The Combo Clinical Trial collaboration is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic 606. Costs associated with the Combo Clinical Trial collaboration will be expensed as incurred in Research and Development expenses; costs for the three months ended March 31, 2022, were $24.

 

13. GOVERNMENT GRANTS

 

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

 

Industrial Research Assistance Program (“IRAP”)

 

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

 

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

 

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

 

Strategic Innovation Fund (“SIF”)

 

On September 16, 2020, the Company and Her Majesty the Queen in Right of Canada as represented by the Minister of Industry (“ISED”) signed a contribution agreement (the “Contribution Agreement”) for a contribution from SIF whereby ISED agreed to contribute up to CAD $55,976 to support the development of the Company’s coronavirus vaccine program, through Phase II clinical studies, for a period commencing on April 15, 2020 and ending on or before the first quarter of 2022 (the “Project Completion Date”). On March 28, 2022, the Company and ISED signed an amendment to the Contribution Agreement, the main purpose of which was to extend the collaboration and move the Project Completion Date from March 31, 2022 to December 31, 2023.

 

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

 

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

 

20

 

 

14. COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

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

 

On September 13, 2018, two civil claims were brought in the District Court of the central district in Israel naming our subsidiary SciVac as a defendant. In one claim, two minors, through their parents, allege, among other things: defects in certain batches of Sci-B-Vac discovered in July 2015; that Sci-B-Vac was approved for use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac failed to provide accurate information about Sci-B-Vac to consumers; and that each child suffered side effects from the vaccine. The claim was filed together with a motion seeking approval of a class action on behalf of 428,000 children vaccinated with Sci-B-Vac in Israel from April 2011 and seeking damages in a total amount of NIS 1,879,500 ($591,782). The second claim is a civil action brought by two minors and their parents against SciVac and the Israel Ministry of Health alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine; that Sci-B-Vac was marketed in Israel without sufficient evidence establishing its safety; and that Sci-B-Vac was produced and marketed in Israel without approval of a western regulatory body. The claim seeks damages for past and future losses and expenses as well as punitive damages.

 

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

 

The District Court has accepted SciVac’s motion to suspend reaching a decision on the approval of the class action pending the determination of liability under the civil action. Preliminary hearings for the trial of the civil action began on January 15, 2020, with subsequent preliminary hearings held on May 13, 2020, December 3, 2020 and September 30, 2021. The next preliminary hearing is scheduled to be held on June 9, 2022.

 

Operating leases

 

The Company has entered into various non-cancelable lease agreements for its office, lab, and manufacturing facilities, which are classified as operating leases. The office facility lease agreement in the United States expires on October 31, 2024, with no option to extend. Our manufacturing facility lease agreement in Israel has been extended for 5 years with a term now ending January 31, 2027. A lease for additional office space in Israel has a term ending November 30, 2025 with an option to extend for two additional years. The lease agreement for our research facility in Canada, which comprises office and laboratory space, has a term ending on December 31, 2022 with an option to extend the term for one additional period of three years. A lease for additional office space at our research facility commenced on October 1, 2020 with a term ending April 30, 2023.

 

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

 

There are no residual value guarantees, no variable lease payments, and no restrictions or covenants imposed by leases. The discount rate used in measuring the lease liabilities and right of use assets was determined by reviewing our incremental borrowing rate at the initial measurement date.

 

Lease cost:     
Operating lease costs:     
Three months ended March 31, 2022  $341 
Three months ended March 31, 2021   343 

 

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

 

Operating lease costs are included G&A expenses in the statement of operations and comprehensive loss.

 

21

 

 

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

 

      
Remaining 2022  $1,027 
2023   1,242 
2024   1,127 
2025   633 
2026   633 
2027   186 
Total  $4,848 
Effect of discounting   989 
Total lease liability  $3,859 
Less: current portion   938 
Lease liability, net of current portion  $2,921 

 

15. SEGMENT INFORMATION

 

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

 

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

 

  

Three Months Ended

March 31

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

 

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

 

22

 

 

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

 

The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity, and cash flows as of and for the periods presented below. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Form 10-K. In addition to historical information, this discussion and analysis here and throughout this Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements.

 

Overview

 

VBI Vaccines Inc. (“VBI”) is a commercial stage biopharmaceutical company driven by immunology in the pursuit of powerful prevention and treatment of disease. Through our innovative approach to virus-like particles (“VLPs”), including a proprietary enveloped VLP (“eVLP”) platform technology, we develop vaccine candidates that mimic the natural presentation of viruses, designed to elicit the innate power of the human immune system. We are 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. We are headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada, and a research and manufacturing site in Rehovot, Israel.

 

Product Pipeline

 

VBI’s pipeline is comprised of vaccine and immunotherapeutic programs developed by virus-like particle technologies to target two distinct, but often related, disease areas – infectious disease and oncology. We prioritize the development of programs 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, virus-like particles (VLPs) can stimulate potent immune responses. VLPs can be customized to present any protein antigen, including multiple antibody and T cell targets, making them, we believe, ideal technologies for the development of both prophylactic and therapeutic vaccines. However, only a few antigenic proteins self-assemble into VLPs, which limit the number of potential targets. Notably, HBV antigens are among those that are able to spontaneously form orderly VLP structures. Our 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.

 

Our product pipeline includes an approved vaccine and multiple late- and early-stage investigational programs. The investigational programs are in various stages of clinical development and the scientific information included about these therapeutics is preliminary and investigative. The investigational programs have not been approved by the United States Food and Drug Administration, European Medicines Agency’s, United Kingdom Medicines and Healthcare products Regulatory Agency, Health Canada, or any other health authority and no conclusion can or should be drawn regarding the safety or efficacy of these investigational programs.

 

In addition to our existing pipeline programs, we may also seek to in-license clinical-stage vaccines or vaccine-related technologies that we believe complement our pipeline, as well as technologies that may supplement our efforts in both immune-oncology and infectious disease. 

 

23

 

 

Key Targeted Disease Areas 

 

Hepatitis B Virus (“HBV”)

 

HBV infection can cause liver inflammation, fibrosis, and liver injury, resulting in potentially life-threatening conditions through acute illness and chronic disease, including liver failure, cirrhosis, and cancer. HBV remains a significant public health burden with an estimated 2.2 million chronically-infected people in the United States (“U.S.”) alone. Worldwide, this number is estimated to be as high as 350 million, with approximately 800,000 deaths resulting from the consequences of HBV infection each year.

 

Despite the highly infectious nature of HBV, due to its often asymptomatic nature, it is estimated that as many as 67% of chronically-infected adults in the U.S. are unaware of their infection status. There is not yet a cure available for HBV infection, but while public health initiative name immunization as the most effective strategy for the prevention of HBV infections, the U.S. adult HBV vaccination rates remain persistently low at only about 25% of all adults age 19 years and older.

 

In November 2021, the Centers for Disease Control and Prevention (CDC) Advisory Committee on Immunization Practices (ACIP) unanimously voted to change the adult HBV vaccine recommendations. As incorporated in the CDC’s 2022 Adult Immunization Schedule, adults age 19 to 59 years are now universally recommended to be vaccinated against HBV infection. No change was made for adults age 60 years and older – those with an additional risk factor or another indication are recommended for HBV vaccination.

 

COVID-19 and Other Coronaviruses

 

Coronaviruses are a large family of enveloped viruses that cause respiratory illness of varying severities. Only seven coronaviruses are known to cause disease in humans, four of which most frequently cause symptoms typically associated with the common cold. Three of the seven coronaviruses, however, have more serious outcomes in people. These more pathogenic coronaviruses are (1) SARS-CoV-2, a novel coronavirus identified as the cause of COVID-19; (2) MERS-CoV, identified in 2012 as the cause of Middle East Respiratory Syndrome (“MERS”); and (3) SARS-CoV, identified in 2002 as the cause of Severe Acute Respiratory Syndrome (“SARS”).

 

The virus that causes COVID-19 continues to evolve and several SARS-CoV-2 variants have emerged and certain of these variants have been identified as having a significant public health impact. To date, notable Variants of Concern (“VOC”) include:

 

  Alpha (B.1.1.7) – First identified as in the United Kingdom (“UK”), VOC in December 2020
  Beta (B.1.351) – First identified in South Africa, VOC in December 2020
  Gamma (P.1) – First identified in Brazil, VOC in January 2021
  Delta (B.1.617.2) – First identified in India, VOC in May 2021
  Omicron (B.1.1.529) – First identified in South Africa, VOC in November 2021

 

Glioblastoma (“GBM”)

 

Glioblastoma (“GBM”) is among the most common and aggressive malignant primary brain tumors in humans. In the U.S. alone, about 12,000 new GBM cases are diagnosed each year. The current standard of care for GBM is surgical resection, followed by radiation and chemotherapy. Even with intensive treatment, GBM progresses rapidly and has a high mortality rate, with median overall survival for primary GBM of about 14 months.

 

Cytomegalovirus (“CMV”)

 

CMV is a common virus that is a member of the herpes family. It infects one in every two people in many developed countries. Most CMV infections are “silent”, meaning the majority of people who are infected exhibit no signs or symptoms. Despite its typically asymptomatic nature in older children and adults, 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. Congenital CMV infection can be treated – but not cured – and there are currently no approved vaccines available for the prevention of infection in either the congenital or the transplant setting.

 

Zika

 

Zika is a mosquito-borne virus that is spread primarily through the bite of an infected Aedes species mosquito, but can also be transmitted sexually, during pregnancy, or during childbirth. Acute infections are typically mild, but Zika has been associated with a number of neurological complications in newborns. The first formal description of Zika virus was published in 1952, but it was not until 2007 that the first Zika outbreak in humans was recorded. Over the past decade, Zika has begun to spread globally, and between January 2014 and February 2016, 33 countries reported circulation of the Zika virus, including in North America. There is currently no vaccine to prevent Zika infection.

 

Pipeline Programs

 

The table below is an overview of our commercial vaccine and our investigational programs as of May 2, 2022:

 

Indication   Program   Technology   Current Status

Approved Vaccine

● Hepatitis B

 

PreHevbrio1,2,3

Hepatitis B Vaccine

  VLP   Registration/Commercial
    (Recombinant)        
Prophylactic Candidates            
● Cytomegalovirus   VBI-1501   eVLP   Phase I Completed
● COVID-19 (Ancestral)   VBI-2902   eVLP   Ongoing Phase Ia
● COVID-19 (Beta variant)   VBI-2905   eVLP   Ongoing Phase Ib
             
● Pan-coronavirus (Multivalent)   VBI-2901   eVLP   Pre-Clinical
● Coronaviruses (Multivalent)   Undisclosed   eVLP   Pre-Clinical
● Zika   VBI-2501   eVLP   Pre-Clinical
             
Therapeutic Candidates            
● Hepatitis B   VBI-2601   VLP   Ongoing Phase II
● Glioblastoma   VBI-1901   eVLP   Ongoing Phase I/IIa
● Other CMV-Associated Cancers   Undisclosed   eVLP   Preclinical

 

1Approved for use in the U.S. for the prevention of infection caused by all known subtypes of hepatitis B virus in adults 18 years of age and older

2Approved for use in Israel, under the brand name Sci-B-Vac, for active immunization against hepatitis B virus (HBV infection)

3Approved for use in the European Union/European Economic Area, under the brand name PreHevbri, for active immunization against infection caused by all known subtypes of the hepatitis B virus (HBV) in adults.

 

24

 

 

A summary of our marketed product, lead pipeline programs and recent developments follows.

 

Marketed Product

 

PreHevbrio (Hepatitis B Vaccine [Recombinant])

 

PreHevbrio (Hepatitis B Vaccine [Recombinant]) was approved by the FDA on November 30, 2021 for the prevention of infection caused by all known subtypes of HBV in adults age 18 years and older. PreHevbrio contains the S, pre-S2, and pre-S1 HBV surface antigens, and is the only approved 3-antigen HBV vaccine for adults in the U.S. On February 23, 2022, following discussion at the CDC’s ACIP meeting, PreHevbrio joined the list of recommended products for prophylactic adult vaccination against HBV infection. The inclusion of PreHevbrio in the ACIP recommendation was reflected in a CDC publication on April 1, 2022, and is a notable milestone as many insurance plans and institutions require an ACIP recommendation before a vaccine is able to be reimbursed or is made available to patients. Additionally, PreHevbrio will be included in the next annual update of the CDC Adult Immunization Schedule in 2023, which will summarize changes throughout the coming year. VBI launched PreHevbrio in the U.S. at the end of the first quarter of 2022, with revenue generation expected to begin in the second quarter of 2022.

 

Commercial and regulatory activity for VBI’s 3-antigen HBV vaccine outside of the U.S. include: 

 

  European Union (“EU”): On May 2, 2022, we announced that the European Commission (the “EC”) granted Marketing Authorization for PreHevbri [Hepatitis B vaccine (recombinant, adsorbed)], following the February 2022 positive opinion granted by EMA’s Committee for Medicinal Products for Human Use (“CHMP”). The European Commission’s centralized marketing authorization is valid in all EU Member States as well as in the European Economic Area (EEA) countries (Iceland, Liechtenstein, and Norway). VBI expects to make PreHevbri available in certain European countries beginning at the end of 2022.
  Israel: Approved and commercially available under the brand name Sci-B-Vac®, for active immunization against HBV infection.
  United Kingdom (“UK”): The MAA for VBI’s 3-antigen HBV vaccine is under review by the MHRA as part of the EC Decision Reliance Procedure (“ECDRP”), the process for which was initiated upon receipt of positive CHMP opinion.
  Canada: On December 9, 2021, we completed the filing of a New Drug Submission (“NDS”) to Health Canada for our 3-antigen hepatitis B vaccine candidate. Discussions are underway with regulatory agencies to determine the brand name for our 3-antigen HBV vaccine in Canada.

 

Prophylactic Investigational Candidates

 

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 make them a prime target for VBI’s flexible eVLP platform technology.

 

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.

 

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In March 2021, a Phase I study of VBI-2902 was initiated and on June 29, 2021 we announced initial positive data from the Phase Ia 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.

 

In response to the increased circulation of SARS-CoV-2 variants, the Phase Ib portion of the ongoing Phase I study was initiated in September 2021 to assess VBI-2905, our eVLP vaccine candidate directed against the SARS-CoV-2 Beta variant. On April 5, 2022, we announced new data from the Phase 1b study (n=53). A single-dose booster of VBI-2905 increased the geometric mean titer (GMT) of neutralizing antibodies directed against the Beta variant 3.8-fold, at day 28, in participants who had previously received two-doses of an mRNA vaccine (ancestral strain) – approximately 2-fold increases were also seen at day 28 in antibody GMTs against both the ancestral and delta variant. New preclinical data announced at the same time showed that against a panel of coronavirus variants in mice, reactivity was seen with VBI-2902 against all variants including the ancestral strain, Delta, Beta, Omicron, Lambda, and RaTG13 (a bat coronavirus that is distant to circulating human strains). In this same panel, VBI-2901 was able to elicit an even stronger response against all variants tested – as the strains became more divergent from the ancestral strain, VBI-2901 elicited a greater difference in GMT from VBI-2902, ranging from 2.5-fold higher against the ancestral strain to 9.0-fold higher against the bat coronavirus. Additionally, a validated pseudoparticle neutralization assay (PNA) benchmarked against the WHO reference standard demonstrated that VBI-2902 elicited neutralizing antibody responses of 176 IU50/mL in its Phase 1a study – this international standard measure would predict a greater than 90% efficacy, with two internationally approved vaccines estimated to have 90% efficacy at 83 and 140 IU50/mL (Gilbert, PB, 2021).

 

The new clinical and preclinical data for all three candidates continued to support the potential of the eVLP platform against coronaviruses. The first clinical study of VBI’s multivalent candidate, designed to increase breadth of protection against COVID-19 and related coronaviruses, is expected to begin in the summer of 2022.

 

The VBI-2900 program is supported by a partnership with CEPI (the “CEPI Funding Agreement”), with contributions of up to $33 million; a partnership with the Strategic Innovation Fund (“SIF”), established by the Government of Canada, with an award of up to CAD $56 million; contribution of up to CAD $1 million from the Industrial Research Assistance Program (“IRAP”) of the National Research Council of Canada (“NRC”); and a collaboration with the NRC.

 

VBI-1501: Prophylactic CMV Vaccine Candidate

 

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.

 

Therapeutic Investigational Candidates

 

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. 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.

 

On April 12, 2021 and June 23, 2021, we announced data from the completed Phase Ib/IIa clinical study in patients with chronic HBV infection, which was conducted by our partner Brii Biosciences Limited (“Brii Bio”). The study was a randomized, controlled study designed to assess the safety, tolerability, antiviral and immunologic activity of VBI-2601. The study was a two-part, dose-escalation study assessing different dose levels of VBI-2601 (BRII-179) with and without an immunomodulatory adjuvant, conducted at multiple study sites in New Zealand, Australia, Thailand, South Korea, Hong Kong SAR, and China.

 

The data from the Phase Ib/IIa for 33 evaluable patients across all study arms 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 both B cell (antibody) and T cell responses in chronically-infected HBV patients, (3) 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; (4) the T cell responses and antibody responses were comparable across the 20µg and 40µg unadjuvanted study arms; and (5) 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 seen in this study, VBI-2601 (BRII-179) has been advanced to Phase II studies.

 

On April 21, 2021, we announced that the first patient had been dosed in a Phase II clinical study evaluating VBI-2601 (BRII-179) in combination with BRII-835 (VIR-2218), an investigational small interfering ribonucleic acid (siRNA) targeting HBV, for the treatment of chronic HBV infection. To the best of our knowledge, this is the first clinical trial in the field to evaluate the combination of these two HBV mechanisms of action. The multi-center, randomized, open-label study is designed to evaluate the safety and efficacy of this combination with and without interferon-alpha as a co-adjuvant. 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”). The study will be conducted at sites in Australia, China, Taiwan, Hong Kong SAR, South Korea, New Zealand, Singapore, and Thailand. Interim topline clinical data from this study is expected by the end of 2022.

 

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On January 5, 2022, we announced that the first patient was dosed in a second Phase IIa/IIb clinical study evaluating VBI-2601 (BRII-179). This newly announced Phase II study will assess VBI-2601 as an add-on therapy to the standard-of-care nucleos(t)ide reverse transcriptase inhibitor (nrtl) and pegylated interferon (PEG-IFN-α,) therapy. Interim topline clinical data from this Phase IIa/IIb clinical study is expected in the first half of 2023.

 

VBI-1901: Glioblastoma (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 glioblastoma (“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 10 µg doses level cohort. This phase is a two-arm study that enrolled 20 first-recurrent GBM patients to receive 10 µg of VBI-1901 in combination with either GM-CSF or GlaxoSmithKline Biologicals S.A. (“GSK”) proprietary adjuvant system, AS01, as immunomodulatory adjuvants. AS01 is provided pursuant to a Clinical Collaboration and Support Study Agreement (“Collaboration Agreement”) we entered into with GSK on September 10, 2019. Enrollment of the 10 patients in the VBI-1901 with GM-CSF arm was completed in March 2020 and enrollment of the 10 patients in the VBI-1901 with AS01 was completed in October 2020.

 

Data from the ongoing Phase IIa portion of the study was announced throughout 2020 and 2021, with the latest data presented in December 2021 at the World Vaccine & Immunology Congress. The data from the Phase IIa portion of this study demonstrate: (1) improvement in 6-month, 12-month, and 18-month overall survival (“OS”) data compared to historical controls; (2) 12-month OS of 60% (n=6/10) in the VBI-1901 + GM-CSF study arm and 70% (n=7/10) in the VBI-1901 + AS01 study arm, compared to historical controls of ~30%; (3) 18-month OS of 30% (3/10) in the VBI-1901 + GM-CSF study arm, 18-month OS not yet reached in the VBI-1901 + AS01 study arm; (3) 2 partial tumor responses, one of which remains on protocol past week 86 with a 93% tumor reduction relative to initiation of treatment at the start of the study, and 7 stable disease observations across both study arms; and (4) 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/IIa study.

 

Based on the data seen to-date, as part of the next phase of development, we anticipate assessing VBI-1901 in randomized, controlled studies in both primary and recurrent GBM patients. In the recurrent setting, we aim to expand the number of patients in the current trial and add a control arm, with the potential for accelerated approval based on tumor response rates and improvement in overall survival. Subject to discussion with the FDA, the amended protocol is expected to initiate enrollment of additional patients in the third quarter of 2022. In the primary setting, we are exploring a randomized, controlled, clinical study with registration potential in patients first diagnosed with GBM, which, subject to approval from regulatory bodies, is expected to begin in the fourth quarter of 2022. 

 

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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 $0.1 million. 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 expired in other countries in 2021. 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 an agreement with UPMC to cover this patent family. During the three months ended March 31, 2022, we did not make any milestone payments.

 

Financial Operations Overview

 

At present, our operations are focused on: 

 

commercially launching PreHevbrio in the United States; 
   
manufacturing our 3-antigen HBV vaccine at commercial scale to meet demand in the U.S. and Israel, where it is approved, and to prepare for supply in markets where we may obtain marketing authorization;
   

preparing for commercialization of our 3-antigen HBV vaccine in Europe, where we have received regulatory approval under the brand name PreHevbri, and in Canada, where we may obtain regulatory approval;

   

supporting the ongoing review of the regulatory submissions for our 3-antigen HBV vaccine by the MHRA in UK, and Health Canada in Canada;

   
conducting the Phase I/IIa clinical study of our GBM vaccine immunotherapeutic candidate, VBI-1901;
   
preparing for the next phase of development for our GBM vaccine immunotherapeutic candidate, VBI-1901;
   
conducting the Phase I clinical study of our prophylactic COVID-19 vaccine candidates, VBI-2902 and VBI-2905 (Beta variant);
   
preparing for a Phase I/II clinical study of our pan-coronavirus candidate, VBI-2901;
   
continuing our development and scaling-up production processes for our prophylactic coronavirus vaccine candidates 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;
   
preparation for further development of VBI-1501, our preventative CMV vaccine candidate;

 

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continuing the research and development (“R&D”) of our other pipeline candidates, including the exploration and development of new pipeline candidates;
   
implementing operational, compliance, 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, legal, and compliance.

 

VBI’s revenue generating activities have been the sale of our 3-antigen HBV vaccine in Israel and through named patient programs in countries where our 3-antigen HBV vaccine is not approved, though those markets have generated a limited number of sales to-date. We have also generated revenue from various business development transactions and R&D services generating fees. To date, we have financed our operations primarily with proceeds from sales of our common stock, our long-term debt agreements, and contribution agreements and partnerships with CEPI and the Government of Canada. 

 

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, commercial, and manufacturing activities with respect to the advancement of our 3-antigen HBV vaccine and new pipeline candidates. As of March 31, 2022, VBI had an accumulated deficit of approximately $397.6 million and stockholders’ equity of approximately $129.6 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 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 reserves. We expect that we will need to secure additional financing to finance our business plans, which may be a combination of proceeds from the issuance of equity securities, the issuance of additional debt, structured asset financings, government or non-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.

 

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 $21.3 million for three month ended March 31, 2022, 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 commercialization of PreHevbrio in the United States in the near term. 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 subject 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.

 

Overall Performance

 

The Company had net losses of $21,254 and $17,647 for the three months ended March 31, 2022 and 2021, respectively. We had an accumulated deficit of $397,560 at March 31, 2022. We had $101,337 of cash and net working capital of $78,356 as of March 31, 2022.

 

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Revenues

 

Revenues consist of product sales of Sci-B-Vac in Israel, and R&D services revenue recognized as part of the License Agreement with Brii Bio and other R&D services.

 

In Israel, Sci-B-Vac is sold through procurement requests from four health funds (“HMOs”) (collectively, the “Sci-B-Vac Customers”).

 

Pursuant to the License Agreement with Brii Bio, we provide R&D services to Brii Bio as part of the development of VBI-2601 (BRII-179).

 

In addition, 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 cGMP quality level suitable for toxicological studies in animals. Service activities include analytics/bio analytics methods for development and process development of therapeutic proteins starting with a candidate clone through manufacturing. These R&D services are primarily marketed to the Israeli research community in academia and Israeli biotechnology companies in the life sciences industry lacking the infrastructure or experience in the development and production of therapeutic proteins to the standards and quality required for clinical trials for human use. During the three months ended March 31, 2022, we provided services to biotechnology companies including analytical development.

 

Cost of Revenues

 

Cost of revenues consist primarily of costs incurred for manufacturing our 3-antigen HBV vaccine which includes cost of materials, consumables, supplies, contractors, and salaries.

 

Research and Development (“R&D”) Expenses

 

R&D expenses, net of government grants and funding arrangements, consist primarily of costs incurred for the development of our 3-antigen 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 commercialization costs, salaries and related costs for executive and other administrative personnel and consultants, including stock-based compensation, and travel expenses. Other general and administrative expenses include professional fees for legal, patent protection, consulting and accounting services, travel and conference fees, board of directors meeting costs, scientific and commercial advisory board meeting costs, rent, maintenance of facilities, depreciation, office supplies, information technology costs and expenses, insurance, and other general expenses. G&A expenses are expensed when incurred.

 

We expect that our general and administrative expenses will increase in the future as a result of adding employees and scaling our operations commensurate with advancing clinical candidates, commercializing products, and continuing to support a public company infrastructure. These increases will likely include increased costs for insurance, hiring of additional personnel, board committees, outside consultants, investor relations, lawyers and accountants, among other expenses.

 

Interest Expense, Net of Interest Income

 

Interest expense is associated with our long-term debt as discussed in Note 9 of the Notes to the Condensed Consolidated Financial Statements.

 

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Results of Operations

 

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

 

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

 

    Three months ended March 31              
    2022     2021     Change $     Change %  
Revenues   $ 126     $ 301     $ (175 )     (58 )%
                                 
Expenses:                                
Cost of revenues     2,754       2,412       342       14 %
Research and development     2,362       6,839       (4,477 )     (65 )%
General and administrative     10,930       6,747       4,183       62 %
Total operating expenses     16,046       15,998       48       0 %
                                 
Loss from operations     (15,920 )     (15,697 )     (223 )     1 %
                                 
Interest expense, net of interest income     (940 )     (1,812 )     872       (48 )%
Foreign exchange loss     (4,394 )     (138 )     (4,256 )     3,084 %
Loss before income taxes     (21,254 )     (17,647 )     (3,607 )     20 %
                                 
Income tax expense     -       -       -       - %
                                 
NET LOSS   $ (21,254 )   $ (17,647 )   $ (3,607 )     20 %

 

Revenues

 

Revenues for the three months ended March 31, 2022 were $126 as compared to $301 for the three months ended March 31, 2021. Revenues for the three months ended March 31, 2022 decreased by $175 or 58% due to a decrease in product revenue as a result of lower sales in the Israeli market and a decrease in R&D services revenue for VBI-2601, our hepatitis B immunotherapeutic candidate, being developed in collaboration with Brii Bio, as fewer manufacturing and non-clinical research services were required in the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

 

Revenue Composition

 

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

 

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Revenues by Geographic Region

 

   Three months ended
March 31
         
   2022   2021   $ Change   % Change 
                 
Revenue in Israel  $95   $169   $(74)   (44)%
Revenue in China/Hong Kong   25    128    (103)   (80)%
Revenue in Europe   6    4    2    50%
                     
Total Revenue  $126   $301   $(175)   (58)%

 

Cost of Revenues

 

Cost of revenues for the three months ended March 31, 2022 was $2,754 as compared to $2,412 for the three months ended March 31, 2021. The increase in the cost of revenues of $342 or 14% is due to increased direct labor costs and manufacturing related costs incurred in the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

 

Research and Development Expenses

 

R&D expenses for the three months ended March 31, 2022 were $2,362 as compared to $6,839 for the three months ended March 30, 2021. R&D expenses were offset by $2,838 for the three months ended March 31, 2022 and $2,801 for the three months ended March 31, 2021 due to government grants and funding arrangements. The decrease in R&D expenses of $4,477 or 65%, is mainly a result of the (1) the decrease in regulatory fees related to PreHevbrio that occurred during the three months ended March 31, 2021 with no similar regulatory fees that occurred during the three months ended March 31, 2022, and (2) decrease in the costs related to our coronavirus vaccine program that are not offset by government grants and funding arrangements, specifically VBI-2902, as the clinical trial of VBI-2902 began during the three months ended March 31, 2021, offset by (3) an increase in R&D expenses related to continued development of our other vaccine candidates, specifically GBM our vaccine immunotherapeutic candidate, VBI-1901, as we prepare for the next phase of development.

 

General and Administrative Expenses

 

G&A expenses for the three months ended March 31, 2022 were $10,930 as compared to $6,747 for the three months ended March 31, 2021. G&A expenses were offset by $308 for the three months ended March 31, 2022 and $145 for the three months ended March 31, 2021 due to government grants and funding arrangements. The G&A expense increase of $4,183 or 62%, excluding the effect of government grants and funding arrangements, is a result of the increase in pre-commercial and commercial activities related to our 3-antigen HBV vaccine, such as the development of our commercial and distribution infrastructure, as FDA regulatory approval of PreHevbrio occurred in late 2021, increased insurance costs, increased professional costs, and increased labor costs.

 

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Loss from Operations

 

The net loss from operations for the three months ended March 31, 2022 was $15,920 as compared to $15,697 for the three months ended March 31, 2021. The $223 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 decreased by $872 for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, due to 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 during the three months ended March 31, 2021; offset by an increase in long-term debt of $12,000.

 

Foreign Exchange Loss

 

The foreign exchange loss for the three months ended March 31, 2022 was $4,394 compared to a foreign exchange loss of $138 for the three months ended March 31, 2021. The change is 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, including the foreign exchange impact of intercompany loans that are translated at period end. Gain or losses are included in the condensed consolidated statement of operations in 2022.

 

Net Loss

 

Net loss for the three months ended March 31, 2022 was $21,254 compared to $17,647 for the three months ended March 31, 2021 was a result of the items discussed above.

 

Liquidity and Capital Resources

 

    March 31, 2022     December 31, 2021     $ Change     % Change  
                         
Cash   $ 101,337     $ 121,694     $ (20,357 )     (17 )%
Current Assets     112,347       130,284       (17,937 )     (14 )%
Current Liabilities     33,991       32,586       1,405       4 %
Working Capital     78,356       97,698       (19,342 )     (20 )%
Accumulated Deficit     (397,560 )     (378,371 )     (19,189 )     5 %

 

As of March 31, 2022, we had cash of $101,337 as compared to $121,694 as of December 31, 2021. As of March 31, 2022, we had working capital of $78,356 as compared to working capital of $97,698 at December 31, 2021. Working capital is calculated by subtracting current liabilities from current assets.

 

Net Cash Used in Operating Activities

 

The Company incurred net losses of $21,254 and $17,647 in the three months ended March 31, 2022 and 2021, respectively. The Company used $19,925 and $6,644 in cash for operating activities during the three months ended March 31, 2022 and 2021, respectively. The increase in cash outflows is largely a result of an increase in net loss, offset by a decrease in operating working capital as we received $8,285 of cash in advance from the CEPI Funding Agreement during the three months ended March 31, 2021 compared to no cash received in advance from the CEPI Funding Agreement during the three months ended March 31, 2022.

 

Net Cash Used in Investing Activities

 

Net cash flows used by investing activities was $515 for the three months ended March 31, 2022 compared to cash used in investing activities of $556 for the three months ended March 31, 2021.

 

Net Cash Provided by Financing Activities

 

Net cash flows provided by financing activities was $12 for the three months ended March 31, 2022 compared to cash flows provided by financing activities of $21,624 during the three months ended March 31, 2021 which was due to common shares issued as part of our ATM Program (as defined below).

 

Sources of Liquidity

 

Jefferies Open Market Sale Agreement (“ATM”)

 

On July 31, 2020, the Company entered into an Open Market Sale Agreement 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 were offered pursuant to a sales agreement prospectus included in the Company’s automatic shelf registration on Form S-3 (the “S-3ASR”) filed with the United States Securities and Exchange Commission (“SEC”) on July 31, 2020. On September 3, 2021, the Company and Jeffries entered in to a second Open Market Sale Agreement for the sale of common shares having an aggregate price of up to $125,000 from time to time, which the Company could choose to use when no shares remain available for issuance under the ATM Program, and filed a prospectus supplement to the base prospectus included in the S-3ASR. The Company is no longer a well-known seasoned issuer, and accordingly, the Company will not make any sales under the ATM Program or pursuant to the second sales agreement, unless and until a new registration statement and/or a new prospectus is filed. During the year ended December 31, 2021, the Company issued 9,135,632 common shares under the ATM Program, for total gross proceeds of $33,293 at an average price of $3.64. The Company incurred $1,117 of share issuance costs related to the common shares issued resulting in net proceeds of $32,176.

 

K2 HealthVentures LLC 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 $20,000 (the “First Tranche Term Loan”). The Lenders originally agreed to make available the following additional tranches subject to the following conditions and upon the submission of a loan request by the Company: (1) up to $10,000 available between January 1, 2021 and April 30, 2021 upon achievement of certain milestones (the “Second Tranche Term Loan”), (2) $10,000 available between the closing date and December 31, 2021, subject to achievement of a certain U.S. Food and Drug Administration (“FDA”) approval (the “Third Tranche Term Loan”), and (3) a final tranche of up to $10,000 that could be made available any time prior to June 30, 2022, subject to the advance of the Third Tranche Term Loan, satisfactory review by the administrative agent of our financial and operating plan, and approval by the Lenders’ investment committee. The Company obtained FDA approval on November 30, 2021 but elected not to draw down the Third Tranche Term Loan. As the Third Tranche Term Loan availability period has passed, the final tranche will not be made available. Pursuant to the Loan Agreement, the Lenders originally had the ability to convert, at the Lenders’ option, up to $4,000 of the secured term loan into common shares of the Company at a conversion price of $1.46 per share (“K2 conversion feature”) until the maturity date of June 1, 2024. On February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted $2,000 of the secured term loan into 1,369,863 common shares at a conversion price of $1.46. The Lenders have the ability to convert an additional $2,000 at the Lenders’ option.

 

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

 

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

 

As a result of the Original K2 Warrant and K2 conversion feature, the debt was issued at a discount of $3.8 million. We also incurred $1.0 million 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 $1.4 million related to the First Tranche Term Loan. The total initial debt discount was $6.2 million.

 

The Second Tranche Term Loan, issued pursuant to the Loan Agreement, as amended by the First Amendment, resulted in the Company incurring an additional $0.02 million of debt issuance costs, $0.2 million of third-party costs and being required to make a final payment of $0.8 million, which is equal to 6.95% of the Second Tranche Term Loan.

 

The total principal amount of the loan under the Loan Agreement, as amended by the First Amendment, outstanding at March 31, 2022, including the $2.2 million final payment discussed above, is $32.2 million. The principal amount of the loan made under the Loan Agreement prior to the First Amendment accrues interest at an annual rate equal to the greater of (a) 8.25% or (b) prime rate plus 5.00%. The principal amount of the Second Tranche Term Loan made under the Loan Agreement, as amended by the First Amendment, accrues interest at an annual rate equal to the greater of (a) 7.75% or (b) prime rate plus 4.50%. The interest rate as of March 31, 2022 was 8.50% for the First Tranche Term Loan and 8.00% for the Second Tranche Term Loan. The Company is required to pay only interest until January 1, 2023.

 

CEPI Partnership 

 

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 agreed to provide up to $33,018 to support the advancement of VBI-2905, a monovalent eVLP candidate expressing the pre-fusion form of the spike protein from the Beta variant, 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. Since inception of the CEPI Funding Agreement in 2021, the Company received $18,363 from CEPI and the Company had $8,657 recorded as deferred funding, recorded in other current liabilities on the condensed consolidated balance sheet.

 

Plan of Operations and Future Funding Requirements

 

The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2021 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 HBV vaccine and pipeline candidates. As of March 31, 2022, VBI had an accumulated deficit of $397,560 and stockholders’ equity of $129,564.

 

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 to finance our clinical development, manufacturing, our commercialization activities, our administrative overhead and our research and development activities. We plan to finance near term future operations with existing cash reserves. We expect that we will need to secure additional financing to finance our business plans, which may be a combination of proceeds from the issuance of equity securities, the issuance of additional debt, structured asset financings, government or non-government grants or subsidies, and revenues from potential business development transactions, if any. There is no assurance we will manage to obtain these sources of financing. The accompanying financial statements have been prepared assuming that we will continue as a going concern; however, the above conditions raise substantial doubt about our ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern. Our long-term success and ability to continue as a going concern is dependent upon obtaining sufficient capital to fund the research and development of our products, to bring about their successful commercial release, to generate revenue, and, ultimately, to attain profitable operations, or, alternatively, to advance our products and technology to such a point that they would be attractive candidates for acquisition by others in the industry.

 

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We will require additional funds to conduct clinical and non-clinical trials, achieve regulatory approvals, and, subject to such approvals, commercially launch our products, and will need to secure additional financing in the future to support our operations and to realize our investment in our IPR&D assets. We base this belief on assumptions that are subject to change, and we may be required to use our available cash and cash equivalent resources sooner than we currently expect. Our actual future capital requirements will depend on many factors, including the progress and results of our ongoing clinical trials, the duration and cost of discovery and preclinical development, laboratory testing and clinical trials for our pipeline candidates, the timing and outcome of regulatory review of our products, 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, debt financings, government grants or non-government funding, structured asset financings, or business development transactions. 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 non-government funding, 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 and the armed conflict between Russia and Ukraine 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 are dependent upon obtaining sufficient capital to fund the research and development of its pipeline candidates, 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.

 

As of March 31, 2022, 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.

 

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Known 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. The impact of the ongoing COVID-19 pandemic, including the Omicron variant of COVID-19, which appears to be the most transmissible variant to-date, and the subvariant, BA.2, is currently indeterminable and rapidly evolving, and has adversely affected and may continue to adversely affect our operations and the global economy. In addition, the consequences of the ongoing conflict between Russia and Ukraine, including related sanctions and countermeasures, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations. 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.

 

Other than as discussed above and elsewhere in this report, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.

 

Critical Accounting Policies and Estimates

 

There have been no changes to our critical accounting policies during the three months ended March 31, 2022. 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, 2021, as well as in our consolidated financial statements and the footnotes thereto, included in the Annual Report on Form 10-K. 

 

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 March 31, 2022, 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, the Company may be involved in certain claims and litigation arising out of the ordinary course and conduct of business. Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the most likely outcome.

 

On September 13, 2018, two civil claims were brought in the District Court of the central district in Israel naming our subsidiary SciVac as a defendant. In one claim, two minors, through their parents, allege, among other things: defects in certain batches of Sci-B-Vac discovered in July 2015; that Sci-B-Vac was approved for use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac failed to provide accurate information about Sci-B-Vac to consumers; and that each child suffered side effects from the vaccine. The claim was filed together with a motion seeking approval of a class action on behalf of 428,000 children vaccinated with Sci-B-Vac in Israel from April 2011 and seeking damages in a total amount of NIS 1,879,500 ($591,782). The second claim is a civil action brought by two minors and their parents against SciVac and the Israel Ministry of Health alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine; that Sci-B-Vac was marketed in Israel without sufficient evidence establishing its safety; and that Sci-B-Vac was produced and marketed in Israel without approval of a western regulatory body. The claim seeks damages for past and future losses and expenses as well as punitive damages.

 

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

 

The District Court has accepted SciVac’s motion to suspend reaching a decision on the approval of the class action pending the determination of liability under the civil action. Preliminary hearings for the trial of the civil action began on January 15, 2020, with subsequent preliminary hearings held on May 13, 2020, December 3, 2020 and September 30, 2021. The next preliminary hearing is scheduled to be held on June 9, 2022.

 

Item 1A. Risk Factors 

 

A description of the risks associated with our business, financial condition and results of operations is set forth in “Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 7, 2012. There have been no material changes to these risks during the three months ended March 31, 2022.

 

37

 

 

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.

 

38

 

 

EXHIBIT INDEX

 

Exhibit No.   Description
     
10.1+*  

Amendment to Consulting Agreement with F. Diaz-Mitoma Professional Corporation, effective December 16, 2021.

     
10.2+   Amendment to Consulting Agreement with F. Diaz-Mitoma Professional Corporation, effective January 1, 2022 (incorporated by reference to Exhibit 10.52 to the annual report on Form 10-K (SEC File No. 001-37769), filed with the SEC on March 7, 2022).
     

10.3(1)(2)

  Fifth Amendment to the Collaborative Research Agreement, signed February 8, 2022, between National Research Council of Canada and Variation Biotechnologies Inc (incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K (SEC File No. 001-37769), filed with the SEC on March 7, 2022).
     
10.4(1)(2)   Sixth Amendment to the Collaborative Research Agreement, signed April 28, 2022, between National Research Council of Canada and Variation Biotechnologies Inc
     

10.5*(1)(2)

  Amendment to the Contribution Agreement, signed March 28, 2022, by and among VBI Vaccines, Inc., Variation Biotechnologies, Inc. and Her Majesty The Queen in Right of Canada as represented by the Minister of Industry.
     
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.

 

(1) Certain of the schedules (and similar attachments) to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5) of Regulation S-K under the Securities Act of 1933, as amended, because they do not contain information material to an investment or voting decision and that information is not otherwise disclosed in the Exhibit or the disclosure document. The registrant hereby agrees to furnish a copy of all omitted schedules (or similar attachments) to the SEC upon its request.

 

(2) Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K under the Securities Act of 1933, as amended, because they are both (i) not material and (ii) the type that the registrant treats as private or confidential. A copy of the omitted portions will be furnished to the SEC upon its request.

 

39

 

 

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: May 9, 2022 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)

 

40

 

 

Exhibit 10.1

 

AMENDMENT TO CONSULTING AGREEMENT

 

This Amendment to Consulting Agreement (the “Amendment”), effective as of December 16th, 2021 (the “Effective Date”), is by and between Variation Biotechnologies Inc., a corporation incorporated pursuant to the laws of Canada (the “Company”) having an address of 310 Hunt Club Road East, Ottawa, Ontario K1V 1C1 and F. Diaz-Mitoma Professional Corporation (Ontario corporation number 002356634) having an address of 210 Barrow Crescent, Kanata, Ontario K2L 2C7 (“Consultant”). The Consultant and Company are sometimes referred to as a “Party” and are collectively referred to as the “Parties”.

 

WHEREAS, the Company and Consultant are parties to a certain Consulting Agreement dated July 1, 2016, amended as of January 1, 2017, amended January 1, 2018, amended January 1, 2019, January 1, 2020, and further amended as of January 1, 2021 (the “Consulting Agreement”);

 

AND WHEREAS, the Consultant and the Company wish to amend the Consulting Agreement on the terms and conditions set out in this Amendment;

 

NOW THEREFORE, in consideration of the mutual covenants contained herein, the Parties agree as follows:

 

1. Amendment to Appendix C. As of the Effective Date, Appendix C – Performance Incentives of the Consulting Agreement shall be amended to include paragraph 3 in the version of Appendix C attached as Schedule A to this Amendment.

 

2. Consulting Agreement to Remain in Full Effect. Except as amended by this Amendment, the Consulting Agreement shall continue to be in full force and effect, without amendment, and is hereby ratified and confirmed. The Consulting Agreement shall henceforth be read and construed in conjunction with this Amendment.

 

3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.

 

4.  Further Assurances. Each Party shall do such further acts and execute such further documents as may be required to give effect to this Amendment and carry out the intent thereof.

 

5.  Binding Effect. This Amendment shall be binding on and inure to the benefit of the Parties and their respective successors and assigns.

 

6. Execution and Counterparts. This Amendment may be executed in counterparts, including counterpart signature pages or counterpart facsimile or scanned signature pages (each of which shall be deemed an original), all of which together shall constitute one and the same instrument.

 

(Signature page follows.)

 

 

 

 

IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the Effective Date.

 

  VARIATION BIOTECHNOLOGIES INC.
     
    /s/ Jeff Baxter
  Name: Jeff Baxter
  Title: Chief Executive Officer
     
  F. DIAZ-MITOMA PROFESSIONAL CORPORATION
     
    /s/ Dr. Francisco Diaz-Mitoma
  Name: Dr. Francisco Diaz-Mitoma
  Title: President

 

 

 

 

Schedule A

 

Appendix C – Performance Incentives

 

1. Bonus payable as of January 31, 2021 – CAD $265,500
   
2. The Company shall cause VBI Vaccines Inc., a British Columbia corporation (the “Parent”) to grant to Francisco Diaz-Mitoma, as designee of Consultant, 500,000 stock options (the “Options”), each Option exercisable for one common share of Parent, to be granted effective as of January 27, 2021, which was the date on which the board of directors of Parent approved such grant, and to be subject to the provisions of the Plan. Conditions regarding the Options and their exercise, including the exercise price, the term of the Options and the timing of vesting shall be set out in an Option Agreement between the Parent and Francisco Diaz-Mitoma. The common shares issuable upon exercise of the Options shall bear the appropriate legend to indicate such shares are “control securities” as defined in General Instruction C.1(a) of Form S-8.
   
3. Additional bonus, as a result of the successful U.S. FDA approval of PreHevbrio™ on November 30, 2021, payable as of December 16, 2021 – CAD $50,000

 

 

 

 

Exhibit 10.4

 

 

[***] Certain information has been excluded pursuant to Regulation S-K, Item 601(b)(10)(iv) from this Document because it is both not material and is the type that the registrant treats as private or confidential.

 

Business Confidential – Protected B

THIS IS AN AMENDING AGREEMENT (referred to herein as “Amendment Six”)

 

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 Amendment One signed by NRC on 21 December 2020 (called “Amendment One”), Amendment Two signed by NRC on July 8, 2021 (called “Amendment Two”), Amendment Three (called “Amendment Three”) signed by NRC on 28 August 2021, Amendment Four (called “Amendment Four”), signed by NRC on 15 November 2021 and Amendment Five (called “Amendment Five”), signed by NRC on 08 February 2022 by which the Parties agreed to collaborate in a “Project”, described as: COVID-19 vaccine evaluation. The Original Agreement, Amendment One, Amendment Two, Amendment Three, Amendment Four, Amendment Five and this Amendment Six are now called “The Agreements”.

 

WHEREAS this Amendment Six adds further additional tasks to The Agreements.

 

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 Agreement.
  
2.The attached “SCHEDULE OF PAYMENTS” is in addition to the “Schedule of Payments” from The Agreements.
  
3.The attached “NEW STATEMENT OF WORK AND DELIVERABLES” is in addition to the “STATEMENT OF WORK AND DELIVERABLES” in The Agreements.
  
4.The estimated total value of this Project Amendment Six is: $*** as indicated 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 $***. 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.

 

HHT – Immuno Biology Page 1 of 5
 NRC Ref. #: A-0043224 (orig. A-0035546) 

 

 

 

6.The amount that the Collaborator will pay to the NRC for this Amendment Six is: $*** as indicated in the Statement of Work.

 

7.The expiry date of The Agreements is extended from 30 June, 2022 to 31 October, 2022.

 

8.This Amendment Six 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: April 11, 2022   Per:

/s/ Chris McNulty

        Chris McNulty
        CFO
         
         
SIGNED by the NRC at Ottawa, Ontario      
         
      NATIONAL RESEARCH COUNCIL OF CANADA
         
Date:

April 28, 2022

  Per: /s/ Lakshmi Krishnan
        Lakshmi Krishnan
        Acting Vice President, Life Sciences

 

HHT – Immuno Biology Page 2 of 5
 NRC Ref. #: A-0043224 (orig. A-0035546) 

 

 

 

ANNEX SP – SCHEDULE OF PAYMENTS TO NRC

 

Billing address: See page 1

 

Billing contact:

  Name: Andrea McRae
  Title: Project Manager
  Telephone: 613 749 4200
  Email: ***

 

SP-1 The Collaborator shall be invoiced as follows:

 

Invoicing Schedule (Estimated Dates)   Amount Due* 
Upon signature by both Parties of Amendment 6 Task 2.9.6  $*** 
TOTAL MAXIMUM PAYABLE AMOUNT  $*** 

*Plus applicable taxes

 

SP-2All amounts shall be due 30 days from the date of the invoice.
  
SP-3Payments 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

 

SP-4Payments 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-5The 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-6The NRC may suspend its performance of any obligations under this Agreement so long as any payment is overdue for any reason.
  
SP-7If 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-8If 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.

 

HHT – Immuno Biology Page 3 of 5
 NRC Ref. #: A-0043224 (orig. A-0035546) 

 

 

 

SP-9If a surplus of prepayment remains as a result of premature termination, it will be refunded to Collaborator.
  
SP-10If an instrument tendered in payment or settlement of an amount due to the NRC is dishonored for any reason, the NRC will invoice an additional administrative charge of CAD 25 and this amount will be due as invoiced.
  
SP-11Interest 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.)

 

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HHT – Immuno Biology Page 4 of 5
 NRC Ref. #: A-0043224 (orig. A-0035546) 

 

 

 

STATEMENT OF WORK AND DELIVERABLES

***

 

HHT – Immuno Biology Page 5 of 5
 NRC Ref. #: A-0043224 (orig. A-0035546) 

 

 

 

Exhibit 10.5

 

SIF Project No. 812-815774

Amendment No. 1

 

[***] Certain information has been excluded pursuant to Regulation S-K, Item 601(b)(10)(iv) from this Document because it is both not material and is the type that the registrant treats as private or confidential.

 

STRATEGIC INNOVATION FUND

 

AMENDMENT AGREEMENT NO. 1

 

This Amendment Agreement made

 

Between:

 

HER MAJESTY THE QUEEN IN RIGHT OF CANADA,

as represented by the Minister of Industry

 

(the “Minister”)

 

And:

 

Variation Biotechnologies Inc., a corporation duly incorporated under the laws of Canada, having its head office located at 310 Hunt Club Road Suite 201, Ottawa, Ontario K1V 1C1.

 

(the “Recipient”).

 

And:

 

VBI Vaccines Inc., a corporation duly incorporated under the laws of British Columbia having its head office located at 222 Third Street, Suite 2241 Cambridge, Massachusetts 02142 and an office located at 310 Hunt Club Road Suite 201, Ottawa, Ontario K1V 1C1

 

(the “Guarantor”)

 

Each a “Party” to this Amendment Agreement and collectively referred to as the “Parties”.

 

 

 

 

SIF Project No. 812-815774

Amendment No. 1

 

RECITALS

 

WHEREAS

 

A- The Minister, the Recipient and the Guarantor entered into a contribution agreement dated September 16, 2020 under the Strategic Innovation Fund for which contribution was issued. The contribution agreement is referred to as the “Contribution Agreement”;
   
B- The Minister, the Recipient and the Guarantor have agreed to amend, inter alia, the project completion date, the statement of work, and foreign cost locations under the terms of the Contribution Agreement.

 

NOW THEREFORE in consideration of their respective obligations set out below, the Parties hereto acknowledge and agree as follows:

 

Interpretation

 

1. All capitalized terms not otherwise defined herein have the same meaning ascribed to them in the Contribution Agreement.

 

Execution

 

2. This Amendment Agreement must be signed by the Parties and received by the Minister within thirty (30) days of its signature on behalf of the Minister, failing which it shall be null and void.

 

2

 

 

SIF Project No. 812-815774

Amendment No. 1

 

Amendment

 

3. Section 2. Interpretation - shall be amended by deleting the definition of “Project Completion Date” in section 2.1. Definitions, and replacing it with the following:

 

““Project Completion Date” means December 31, 2023.”

 

4. Section 6. Special Conditions - shall be amended by deleting section 6.4 Work Outside of Canada and replacing it with the following:

 

6.4 Work Outside Canada

 

In consideration of the Minister providing the Contribution, subject to the costs to be incurred as specified below, the Recipient may incur up to *** percent (***%)  of Eligible Supported Costs outside of Canada to *** . Any costs above this threshold will be considered ineligible and will not be subject to claim.

 

The Recipient will make best efforts to conduct all clinical trials in Canada unless *** 

 

The Parties acknowledge ***  and the Recipient’s preferred solution is to have the work conducted by Resilience Biopharma, a Canadian manufacturer as outlined in Schedule 1 – Statement of Work. In the event that ***  , the Recipient has developed *** All *** or *** taking place outside of Canada must be clearly identified within Schedule 1 - Statement of Work . Any change to the Statement of Work is subject to Ministerial consent, as per Subsection 6.6, which will not be unreasonably withheld.”

 

5.Schedule 1 – The Statement of Work (SOW), of the Contribution Agreement, section 2 (Activities), Forms A(Master Schedule), B(Milestones), C1 (Eligible Cost Breakdown), C2 ( Estimated Cost Breakdown by Fiscal Year) and D (Project Locations) are hereby deleted in their entirety and replaced with the new section 2 Activities, and Forms A, B, C1, C2 and D attached hereto as Annex A.

 

3

 

 

SIF Project No. 812-815774

Amendment No. 1

 

General

 

6. Each of the Parties shall, at the request of the other Party to this Amendment Agreement, execute such documents and do such acts as may be reasonably required to carry out the terms of this Amendment Agreement.
   
7. This Amendment Agreement may be executed in as many counterparts as are necessary, and when executed by all Parties hereto, such counterparts shall constitute one agreement.
   
8. Except as amended by this Amendment Agreement, all of the provisions of the Contribution Agreement shall continue in full force and effect until such time as the Contribution Agreement is terminated.
   
9. The Contribution Agreement and this Amendment Agreement will henceforth be read together and will have the effect as if all the provisions of such agreements were contained in one instrument.
   
10. No modification, supplement or amendment to this Amendment Agreement shall be binding unless executed in writing by all of the Parties hereto.

 

[Remainder of this page intentionally left blank]

 

4

 

 

SIF Project No. 812-815774

Amendment No. 1

 

IN WITNESS WHEREOF the Parties hereto have executed this Amendment Agreement through duly authorized representatives.

 

HER MAJESTY THE QUEEN IN RIGHT OF CANADA

as represented by the Minister of Industry

     
         
Per:  /s/ Dina Kalogeropoulos   Date: March 15, 2022
Name: Dina Kalogeropoulos    
Title: Director,      
  Investment Operations Directorate      
         
Variation Biotechnologies Inc.      
         
Per: /s/ Adam Buckley   Date: March 16, 2022
Name: Adam Buckley    
Title: Senior Vice President, Business Development      
         
I have authority to bind the Corporation.      

 

5

 

 

SIF Project No. 812-815774

Amendment No. 1

 

VBI Vaccines Inc.      
         
Per: /s/ Jeff Baxter   Date: March 28, 2022
Name: Jeff Baxter      
Title: Chief Executive Officer      
         
I have authority to bind the Corporation.      

 

Attachment: Annex A

 

Annex A

 

Revised Statement of Work

 

[Omitted]

 

6

 

 

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: May 9, 2022  
   
  /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: May 9, 2022  
   
   /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 March 31, 2022 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: May 9, 2022  
   
  /s/ Jeffery 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 March 31, 2022 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: May 9, 2022  
   
  /s/ Christopher McNulty
  Christopher McNulty
  Chief Financial Officer and Head of Business Development
  (Principal Financial and Accounting Officer)